Gemstar-TV Guide Q2 2007 Earnings Call Transcript

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Gemstar-TV Guide International, Inc. (GMST)
Q2 2007 Earnings Call
July 27, 2007 9:00 am ET

Executives

Robert L. Carl - Vice President, Investor Relations
Richard Battista - Chief Executive Officer and Director
Bedi A. Singh - Chief Financial Officer, Executive Vice President

Analysts

April Horace - Janco Partners
Barton Crockett - J.P. Morgan
Alan Gould - Natexis Bleichroeder
Todd Mitchell - Kaufman Brothers
Mark Argento - Craig-Hallum Capital
David B. Kestenbaum - Morgan Joseph & Co.

Presentation

Operator

Good day, ladies and gentlemen and welcome to the second quarter 2007 Gemstar-TV Guide International conference call. (Operator Instructions) I would now like to turn the call over to Mr. Robert Carl, Vice President of Investor Relations. Please proceed.

Robert L. Carl

Thank you and good morning, everyone. I would like to welcome you to Gemstar-TV Guide's second quarter 2007 conference call. I am joined this morning by Rich Battista, Gemstar-TV Guide's Chief Executive Officer; and Bedi Singh, our Chief Financial Officer. We will begin this morning’s call with Rich discussing the continued strategic progress we’ve made in the second quarter of 2007. Then Bedi will follow with a financial analysis of the quarter. We will then go right into your questions about the quarter.

We issued a press release earlier this morning which detailed Gemstar-TV Guide's financial performance for the second quarter, which ended June 30, 2007. This release, along with our Form 10-Q, contains more information regarding the company and its various segments, including detailed financials, analysis and financial tables. This information is also readily available on our website at www.gemstartvguide.com.

Before we begin, I would like to remind you that during this call we may discuss our outlook for future performance. These forward-looking statements are typically preceded by words such as Gemstar-TV Guide or its management believes, expects, anticipates, foresees, forecasts, estimates, or other phrases of similar import. All such forward-looking statements are not guarantees of future performance or results and are subject to risks and uncertainties that could cause actual results to differ materially from the views expressed today. Some of these risks and uncertainties have been set forth in our earnings release filed earlier today and in our SEC reports, including our most recent 10-Q.

With that, I’ll turn the call over this morning to Rich.

Richard Battista

Thanks, Rob. Good morning, everyone and thank you for joining us. This morning we will provide you with an overview of the company’s performance in the second quarter. I will cover some of the individual highlights in our business units and also touch on a few of our key strategic accomplishments. Bedi Singh, our Chief Financial Officer, will take you through the quarter’s financial results. As always, at the conclusion of the call, as Rob noted, we will be happy to take your questions.

First, before we get into the financial results and business highlights of the quarter, I would like to briefly mention our recent announcement related to our exploration of strategic alternatives. As we announced on July 9th, our Board of Directors has authorized the company to explore strategic alternatives, which may include a sale of the company, in order to maximize shareholder value.

While we understand that you may have questions about the review process, we will not discuss any details regarding this subject beyond what has been stated in our July 9th press release and public filings to date.

While this review process is underway, we remain fully engaged in the operation of our businesses and we continue to focus on executing against our business plan and improving both our operational and financial results.

Turning back to the company’s progress in the quarter, we are very pleased with the overall results in Q2. We saw an increase in total revenues and a significant increase in operating income over the second quarter of 2006. This improvement was driven in large part by a substantial increase in revenues in the guidance technology and solutions segment. In addition, we saw increases in advertising revenues and ad paging in TV Guide magazine and in total revenues at both TV Guide Network and in TV Guide online.

Throughout the quarter, we remained highly focused on making progress in several important areas that are core to our strategic mission and we are continuing to make great strides. We have further invested in our product development and technology group, which is working to enhance, market and distribute My TV Guide, our suite of personalized, cross-platform guidance products and services which we introduced at the National Cable Show in May.

We continue to grow our IPG patent licensing business, both internationally and to emerging platforms, and we remain focused on brand revitalization, cross-platform collaboration, and expanding our presence on a variety of digital platforms.

Continued success in all of these areas will help us to achieve our goal of being the leading provider of cross-platform video guidance.

Moving on to a few operational highlights from the second quarter, first in our guidance technology and solutions segment, as I mentioned earlier this area saw tremendous growth in the second quarter. Revenues were up strongly versus the prior year’s quarter, with much of growth coming from IPG patent licensing, where revenues increased substantially over the same quarter last year.

