Gemstar TV Guide's Shell Has 'A Lot of Work to Do' More IPG

Cable World, Nov 18, 2002

Byline: MAVIS SCANLON

Gemstar TV Guide-International cleared one big hurdle last week when it averted a stock delisting. But consider that just the first hurdle in a 10,000-meter event. Of the challenges that lie ahead, one of the more significant will be to improve its interactive program guide - and convince more cable operators to use it.

CEO Jeff Shell would like to make the IPG a must-have for MSOs such as Time Warner and Cox, which now use competing guides. After all, the more systems that use it the better for Gemstar's ailing bottom line.

Shell also has to shore up his management team beyond the recent appointments of Ray Hopkins of Fox Cable to head affiliate relations, John Loughlin to remake TV Guide and Gloria Dickey as head of administration. He now needs to find a CFO, a crucial hire for rebuilding confidence on Wall Street.

Shell must also beef up his licensing division and make some of the company's previously overlooked businesses - such as TV Guide Channel - shine. And all this in the shadow of an ongoing SEC investigation into accounting practices under Gemstar founder Henry Yuen, who on Nov. 7 received a fat payment to leave his operational role.

"The overall mission of the company is pretty simple," said Shell in an interview Friday. The News Corp. veteran served as COO for several months, since Gemstar's accounting troubles came to light, and took over as CEO when Yuen departed. "In the world we're in right now, more than ever people need guidance. What we want to be is an end-to-end set of guidance tools."

To that end, Gemstar is well situated, although, Shell said, "we have a lot of work to do." An imperative is to "professionalize" operations. He also plans to strengthen the licensing business and assign executives specifically to deal with the consumer electronics industry.

Stacy Forbes, an analyst at Janco Partners, said she is confident in Shell's ability to lift Gemstar's financial fortunes, even though it will be a long-term process. "Gemstar's new management team is focusing on the quality of its assets to make progress going forward," Forbes wrote in a research note, "and we believe this strategy will have a positive impact on financial results over time."

Analysts and investors have honed in on Gemstar's IPG business. Shell likened it to a cable network that starts with a compelling product, which helps to drive distribution, which leads to customer acceptance. "We need to be the best product out there," he said.

Gemstar already has distribution deals for the IPG with Comcast, Charter, Adelphia and AT&T Broadband, with Cablevision, Time Warner and Cox as the holdouts. The question is, what do the MSOs want from a guide, and what terms are called for in a contract?

"Life is long," said Cox SVP of strategy Dallas Clement. Cox uses the Pioneer Passport guide. "And I have absolutely no doubt that we will constantly be reevaluating our guide decisions," especially as new technology emerges. That said, he added, "it is a very big undertaking" and very disruptive to customers to switch their guide.

Before Cox signed its nonexclusive agreement with Pioneer, it tested and evaluated guides from Gemstar, Microsoft and WorldGate. With a change, not only must customers reorient themselves to different keystrokes on the remote, Clement said, they also must accustom themselves to a new user interface on the screen and different functionalities, such as recording programs.

So what would prompt a big MSO like Cox to switch guides? Of critical importance, Clement said, is that the customers are able to do what they want with the guide without any trouble. Also of critical importance are the terms and conditions of the business arrangement and how the guide company and the MSO are set up as a partnership.

That's where Shell said he is willing to work more than ever with operators. "We need to get distribution," he said, and so "we may have to change the economic proposition."

Under Shell, Gemstar also plans to leverage the TV Guide brand by bringing TV Guide Channel and TV Guide into deals for the IPG. He said there is a role for the TV Guide Channel in the digital world, especially for those viewers who shy away from fiddling with the remote.

What likely won't change are the long-term contracts Gemstar already has in place, since there are no provisions for renegotiating them. Shell said many of the companies Gemstar has IPG deals with are more concerned with how the product can work for customers. At Comcast, Gemstar is working on trying to integrate its SVOD offerings.

In the third quarter, Gemstar's total revenue fell 15.5% from last year's restated results, to $253.3 million. Operating cash flow fell 32%, to $62.5 million. The biggest revenue and EBITDA declines came from the technology and licensing segment. Revenue in that unit fell 25%, to $40.4 million, while operating cash flow declined 47%, to $19 million.

THE NEXT QUESTION:

*Will the SEC investigation unearth anything new?