Gemstar Forecasts Profitability By 2010

Executives at the parent of ailing TV Guide suggested last week that the magazine's once-daunting--and still uncertain--path to profitability may not take as long as previously forecast. The company has said it would take three years--a figure it now indicates could take slightly less, perhaps in the two- to three-year range.

Regarding the suggestion that profitability may come sooner, a coy Gemstar-TV Guide CEO Richard Battista said,"I would interpret it that way." Circulation continues to decline, but ad pages were up significantly in the just-completed third quarter, and the company said losses were down "significantly."

Gemstar--for which News Corp. is a minority shareholder that's looking to raise cash--has said it is exploring strategic alternatives that could lead to spinning off certain segments or taking another tack. So a private equity firm could swoop up parts, or a large publisher could show some interest in TV Guide by itself.

Elsewhere, within Gemstar, the company said one of its forays into original programming for TV Guide Network--the ballyhooed "America's Next Producer"--suffered from poor ratings and would not be back for a second season.

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The reality-competition show--with a title rather close to CW's "America's Next Top Model"--featured 10 contestants competing for cash and a Hollywood production opportunity. The series launched in July.

The original series was part of TV Guide Network's attempt to turn its newly rebranded self into less of a listings service and more of an E!-style entertainment-news type network. It has wide distribution, in some 83 million homes.

Another TVGN summer reality series--a fly-on-the-wall look behind the scenes at what it takes to produce a newscast at a Texas local station, "Making News: Texas Style"--will have a second season in 2008--and the network will continue to air episodes of the VH1 hit "The Surreal Life" that it has acquired. (A Fox series this summer, in which it placed a model as an anchorwoman on another Texas station as a fish-out-of-water experiment, flopped.)

Executives who spoke on a conference call to discuss Gemstar's results for the recently completed third quarter said they would continue to invest in programming and marketing behind TVGN. An initiative that will take place on Dec. 5 involves airing an "Online Video Awards" two-hour event first on MyNetworkTV, and then re-running it on TVGN.

"We created this program to tap into the excitement and innovation that's currently taking place with professionally produced, Web-only programming," Battista said. Notably, it's staying away from the mass of amateur-produced content distributed widely on YouTube-like sites that is the subject of several other shows.

Executives tried to paint a rosy picture of ad sales for the network, claiming that advertising was up 6% year-over-year in the third quarter, but overall revenue for the channel was flat at $31 million.

There's also the related TV Guide Broadband feed--which features, among other things, content from TV Guide Network--that is syndicated to other sites such as Google and AOL video outlets as well as Hulu. The service recently completed two upfront deals with Procter & Gamble and Kraft.

Gemstar executives suggested that TV Guide magazine, which has been a bugaboo, may be on the upswing. Battista said the third-quarter brought the highest ad revenue since the magazine relaunched as a full-size publication from its decades-old digest-size. Battista said the quarter brought a 22% jump in ad revenue and 25% increase in ad pages. Revenues for the magazine were $41 million, down 6%, partly due to declining subscriber revenues.

"We believe we are seeing an overall turnaround of advertiser acceptance of the magazine," Battista said.

The company promised an aggressive marketing campaign intended to gain subscribers for the remainder of the year. Circulation figures show a drop of 12% for the first six months of 2007 to 3.3 million compared to the same period a year ago, according to the Audit Bureau of Circulations. The magazine may face a challenge in gaining subscribers over the remainder of the year based on last year's results, which saw circulation drop for the second half.

Overall for Gemstar-TV Guide, the company said revenues increased 7% for the third quarter to $160 million, although operating income dropped 61% to $5 million. The company attributed the drop to a large-scale marketing campaign launched in September and added programming costs.

In addition to the magazine and TV network, Gemstar has a strong business providing interactive program guides to cable and satellite operators, a network allowing wagering on horse racing, and an emerging My TV Guide service allowing individuals to personalize guides for their favorite content via multiple platforms.

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