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Rovi Corporation (NASDAQ:ROVI)

Analyst & Investor Meeting & Demo Showcase at CES Conference Call

January 09, 2013, 05:30 pm ET

Executives

Peter Halt - CFO

Tom Carson - President & CEO

Samir Armaly - EVP, Intellectual Property & Licensing

Matt Milne - EVP, Worldwide Sales & Marketing

Analysts

John Bright - Avondale Partners

Peter Halt

Okay, hello everybody and welcome to Rovi’s Investor and ANALYST Day. I am Peter Halt; I am the CFO for Rovi Corporation. I appreciate those in the room making it here in person for those of you listening to our webcast thank you for joining us too. We are going to cover some brief highlights from 2012. We are going to get into 2013; give you some estimates, but also kind of talk about the company and then at the end we will show you some of our financials.

First slide, I am sure you've all seen; it’s in the books, it’s online the Safe Harbor statements. I won't go into detail on it. But second for those of you who follow us I'm sure you are very familiar with us for any of the people online who maybe looking at this for the first time do take a moment and look at this. We do report on non-GAAP information; vis-à-vis called APF information and what we are trying to do with this information is approximate cash flow for the company. The details are on the slide.

In terms of the themes for us and as we go through the deck today, Tom Carson, our CEO will be coming up on stage; we’ll also have Samir Armaly who heads up our advertising business and Matt Milne, our overseas, both sales and product and product management. We are going to talk about 2012. As everyone is familiar, new management in the company getting under the hood and looking at the business, taking assessment of where we are and making sure that we are set up to go forward. In ’13 we are going to be really building the business and setting us up for ’14; we are going to see a period of sustainable growth going forward once again for the company.

2012, we provided some estimates last week when we announced that we were planning to divest ourselves to the Rovi Entertainment Store. We tightened up the reins for revenue and EPS after taking into account the disposition of the Rovi Entertainment Store. A couple of things to note for 2012, a couple of key deals here; end of the year we got a deal in place with Vizio; not much of an impact financially, but we do want to call attention to it; good to have a deal with them, get them back into license. They are one of the larger CE companies and in candor if you look at their product they don't have that much in terms of guidance products they are providing themselves. They have a lot of third party product that does also play on our patents and as a result of the deal we still have recourse against those third parties.

On the service provider deal, two deals to call out. We talked about a couple of quarters ago, Google Fiber; well it’s interesting to me is with the Google Fiber initiative into the homes and either the Kansas City is getting Google Fiber service are going to be getting a tablet too. So the TV everywhere license as well as a television license. Also like to call attention to the deal with KBW. We haven't announced it yet, it’s a very recent deal with the licensing of KBW, we know how two of the three top service providers in Germany under license.

Finally, if you recall last quarter we talked about the product rationalization and cost reduction efforts the company had taken in this past year. We talked about $31 million of annual run rate costs having been removed. Now that we are divesting ourselves to the Rovi Entertainment Store moving into discontinued operations, its $26 million in terms of the ongoing business, so the $26 million as compared to the $31 million, it’s the $31 million stands rest.

2013, of course we are providing this guidance without the Rovi Entertainment Store. Year-on-year our revenues are basically flat, but we would like to call attention to it and we go into much more detail when we get back in the financial section. In terms of our service provider business, which is both discovery and advertising and in terms of our CE business, the components that relate to discovery and advertising, we’re up over 10% year-on-year for the estimates for next year. These are being tempered by headwinds of ACP which we talked about quite a bit over the last couple of years and in addition as we talked about last quarter, we’ve got some headwinds in the DivX business. We will talk more about that later.

In terms of year-on-year cost, one thing we would like to highlight to folks, in terms of our cost of goods sold and our operating expenses on an APF basis, basically for the last two years we’ve kept those cost flat. In the current year, we are targeting an additional $14 million in cost reductions. We are doing this while we continue to invest in areas that we believe will drive strategic growth. Two things I would like to comment on, and I will call up your attention. From 2011 to 2012, we increased our investment spend in intellectual property by about $18 million. We're keeping that level of spend in to 2013. In addition, as we talked about in the previous quarter’s call, we're also using the reductions that we have as a result of product rationalization to go on and hire the right talent in engineering, development and product management and to be investing in some strategic initiatives which Tom and Matt will get into more later.

Finally, just a comment on the Rovi Entertainment Store; we’ve talked for the last couple of years while have been watching this business closely. We put them in to a business unit a little over six months ago. They actually made great progress the last half of the year. As we sat down and we looked at the strategic direction we wanted the company to move in, where we wanted our focus on customers such as service providers who pay us a meaningful amount to provide them products and services that differentiate their offerings and we looked at the time that Tom, myself and other members of senior management spend with the Rovi Entertainment Store business and we kind of related it to where our core focus was. We didn’t believe this was the right home for it. We think it’s a good business, but a good business for someone else and we have put it up for sale. In terms of any proceeds in the sale, we will be using those proceeds to pay down debt.

With that, that’s a quick overview I am going to bring Tom Carson up on stage and I will be back later to go to the financials in more detail. Thank you.

Tom Carson

I want to take a couple of minutes and just try to take you through a little bit of a perspective on 2012; because I think it sets the stage for where we are going as a company in terms of us trying to solidify the base of our business. So when we look at 2012, it was certainly a pretty active year for us on a number of fronts.

One of the first things we did that I felt was really, really important for our company was to go through a strategic planning process and the process I think was really relevant for us in terms of being able to say, hey, with all the different technologies that Rovi has and in the aftermath of all the acquisition that’s been done how are we going to focus our time and attention and how are we going to focus our financial resources? And I think that exercise helped us get through a process and allow us to really identify what was really going to be relevant for us.

Part of what we came through that process with is an understanding is to the things that we wanted to pay attention to as a company and it led us down a path where we said we are going to deemphasize certain business lines and we are also going to divest others; very earlier in the year, and if you recall kind of last January as a matter of fact we announced it here at the Consumer Electronic Show we divested the Roxio pack of software; it was a business that was really not relevant to where we were going at the time.

We also made the decision as Peter mentioned about the Rovi Entertainment Store. Well, I think that business has made great strides when we really look at what we want to be and where we want to go in the play and the retail environment and the time and attention and the money that's going to be required to support that business, it just didn't make sense for us.

Part of this process was also looking at a lot of different products that Rovi had. Peter mentioned we went through an exercise to reduce cost in our company and it wasn't your typical cost reduction exercise in the sense of saying, hey let's take out 10% of our cost base. It was really an exercise where we looked at every piece of our business in terms of the products we are working on and we decided to deemphasize a number of them. So when you look at our business a year ago versus where we are today we are certainly deemphasizing the heavy embedded guide that we had in the CD space. We are deemphasizing the support that we have for things like analogue content protection. We are deemphasizing RipGuard connective platform etcetera. Again, I think that was a very meaningful thing for us in terms of getting us focused on what's important as a company.

The other thing I felt was very important for us in 2012 was just going through a reorganization of the company. I think everybody realizes that we've come together via acquisition and that acquisition spree that we are on certainly put us in a kind of a complicated environment particularly related to the organization. I didn't feel like things like sales, marketing and product management were well aligned. So we aligned them. I didn't feel like engineering was well aligned with what we are trying to do on the product and the sales side either, so we aligned them.

So that was a very important step for us in trying to identify a much more accountable organization, and again to try to get people focused on things very important. So when we look at 2012 on balance, it was a pretty busy year for us in terms of trying to clean up a lot of things that frankly myself and the management team just didn't feel like were well organized. So for up to a year a lot of things done in terms of trying to get a very, very solid base for us going into 2013.

I want to spend some time and talk about 2013 for us as a company and this is the dynamics that we showed before to a lot of you and I think if you look at the Rovi business historically we've been very much focused on a business that looked at supporting from a discovery perspective, the traditional cable business and the traditional CE business. The reality of the world we are living in today is much more complicated than that. There are much more devices; consumers want content and want it where they want it; and the interesting thing for us I think is that Rovi as a company is trying to drive itself more into this type ecosystem and I think with the assets that we have as a company in areas like discovery and Metadata, we certainly have the right tools to be able to expand in a much broader way into the TV Everywhere space.

A lot of people ask us, how do we look at our business? Fundamentally, we've tried to define it along three dimensions. First and foremost, a business that is very important for us as a company is discovery and when we talk about discovery we are talking about all those things that go into helping a consumer navigate to the content that they want to see, so think of that in terms of all the guides that we have. But equally important its things like our metadata. Its things like our intellectual property, its things like our cloud services. As you will see in some of the numbers that Peter will show later on, this is a pretty big and significant portion of the business for us; its one that we have very strong roots in and it’s something that I want to continue to leverage going forward.

A very nice adjunct to our discovery business is advertising. Think about the opportunity for us as a company and while we think the way we do about the business. We have a discovery experience on a lot of devices, whether it’s consumer devices or whether it's through the service provider channel that we have. The opportunity to take that guidance experience and our ad platform and monetize via advertising is very compelling and is a very nice adjunct to what we're doing in the discovery business.

