Macrovision, the content protection and Digital Rights Management (DRM) company, grabbed the bulk of Friday’s headlines and much of the stock market’s ire after announcing they’d pay $2.8b to acquire the once powerful TV Guide brand and Gemstar’s other properties.
The deal represents an approximate 29% premium of July share value for Gemstar and a 6% premium over Thursday’s closing price.
Transactionally, the two companies will join into a new holding company. Gemstar shareholders will have the option of receiving either $6.35 in cash, or .2548 shares in the new company for each share of Gemstar they currently own. Macrovision will hold 53% of the new company.
Cash requirements for the deal will be drawn from the combined existing cash resources of the two companies along with the addition of debt. The financing debt will take the form of a $150m bridge loan, available if needed, and a $650m Term Loan. The maximum total debt is $800m. The companies expect they’ll be able to pay it down within three to four years.
Strategically, the deal seems to fall under either of two lights, or maybe a combination. From one perspective, Macrovision may be aiming for a more consumer focused product offering to add to their pipeline; something along the lines of a consumer media platform. With all the volumes of content available to consumer, tools that help discovery, inform and identify the options, so called “Discovery Agents,” are increasingly valuable. The hope here could be that Macrovision will blend Gemstar/TV’s archives of historical programming data and interactive guides with Macrovision’s own tools to create better discovery tools for consumer programming. Macrovision CEO Fred Amoroso’s statement that the combined company would become "the home page for the TV experience" fits that theory. Macrovision’s $43m purchase of home digital entertainment software company Mediabolic might fit it as well.
The second theory, which seems more plausible but likely not enough to justify the purchase price by itself, is that Macrovision is interested in acquiring the extensive database of television show information that TV Guide, and the Gemstar services, have built over decades. By this theory it’s all about “Metadata.” The descriptions; things like song titles or the name of an artist on an iPod. Typically, this information is used to better index libraries of content (think playlists). The metadata can also be be used for potential content fingerprinting tools that could compliment Macrovision’s other Digital Rights Managements products. As an example, a program and episode title stored in the file of a digital video could be used by a program to quickly query a database to check whether the video clip was copyrighted. This concept is something similar to what Audible Magic tries to do with their CopySense program or Nielsen’s newly begun digital fingerprinting technology for video. Armed with incredibly deep metadata and existing relationships already built in the DRM industry could make this easier
This second theory would fall in line with Macrovision’s recent purchase of All Media Guide ($82m cash in November). All Media Guide, which competed with Gracenote, owned one of the most comprehensive databases of information and metadata on entertainment. Their focus, however, was music, movies and games. Gemstar adds television to the mix.
Taken as a whole, the press release and soundbytes leave it unclear exactly what Macrovision has in mind. Most discussion, including both theories of digital fingerprinting or a consumer focus haven’t been fully supported by the company’s limited comments to date. Their press call on the merger didn’t add much additional color. It’s not clear how they’ll intend to use the assets or the strategic motivation behind this purchase. It’s not a marriage of two companies clearly meant for each other. The attraction here is below the surface.
Also unclear is where, or how, assets like the TV Guide magazine and its brand will fit into this mix. There is some possibility the magazine could be divested. Since Rupert Murdoch (News Corp) acquired TV Guide in 1988 for $3.2b, and then sold it to Gemstar for $14b in 2000, the once famous brand has been in decline. Circulation last year was down to 3.5m, off from 8.2m in 2005. Financially, the magazine lost more than $100m in 2005 and 2006 and could lose upwards of $30m this year.
News Corp, which still owns 41percent of Gemstar-TV Guide leftover from the 2000 sale, is behind the deal and likely the biggest beneficiary. The sale, once closed in 2008, if it goes through, will cash them out for good. (It’s not likely News Corp will elect a stock position in the new company though it remains possible.)
Prior to the announcement of the deal, taking shares in the new company would have had a value of $6.62 a share. The hit taken by Macrovision’s stock on Friday reduced that by more than a dollar.
The deal will close subject to standard closing provisions and reviews, probably not until Q2 2008. By then, hopefully the value proposition will be more clearly articulated. The fate of the TV Guide brand may be more clear by then too.