IPGs waiting for their day in court

What do a ritzy Atlanta strip club, John Gotti Jr., a star-studded roster of pro athletes, and the status of cable operators' ability to deploy interactive program guides and other advanced services have in common? They're all at the mercy of a federal court that has pushed back one of the most important trials in cable history—a patent lawsuit brought by Gemstar against several of its IPG rivals—in order to hear the salacious tales of the Gold Club.

In sports, not too many fans go around shouting, "We're number two!" But, in the world of IPGs, the outcome of the patent suit could decide who is best-positioned to play the lucrative role of second banana to Gemstar, an 800-pound gorilla that believes its more than 300 U.S. patents give it a legal monopoly. Cable operators desperately want a second company to provide leverage against Gemstar, a notoriously hardball negotiator. So assuming Gemstar doesn't get its way in court, who is well-positioned to become the IPG version of Avis?

Conventional wisdom says that honor will fall to TV Gateway, a consortium of four cable operators and Worldgate Communications, which MSOs formed last summer to use as a negotiating wedge against Gemstar. Gateway has the momentum, with three deployments by Comcast and a recent commitment from Charter Communications, both of which are Gateway partners. The others are Adelphia Communications Corp. and Cox Communications.

Operators like that the Gateway guide offers them a middleware solution on their digital platforms. MSOs close to Gateway say the MSO owners will keep feeding business to prop up the company. Plus, at presstime, Gateway was expected to announce a non-exclusive deal for distribution on AT&T Broadband's Headend-in-the-Sky platform (although not to AT&T systems).

And MSO backers insist their attorneys have determined that Gateway is "bulletproof" against potential Gemstar patent litigation. "This was done in great diligence to try and create a product that didn't infringe on anyone. Charter isn't particularly worried about it," says Charter Executive Vice President Steve Schumm.

However, the main rap against Gateway is a universal opinion that its initial product was slow, unattractive and clunky. Worldgate was really a middleware company that whipped up an IPG in response to operators' need for a quick Gemstar hedge. Operators also got some favorable terms in its deal from the cash-strapped Worldgate.

Reports (that Gateway does not explicitly deny) circulate that the company has sniffed around its rivals. "We're interested in all technologies being developed today," says Gateway General Manager Peter Mondics, dismissing such talk as "premature."

In fact, sources in the IPG industry said at press time that Gateway is in talks with VOD provider Diva Systems to buy Diva's guide because of the company's potential patent portfolio for its IPG. Neither company would confirm the talks, and Diva has not filed any patents.

But Gateway is touting the forthcoming rollout of an upgraded IPG, which it will demo at the NCTA Show this week, for which its MSO partners are giving high marks. "We're getting a very positive reaction [to the new guide]," Schumm says. "A lot of those issues are behind us." And another upgrade by year's end will be "very fast with a lot of changes, look-and-feel changes," according to another operator close to Gateway.

But Gateway's rivals aren't folding their hands just yet. For now, Time Warner Cable is committed to Scientific-Atlanta and Pioneer New Media Technologies. Also up for grabs are all the operators smaller than Adelphia, including Cablevision Systems, which has made no guide decisions yet for its Sony platform. Besides patent issues, operators say they're basing decisions on how much memory the guides use in the set-top, cost, viability and technology/user-friendliness.

Here's how the other Gemstar pursuers stack up:

Source Media has the backing of Insight Communications. It was in the right place at the right time two years ago when the operator needed a server-based guide that wasn't a memory hog, says Pam Euler Halling, Source's senior vice president of marketing and programming.

Source touts its track record. It's in five systems and 150,000 homes, including AT&T in Boston—a legacy from a deal Source cut with the system's prior owner, Cablevision Systems Corp. "It's very intuitive, easy to navigate, and the look-and-feel is good," Halling says of Source. "It's a nice-looking guide."

But the Dallas-based company is cash-strapped and has been delisted by NASDAQ. It's in the process of restructuring and has several strategies in mind for emerging with a clean balance sheet: conduct a debt-for-equity swap in which debt holders exchange their debt for equity in the company; pursue a strategic investment from an industry or financial player; and get sold. "We have a business plan," says Source Senior Vice President Lawrence Brickman.

Scientific-Atlanta's SARA guide, native to the S-A Explorer digital set-tops, gets high marks throughout the industry. Time Warner Cable and Cox both use it, as does Adelphia, although that MSO could switch to TV Gateway.

SARA is interesting because S-A is not selling it as a stand-alone box. Instead, the guide is embedded in its set-tops, which makes its business model different from most of its rivals'. As with other "native" IPGs, customers can launch interactive applications such as video-on-demand or e-mail right from the guide. Moreover, Dave Davies, director of marketing and business development, says SARA "has plenty of memory for applications."

But SARA can't get too big a foothold because many operators with deep Motorola set-top penetration won't use it even in their S-A set-top deployments. Also, besides its potential patent problems, S-A has another worry: AOLTV has cut an exclusive deal with Gemstar, and industry executives believe Gemstar will seek to extend that arrangement to IPGs, which meanins that S-A would lose Time Warner. S-A declined to comment.

Pioneer's guide is part of its Passport digital application suite that also supports video-on-demand and other interactive features. Like S-A, its guide is embedded in the company's own Voyager set-top, although, unlike S-A, the Burbank, Calif.-based Pioneer sells its suite on other platforms.

Pioneer claims to have shipped more than 2 million copies of Passport and says that Time Warner Cable, Cox Communications and several small MSOs have deployed its IPG.

Pioneer and S-A have somewhat parallel features (both boast of the ability to see the video on-screen while browsing their guides). That's no coincidence since Time Warner is using both IPGs.

The newcomer is iSurfTV, which recently signed a non-exclusive deal with the National Cable Television Cooperative to get access to the group's 13 million small operators homes. The Sunnyvale, Calif.-based iSurfTV has garnered attention for two reasons: Its deals are based on software models rather than the usual cable-vendor relationship; and it has a multimedia guide that incorporates video "with some sophisticated searching methodology," says President and CEO Gene Feroglia. Still, iSurfTV is lower on the radar than its rivals and, unlike the others, has not yet been deployed.

With the jocks and strippers having taken over federal court, the Gemstar patent case could get its first hearing before an International Trade Commission magistrate in December. The judge could bar companies whose guides come from overseas (Pioneer, S-A and DBS provider EchoStar Communications) from importing them. But the ITC judge can't impose damages, so, once the strippers have left Atlanta, the feds could still weigh in on whether to punish any of Gemstar's rivals.