You will be redirected back to your article in seconds

Everyone wins in high-tech monopoly game

Everyone wins in high-tech monopoly game

WHILE THIS COLUMN’S BEAT IS MONEY, I, like so many people from the biz side of showbiz, have a barely concealed hankering for the creative domain. So, with my readers’ indulgence, I’d like to pitch a surefire movie idea.

You want story elements? We’ve got billions of dollars at stake, one or two villains, a possible hero, numerous members of the undeserving rich, a government agency hovering in the background and a MacGuffin: control of possibly the most important part of the television screen in virtually every American home.

This is a story, like so many fin de millennium tales, with — so far — only winners and no losers. (Except maybe the public, but hey, this is the ’90s, at least for the next month.)

Here’s the back story. We begin sometime in the early 1980s. TV Guide, once the largest-selling magazine in America, with a circulation of 20 million and, more importantly, the most ad pages, has been beset by a variety of developments that dim its glow. Cable television systems are going from 12 to 100-plus channels, with the 500-channel universe just over the horizon. Local newspapers begin to include the kind of detailed program listings that were TV Guide’s sole preserve.

But it is the debut of the electronic program guide — those irritatingly slow scrolls listing what’s on each cable system — that renders uncertain TV Guide’s future as a fixture in the homes of TV’s heaviest viewers.

DESPITE ITS DECLINING FORTUNES, a willing, indeed eager, buyer appears. News Corp. pays more than $4 billion for TV Guide and its sister publications. Sly dog Rupert Murdoch (playing himself in a cameo) sees the obvious synergy between making and broadcasting television shows on the one hand and covering them journalistically on the other.

Almost from the day he buys TV Guide, results head south. Circulation steadily falls to 11 million, with ad pages also in the doldrums. TV Guide, according to Advertising Age, “faced escalating distribution costs, leaking circulation and a looming suspicion that the whole enterprise could tank.” By 1998, tired of losing nearly $500 million over the past five years, Murdoch decides to cut his losses; soon, TV Guide is on the block again. Now our real story begins.

Secretive billionaire John Malone (think Clint Eastwood, if he’s available) — widely, and not unreasonably known within the cable industry as Darth Vader — is busy consolidating huge amounts of cable programming assets under the Liberty Media Corp. umbrella. At the same time, he is letting AT&T acquire all those boring old cable systems for some $40 billion.

Malone, whom Forbes magazine recently called an “entertainment dealmaker (who) thinks more about deals than about entertainment,” sees the potential gleam under TV Guide’s tarnish. In June 1998, Liberty’s 74%-owned United Video Satellite Group announces that it will pay Murdoch about $1.25 billion in stock plus $800 million in cash for TV Guide.

WHY WOULD LIBERTY WANT TV GUIDE? It appears Malone has been selling his Prevue onscreen scrolling programming guide to cable TV systems with great success. If he can succeed in consolidating Prevue with TV Guide’s brand name and its fading print franchise, Malone will have, according to one Wall Street report, “gained a stranglehold on cable systems’ onscreen listings.”

Or will he? Flashback to the early ’90s: It seems a little company called Gemstar Intl. has invented the VCR Plus system — those funny little numbers in the TV listings that allow the technologically challenged to program their VCRs. Founded by research mathematician and night-school lawyer Henry Yuen (Rick Moranis would be spot on), Gemstar goes public in 1996 on $50 million in handsomely profitable revenues. For this the market rewards Gemstar with a $1 billion valuation. Yuen sets about quietly patenting intellectual property rights to his interactive program guide (henceforth, IPG), a state-of-the-art system that lets viewers navigate the brave new 500-channel world. In the true spirit of American capitalism, a plucky young company appears to have built the better mousetrap.

IT’S NOW JANUARY 1997, and things are beginning to get interesting. Malone, not happy with a personal net worth equal to the GNP of Belgium, recognizes Gemstar’s threat, and decides to form a joint venture with young Yuen, temporarily putting their ongoing litigation to rest. Together, they will sell IPGs to the cable industry without any of that messy competition, particularly regarding price. In exactly two months — quicker than usual for this sort of thing — the joint venture falls apart. By the summer, Malone, fresh from purchasing TV Guide, launches a hostile $2.8 billion takeover bid for his erstwhile partner, Gemstar. His offer fails, as Yuen convinces the stock market that Gemstar will ultimately be worth far more. Just for good measure, Yuen reactivates the litigation against United Video/TV Guide for patent infringement. They, of course, countersue.

Meanwhile, Yuen has been rapidly acquiring a host of licensees for his IPG among television set manufacturers and cable system operators. It’s now February 1999. A key legal victory in its patent suit puts Gemstar in the catbird seat.

