TV Guide magazine's already fuzzy future looks even more uncertain now that the magazine is part of a proposed $2.8 billion sale to security software specialist Macrovision Corp.
Gemstar-TV Guide International Inc.'s intellectual property and interactive programming were the magnets for Macrovision's proposal Friday to buy Gemstar — raising questions about whether there will be a place for a 54-year-old magazine that has been losing money and readers.
Macrovision Chief Executive Fred Amoroso didn't provide any definitive answers in a conference call with analysts, saying he didn't know much about publishing and needed more time to assess how TV Guide could fit into his strategy.
But some industry observers think the one-time household staple will soon land in the trash bin of publications that couldn't adapt to the digital age.
"It will very quickly become obsolete because of its lack of reinvention," predicted Melissa Pordy, director of media investment solutions in North America for advertising agency Cheil Worldwide. "They just didn't keep up with the change in technology."
Regardless of the magazine's fate, Wall Street didn't see the logic in Macrovision's decision to buy Los Angeles-based Gemstar, which announced it was mulling a sale five months ago.
"It's a terrible deal," said Kaufman Brothers analyst Todd Mitchell. "It smells like a desperation move. Macrovision seems to want only certain assets and doesn't know what to do with the others."
Santa Clara-based Macrovision believes it can blend its anti-piracy tools for digital video, music and video games with Gemstar's interactive program guides to make it easier for consumers to gain secure access to entertainment on a wide variety of electronic devices.
With $200 million in annual revenue and about 760 employees, Macrovision will be trying to digest a larger company unless it jettisons TV Guide. Gemstar has about 1,600 workers and generated $571 million in revenue last year.
Macrovision plans to buy Gemstar with a mix of cash and stock. The cash option is worth $6.35 per share, just 6 percent above Gemstar's stock price before the deal was announced. The stock alternative worked out to $6.62 per share, or 11 percent above Gemstar's market value before the terms were revealed.
Gemstar shares fell 99 cents, or 16.6 percent, to finish at $4.99 Friday while Macrovision shares plunged $5.55, or 21.4 percent, to $20.44. That downturn reduced the value of Macrovision's stock offer to $5.21 per share.
Despite the negative reaction, the deal has the support of Gemstar's biggest shareholder, News Corp., which owns 41 percent of its shares. The proposed sale, expected to close in the second quarter next year, requires approval from two-thirds of Gemstar stockholders.
New York-based News Corp., run by media baron Rupert Murdoch, acquired TV Guide magazine from Triangle Publications in 1988 in a $3.2 billion deal. Gemstar, which got its start helping people program video cassette recorders, combined with TV Guide in a $14 billion deal in 2000.
When News Corp. bought TV Guide, it was a premier publication with a circulation of about 17 million.
But the media landscape has altered dramatically since then, with the rise of rise of the Internet and technology enabling people to call up television listings on their computer and TV screens.
News Corp. absorbed a $11 billion charge five years ago to reflect TV Guide's crumbling value.
With the magazine looking as outdated as black-and-white television, TV Guide refreshed its look and focus two years ago to revolve more around TV stars than listings.
As part of the overhaul, TV Guide dramatically curtailed its distribution. It ended last year with paid circulation of 3.5 million, a 57 percent drop from 8.2 million in 2005, according to the Audit Bureau of Circulation..
Advertisers appeared to favor the new format. Through the first nine months of this year, TV Guide sold 26 percent more pages of advertising than in the same period last year, according to the Publishers Information Bureau.
The additional advertising hasn't been enough to pull TV Guide out of its financial hole. Gemstar has projected the magazine will lose more than $30 million this year after losing more than $100 million in 2005 and 2006 combined.
Gemstar has other headaches too. The company had to restate millions in revenue after its former chief executive, Henry Yuen, was found guilty of securities fraud in 2006. The company had paid a $10 million penalty to the Securities and Exchange Commission to settle fraud charges.
Analysts have applauded Gemstar's current CEO, Rich Battista, for helping regain credibility with investors. Both Battista and chief financial officer Bedi Singh plan to leave after Macrovision takes control, leaving Amoroso in charge.
Mitchell doubts TV Guide will be part of Macrovision, but he isn't convinced it is doomed. He thinks the brand remains strong enough to persuade someone else to take it off of Macrovision's hands, perhaps even News Corp.
"I don't think this is TV Guide's death knell quite yet," Mitchell said.