Macrovision seeks to own digital TV gateway with Gemstar purchase

A company known more for its digital rights management technology, and which just last month purchased not only the BD+ DRM scheme outright but also a larger stake in set-top boxes, is about to become the publisher of TV Guide.

Macrovision, whose history extends back to the famous "Macrovision stripe" that made copying of VHS tapes such a pain in the 1980s, announced this morning its intent to purchase Gemstar, the technology company that happens to publish TV Guide. It's probably not the magazine that Macrovision is interested in, but instead the nation's leading brand in program scheduling -- a brand that's found on many STBs today, and will now likely be found on more.

Gemstar chairman Anthea Disney indicated the potential sale of the company in a statement earlier this year, saying the it was exploring strategic alternatives to increase the value of the company to shareholders. At that time, Comcast was believed to be the most likely bidder.

Currently, Gemstar is the producer of Guide-Plus TV scheduling software, which is distributed with ATI TV tuner cards. It's also one of the world's largest patent holders for electronic program guides, perhaps the key function (besides actually tuning in programming) for which viewers actually need an STB. It's businesses such as these which mean far more to Macrovision than the publication of what a quarter-century ago was the newsstand's most valuable brand.

But Gemstar's problem to date has been being able to profit from licensing both its IP and its TV Guide brand to STB manufacturers. Macrovision has a bigger deal in mind, by creating something it called two weeks ago its "Connected Platform." It says it's already made big deals in licensing that platform -- deals which may have included investments of its own.

So what Macrovision is seeking is a catbird seat at the spot where the rabbit ears used to go: owning the gateway to the digital TV, with rights to both the interactive channel changer, the scheduling mechanism that could be leveraged for DVRs, and the DRM technology that governs what you can tune to, what you can copy, and how long you can see what you've downloaded.

As recently as 2000, both News Corp. chairman Rupert Murdoch and Liberty Media chairman John Malone shared stakes in Gemstar, each believing they had the key to the future...and each wanting a bigger key than the other had. In the end, it was Murdoch who bought out Malone's slice of that key. But like many other publishers who didn't understand the technology end of the business, he gave up his majority stake, leaving News Corp. with 41% of Gemstar as of last week.

Today's announced sale converts each share into $6.35 cash or a .2548 of a share of Macrovision stock. News Corp. was reported to have purchased Gemstar for approximately $2.8 billion, the aggregate value of the sale of Gemstar based upon the closing price for Macrovision stock on December 6, 2007...is $2.8 billion. Macrovision says it will have to raise $800 million in new debt in order to pull this deal off.

News Corp. may (or may not) continue to be a stakeholder in Macrovision. If it retains the shares it holds now, it will end up being a 19.3% stakeholder in the new venture, and News Corp. is rarely a 20% stakeholder in anything for long.

In addition, the fact that this sale is taking place at all is indicative of Murdoch's likely strategy to pare down its interest in technologies his corporation can't quite marshal. Almost a year ago, News Corp. sold its stake in DirecTV to Liberty, after Murdoch publicly dissed satellite service in the US as a "turd bird."

Prior to News Corp.'s investment, Gemstar shares were valued as high as $76. Today, those shares took a 16% dive in active trading, while Macrovision shares plummeted 26% in value.

This acquisition puts Macrovision on the path toward providing a multi-platform video solution. Earlier this year, the company licensed its DRM technology to Netflix, BitTorrent, Movielink, and Instant Media, and more recently acquired Blu-Ray's BD+ encryption from Cryptography Research Inc.

With the addition of Gemstar's technology and the TV Guide brand to its portfolio, Macrovision could conceivably provide the rights protection to the downloaded, the on-demand, the leased/rented, and even the hard copies of movies, and then offer an interactive guide for locating them.

The print version of TV Guide, however, continues to be viewed as a sinking ship, having already been the victim of false rumors last July that Gemstar was shutting it down.