At the same time, Wall Street has begun to notice this rising star, as its value climbs to $4 billion. When Microsoft pays Gemstar $45 million (and throws in all kinds of backend deals) for the right to put the IPG in its WebTV and other set-top boxes, the stock market positively cheers. It begins to see that the IPG is potentially the most valuable real estate on the TV screen, and that Gemstar and our old friend United Video Satellite Group — now renamed TV Guide — are the only players in this particular game.

Our story now moves to the present, or more precisely, to about two months ago. The stock of the aptly named Gemstar continues to rocket up. When its market value hits $9 billion (this for a company with revenues of $186 million in the latest year and without the words dot.com in its name), shrewd Yuen decides to offer to buy rival TV Guide for about $8 billion in Gemstar stock.

Thanks to a generous stock market, the failed joint-venture partners will get back together, but this time with the shy mathematician in full control.

Wall Street, which has never met a monopoly it didn’t love, becomes downright delirious. Little Gemstar, on the eve of Thanksgiving, was priced by the market at a cool $14 billion. The stock it is offering for its former rival, partner and defendant is worth $12 billion more.

REMEMBER, I PROMISED A HAPPY ENDING with only winners. John Malone will own 20% of this $26 billion behemoth. Even poor Rupert Murdoch, who unwisely bought TV Guide in the first place, ends up with about $5 billion worth of Gemstar stock. Champagne corks are popping. Roll credits.

But wait. There’s one little cloud on this otherwise sunny horizon. The government must approve the merger. Given its fervor in attacking Microsoft for its behavior toward Netscape, maybe the government’s antitrust attorneys ought to cast a glance at this little device most of us have never heard of. After all, 100 million TV homes watch about seven hours of TV daily. Less than a third of that number spend roughly 45 minutes a day on the Internet.

Now that the ’90s are ending, we need new business strategies for the aughties (the zeros?). How might this fly at the Harvard Business School? If you can’t beat ’em, join ’em. If you can’t join ’em, buy ’em. If you can’t buy ’em, sue ’em. And if you can’t sue them, you can always sell out to them.

(Roger Smith was formerly VP, corporate affairs, of Warner Communications and exec VP of Carolco Pictures. He now heads the Gotham-based consulting firm of Roger Smith & Co.)

More Voices

  • Hollywood Has Come Far With Diversity

    An Insider's Look at Hollywood's Diversity Efforts and How Far It Still Needs to Go

    I am a white man working in Hollywood. I grew up in Beverlywood, an all-white, predominantly Jewish, Los Angeles neighborhood sandwiched between 20th Century Fox Studios and MGM, where my elementary school had only one black student. I am compelled to write about diversity in Hollywood because “diversity” — in front of and behind the camera [...]

  • Venice Film Festival A Star is

    How Venice, Toronto and Telluride Festivals Stole Cannes' Luster (Column)

    In all the years I’ve been attending film festivals, I have never seen a lineup that looked as good on paper as Venice’s did this fall, boasting new films by Alfonso Cuarón (“Roma”), Damien Chazelle (“First Man”), Paul Greengrass (“22 July”), Mike Leigh (“Peterloo”) and the Coen brothers (“The Ballad of Buster Scruggs”) in competition, [...]

  • Black Women in Medicine BTS

    Hollywood Needs to Include People With Disabilities on Both Sides of the Camera (Guest Column)

    In five years, nothing has changed. Despite open calls for greater diversity and inclusion, recent research shows that there was little change in the number of characters with disabilities in popular films in 2017. A study conducted by the Annenberg Inclusion Initiative of the University of Southern California’s Annenberg School for Communication and Journalism found that [...]

  • Seven Seconds

    Fighting the Racial Bias at the Core of Hollywood’s Cop Shows (Guest Column)

    If fiction is the lie that tells a deeper truth, the TV crime genre has been, for the most part, the lie that simply tells a lie. As a storyteller (Veena) and an advocate for racial justice (Rashad), we collaborated for the past two-and-a-half years in an attempt to reimagine the roles of cops, victims, [...]

  • Harvey Weinstein Trial

    Column: Documentarian Barry Avrich Ponders Whether Harvey Weinstein Will Be Convicted

    Will Harvey Weinstein go to jail? That’s perhaps the most debated topic in Hollywood. It’s a question that makes me miss my friend Dominick Dunne, the controversial Vanity Fair columnist who would have already succeeded in interview-ing the chambermaids at Harvey’s sex-addiction clinic. Dunne once prophetically told me there would be a massive reckoning in Hollywood. He [...]

  • Janet Mock Pose

    'Pose' Writer Janet Mock on Making History With Trans Storytelling (Guest Column)

    I first met Ryan Murphy on location in Hollywood in July. The set was a nightclub, filled with background actors staged as glistening go-go dancers, shirtless revelers, and twirling drag queens. They were all basking under the glow of a spinning disco ball — a fitting setting for my first Hollywood job interview. I was [...]

More From Our Brands

Access exclusive content