The other thing you are going to start to hear us talk more about is analytics. Analytics is a business for us that, certainly is something I want to try to leverage going forward. The analytics business is something whereby we take a lot of Return Path Data from our guidance experience and it gives us an opportunity to have an analytics profile that we can ultimately monetize, that’s ultimately our hope. And then display and delivery, still very important part of what we're trying to do as a company.

There has been a lot of question as to our focus. We’ve said with businesses like RES that are very much focused on the retail segment but that’s not an area where we wanted to spend a lot of our time. Businesses like service providers is an area that we want to spend much more time on and that’s really where we want to focus our time and attention. It is a lot about who we are as a company; it's about a business model for us right now that is very, very strong.

What we're trying to do with the consumer electronics segment is take advantage of what we're developing for the service providers and put that into the consumer electronics space, so trying to take the development activities that we do with our R&D activities and put it into consumer electronics.

I think the natural question when you look at each of these three strategic pillars that we have as a company is what are we really trying to do as a company when you look at discovery display and delivery and advertising? If I had a vision for where I would like to see us go as a company in the area of discovery is really to be a global leader in providing guidance solutions and metadata solutions on as many possible devices as we can. And the new launch there I think is important because when you look at the Rovi business today, we are very much centric on service provider and to a certain degree to consumer electronics market, but it’s heavily driven in North America. What we are really looking at here with the way the industry is moving is an opportunity to be a much bigger player in connected devices in across a wider range of geographies and I think we have the tools and the assets in areas like discovery to expand beyond what we do today.

In advertising there is really two priorities here that I see, one is to basically establish Rovi as the leading interactive advertising platform across a wide range of devices in the same fashion that we are trying to take ourselves across a wider range of products with our guidance and discovery solutions we are trying to do the same thing with our advertising solutions. We want to be able to be a compelling advertising experience for our customers and a must have for them in terms of part of their advertising dollar spend.

The other part for us and again this is relatively new is we want to try to take that Return Path Data that we get from all those devices that consumers are interacting with and take that and make a value proposition for our service provider and CE customers. We think based on the preliminary work that we have done so far in just using that data for our own advertising business, we think there is actually compelling model going forward here for us as a company.

And then finally in displaying delivery, we certainly want to be the go to for key technologies that facilitate the display of our content, and when we look at technologies like we have in the areas of DivX plus streaming, we think that that is a very, very compelling proposition for a number of our customers. It’s been very focused so far on what we are doing in the consumer electronics world, but we think there's clearly an opportunity to take that into the service provider space. And afterwards hopefully you’ll have an opportunity to go across the hall and see some of the things we are doing with DivX plus streaming for the potentially for the service provider space.

So I want to come back and talk a little bit about 2013. What are we really trying to do in each one of these key areas? And what I'm going to do is walk through intellectual property and then I'm going to walk through service provider and CE just to try to put in context the things that are going to be important for us as a company to deliver in 2013 to get ourselves positioned for growth in 2014 and beyond.

So first when we look at the intellectual property businesses, I really believe that this is one of our key assets and will stay a very important assets for us as a company. Samir Armaly runs our Intellectual Property business. He is going to come up here in a couple of minutes and talk about this in a little bit more detail. But suffice it to say it’s a very, very key asset for us as a company and important part of who we are. We have invested a significant amount of money in Intellectual Property, and its something that we feel like we should get a return on that investment.

The keys in this particular area are going to continue to be a lot of the themes that we've had in the past. We are certainly going to continue to focus on doing deals like we just announced with Vizio with other CE manufacturers that will remain a focus for us in 2013, as we will continue to license our Intellectual Property to service providers around the globe for kind of our traditional use cases, but it’s also going to be for the TV everywhere space.

So those are the three things that Samir and his team are really going to be very focused on in terms of what is an immediately revenue driver for us. Couple of other things that his team is going to be working on; as many of you know we have a couple of major renewals in the 2015 and 2016 timeframe. Samir is working to figure out the strategy for those renewals as we embark through the 2013 year or so that we are in a good position to have a very clear strategy for how we want to do those renewals. They are very significant for us.

We are also going to continue to do what we've been doing in terms of continuing to have the innovation type of discussions within our company that help us develop Intellectual Property. We've had a very successful year in terms of being able to develop a number of new invention disclosures and Samir will get into the specific details, but this year was a record for us in terms of the number of invention disclosures we have filed versus prior years that will ultimately turn into Intellectual Property.

So again Samir is going to talk about that in a little bit more detail, coming up here shortly. I want to then kind of flip gears and talk about the service provider business because obviously this one is a very key and important one for us as a company. It’s a very key business segment for us and does represent a lot in terms of revenue for Intellectual Property, but also for the products that we offer. This year in the area of Discovery the launch and deployment of Total Guide in the service provider space that we are working on is going to continue to be a very, very significant focus for us.

We are actually in the deployment phase now with a number of our current customers, and this is something that we are relying on as we go into 2013 and 2014 for more significant deployments that ultimately would generate additional revenue for us in later this year and into next year. The other thing that maybe we don't talk about a lot but I think is very relevant in this particular segment and also very relevant in the service provider segment and CE segment is our Metadata. Rovi has an incremental repository of metadata around the globe. In over 50 countries we had millions of records of both TV, movie, games and books, you name it and more and more our customers are relying on us for that deep repository of metadata that we have. It has become a very significant discussion point in many of our negotiations, not only here in the service providers but in the CE segment as well.

The other thing we're doing and this came as a result of our strategic planning process and Matt Milne is going to talk a little bit more detail about it, is that we're investing in the next generation of IP-based guidance solutions. To this date, we really have not put a significant emphasis on the way the service provider segment is going to go away from the traditional cable infrastructure to an IP infrastructure. So a big part of what we're trying to do here is to make sure that we have guidance solutions for the next generation of guidance that are going to be required.

In advertising there’s going to be a couple things, you are going to see this here, you are also going to see it in the CE space that we talked about. It's basically going to be a continuation of trying to build the footprint. Obviously, you want as many eyeballs looking at your advertising as you possibly can. So we're going to continue to drive through our own guidance solution and having people use our advertising platform to try to get more and more households engaged with our ad platform.

The other thing that we're trying to do is improve the advertising experience, and again if you have the opportunity, you walk across the hall and get you a good example, the types of things that we're working on that respect. And then finally, for service providers, again it's going to investing in the area of analytics. In delivering display I talked earlier about technologies like DPS in the service provider world. This is something that we certainly want to push as we go into 2013 and 2014.

The other thing I think is going to be very relevant for us in the service provider space is if you could go over to the show floor and you just read a lot about what’s going on in the marketplace, most of the service providers are looking to trying to figure out how they are going to play in the TV everywhere space where they are playing in the TV everywhere space. A lot of them are at different levels in terms of where they fit right now.

But certainly for Rovi being able to have a guidance experience and a metadata experience is going to be very, very important in the TV everywhere space. The other thing that we are looking very hard at is what should we do more as a company in this particular space to position our self as a more relevant player in the TV everywhere space. So things like being able to do content management and content delivery for service providers combined with our guide to Metadata is something that we are looking at.

In the consumer electronic space, certainly going to continue to optimize our guide experience for the consumer electronics customers in the discovery area. A lot of what this is going to be though is going to be different than what was originally visioned for the company with things like Total Guide. This is going to be more about HTML guides and that kind of a lighter deployment that utilize cloud services. It’s also going to be about expansion of Metadata, Metadata in this segment is really relevant. I made a trip through Asia in the last month or so of the year and everyone of the customers I met with it was less about talking about the guidance experience and it was much more about what are you guys doing more with Metadata we need to get more, we need deeper, richer, we need it across many different geographies.

We are becoming a much more significant player in Metadata to consumer electronic customers than we were in the past. Advertising, very similar things as I mentioned on the service provider side. Delivery and display a couple of things that are going to be a focus for us. We talked about the headwinds we have in the DivX business and I think one of the challenges we have as a company is we waited too long to launch the latest version of DivX. So we have committed to accelerate how often we come up with a new profile for the conventional DivX business. So DivX 10 will be launched this year and it will be less than 12 months from when we launch DivX 9.

We think that the current DivX profile is still very, very relevant based on some of the metrics that we have seen for the launch of DivX 9. DivX plus stream is still is something very, very relevant and that's going to continue to be a big push for us as we try to broaden that technology into the consumer electronics space. So as I look at where we go in 2014 and beyond, there are really I think in very significant number of growth drivers for us that we are counting on.

I think in the Intellectual Property space it’s the things I talked about, we are continuing to licensing in the core space and also in areas like TV Everywhere. It’s going to be continuing the license on a global basis in areas like service provider. All those things I think are going to be very important to try to help us grow in the future, and we think we have a pretty sound base to be able to do that.

The other thing that is pretty clear is we have an opportunity as these large renewals come up in 2015 and 2016 to have a pretty significant improvement in our revenue profile. The reason being is because a couple of those deals were prepaid licenses for a fixed period of time that we no longer recognize revenue for, but we will when we renew those agreements. So very meaningful opportunity for us continues I think in the Intellectual Property space and some of the fields that we announced today like Vizio and others I think are evidence of the fact that we still have a pretty robust IT portfolio.

