MEDIA - Gemstar deal marks a major gamble - Macrovision's planned takeover puts it closer to shifting more digital content to the TV.
Silicon Valley software company Macrovision Corp. said Friday that it would buy Gemstar-TV Guide International Inc. for $2.8 billion in cash and stock in a bet that consumers will turn to their TV sets, not their personal computers, to manage home entertainment.
The sale to Macrovision, which developed technology to prevent movie and video game copying, was a surprise because experts had expected such bigger names as Comcast Corp. to swallow up the well-known TV Guide magazine publisher and on-screen guide.
The proposed sale ends a five-month effort to find a buyer for the once-hot Los Angeles company controlled by Rupert Murdoch's News Corp.
Gemstar-TV Guide's technology helps pay-TV customers navigate the 500-channel universe with an on-screen program guide. But plans to increase its capabilities to handle the combination of television and the Internet never materialized.
In the end, Murdoch wrote down $6 billion of News Corp.'s investment, and a federal judge in Los Angeles found former Gemstar Chief Executive Henry C. Yuen liable for securities fraud for misleading investors and auditors by inflating revenue from 1999 to 2002. Yuen was ordered to pay $22.3 million in fines and forfeitures.
The company's long decline could give Santa Clara-based Macrovision a big break.
"It's going to create an opportunity to have a completely new consumer experience about how they're going to manage entertainment in the home," said Alfred J. Amoroso, Macrovision's chief executive.
Amoroso sees TV as the primary device that people will use to display Internet content and personal photos, play music and watch home movies.
Investors reacted negatively. Shares of Macrovision plunged $5.55, or 21%, to close at $20.44 after the announcement. Gemstar fell 99 cents to $4.99. News Corp., which owns 41% of Gemstar, has pledged to vote for the transaction.
Shareholders wasted no time heading to court. One group sued Gemstar, News Corp. and executives Friday in Los Angeles County Superior Court, alleging Gemstar was being sold at a fire-sale price to free up cash for News Corp.'s purchase of Dow Jones & Co.
Partly through acquisitions and partnerships, Macrovision has been moving rapidly beyond its roots of providing copy protection for movies toward developing the technology allowing people to move music, photos and videos to devices throughout the home.
