Gemstar-TV Guide Closes Deal With DirecTV

Gemstar-TV Guide International Inc. has closed its third major deal with a distributor in the past two months, by crafting a wide-ranging distribution and licensing agreement with DirecTV Inc.

Under the agreement unveiled last week, the direct-broadcast satellite provider will launch the TV Guide Channel and use Gemstar's technology and TV Guide brand for its own interactive program guides.

Under the pact, DirecTV will roll out TV Guide Channel on its "Total Choice" tier, its most widely distributed programming package, reaching roughly 12 million subscribers during the first quarter next year. The agreement will pump TV Guide Channel's distribution up to roughly 70 million.

"We've been evangelizing that TV Guide Channel has a role in the digital world, because there are some people who just don't like pressing buttons," said Jeff Shell, CEO of Gemstar-TV Guide. "And there's a need for a channel that in a video way helps people sort through a myriad of options … Digital consumers watch TV Guide Channel. DirecTV agreeing to carry the channel on Total Choice is a total validation of that."

In addition, the new agreement will provide DirecTV with a patent license that allows it to use Gemstar-TV Guide's intellectual property and technology for its own IPG, or in alternative IPG products supplied by its vendors, starting in January. DirecTV can also use TV Guide's name for its IPGs across its subscriber base.

Gemstar-TV Guide will be compensated by DirecTV, rather than continuing to receive fees from the direct-broadcast satellite company's set-top suppliers. So instead of getting a one-time, per-box fee from set-top makers, Gemstar will get paid a per-subscriber recurring fee from DirecTV, in the way a distributor typically pays a license fee to carry a network, according to Shell.

In the past two months, Gemstar-TV Guide has done agreements with for its interactive guides, technology and products with two MSOs, Insight Communications Co. and Time Warner Cable.

"The structure we did with Time Warner is largely the same structure we did with DirecTV, which allows flexibility them to do their own guide and integrate pieces of our technology," Shell said. "This validates the business model we're out there pitching."

Shell wanted to have the agreement with DirecTV done before the DBS provider was purchased by News Corp., which also owns a 43% stake in Gemstar.

"Symbolically, it was important for us to try to get a deal done before News Corp. finishes its acquisition," Shell said. "After the acquisition, not only would it be too complicated from a related-party transaction [standpoint], but we wanted DirecTV to understand the value of what we were bringing … We're pretty pleased we could reach an arrangement that was third-party, arm's-length, that everybody feels comfortable with."