The owners of TV Guide magazine have put a lot of time and money into rehabilitating its flagship digest. But analysts and some investors aren’t impressed by News Corp.’s print push since taking control of Los Angeles-based Gemstar-TV Guide International Inc.
There’s skepticism that the company can resurrect its aging flagship at a time when more TV viewers are getting their programming information online. And there’s particular hand-wringing over the recent launch of a celebrity-oriented sister publication, Inside TV.
“In a time where the world is moving from linear to digital, why have they been creating essentially two new magazines?” said Alan Gould, a longtime Gemstar shareholder and analyst at Natexis Bleichroeder Inc. “The magazines provide content for online services, but they cost a lot of money to publish.”
Gemstar, the largest maker of software for cable-TV program guides, sees new opportunities for growth in its cable, satellite and Internet businesses. So far, though, those have been offset by the financial drag of its flagship magazine.
The old TV Guide had been guaranteeing advertisers a 9 million circulation since 1999. The new, large-format, which hit the stands Oct. 17, will have a circulation of 4.5 million, but advertisers are being asked to only pay for 3.2 million. The newsstand price also dropped to $1.99 from $2.49, with comparable discounts for subscribers.
Advertising in TV Guide fell by $8.4 million in 2004, while subscription sales declined by $32.1 million, according to regulatory filings. Costs connected to the reformatting will contribute to operating losses of $110 million through 2006, although the company says that the changes will make the magazine profitable in about three years.
For now, the numbers are weak. Gemstar posted a second-quarter loss of $5.1 million, citing declining TV Guide circulation. (It reports third quarter results on Nov. 3) The stock has fallen more than 55 percent in less than a year, closing at $2.61 a share on Oct. 18.
Besides the troubled print division, Gemstar hasn’t yet recovered from a 2002 accounting scandal that cost about $80 million in shareholder settlements and regulatory fines. Gemstar’s ousted chief executive, Henry Yuen, pleaded guilty to federal obstruction of justice charges, and still face trial on charges of accounting fraud. Also, the U.S. Supreme Court turned down Yuen’s appeal of a Securities and Exchange Commission decision that froze $37 million in termination payments to Yuen, and the former chief financial officer, Elsie M. Leung. Yuen and Leung appealed the payment freeze.
Gemstar has shown promise in forming new technology partnerships, an area where analysts want to see more emphasis. Deals have been struck in a more cooperative climate with OpenTV Corp., satellite TV provider EchoStar Communications Corp., and cable providers Comcast Corp. and Time Warner Cable.
“I’d be more excited about them if they got into markets like video online and video-on-demand in an even bigger way,” said analyst John Tinker, who follows the company for ThinkEquity Partners LLC. “It’s a hard road they’ve chosen.”
Under Yuen, the company would often threaten lawsuits with customers. That’s been moderated with Rupert Murdoch’s News Corp. controlling around 40 percent of the stock, but the company remains vigilant. It sued Tribune Media Services Inc. for allegedly infringing on a separate patent for providing local television listings on the Internet. Tribune, which owns the Zap2It.com entertainment Web site, has declined to comment.
“They have to balance the value of their intellectual property versus the cost of defending that property,” Gould said. “I believe the current management is being more cautious about suing than the previous managers.”
Is it too late for Gemstar’s print franchise? The glossier new TV Guide still sandwiches local listings between slices of TV show profiles and short celebrity features, but now sacrifices its prime digest news rack space at supermarket checkout counters. It now must compete for shopper attention with equally celebrity-laden Entertainment Weekly, People, and US.
Richard Battista, Gemstar’s chief executive, has said that closing TV Guide wouldn’t free the company from ongoing costs and would be a loss for its corporate branding.
Gould expects Gemstar will eventually be bought or will sell off its most valuable assets, possibly to News Corp. “TV Guide magazine has always been important to Rupert, and he’s too much of a businessman to be owning something for sentimental reasons,” Gould said. “If anyone can pull this off, it’s Murdoch.”
