Rovi Reaches Settlements of Patent Infringement Suits with LG, Hulu
The suits involving Vizio and LG followed the expirations of patent license agreements. The LG pact lapsed in November 2011. Rovi also filed an ITC complaint against LG that was headed to a hearing in Q2, company officials said. Rovi had forecast getting $40 million from the various settlements, the bulk of it in the second half, Chief Financial Officer Peter Halt said. Most of the proceeds from the litigation will come from LG, which signed a broad pact and also renewed a DivX pact, company officials said. While the Hulu agreement isn’t a “significant deal” in revenue, it’s an important “proof point” in Rovi’s efforts to get licensing agreements with over-the-top service providers, CEO Thomas Carson said.
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"We know that people have been watching to see what would happen with Hulu and a couple other over-the-top providers who decided to litigate,” Carson said. “In terms of re-establishing momentum in the over-the-top space, we believe having Hulu acknowledge the validity of our patent will help us set the stage for further” agreements” with other service providers. In seeking licensing contracts with over-the-top companies, Rovi considers the amount of use an app gets as well as page views to arrive at a value, Carson said. The most recent of the patents in the cases were granted in 2012 to Rovi subsidiary StarSight Telecast and described an interactive PC system for providing TV schedule information. Rovi, then known as Gemstar Development, merged with United Video in buying TV Guide in 2000 and acquired StarSight in 1997.
Rovi also has licensing agreements with EchoStar and Comcast that come up for renewal in 2015 and 2016, analysts have said. Rovi signed pacts with EchoStar and Comcast in 2003-2004 when there “weren’t that many things that were applicable in our patent portfolio” and a lot of the “functionality that’s existing today wasn’t in play then,” Halt said. Comcast formed the Guide Works joint venture with Gemstar in 2004 and developed the iGuide electronic program guide. The companies later parted ways with Comcast taking over Guide Works.
Rovi’s deployment of TotalGuide xD with cable operators is moving faster than expected, while those of TotalGuide for set-tops are “a little bit slower” due to “third-party dependencies,” Carson said. TotalGuide xD, a downloadable app that allows channels to be tuned from a smartphone or tablet, was introduced with Canadian cable operator Cogeco in March with remote recording capability (CED April 3 p6), and two other service providers are expected to submit apps to the iTunes stores in Q2, Carson said. BendBroadband and Armstrong Cable began trials with TotalGuide xD a year ago. There were 1,000 downloads of the TotalGuide xD app for iPad before Cogeco announced availability, Carson said. Mediacom, Buckeye Cable, Blue Ridge Communications and Suddenlink also have TotalGuide xD agreements with Rovi in addition to Armstrong, BendBroadband and Cogeco.
The rollout of TotalGuide for set-tops has been much slower, with deployments with cable operators postponed to the second half from the first half, company officials said. BendBroadband and Charter Communications had been in trials with TotalGuide, and Rovi had delivered the guide to set-top manufacturers Motorola and Pace in 2011. Rovi gets $1 per month per subscriber, while it gets 25 cents for TotalGuide xD, Halt said. TotalGuide xD is an “easier deployment and development cycles are shorter” than those for the set-top TotalGuide, Carson said. Among cable operators “there’s going to be a lot more emphasis on doing products like xD that are connected in the service provider space,” Carson said. “We think in the long term, this is a good revenue opportunity,” Carson said.
Rovi is finding that TotalGuide is a “hard deployment” for set-tops because the “testing criteria within the service provider is very high,” Carson said. Also at the cable operators’ head-end “you have to do a lot of integration with other third-parties,” he said. With TotalGuide for set-tops there are a lot of “people involved that you to try and manage,” including the cable operators and third-party developers, Carson said.
Rovi’s Q1 net loss widened to $25.7 million from $4.6 million a year earlier, as it incurred a $25.3 million pre-tax loss on the Rovi Entertainment Store, its video streaming platform that’s being positioned for sale. The Rovi Entertainment Store, which provides the platform for Best Buy’s CinemaNow and Dish Network’s Blockbuster-on-Demand, had a decline in Q1 revenue to $3 million from $3.26 million a year ago, the company said. After initial discussions with potential buyers for Rovi Entertainment Store, Rovi also determined a $16 million impairment was required for the platform’s goodwill to cut its carrying value, Rovi said.
Rovi’s Q1 revenue slid to $154.7 million from $171.7 million a year earlier due largely to declines in CE video delivery, “continuing DivX headwinds” and a decline in analog copy protection revenue to $15.4 million from $16.7 million. CE video delivery and display sales plunged to $21 million from $37.4 million a year earlier amid a “significant” decrease in DivX-related revenue. Rovi had several DivX licensing agreements up for renewal this year, but has reached a pact with LG and expects to secure a second with another company in Q2, company officials said. DivX has introduced version 9.0 of its software and expects to move quickly to DivX 10, which adds support for high-efficiency video coding.
Rovi’s service provider sales rose to $79.7 million from $79.3 million, while those from CE discovery and advertising improved to $38.4 million from $38.1 million. Rovi also acquired IntegralReach Corp. in Q1 for $10 million, adding software for analyzing large amounts of data to its Return Path Data platform, company officials said. Return Path is designed for audience measurement that can be used in creating ads for its interactive program guides. Rovi also licensed its metadata for movies, TV shows and others programs to Facebook. While the Facebook deal is “relatively small” compared to Rovi’s total revenue, it gives the company expanded reach with social networks, Carson said. Facebook also will make a “small set” of Rovi’s video and DVD data available to third-party developers for creating apps for interacting with entertainment content, he said.