In the service provider space I think the opportunity is pretty big for us going forward. The way we are planning the business is that we expect growth to continue for us in the core service provider discovery space through the deployment of things like Total Guide both for set-top box and also for the xD companion application. We also think there's an opportunity for us in DivX plus streaming in this particular segment. We think video advertising will continue to be important for the service provider segment and that offers us a revenue opportunity.

We think analytics is an opportunity for us, and I think even just a broader push into offering advanced video capabilities to the service providers, something that we are looking at right now is going to be very key to help us grow in the future. Then finally in the area of consumer electronics, Metadata licensing I think is going to be first and foremost here as it relates to discovery and then the rollout of DivX technology in CE space as well, some of the things I mentioned before and really encourage you after this meeting to try to go over to our booth area and take a look at a number of the things that we have on display. I think all of these things gives us a lot of confidence that as we look at 2014 and beyond that we can really get back to a growth level for this company and Peter’s going to get into a little bit of those details later on this afternoon.

So with that I want to turn it over to Samir Armaly. Samir runs our intellectual property business and we thought it was important at this meeting to spend more time on intellectual property because we do get a lot of questions on it relative to the robustness of the portfolio. Samir has a responsibility not only for the licensing part of this business but he also has the responsibility for the patent prosecution and [offensive] litigation. So he has all those components within his area of responsibility. So with that, Samir.

Samir Armaly

So, the next section of the presentation is designed to provide an overview of Rovi patent portfolio and our related licensing business. It all starts with the patent portfolio and it's a leading portfolio directed to digital entertainment, and if you look at it, it's got all the characteristics that you would want from an ideal portfolio. It's comprised of early, a broad and fundamental pattern. Those patterns provide us with extensive coverage for commercially relevant and valuable features and functionality. And that coverage extends not only to what people consider the traditional use cases and things that people might be more familiar with like the grid guide, but also extends in to new and expanded video offering in new media platform, and I think you can see a relevance in those new media platforms through some of the deals that we have announced recently, some of the ones Peter mentioned, some of the ones we talked about previously. But we also got some additional information and example on some of the following plot.

So Rovi portfolio is an integrated portfolio and by that we mean, we're not reliant on any single patent or a small number of patent. The real value in the portfolio that our licenses get from us is the extensive coverage and the breadth and depth of design freedom that a portfolio license provides. We’ve got worldwide coverage not only in the U.S. but internationally and we have been really excited about the expansion of our international licensing business in recent years that’s been driven of that international portfolio. It’s also not a static portfolio, it’s a portfolio that continues to grow and evolve as a result of all the innovation that’s been going within Rovi.

As Tom alluded to we had record highs in 2012 for the number of new US issued patents that the company got, the number of new filings of US patents that we made and the number of invention disclosures that we received from Rovi employees throughout the world. All of these things together help ensure that the Rovi portfolio is relevant and value continues to grow as we head into the future.

It’s really the portfolio that’s the driver for our significant and successful licensing business and probably the best way to illustrate the relevance of Rovi’s patent portfolio is to look at the list of licensees that we have across a number of different sectors. So for example if you look at some of the traditional used cases service providers in US and Canada. The top 15 service providers on their set top box I will take either interactive program guide that’s been licensed under Rovi patent or one of Rovi’s own solutions like i-Guide or Passport. We have been successful in extending that service provider business internationally and you can see that we have licensed many of the leading international service providers in major markets throughout the world KBW that Peter mentioned was the other new one that we have added here, but we are excited about the success we have had here and we think there is significant opportunity for us to grow not only in geographies where we have already licensed the number one or number two service provider as we put a list here on the slide, but also as we expand into new geographies.

Consumer electronics, again we've got five out of the top seven worldwide consumer electronics manufacturers license. There are still a couple of important companies that we are working hard to bring back on the license but we think the success we've had year-to-date is a good start. And as we go beyond those traditional used cases and start looking at some of those newer media opportunity, TV Everywhere. So those same top 15 service providers in the US and Canada that have a set top box license from us, we've been able to extend our agreements and our relationships with them to include not only the set top box, but also the TV Everywhere used cases and we've extended those rights at significant incremental licensing fees to Rovi.

Also in the over the top space, we are active in that area and continue to work hard to extend our licensing program there. We've got two of the top five providers already under license and hopefully you can see from this kind of score board of our licensing programs today we've got a very successful program and we are excited about that, but equally we think the opportunity for growth is significant not only from the growth in our existing licensees as their businesses continue to grow, as we sign on new licensees, as we expand in to new products and as we expand into new geographies.

These licensing discussions aren't always easy, but as you can see hopefully from the list there, Rovi has been very successful in securing most of its license agreements without the need for any litigation. There are commercial discussions between two sophisticated parties. However, if you are a licensing company whether you are Rovi or anybody else probably some amount of litigation is going to be necessary. It’s important to protect your rights, it’s important to protect the rights of the other licenses that signed up under your program.

And so litigation is probably always going to be a part of our program. Our goal however is not litigation in and of itself. We try to use litigation strategically to drive the business objectives of our licensing program. Anytime you are involved in litigation there is going to be inherent uncertainties, you are going to have wins and losses if you follow kind of the news that's going on around in the smartphone wars, there's a new story everyday of who is winning and who is losing those cases. But I think Rovi’s got a very successful track record since we began our licensing program back in the early 2000s of using litigation strategically and of being able to use that litigation to drive license agreements. So we have an example here of more than 20 licensees have been concluded as a result of litigation that Rovi had to initiate in the course of its licensing program.

Litigation is not our preference. It’s not our first priority. We do everything we can to try to resolve it, but sometimes its necessary and it’ll probably continue to be a part of our business going forward. We've got ongoing litigation in the consumer electronics space, in the over the top space with some international players and we are constantly in dialogue with those folks. We settled some deals like the Vizio one we announced because our goal is to find a commercial resolution that works for both parties. But Rovi as a company is committed to continue to protect its source of intellectual property in the extent that that's necessary.

One question we get commonly is what's the long-term view of the Rovi portfolio? And we can assure you that the Rovi portfolio has been designed and developed for long-term success. We talked a little bit before about its growth in recent years in terms of size and reach, but equally so we think that the portfolio continues to become more and more relevant due to the market advances to the technology advances to what consumers are driving their service providers, their providers of devices to give them their video experience. What we try to do here because its not always an easy concept to grasp, is we pick some representative patents from the Rovi portfolio that we think really illustrates why Rovi is going to be necessary as the market continues to evolve, as people want to provide a competitive and compelling video experience across any platform well into the future.

So we've got kind of 10 examples here that I'll run through relatively quickly. This is what we would show up potential licensee. This is why we showed that we're relevant to what they’re doing today, and what they are doing in the future. It's a very small segment of the portfolio and it’s just meant to provide some context, some examples that hopefully provide some clarity on that. A couple of things to highlight about this; the examples we show are already issued US patents. These are things that we have to go out and secure later. They have a long remaining life. They last well in to renewal periods of some of the big service providers agreements that Tom talked about previously. In fact, more than half of them that we show here will expire well into the next decade and we think this kind of illustrates and highlights why Rovi is going to be well positioned to continue to sign up new licenses into the future as well renew the ones when they come up.

So for example, what you see here is a very basic guide experience that probably most people experience in one form or in another today. You got still a traditional linear good guide. You’ve got a still video window up in the right hand corner; you’ve got some program information that is there. This is fundamental with how people continue to watch TV today and even as they are advancement in the future, this is probably going to be some aspect of the experience. We got patent protection on this very basis concept and that last well in to the future. It might not be the only way though if you want to provide that service, that experience to your consumers; maybe you want to keep them tied to the underlying video program or. So instead of going to a full screen guide, you provide a little banner across the bottom of the screen, a mini guide, a browse bar. It is called different things and different implementations; another example, a key fundamental innovation and protection that Rovi has got that last well into future.

The first to experience is talked about it from a traditional guide perspective, but people are starting to look for programming, starting to access programming in a variety of different ways. This is a search patent that we have that talked about integrated search. You don’t just want your linear listings. You got a kind of video on demand out there. When you search for a program, here I search for Harry Potter, I want to see what's on, doesn’t matter what's linear, doesn’t matter what's on demand this again is an example of innovation that Rovi’s got in patent protection.

Over the top services, you want your guide experience not to just give you what you can get from your traditional service provider, but if you are subscriber is Netflix, subscriber to their RVF service anything like that integrated in all those options like search for Captain America maybe I can get it through a traditional service provider or maybe I can get it to one of the over the top services that I have.

Recommendations; when you identify a program that you like, you are fan of this movie, you see who the actors are, you can see other things that they have been and helps that search and discovery experience that we think is going to be critical going forward.

Digital recording; the guide is really something that enhances the ability for people to access and experience programming in a recording environment. So we have got a lot of fundamental intellectual property on digital recording because interactive program guide has always been sitting on top those DVRs. And so as we move into some of real discussions talking with people not only about the pure guide experience, but also about the DVR experience; same thing with video on demand, the ability to promote and deliver video on demand whether that’s through cable environment, IP environment or set top box or tablets, Rovi’s got a lot of fundamental intellectual property on that. As the experience goes from one device to another device, connected homes you have got whole home DVR, you will be able to start a program on your set top box to get up on your tablet; here we have got a lot of intellectual to property on this as well.

