Gemstar Guides Charter To Sign 10-Year IPG Deal

Gemstar-TV Guide International Inc. gave WorldGate Communications Inc. executives about four days to celebrate record earnings and program-guide distribution news before breaking up the party last week.

On Tuesday, Gemstar announced a 10-year interactive program guide licensing deal with Charter Communications Inc. The MSO plans to offer TV Guide Interactive to most of its digital cable subscribers.

The deal boosted Gemstar's stock and had the opposite effect for WorldGate. It was also a bit of a surprise, given that Charter was one of the four MSOs that formed the TVGateway IPG consortium with WorldGate last summer in order to compete with Gemstar's IPG.

Charter had recently replaced TV Guide Interactive with TVGateway in several systems, which added to the surprise.

Although Charter executives insisted last week that they don't plan to abandon the TVGateway consortium, they acknowledged TV Guide Interactive would be the company's dominant IPG going forward.

In its fourth-quarter earnings report, WorldGate disclosed that it shipped 400 TVGateway headend servers, including an undisclosed number of servers sent to Charter systems. But the MSO doesn't plan to ask WorldGate for a refund, now that it's in bed with Gemstar, said executive vice president Steve Schumm.

"We're not shipping anything back to WorldGate, and we will be using the TVGateway IPG on a number of systems," Schumm said.

The Gemstar agreement marks the first major deal the company has signed since it completed its merger with TV Guide last summer. In addition to AT&T Broadband, Charter is the only major MSO that has signed a long-term IPG licensing deal with Gemstar.

"The agreement has significant financial incentives for Charter to deploy TV Guide in the substantial majority of their homes," Gemstar-TV Guide co-president Peter Boylan said in a conference call last week. "And we believe, based on our conversations, that's what they intend to do so."

Gemstar will keep 85 percent of advertising revenue that it generates from the IPG, while Charter will get 15 percent, Boylan noted. The companies will split commerce revenues evenly.

In addition to set-tops from Motorola Broadband Communications Sector, Charter plans to deploy TV Guide Interactive on Scientific-Atlanta Inc. set-tops and drop S-A's native "Sara" IPG, Boylan said. Gemstar expects to complete tests of TV Guide Interactive on the S-A platform "in the next two quarters, if not sooner," he added.

Gemstar has been known for its tough negotiating stance with MSOs, its near monopoly on IPG patents and an unwillingness to integrate its IPG with other interactive applications, such as video-on-demand. But Gemstar CEO Henry Yuen extended an olive branch to the industry during the conference call.

"The deal announced today did clarify one thing: Gemstar is here to do business with the cable industry, not battle," Yuen said.

WorldGate CEO Hal Krisbergh said the timing of the announcement surprised him. But he said expected that Charter and the other TVGateway partners (Comcast Corp., Adelphia Communications Corp. and Cox Communications Inc.) would continue to do business with Gemstar to some extent.

"What you really have here is an acknowledgement from TV Guide that they're willing to live in that competitive environment. This is not an exclusive agreement, which I think is what they had hoped for," Krisbergh said.

Gemstar's only other major long-term deal, with AT&T Broadband, is an exclusive arrangement.

Despite its exclusive contract with Gemstar, AT&T launched TVGateway in Cedar Falls and Waterloo, Iowa, last fall. The MSO wanted to launch WorldGate's Internet television service, and Gemstar allowed it to use the competing guide because it hadn't finished integrating TV Guide Interactive with WorldGate's Internet service.

But the two AT&T systems switched back to TV Guide Interactive earlier this month, after the integration work was completed.

AT&T told subscribers they were returning to the guide not because of contractual issues. Rather, the company said it was responding to subscriber feedback, according to a letter that Waterloo/Cedar Falls general manager Randy Brown sent to subscribers.

"We learned that many of you preferred the first version of your on-screen program guide that allowed you to set reminders and order pay-per-view movies in advance. So we're returning to a TV Guide on-screen program guide format that's more like the one you used to have," Brown wrote.

The next release of TVGateway, expected in a few months, will have a feature that allows users to set reminders, spokesman Jim Boyle said.

"Pay-per-view in advance is not an issue that we see as a critical component of a guide," he added.

Gemstar's stock price increased last week following the Charter announcement. After jumping 15 percent, Gemstar closed at $46.50 on Feb. 20, the day of the announcement. It gained more than $1 from the previous close, and closed at $50.18 on Feb. 21.