Gemstar Buys Rival TV Guide

Gemstar International Group Ltd. trumped rival TV Guide
Inc. last week, buying the company that once attempted a hostile takeover of Gemstar.

Gemstar -- locked in a two-year-old patent-infringement
battle with TV Guide and predecessor United Video Satellite Group Inc. -- said last week
that it agreed to buy TV Guide for $9.2 billion in stock and assumed debt.

The deal, which should be completed in about nine months,
creates a dominant player in the emerging interactive-program-guide business with combined
revenue of $1.5 billion and cash flow of about $400 million.

Gemstar chairman Henry Yuen said the companies' close,
albeit unfriendly, contact over the past couple of years led to the marriage.

"I think we learned about each other
tremendously," Yuen said in a conference call with reporters.

TV Guide president Peter Boylan said that in the past, his
company did not feel that it needed a relationship with Gemstar -- primarily after its $2
billion offer to buy Gemstar last year was rebuffed. Yuen changed his mind, he added

"Henry did a good job," Boylan said. "The
more time we spent together, the more we recognized that the opportunity was there to do
things that couldn't be done independently. Henry is in the consumer-electronics
business, where we have no presence. We built an advertising-sales organization that does
$250 million a year in advertising sales."

The merger proposal came a little more than one year after
UVSG agreed to buy TV Guide in a stock transaction valued at about $2.5 billion.

TV Guide shareholders will get 0.6573 shares of Gemstar for
each TV Guide share. TV Guide's primary shareholders -- News Corp. and Liberty Media
Group -- each own 44 percent equity, and they will collectively own 45 percent of the new

Yuen remains chairman and CEO of what will be called TV
Guide International. Boylan will become co-president and co-chief operating officer, and
TV Guide chairman and CEO Joachim Kiener will be the other co-president and co-COO.

Boylan will run the cable IPG unit, while Kiener will run
TV Guide Entertainment.

Gemstar's stock has risen dramatically in the past few
months over hype about IPG potential as cable rolls out digital boxes. Yet it had minimal
IPG market share compared with TV Guide Interactive's 2.4 million cable homes.

Gemstar's success has been in consumer electronics --
licensing "VCR-Plus" technology for televisions, VCRs and set-tops. TV Guide
focused on MSO deals with the likes of Cablevision Systems Corp., Comcast Corp. and
AT&T Broadband & Internet Services.

Stephens Inc. analyst John Corcoran said that with the
deal, Gemstar has "effectively cracked open the cable nut."

While TV Guide was signing up MSOs, Gemstar was heading to
court. It currently has 11 federal patent-infringement lawsuits outstanding and two
contract-arbitration suits against companies such as Scientific-Atlanta Inc. and Pioneer
Electronics Corp.

But Gemstar did reach an arbitration settlement with
General Instrument Corp. regarding a breach of contract suit filed by Gemstar in 1992.
According to the agreement, GI will pay Gemstar between $25 million and $36 million in
compensatory damages and another $12.5 million to $17.5 million in punitive damages. A
patent-infringement lawsuit against GI is still pending.

Those lawsuits scared some operators away from picking
either IPG. Corcoran said he believes the TV Guide merger will eliminate much of that

"The TV Guide senior-management team has a very good
relationship with cable operators and equipment vendors," Corcoran said. "They
are going to play the role of peacemaker and broker a settlement between Gemstar and GI
that could turn into a licensing agreement."

Some cable executives welcomed the Gemstar-TV Guide merger
but said it's not clear what's in store for them.

"The real issue is that we haven't heard anything
yet on what the new deal will be for us. We are interested in what the terms will be for
carriage and what the product is from this new merged company," MediaOne Group Inc.
senior vice president of video Judi Allen said.

MediaOne had been in "active negotiations" with
TV Guide, and it had "some discussions" with Gemstar before the merger was
announced, but it held off on signing with either company, partly because of their legal
battle, she added.

"Getting legal protection from all of the
ramifications from the litigation was a big issue for us," Allen said, explaining
that before the merger announcement, MediaOne wanted to be indemnified if it signed with
either company.

Cable One Inc. CEO Tom Might said he was in final
negotiations with both Gemstar and TV Guide, but he didn't think the merger agreement
would affect his IPG plans.

"In fact, TV Guide was here on the day of the
announcement. It didn't influence my thinking at all," he added.

Steve Donohue contributed to this report.