And then finally, as you move into those secondary screen the TV Everywhere experience we have been talking about whether it’s scheduling recordings from your tablet, finding out what’s available on your local set top box or actually taking the video and providing that multi-screen experience through shifting kind of technology or just stream it to the tablet. All of these are examples that if you are sitting there as a consumer in 2015, 2016, today or 2020, these are probably ways that you are going to want to experience video, things that our licensees are going to be able to need to provide to their customers in order to deliver the compelling experience.

Just quickly a couple of other factors as we look forward to those renewals; we showed you a little bit about the patent portfolio. We think there are some other things that help position Rovi well as we head into these renewals. So we look to here between kind of 2003 and into today for a couple of factors. We talked about the patent portfolio already. One of the earlier slide showed that the portfolio has doubled in size in the US since we did those original deals back in 2003.

As Tom showed the market trends, what we were talking with people about in 2003 was largely a set top box experience. When we sit down and talk with them about deals today or these renewals we are talking about set top box, DVRs, video on demand, multi screen experience, the need for the license has extended as each one of these new platforms have arisen.

And then finally the relevant money; we are talking about some of the service providers here and some of the renewals we had, you know for all of you who got a cable or satellite at home that's probably increased your monthly bill from 2003 to today. The average revenue per use that these people are generating off some of our patented features, some of our core innovation has increased significantly and we think for all of these reasons in addition to the patent coverage we are going to be well positioned for these renewals coming up.

So hopefully this gives you a little bit of a better overview of the Rovi patent portfolio, Rovi licensing business and why we think we are well positioned not only for 2013 as we move into that, but well into the future. And so with that I would like to turn it over to Matt Milne, the Executive Vice President of Sales, Marketing and Products; he is next.

Matt Milne

Thanks Samir. I am going to go through where we are at with the product side primarily what we are doing in sales and marketing and introduce our show case to you guys here at CES. One of the things that Tom mentioned early in his presentation was the effort we’ve put in aligning our organization. We clearly felt it was important to get sales, marketing, product aligned to where we are going and what we are investing in, really making sure we are building products that customers wanted, but also making sure we were aligned with engineering in terms of the execution of those products.

We really felt like we needed a beacon. We needed a beacon of how we were going to make those investments that we didn't get so broad outside of our comfort zone that we were investing in product areas that just weren't who we are. We started with our brand promise. The brand promise is connecting people and entertainment. If it’s a product or service that doesn't connect people with entertainment, it’s probably not something that Rovi is going to be doing.

More importantly, we also homed in on our mission; our mission to power the discovery, delivery and display and monetization of digital entertainment. These might just look like words on the page but I'm telling you that this is what governs our product teams, our marketing teams, our sales teams to define the right products and services. There are some keywords here. We know who we are. Our job is to give better products and services to our customers so they make their products better for their customers. So that they can help provide better experiences that connect people and entertainment. This is what you will see, seen through our CE showcase.

Clearly the market is changing. The market is changing rapidly as content is moving digital and distribution is going to IP that change is creating risks for certain business models and creating opportunities for many more. Obviously, you've seen a lot of this at this show. We see that the IP video services globally are growing faster than some of the more traditional delivery services and multi-screen and IP connected devices are clearly where we are going to see content consumed. The notion as Tom said between leading with service providers and seeing how CE fits in, these systems are working together now. The access part of the systems maybe different but the fundamental ability to get content through a service provider and build the consumer on any CE device wherever you are is what's happening in the marketplace. We believe we have many of the assets in place today to provide either individual components and/or complete solutions for service providers and CE companies to able to connect people with entertainment in this manner.

So this, I am not going to go through this in any detail because what's on the screen is effectively what's sitting across the hall and I do encourage everybody to walk through. Our CES team is centered around Rovi is; it's a definition of who we are as a company and where we've been and where we are going. We have compartmentalized the showcase into several areas from discovery, advertising, multiple-screen, cloud services and the video streaming and display sections. Another key thing that we launched here at the show is called the Rovi Insights Series. You can actually get this on iTunes if you download the application. That’s called Rovi Insights Series.

One of the things that we’ve done and we've realized is that we got to become a more important part of thought leadership inside the industries we serve. We sit on a lot of information that we think is relevant to the industry. We want us to have our customers, our partners in all our view to be able to kind of get into a unique view of how we see the markets changing. We think that’s an important part of what we have to bring to the ecosystem, so I would welcome you to actually go to iTune and download that application. Again that’s Rovi Insights Series.

I am just going to flip through a couple of product areas to try to put them into perspective. We’ve got 11 minutes and if there is no possible way I can do this all justice, but you got two hours if you want to spend over there to go through it. First area is in discovery. Tom talked about Total Guide. Total Guide for service providers is what this is all about this year. We're going through deployments. You guys believe Total Guide, the notion of providing an immersive experience, a rich experience but that basically takes the legacy guide that we have and actually provide a much better user experience for consumers. This product is being rolled out as you know to service providers. We also have elements of this product that we are rolling out to CE. We have not killed total guide for consumer electronics; what we have done is provided HTML versions for consumer electronics because they are much easier to deploy and there are still markets around the world that need guidance experience as primarily where consumers actually get that content from the over the top or over the air type services, so we are seeing that happen and Total Guide is on display across the aisle.

The other area that’s kind of interesting is where service provider has an installed base of legacy set top boxes that have a very simple user experience and want to make it more IP enabled. They don’t want to go replace the set top box for several hundred dollars, plus a truck row, so we are creating services what we call Rovi Services Gateway; you’ll find it on display across the aisle; what this does, this can be implemented in many ways. It can be implemented with a separate small low cost adapter box; it can be implemented through other media adapters; it can be implemented through the connected platform of a connected TV. This change is the consumer experience without the high cost of changing out the set top box by giving an IP enabled all the rich metadata and everything else that we bring through IP can bring to that experience whereby enhancing the ARPU associated with video on demand and other services as the service providers are actually looking for; you will see on that display.

Multi-screen; obviously there is a lot going on in multi-screen; not only are we seeing CE mobile app developers which are looking to go from multiple users across multiple devices and across multiple networks and multiple geographies. Today, you see a lot of limitations, you see certain companies that have closed ecosystems, you see certain companies that have very limited multi-screen opportunities may be limited as (inaudible); what we are trying to do is actually show that we can actually build a platform that kind of takes away those barriers. This is on showcase across the way; we are targeting towards CE companies and mobile app developers. Mobile app developers are looking for ways to get their content sometimes to the 10 foot screen using the small screen to actually do command and control these in the big screen for consumption and lean back so that's on display.

On the other side you see CE OEMs that are trying to catch up in terms of this connected experience for all the devices work together, but not just within their own brands. We all know that you probably don't have every single one of your devices coming from the same brand and you prefer to have that device experience, device to device to device works. So we are showcasing this over here around multi device. We also have and its not listed on the slide but you’ll see also over here where we are also looking at how we can bring in light and linear content into multiple screen devices and that's on show case across the aisle as well.

In the advertising space again lot of words on this slide, but as Tom said it really gets down to a couple of things. We have tremendous amount of inventory that's unique to our position. We need to make sure we are taking maximum advantage of that inventory to provide relevant offers to consumers that are downstream from that. Those range from set top boxes, from our service provider IPG. They range from our application that are in consumer electronic devices. So using that unique inventory we also have the ability to provide analytics. We have more information because we have all this return path data that we can actually take an advertisers campaign and make it more relevant to that advertiser based upon how we distribute it.

We also can use that analytics for content publishers. So what content publishers are looking for how, when, where, their content was consumed anonymously that information is very valuable and we are looking at bringing that to bear. We also are making investment in app and video advertising and these things are on display across the way. We really believe that we sit in a unique position because when we go to an advertiser to run a campaign, we can run a campaign across multiple devices whether its through the web, whether its through the set top box or whether its through direct to CE device or through an app device and all of a sudden that's what advertisers are looking for is a cross screen approach that also has some targeting and that's where advertising business is centered and we are making investments in that area. I won't go through the examples.

Lastly in the video streaming area, DivX and DivX Plus stream you heard a lot about this here today. DivX Plus streaming we've had good success. It takes a long time to build out an ecosystem. I've been in and around DivX business a long time; it takes a long time to build out the ecosystem. As of today we have over 20 partners that have signed up whether you are an IC company or CE company or content delivery company to actually deploy DivX Plus streaming. We also receive ultraviolet approval of DivX Plus streaming from a DRM perspective last month.

So DivX Plus streaming is really gaining momentum and we also are on the leading edge of the HEVC trend. Across the way you’ll actually see us deploying, right now we actually are on the leading edge of our main concept SEK codec on HEVC as well as we are preparing the beginning stages of how to get out a DivX certification profile for HEVC. HEVC 4K2K you can use whatever vernacular you want, but the fundamental benefit there is that the content at the same level of high quality has half the bandwidth and obviously DivX becomes relevant because customers want a certification program and high quality. So this is DivX and DivX Plus streaming. You’ll see this all across the way. So with that I'm going to turn it back to Peter to talk about the financials.

