Wednesday, January 05, 2005


I have reported to you that one of the reasons I purchased TIVO is because I think it may be taken over by a larger company. The same for Gemstar (GMST). My prime suspect for GMST has been Liberty Media. I reported the purchase of ERTS without discussing the possibility of a take-over.

Forrester Research Analyst, Ted Schadler, has completed a study that suggests a number of possible cross-industry mergers. Included as possibilities are the purchase of TIVO by APPLE, GMST by Google and ERTS by Disney.

My guess is that Liberty Media is the most likely to buy GMST but, if John Malone cannot squeeze GMST away from News Corp, he may go after TIVO. I would not be surprised to see Time Warner, Comcast or Disney go after TIVO or ERTS. Sumner Redstone has shown an interest in games and could certainly make a bid for either.

With the content owned by TWX and CMCSA, they each have an interest in owning the best media entertainment center. A recent article in the Wall Street Journal discussed how new devices, to be announced at next weeks trade show, will make it easier to convert TV, movies and radio to digital, transportable formats.

The shelf life of movies was increased significantly by the development of the three tier approach. The first run has been shortened but the rental and sale of DVD's add months and even years to the shelf life. As Google has shown, storage space is now cheap. With the coming of high speed wireless internet, movies will take on a significantly longer shelf life as they can sit on a server and be down-loaded virtually an infinite number of times.

Under the current system, only about 500 commercial films are made each year. The cost is incredible. There is an average of only one hit per week or 52 hits per year. The cost to produce a hit movie is typically 50 to 75 million dollars and it cost 30 to 50 million to market it.

Wal-Mart, Blockbuster, AMZN and NFLX are forcing changes upon the industry. However, the super change will come when movies are hosted by servers and when GOOG has indexed them for search purposes. I believe TIVO and GMST will be very important players in this new market. Video On Demand service is being pushed by TWX and CMCSA and Microsoft is pushing software into computers and other electronic devices. TIVO and GMST are small players compared to these other firms but the patents owned are valuable.