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Gemstar gets stronger with TV Guide buy

The market for interactive television takes another interesting turn, with Gemstar International announcing it will buy TV Guide for about $9.2 billion.

    The market for interactive television took another interesting turn today, with Gemstar International announcing it will buy TV Guide for about $9.2 billion in stock and debt to strengthen its position in the race to provide electronic program guides.

    Gemstar, known for its VCR programming technology, is expanding into new markets with the acquisition of TV Guide. While TV Guide is best known for its print publications, it also operates a fast growing and popular service called TV Guide Interactive that holds significant strategic importance for Gemstar.

    TV Guide Interactive is an "electronic programming guide," or EPG, which lets viewers check listings by time, channel, category, or name, and use the service for such conveniences as scanning program schedules in advance. While such uses sound simple, they present enormous business opportunities as the EPG becomes one of the most-used applications in the digital TV set-top boxes that are being developed and deployed by cable companies.

    "The electronic programming guide is going to be the TV portal to any of the interactive stuff that is to come," said Leslie Ellis, analyst with Paul Kagan Associates.

    These guides are important because they will be the equivalent of Web browsers for cable and satellite TV, allowing consumers to navigate an increasingly complicated array of program choices. They are cited by consumers as the most popular reason to subscribe to the new digital TV offerings from cable companies.

    As such, EPGs are a significant piece of screen real estate to control, especially as cable companies start to use these guides to offer viewers the ability to buy merchandise related to ads or shows they've seen.

    "The combined company will have the technology, sales force, and advertiser customer base to be well positioned to compete in these highly competitive areas of advertising and e-commerce on a global basis," said Joe Kiener, chairman and CEO of TV Guide, in a prepared statement.

    Ellis said TV Guide already has agreements to use its EPG with the majority of cable operators, including AT&T. There are about 2.3 million users of TV Guide's EPG currently, and that number is growing rapidly as cable operators deploy digital cable services to more communities. TV Guide also has 28 million viewers of its older TV Guide Channel service, which isn't interactive, over 73,000 visitors to its online site, and 34 million readers of its magazine publication.

    Gemstar, meanwhile, has solid hooks into the consumer electronics industry. Its technology has been licensed to most major TV and VCR makers and is available on a worldwide basis.

    This combination could make it harder for other companies competing in this space--including Microsoft, with its WebTV offering, America Online, and Excite@Home--to get their technology into next-generation digital TVs and cable set-tops.

    The move also puts battles over technology standards for digital television in a different light. Consumer electronics and cable companies have been wrangling over issues such as passing digitized data from a cable set-top to a TV set. The new company, called TV Guide International, has an opportunity to become a bridge between the two groups--and to profit from that position.

    Gemstar said TV Guide shareholders will get 45 percent of the newly combined company. The acquisition price represents a 32.4 percent premium for TV Guide's shares, based on Friday's closing price of 41.05. Gemstar also will assume $600 million in debt to pay for the transaction.

    Gemstar chief executive Henry Yuen will hold the same position in the new company. The board of directors will be expanded to 12 members, with six appointed by each company.

    Gemstar said the combined company will have revenues in excess of $1.5 billion and yearly earnings of $400 million.

    Trading in both companies was halted prior to the announcement of the acquisition. TV Guide closed at 41.56, up slightly. Gemstar gained 4.06 on the day to 87.68 before trading was stopped.

    Bloomberg contributed to this report.