Peter Halt

Thank you, Matt. Real quickly you saw these numbers at the beginning estimates for 2012, our estimates for 2013, we want to get in to 2013 in more detail here. In terms of how we traditionally reported our businesses, we traditionally reported service providers, CE and other. What we've done for this slide is simply take CE and break in to two components. If you look at 11, it will add what you have for CE. When we split it in to two, it will give you greater clarity. We’ve talked about discovery and advertising, we talked about the products and services, discovery related and advertising for CE. In the CE video delivery display bucket, we have ACP basically in DivX. So you get a chance to see where the growth is coming and then the headwinds we have as we mentioned earlier from the latter two products.

In terms of our quarters, I do want to make a point here to folks. If you do look at the growth in the CE discovery and advertising bucket, going from a 132 million in the midpoint of our guidance to ‘12 to 172 million in the midpoint of our guidance for ’13. In that estimate is our belief that we will have under license, those two remaining CE companies. Remember Samir said we have five of the top seven. We believe we will have those two. We're including it in our guidance. We believe we will be picking those two up in the second half of the year. This means in terms of the CE discovery and advertising bucket, the first half of the year, second half of the year flow is not going to be in norm with our business normally goes.

We should be thinking about something in the terms of about 42% for the first half of the year and 58% in the second half of the year for the CE discovery and advertising bucket. For the other three buckets you see up here, service providers, the video delivery and display and other, those will follow our traditional flow, which we told people to be about 49% in the first half of the year, about 51% in the second half of the year. When you take the discovery and advertising bucket, and Tom talks about kind of the three strategic pillars that we look at. If you take discovery and advertising together you will see that from ‘12 to ‘13 we are looking at 10% plus growth headwinds again in the delivery and display bucket and then we have got other.

If you think about it just in terms of our core services, if you take our analogue product, ACP and then you take the connected platform product that we discontinued in ‘12 if you put those aside from our core products, you will see that we have 5% growth including the headwinds from DivX going from about 601 million in the midpoint of guidance in 2012 to about 629 million in the midpoint for 2013. In terms of licensing revenue I wanted to give some additional transparency into our results, here is our licensing flow you can see that from ‘11 to ‘12 down we will get in a little bit more detail about the year-on-year going back up in ’13. We are also providing some transparency into the cost related to our licensing business. As I mentioned earlier, going from ‘11 to ‘12 we increased the cost that we are investing the spend we are investing in our IP business by about 18 million we are keeping that level of spend for 2013.

In terms of ‘11 versus ‘12 a couple of key points to take away, service provider segment has benefited from some growth and rate increases. The IP licensing group has benefited additionally, and of course advertising growth has benefited us. On the CE side, we do have the drop in the major CE manufacturers not having all seven in for the full year. We also had no new deals with those (inaudible) we didn’t pull two in. If you recall in ‘11 we pulled in Sharp and Toshiba and then additionally in terms of the people who aren't under a flat fee deal and we've told you that the major CE manufacturers are primarily the flat fee deal for the patent and then we provide them our cloud service at the advertising platform and something like that. For the folks who are actually paying us on a per unit device, particularly those who are selling devices in Japan we did have a headwind from that in that less units were moved from those customers.

In terms of our analogue business we saw the decline in ACP offset by a little bit from a pop we had related to the discontinued connected platform business. As we mentioned last quarter as we are getting out of that business and we will have no business for that in ’13, we did do some one time one off you know perpetual deals just to pass that product on. In terms of ’12 to ’13, we are looking at increased penetration of our products. Tom touched on Total Guide. Also DTA guides are going to be a part of our growth in the section. New IP licenses and of course continued advertising growth. Largest growth area we talked about is the CE sector. We are assuming we are picking up those two remaining top seven CE accounts, that's the $40 million growth. That will and I do want to reiterate this point, that will skew us in terms of our CE discovery and advertising business to be more back half of the year.

And then finally in the CE video delivery display category, the continued decline of ACP and then we have the DivX headwind. 2014 and we think this is an important point to make we see great growth opportunities for 2014. In terms of TVE Samir mentioned where we are in terms of licensing the top service providers and the television everywhere use case. We are anticipating meaningful rollouts of that. Those folks are going to be paying on a per household basis as they do for the television use case. We've got a nice uptick in the monthly payments from them. We anticipate seeing that benefit coming through in 2014. Total Guide, we are rolling it out in service providers. It’s a slow rollout as they go system by system. As those people make progress in ’13, we really see it taking off in ’14.

In terms of the CE discovery and advertising business, we should be then have the benefit of having all of the top manufacturers under license. It’s a business that could be flat to 10% growth. It should have a steady run rate business then and hopefully a little bit of growth from the advertising side. In terms of video delivery and display, we told you in the third quarter we didn't get DivX Plus streaming in place to be a 2013 story. It will be a 2014 story. Matt’s talked about the progress that we've made in that front. It’s really a good product. When you are over there take a look please and we see that bring the DivX business back up. There will be a small headwind and there are still from ACP but that should be offset by the growth in DivX and we see at least a 0% to 10% range for that business in ’14.

Finally in other, we should be free from the ACP for entertainment headwinds and now you will see the slow growth of data. One of the slides that we traditionally provide every quarter in our investment deck talks about our service provider patent and product outreach. You’ll notice that we continue to be about 99% in terms of North American homes license or taking our product for the television used case. Again this is a stat for the television used case as Samir mentioned. We are still in the process of licensing all of the service providers in North America for the television. Everywhere used case. Latin America for us is primarily a product play. We're making progress in Europe but we see a lot of upside there. And in Asia, we made great progress this past year in Korea and Japan and now have almost, we now have all the major service provider under license in those two countries.

In terms of visibility, we have great visibility for our service provider sector. The bar chart here is focused on the service provider. You will notice the drop off in ‘15 and ‘16. In 2015, as when we have the Time Warner and Direct TV contracts coming up for renewal. The further drop off in ‘16 in terms of visibility is when we have the Comcast and EchoStar contracts coming up for renewal. In terms of the CE discovery and advertising sector, we have almost all of the major manufacturing manufacturers under license through 2014. We anticipate picking up the other two. Of course there will be least license through 2014. We have good visibility there. Finally, in the video library and display section, we have several key renewals coming out next year. This next year for DivX, that will be an area for us all to watch.

In terms of expenses, I talked about how they have been basically flat for two years running. Here is a little greater granularity, providing us, or providing an estimate for ‘12 and for ‘13 in terms of both our cost of goods sold and our operating expenses. These estimates are based upon the midpoint of our APF, EPS estimates. You will see that we got a little bit of growth in ‘13 and coming in the OpEx area, primarily driven in some R&D area spend. Cost of good sold is actually coming down some. Part of that is in the IP investment. We anticipate it's been a little bit less in litigation and we're investing more of that money in IP in some of talent for Samir, in terms of sales group and stuff like that.

In terms of our operating margin the slide that we have traditionally provided folks again you can see ’13, you can work into the numbers too. We do like to point towards our longer term targets. We anticipate by ’14 and forward we should be moving to be a company that should be in the low double-digits growth. We also anticipate that as you look at ‘15 and ‘16 and see those major deals coming in our operating margin should be able to grow in the 20% plus range.

In terms of our debt structure, we like to borrow as we have told folks when we can, not when we need to. We try and borrow in times we can get a very effective low cash interest rates. That said, we are very proud also of our rate of paying down debts. We have pointed out in the past the payments down in the elimination of the 2011 converts, the reduction of the 20-40 convertibles. We feel comfortable with the debt we have, right now in terms of debt governance we have looked at them for ‘12 and for ‘13 anticipate zero issues on that front. As I mentioned in terms of (inaudible) entertainment store sale any proceeds in that sale will be going to pay down debt.

In terms of equity two things I would like to point out, one in 2012 we did retire just over 5% of the outstanding shares we had for the company, and in terms of 2013 it’s our anticipation that any delusion we cause will be talking out. We are looking to have any buybacks at this point in time, but that said we will always continue to look at our share price opportunistically. In terms of CapEx we are expecting CapEx of about 15 to 25 million in 2013 roughly consistent with where we would have been and 2012 had RES been included in that estimate roughly in line with what we had anticipated for 2011 also.

Finally, for your reading pleasure again we do report on a non-GAAP basis. Our adjusted pro forma results are intended to give you cash based measure of your earnings and the reconciliation for our GAAP results in 2011 to our APF results. And with that I would like to kind of summarize what we've talked about here. We've focused in 2012 on rationalizing underperforming products as we mentioned and discussed in our Q2 and Q3 calls. First time since the Gemstar acquisition we went through that process. That will be an ongoing process for us. In that regards, we've looked at some things at the end of this year and we are discontinuing our RipGuard product.

In terms of cost to fund strategic investments, we've reduced those costs but we are not looking at just getting rid of those costs. We are looking at putting the costs we can drive the greatest value for the company and stockholders. We are looking to hire the right resources with the right skill sets in engineering, development and product management to drive our product growth map. Our focus will be on discovery, display, delivery and advertising.

