GEMSTAR NARROWS LOSS, THOMSON MAKES PAYMENT

Thomson’s payment came as it signed new licensing agreement in 2nd quarter for TV Guide on Screen, replacing previous pact that carried upfront fee and unit volume requirements with one that charges per unit royalty. Thomson halted royalty payments to Gemstar last year as it sought to resolve dispute that also included arbitration claim filed in late 2001. Thomson’s ties to Gemstar stem largely from its investment in StarSight, which Gemstar acquired in 1997. Thomson initially signed accord in late 1990s that required it to ship 30 million TVs with Guide Plus over 10-year period. In addition to new licensing terms, Gemstar overhauled interactive program guide (IPG), move that landed it new pacts with Philips, Samsung, Sharp and TiVo, as well as Thomson. Separately, Gemstar said satellite license fees jumped $14.4 million, due largely to $15.2 million settlement that was offset by $800,000 decrease from reduced sales of set- top boxes and nonpayment of license fee by manufacturer.

Gemstar’s CE licensing business reported revenue decline to $30.9 million from $37.7 million year ago as earnings before interest, taxes, depreciation and amortization (EBITDA) dropped to $16.4 million from $22.3 million. Downturn stemmed partly from $20.9 million drop in revenue from VCR Plus technology, which has seen decline in U.S., but maintains presence in international markets, CFO Brian Urban said in conference call late last week.

In cable and satellite segment, Gemstar said sales fell to $87.9 million from $104.4 million as EBITDA slipped to $33.5 million from $43.1 million. Sharpest decrease came in Superstar/Netlink C-band satellite business, where revenue declined $16.4 million as number of subscribers shrank to 295,000 from 321,000 in first quarter, 436,000 year ago. Under agreement with EchoStar, Superstar shifted 17,000 subscribers to DBS service in quarter. TV Guide Interactive, which targets cable systems, posted $2.8 million decline in revenue and TV Guide Channel also struggled as subscribers declined to 56.1 million from 56.4 million in first quarter. Cable guide is being revamped with new version expected to be released in early 2004, company said. Gemstar also is moving to make TV Guide Channel “more relevant in the digital environment” and position it as the “video guide to what’s on” TV, CEO Jeffrey Shell said, noting that first evidence of change would come in fall. New version of channel also is designed to make it more attractive to satellite services, Shell said.

Publishing revenue slid to $107.1 million from $117.1 million on continue declined in subscription and news stand sales. EBITDA rose to $7.5 million from $6.3 million despite Gemstar’s taking $600,000 charge to close its electronic books business, which had $2 million operating loss in quarter, Urban said. Gemstar expects to receive another $1.3 million in licensee fees related to its eBook group through end of year. Gemstar pushed into electronic books business in late 1990s with acquisition of Softbook Press and others, but category failed despite product support from Thomson.

Gemstar will introduce redesigned print version of TV Guide in Sept. and subscriptions are expected to increase by 4th quarter for first time in many years, Shell said. Gemstar has said it will spend $20 million on publication this year, which included $1.3 million in 2nd quarter. Gemstar’s Skymall catalog group said sales increased in quarter to $12.5 million from $10.9 million and company postponed planned sale of business in July after failing to come to terms with potential buyer.

In quarter, Gemstar also made $5.7 million payment to Justice Dept. to settle antitrust allegations stemming from acquisition of TV Guide in 2000. It also paid $3.2 million in termination and release from agreement with Fantasy Sports, group that was involved in controversial barter agreement with TV Guide under prior management. Gemstar’s legal expense rose $12.4 million in quarter to $21.6 million, level that’s expected to continue in 3rd quarter as it pursues patent infringement claims against EchoStar, Scientific-Atlanta (S-A), others. Gemstar suffered major blow last year when ITC found that EchoStar and others hadn’t infringed on its IPG patents, but case remains pending in U.S. Dist. Court, Atlanta. Gemstar also is involved in SEC investigation involving founder and former CEO Henry Yuen and CFO Elsie Leung, who have been charged with fraud. Yuen was fired along with former CFO Elsie Leung last fall as News Corp., which has 43% controlling stake in Gemstar, pushed for new management.