Our patent portfolio hopefully the insight Samir gave you today give you a better appreciation to how strong we feel that portfolio is and how we don't look at as an individual patent and how we feel very comfortable although there will be arduous negotiations around the renewal opportunities in 2015 and 2016.

One of the points in terms of 2016, do like to make few folks recognize I know most of you do. When Macrovision acquired Gemstar, the licenses for Comcast and EchoStar have all been prepaid about $440 million on those two deals. The deferred revenue was all eliminated in purchase accountings, so while they are fully licensed both those providers we have not been receiving cash, nor recognizing revenue on them, so the opportunity in 2016 is particularly meaningful on those too.

TV Everywhere and IP Video we think are very exciting opportunities for the company. I do hope you take them and add up on the offer and do go next store and see some of the things that we are looking at in that space. And finally as Matt mentioned, our model Rovi is about connecting people and entertainment.

With that I would like to bring Tom back up on the stage and we will open it up for questions and answers from the audience.

Tom Carson

Someone got a mike?

Question-and-Answer Session

John Bright - Avondale Partners

So John Bright, Avondale Partners. Tom, first of all on a strategic basis do you have any hope that you want or need to feel meet the 7% to 12% growth you are targeting in ’14?

Tom Carson

I think in terms of the core businesses and the growth rate I mean I feel like we have the key components today for sure. The biggest challenge that we have as a company I think today is the fact that when we look at the business of 2013, the headwinds with DivX, the headwinds with ACP and their material numbers in terms of overall growth. You know if you take those kinds of things out of the numbers which we will alright as we go into 2014 and you look at the core businesses you know advertising should continue to grow; IP licensing will continue to grow. The guide business would grow. Data will continue to grow so I think a lot of what we are dealing with is the headwinds with DivX and ACP. So I feel like going into 2014 we've got all the right components. I was saying that of all the strategic investments that we have, I don't necessarily expect them to yield a lot necessarily in 2014, but some of the things that Matt showed I think are going to be very, very important for us in terms of the longer-term growth. So for 2014, if you like we got the base, but I think it's also important to stop where we're investing in terms of go forward.

John Bright - Avondale Partners

Can you talk about the confidence you have in the service provider renewals and talk about the components that are going to go in to the ARPU associated with those, thinking their ARPUs are going to be higher, maybe flush those two dots out?

Tom Carson

Well, I think you know you are talking specifically on the IP side, or product side on the product side. Yeah, I mean, first off, I know Samir mentioned detail on ARPU, you know, we had a very good track record as a company getting renewals done in the service provider space; we have. Right, there is a long history of doing that. The thing that I think is particularly relevant when you look at the licensing business that Samir has is when you look back at what we were licensing in the past, it's historically kind of the traditional set top box. Now when you go into it the discussions are a lot broader. Right, so it's not just kind of the traditional footprint. It's all those other things you have in the TV Everywhere space and that gives us a pretty decent opportunity to increase the rate.

Unidentified Analyst

I was just going to ask you a couple questions on the guidance, specifically how much of the $40 million uptick in that CE discovery and advertising comes from those two unlicensed CE manufacturers? Is that pretty much all the uptick and can you just run through for us again who they are and as far as the deals are they just the traditional [ITT] patent?

Peter Halt

So the two manufacturers are LG and TP Vision, which is kind of the successors of the Phillips assets. It's a substantial amount of the uptick. It's not all; I don’t want to give too much clarity because we are involved in negotiations with both parties in terms of how much those will be.

Unidentified Analyst

So those aren’t in litigation right now, they are just in…?

Peter Halt

They are.

Unidentified Analyst

They are, okay. And then what portion of the ‘13 revenue guidance is based on the over the top video deals that may be are currently in litigation or just are unsigned deals at this point?

Peter Halt

We talked about it in the ‘14 slide we aren’t putting the guidance in for the ones in litigation those are ones that are upside to us or ‘14 items.

Unidentified Analyst

So nothing in ‘13 as it relates to that.

Peter Halt

Right.

Unidentified Analyst

I just want to ask the obligatory capital return question; given that you are comfortable with your debt; you are reasonably comfortable with the visibility and you don’t think that you need any other assets to complete that portfolio; why maintain the large cash balance?

Peter Halt

I guess it’s starting; do we feel comfortable hitting the numbers we put out for ‘14 with the portfolio we have today and we do. We also though see many opportunities particularly in the TV Everywhere space and also we talked about in the last couple of calls just in the advertising and data space around analytics. We do think there is some opportunities for us to do things that could be accretive to the company that we might want to consider, so it’s not about filling holes in the guidance directionally we have given for ‘14 it’s more about taking advantage of opportunities; as we have talked about in the past may be filling some holes in our product that we haven’t contemplated or accelerating some things to market in order to take a better position and a better share.

Unidentified Analyst

Okay. And then in the context of acquisitions, accretive versus strategic, can you sort of flush out how you are thinking about?

Peter Halt

Historically, the company as you done tuck-ins here and there and we will do those strategically. Historically, in terms of an acquisition of any size over $40 million to $50 million, you know we had a goal to be strategic within a year of the acquisition. We haven't necessarily walked away from that. If there was something really compelling in the TV Everywhere space we really thought the return long term was to make it work; might we consider a longer period perhaps but as of today we are here with the same outlook as the past trying to be accretive within the year.

Tom Carson

Just maybe to add on that just a little bit I think you know its one of the things we tried to display here is that a lot of what 2012 was about in my mind and what the executive staff has been working on is trying to clean up a number of items right and try to get the business very focused on what it is we want to do. And as we kind of look at the service provider space and we look at the TV Everywhere space for us having additional capabilities in the area of advanced video delivery is something that's pretty interesting to us. So as Peter said its not stuff that we need to try to help us with 2014, but in terms of us having a more compelling value proposition in the TV Everywhere space that can get married with our metadata for the service providers those are the kinds of things that we think we are interested in that we should be looking at.

Unidentified Analyst

As you look at divesting the entertainment store assets, do you anticipate keeping the IP associated with it or that would go along with the sale?

Peter Halt

The Rovi Entertainment Store which used to be rock here now and the Sonic base came over with no IP.

Unidentified Analyst

Just a clarification on video; was that closed in Q4 so there was revenue in Q4 from that?

Peter Halt

It was closed in Q4 and as I mentioned it really didn't have a meaningful financial impact. They are small provider and if you look at what they provide a large part of their digital televisions don't involve anything that kind of comes into play in our patent that they are putting on there. Its third party product and so for the third party product there's no indemnification to that and we have full recourse against those people and some of those people we are currently in litigation with.

Unidentified Analyst

Okay and then just on the product side a broad question; we've seen similar slides now for a couple of years and it hasn't had a material revenue or the product revenue (inaudible) so what's different this time and why is it that two years from now we should look back and see this turn into a real product revenue now?

Tom Carson

Maybe I'll hit that and let Matt jump in too. I think there is a couple of things; I think as we look at products like Total Guide in the service provider space that is a product we have been talking about for a while and kind of given the way that market operates; it just takes a while to get deployed. But what clearly resonates with the service providers is that type of discovery experience, right. So the fact of that is not only in trials in the number of the service providers actually being rolled out is important and relevant.

You know the other things that I think are probably different and maybe what we've seen before, we really have not talked before about having an IP guidance experience, internet protocol guidance experience for the service providers and that is really something that is fundamentally different. I look at those as being very much focused on the service provider space and what is kind of traditional environment right; it’s kind of the traditional cable plan. This gives us an opportunity to do some more creative things using IP within that traditional cable plan, but much more what we are looking at is a much bigger push in to the TV Everywhere space and what we have had.

I would say things like Total Guide XT which is a tablet application is an interesting experience, but it's not all and be all, alright, what we really want to try to do particularly in the service provider space is kind of branch out from where we are in kind of the traditional North America cable plan and go on a much wider basis. So I think some of the things, you are seeing like Total Guide are maybe a repeat but the differences are getting much closer to deployment and a lot of things that Matt talked about, particularly IP and some of the advanced advertising stuff we have, you know, we talked about, we haven't really shown up so. So just encouraging you to go ahead and go across the hall and take a look at some of those things.

Samir Armaly

I’ll through out one other item in terms of the difference that Tom talked about, the realignment we talked about that in quarters two and three. You look at DivX 9 coming out in November, first new video content creation software update for DivX in eight quarters. One of things that was done in that alignment, we talked about is actually creating accountability, putting excess on peoples back. In the funds of organization, the company used to have, there was diffused responsibility. You know, there are regular now recurring meetings in terms of products and the timing and that products will be DivX 10 next year. That’s another big difference in terms of where the company is.

Tom Carson

Maybe I will let Matt, do you want to jump in here?

Matt Milne

Yeah, I was just going to maybe just parlay off of what Peter just said. We really, I mean, I think they covered the strategic angle, but maybe they ask them the question as when does this stuff actually move in to real revenue and we have kind of I don’t know, put on steroids, the process of management of the organization in terms of getting things out that customers want. We have regular operational views, regular and critical program reviews, some of the things that might seem table stakes, are things that the functional organization were handling before, but the ones that’s cross functional want them to be in and so, and frankly we kill 10 products, so we don’t think, I mean if you look at our slide you can’t see it, we put and killed 10 products we didn’t tell you which 10 products we did, but we rationalize the product portfolio from every single product across five major criteria stack them in priorities and made sure there was direct line of sight to executive management from anybody in the company as working those products to get those products to market if they were going to be missing their dates. And this level of discipline, this level of accountability has kind of created an entirely different way Rovi is bringing these products to market and I think you will be pleased not only in what you see across the way the alignment between what we are doing in marketing sales to with products, but also I think you will be pleased with the fact that that is not just demo ware over there, these are products that are on the precipice of coming to mark where we can make real investments.

Tom Carson

Another question in the room?

Unidentified Analyst

What are the strategic reasons for you mentioned in the past for having Rovi Tune stores that at the end of a content discovery event you would like the end user to have some place to go, land on a place so we can get that content. And when I think about the two segments that you deliver into service provider and CE, it feels like you are a too big groups of customers in some ways are forced to work together but they are working at across purposes, the CE provider one, two TV hub to be the same that the consumer sees as a main page and the service provider wants to keep people on their own platform and present them the VOD events there. How do you - is there a way to bridge that gap and do you move something by not having a launch window into the content itself? Thanks.

Tom Carson

So the Rovi Entertainment Store decision you know while we like the idea of being able to have a platform that can deliver content because we are about kind of delivering display as well. When we looked at the Rovi Entertainment Store on a lot of factors including the market place that we are trying to play in and the amount of money that some of the big players are putting into that segment and the fact that its mostly a white label provider for retailers we would say hey that probably doesn't make sense for us and oh by the way Rovi Entertainment Store technology was not necessarily conducive to what we were trying to do with areas like service providers. So the base kind of structure of RES didn't really fit with the kinds of integration you have to do in the service provider area. I still think as I was talking about earlier I do think that have an advanced video capabilities particularly for service providers is something we are still working at. So we have not ruled out delivery type of vehicle for the service provider segment. So I hope that answers your question.

Unidentified Analyst

Yeah, (inaudible). But also over the top sorry you know the perfect experience in my view anyway would marry the things that they CE and over the top guys return provide all the apps and the unlimited IP delivered stuff with the things that are inside the set top box and unfortunately today those are two pieces of hardware and nobody’s got a single software that stitches them together and I'm just wondering if there's a way for you…

Tom Carson

Well, its interesting because there's been a lot of discussion internally on this one and if you envision what we are trying to do with what we are calling the Rovi services gateway kind of that hybrid service I mean effectively it’s trying to take what's coming out of a set top box and put that into much richer experience. There's no reason that what we are trying to do in the gateway services couldn’t be something that could be integrated between the service provider box and the TV set. So that is actually something that we are looking at and Matt if you want to jump in a little bit on that.

Matt Milne

No I think that's right and I think from our perspective if you go back to the missions slide I put up there, we are kind of powering the experience and we have to be respectful that each of our kind of partners may have different objectives and so we want to be neutral on that perspective, but make sure we have the complement of end-to-end pipeline capabilities, and really put the power into them to actually come up with how they are going to work together and how that's going to happen. I will just tell you that the first places we are seeing it and you can see it almost everywhere over at the main show floor and certainly in our booth is you just look at what's happening with respect to multi device and these are multi device capabilities that are coming through at conditional access system potentially through your service provider but are trying to be consumed and enjoyed across many, many consumer electronics devices and we believe we can make that experience a higher quality experience. If the consumer or if the application developer or if the CE company or if the service provider wants a common user experience, we have that capability. In some cases that's at cross purposes as you indicated in some cases its not. So I think what we are looking at is really powering discovery delivery display monetization in a common way provide all ambient platforms and really let those customers decide how they are going to diversify.

Unidentified Analyst

Thanks so the 2013 guidance assumes the two CE manufacturers out of license, get renewed. You mentioned as you come to the second half of the year, then assume that 2014. So that’s been 2013 is really half a year benefit from those revenues, the 2014 will see the other half and get to more annualize rate or?

Peter Halt

13 would assume that there would be revenue recognized in ‘13 for the full-year occurring in the end of the year. Remember whenever we reached the agreement with these people, they will be paying us not only going forward but as it appears they were out of license when they do all this.

Unidentified Analyst

Okay, and if you make any assumption that those get resolved, maybe update us on the thoughts on the over the top guys or so kind of discussion. Can those come in to play this year or is any part of that in the guidance, you know,?

Peter Halt

As I mentioned earlier it's not in the guidance, Samir you want to get some thoughts on OEM.

Samir Armaly

Yeah. So it isn’t in our guidance for 2013, but as we said, we're having discussions with them on a regular basis. We have been successful in resolving other times when we didn’t think we could get a deal done in the first discussion and I think we're both committed to doing that. We do have some important quartets coming up in the future and that’s when the case goes to trial towards the end of the first quarter. These Amazon cases had some proceedings already and we're currently evaluating whether we think it's best to kind of continue in the current form that we're at, whether we think we're going to need (inaudible) from our decision. So there will be progress throughout the year in all of those discussions. We're hopeful that they will lead to a commercial negotiations and resolution like we got before but it's not. We're certainly committed to continue all over again.

Unidentified Analyst

If you want to put a number on the two CE manufacturers, would you go and put a number on what those may come to, you know, with the top guys on annual basis?

Samir Armaly

We haven’t given a number for that you know just to stay out of the commercial negotiations and the comment I mentioned earlier, they are a substantial part of the back half benefit for the first half of the year but not going to getting any details to that because those conversations are still active and ongoing.

Unidentified Analyst

Can you flush out some more color on DivX. So you have a couple of renewals coming up, is the issue there the likelihood or risk that they are not revealed or is it the issue there kind of the ASP falling on the renewal because we have seen new categories coming in at lower prices. Can you also just kind of it’s very hard for me at least to understand the competitive dynamic in getting this pushed out, so I know that there has been formats that have been delayed and I know that DPS brings in and pushes out the ecosystem. But what’s the competitive dynamics what’s the forgetting somebody to adopt DivX and now it seems its rather pinned to service provider IP deliver a video on kind of an OTT infrastructure. Is that your host now or is that in the hopes that we are looking at RES it’s not strategic in so much as it’s not an OTT VOD white label solution is DivX not strategic in so much as it does not become a format for service providers to deliver over the top video.

Tom Carson

So let me just address something and I will turn it over to Matt. I think there is couple of components to DivX the DivX is kind of traditional DivX its connected to playback which is all about what we do with things like DivX 9 and the experience of us taking too long to get DivX 9 to market hurt us. But what’s been interesting is that the value that we have seen with a lot of the consumers when DivX 9 was launched the use case won pretty significantly there. So there is still business there and that’s why we are kind of focused on DivX. DPS it’s little bit animal right, it’s technology in more of a streaming environment. We still think it absolutely resonates in the CE space particularly with the mobile guys, but its also a technology that we are looking at very hard for the service providers because we think it does have the capability to be something we could offer to them and then I'll turn it over to Matt. He can talk a little bit more about some of the metrics around the business.

Matt Milne

Yeah, so I think Tom hit many of them right. So DivX in your installed base today has got over 800 million devices that are certified. The reason why CE company wants to certify DivX devices because we give them the high quality playback of media whether that's streaming or side load depending upon the device. So the franchise is really strong from that perspective. The obviously you guys know the CE industry has been a challenged industry and they look for features and benefits that consumers want and right now when you look at DivX and as Tom said with the launch of DivX 9, we've actually proven out that even though we let 30 months plus lapse between DivX 8 and DivX 9 we saw more content creation by a significant amount out of DivX 9 and DivX 8 so we know there's a community that wants to create content, consume content out there across those multitude of devices. Where success comes long term is really tied to content services that are streaming and/or side loaded that consumers want. We've been aligned with the Rovi Entertainment Store and expect that to continue in a customer supplier relationship obviously as the Rovi Entertainment Store moves.

Today we are deployed on three major stores globally and we are deployed at Medium Art in Germany, we are deployed in Dickson’s in the UK, and you might have seen some news around (inaudible) in China. We are also with the UV announcement that opens up the doors to the further deployment so we are actually deploying will be deploying across UV stores in the other major markets including the US. So when you look at those factors that's what generates the demand and the rationality for why a consumer electronics company would deploy. To answer your question on service providers we look at the core close system DRM delivery playback. In that mode a service provider really doesn't need a DivX. But where that market’s going across multiple devices of course they need DivX because they need to be able to take that content and be able to move it from one device to another device and show a high quality playback and secure playback and that's why we think that DivX really makes sense across the service provider market as well. I don't think that its proper to characterize DivX as anything other than transitioning from just like the markets are transitioning and its particular years of transitioning years and I think that's the way we look at the business model today.

Unidentified Analyst

Could you just talk a little bit about the competitive dynamics in the market? I mean who else is here. Who is strong and who is weak and moving up and down.

Matt Milne

I won't put perspective on competitive dynamics related to strong or weak. I'll leave that to you but obviously we see the play ready for the Microsoft as they were there early in the DRM market for delivery. You see Adobe, Access and you see (inaudible) which is kind of a Google Play. And you guys can understand kind of which ones they are partner with and which content services they are partner with. I would also just say that HEVC changes things. There's no backwards compatibility to HEVC in the marketplace. The marketplace gets leveled as content services start coming from HEVC and as you look at main concept being on the leading edge of developing the first codecs for that and you look at the certification program for HEVC, HEVC again I said its 4K, 2K, its H265, whatever you want to call it but in that space we see an opportunity to be first in that space, and again once you are first in that space, that standard gets ratified. I think in the next couple of months, you will see then services roll out and you will see devices roll out and that’s why we see 2014 growth opportunity tied to it, but those are the three kind of main competitors and where we see our competitive position.

Tom Carson

We have another question in the room

Unidentified Analyst

My question is just on the (inaudible) portfolio. Do you think your customers, really was as broadening as fundamental as you presented it to be that they wouldn't all the litigating?

Samir Armaly

So you would like to think that was the case, but I think if you look at all of the patent disputes that are going on not just as Rovi as a party but everybody else, litigation sometimes is a necessary element to bring the parties together to a commercial resolution. So, no, I don't think the litigation in itself is an indicator that they don’t believe the value portfolio. Most of our discussions, quite frankly, they admit they need a license. It's really about price, and for us given the importance of our licensing business and given the history we’ve had and successful licensing it to you know, many of their competitors, we're usually not talking first party in any space in which we had a history of doing it, we feel like we’ve got to get what we think is full and appropriate value for IP. So if we wanted to get a deal done with many people, we probably could do it. It probably wouldn't be stay at the economics that we think are appropriate, and so sometimes litigation is hopefully a necessary step for getting the party closer together.

Tom Carson

Going top of what Samir is saying but I want to point that we do like to make is, there are many companies that we license to who have a lot of internal IP expertise either to third parties or people they have on their payroll and you look at TV everywhere case it seems to get a lot of attention. Without litigation we did deals with Comcast for their TV everywhere initiatives. We have a deal with Apple not for Apple television we left that for the future I think it was opportunity someday, but with Apple for the television everywhere (inaudible) case. We have done renewals with folks like Sony, with MDS and added television everywhere to that, Google Fiber that we talked about at the very beginning, again a deal that didn’t require any litigation with the new licensee but we recognize the validity of these patents. So yes there are some visible actions out there in terms of litigation, but most of our deals are made without ever having to go to litigation.

Unidentified Analyst

The two renewals that are coming out for the service providers in 2013 you mentioned those were one time payments I can think to it.

Tom Carson

So we have two deals coming up in 2015 that’s Time Warner and Direct TV. Those are the people who are currently under licensed and paying us, and whom we recognize revenue. In 2016 we have two licenses coming up those licenses are Comcast and EchoStar. Those deals were done in 2004 by Gemstar a company that Rovi bought in 2008. In 2004 Gemstar which was in a different position than we are today did those deals and needed cash, and so they took cash up front in both those deals approximately $440 million, and so when Rovi came along and bought Gemstar, there is a large amount of deferred revenue which think got eliminated in purchase accounting. They are fully licensed so we don't get the benefit of cash flow or revenue for them so for us that's really an exciting opportunity.

Unidentified Analyst

Could you remind me the sub for the Comcast EchoStar; I guess implied in the slide the $47 million or so?

The amount of subs related to Comcast and EchoStar that you would be paying. So it seems like it’s over $100 million of additional revenue, is that right?

Tom Carson

That's for Comcast and EchoStar roughly $35 million, you know its roughly the same amount of subscribers that are under license between the other two Direct TV and Time Warner. You know those are the top four and if you broke it down its roughly 50% of the marketplace under the recurring revenue deal as Peter talked about and 50% of the top four under the prepay deal.

Unidentified Analyst

Just had a quick question on the service provider segment guidance; for 2014 it looks like the revenue growth has sort of back up in the historical range around like 10% to 15% that's sort of the service provider segment has posted historically. For 2013 it looks like it’s a little bit below that coming off I guess 5% to 6% growth for 2012; for the 6% growth for next year for service providers at the midpoint, are there any other factors that we should be thinking on?

Tom Carson

A couple of people have asked about before and some of the deals we have out there or the deals with the litigation we are in. We haven't included that in guidance, that's upside. You know our assumption in terms of the TV Everywhere used cases, you know and Samir talked about how we have about half of the service providers under license for TV Everywhere. You know our assumption is the meaningful roll out will occur in 2014, could be ’13. So there are things in that aren't included that we look at very opportunistically and are optimistic about.

Unidentified Analyst

Can you say approximately how much goodwill is still on the balance sheet related to the Sonic acquisition and given the stuff that you are disposing or shutting down whether you see potential to charge-off some of that this year.

Peter Halt

You know for us and for those of us who are familiar with our GAAP based financials and familiar with the functional organizational structure we have, you know we have no segment reporting. We don't actually report businesses, keep them separate, have separate P&Ls internally that we look at, and as such with all of our acquisitions they have been combined in terms of goodwill into one goodwill bucket which is looked at against the whole company. So it’s not like we bought Sonic, kept a separate piece in Sonic you know goodwill ran Sonic separately and have something to look at in terms of the pieces that are being put off. There are some intangible assets with (inaudible) on the Rovi Entertainment Store side, while a large part of those have been taken off to date. It would be our hope that we’d be able to find a purchase price that would cover any of that, but time will tell in terms of that sale. And that would (inaudible).

Unidentified Analyst

For Rovi Entertainment Store do you have a time limit to complete the transaction?

Peter Halt

No we don't have a time limit. With that said it is our belief and our hope that we will be announcing a sale of the Rovi Entertainment Store before we provide our second quarter results. I can't go into great detail in the process, but we did announce it last week we had reach out to people, we are having meetings this week with CES. We are actually getting a surprising amount of outreach from folks that we didn’t even have on our list. So we will see how the process goes. We're happy with how it started off and we're seeing no reasons why we aren’t announcing a buyer before or at the time, we announce our second quarter results.

Unidentified Analyst

What's the status of the total guide deployment today?

Peter Halt

Total guide for service provider? Basically there are four service provider customers. We're rolling out the total guide for set top box experience. We have, I think another two I am right Matt on the XP side that are rolling out. So, the objective for us is to have a number probably pushing a million by the end of the year in terms of total guidance between both XP and set top box.

Unidentified Analyst

You guys have sliced the revenues in a number of different ways, and it's something you talked about before. Would you be able to characterize revenues as a percentage of revenues that have patents on?

Tom Carson

Well, we're giving you slide, you know, that’s actually has the patent revenue broken out separately. It's a page that has both patent revenue and patent cost. You should be able to work right in to that now. Are there any other questions from the audience? One more over here.

Unidentified Analyst

Just looking at the guidance for the advertising in 2014, just talking about that business simply that you are seeing highest priority is the way you displayed it. And all the data you have on how people usually guide and the way that people are using TV today, you can do (inaudible) in and just go past (inaudible) commercials and embedding advertising within (inaudible), just seems like that’s an untapped resource and I look at 10% growth in 2014 seems like may be (inaudible) borrowing that am I looking at that perfectly or can you just go in to that a little more.

Peter Halt

Well there has been in the past some pretty high expectations set for the advertising business. Now look I think the advertising business for us I still think is a very good interactive advertising experience that’s different than a lot. A lot of what has to happen for the revenue I think to grow to very material levels is the network has to be expanded to beyond to what it is today. So a big push on trying to get more and more household past the 50 million households where you are actually trafficking ads established. So it’s that plus it’s also the ability of having a much better advertising experience and things like dynamic delivery of video. So there is a combination of things that are still going on in this particular segment for us that we are actually working on, but I think there is still decent opportunity for us to have this business growing in 20 plus percent range on a year-over-year basis. We would hope if this particular segment of interactive advertising which is sometimes not seen is kind of the first place people spend money gets a little more strength when the economy picks up, so it’s one of those where there may be more discretionary dollar spend than kind of hard and fast dollar spend. So with things pick up and there is more money spend in total on advertising and certainly hope that we can do better than that.

Tom Carson

I would add one other thing. In your comment you talked about just the data that we are accumulating in terms of our guidance and product stuff like that. We do think that’s amazing wealth of information there and so one of the points that we have made in the past, we do see an opportunity in terms of analytics and in investing it into creator to acquire that skill set. Got time for one more question for you.

Unidentified Analyst

Just a quick housekeeping question on stock comp. Can you give me a feel where its going to run or where its trending from say the base at the 2011, ’12, ’13, ’14 going forward.

Tom Carson

If you look at the slide we have on the stock position, you should see what we have in terms of the delusion being created by the shares being issued and then you should also see that held up definitely and being retired in ’13.

Okay with that I would like to thank everyone who has taken the time to tune in the webcast. I appreciate your listening. For those of you in the room, as we mentioned a couple of times as Matt has mentioned you step outside you've got some people who can lead you over to next door where we have all our demos. Hopefully you guys could spend some time and see some of the products and services that we are working on. Thank you all very much.

Peter Halt

Thank you everybody.

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