We continue to focus on further growing our IPG patent licensing revenues and in recent weeks have signed strategically important new agreements with Sky Italia, MeeVee and as we announced earlier this week, Titan TV.

Sky Italia, a subsidiary of Newscorp, is Italy’s leading pay television platform and our multi-year agreement with them allows Sky to use Gemstar-TV Guide's licensed intellectual property in its electronic program guides deployed to its various platforms. Sky currently has more than 4 million satellite subscribers throughout Italy and continues to grow.

Our multi-year patent license agreement with MeeVee provides them with a license for interactive program guides that they supply on a syndicated basis to various partners for their online websites, including their own site, meevee.com.

On Wednesday, we announced a similar multi-year agreement with Decision Mark Corp for its Titan TV website and for the various websites of television broadcasters to whom Titan supplies IPGs.

These three deals further demonstrate the increasing value of our intellectual property, both internationally and in new media platforms. Our IPG products and services also saw very positive revenue growth over the second quarter of 2006. We continue to work to distribute our IPG products and services to cable and satellite companies, IPG providers, and CE manufacturers.

Just last week we announced that Mitsubishi digital electronics will be the first company to deploy our newest CE IPG product, TV Guide Daily, into its portfolio in the U.S. market. TV Guide Daily is a simplified, easier-to-operate version of our full-scale CE programming guide and it features 24 hours of program listings that populate much more quickly than the full-scale guide.

In our media networks segment, we continue to make significant programming improvements at the newly rebranded TV Guide Network. At TVG network, we enjoyed our highest ever second quarter of revenue and strong distribution growth, and at TV Guide.com, we had record traffic levels in the second quarter.

As we continue to evolve TV Guide network into an entertainment network with high quality programming, we recently launched America’s Next Producer, a 10-episode original reality competition series that will run through the summer.

In the second quarter, we launched another original series, Making News Texas Style. This weekly series has shown solid growth since premiering six weeks ago, with its most recent airing showing a 35% rating improvement over the first episode.

During Q2, we also successfully established Idol Tonight as a signature program, as this popular and exclusive American Idol pre-show completed its second season. In its new Wednesday timeslot, the average rating for Idol Tonight improved the time period over the previous year by 16%.

In addition, demo ratings also showed gains versus the previous programming in this timeslot, as persons 18 to 49 increased 17%, persons 18 to 34 increased 50%, and women 18 to 54 increased 54%.

I am also pleased with the strong gains we are seeing in advertising sales for our upcoming Emmy coverage on TV Guide network. Sales of our total Emmy package, which includes our signature red carpet coverage and other programming, are up 33% over last year. Compared to 2006, we have sold more packages at higher CPMs, and we have added six new advertisers, including Pfizer, Unilever and Master Foods.

At TVG network, despite not processing wages on Churchill Downs races, including the Kentucky Derby, we recorded our highest ever second quarter of wagering revenue in the network’s history and maintained total QT revenues at the same level as the prior year.

During the quarter, we signed a long-term agreement with DirecTV that tripled our distribution in their homes, adding 6 million subscribers, and we launched TVG on Comcast Systems in New Jersey, which added nearly 1 million households.

Total domestic distribution for TVG now stands at 27.5 million, a significant increase over the second quarter of ’06.

I am pleased to see the continued traffic growth at our online networks. In the second quarter, we had approximately 4.5 million unique visitors for our combined network of sites, with over 4 million average unique visitors at our flagship site, TV Guide.com.

This translates to significant growth of 63.6% over the prior year for TV Guide.com and ranked us first in growth in our competitive set of Yahoo! TV, MSN TV, and AOL TV.

During the quarter, we also launched several major initiatives and expanded our consumer content offerings in a number of ways. We launched our online video guide, a fast, comprehensive way to find professional video on the web. Our cross-platform breaking news initiative debuted on TV Guide.com with a newly designed homepage that features a constantly updated news section.

In addition, users can now upload their own video to the site and set recordings on their Tivos remotely through TV Guide.com. We also recently announced remote recording arrangements with DirecTV, Echostar and Verizon, and we expect to add other service providers over time.

In our mobile business, we are continuing to expand the distribution of our mobile listings applications that allow users to view their home based TV listings through agreements with Verizon Wireless and Helio. And our TV Guide branded mobile video offerings are reaching more viewers, as our distribution partners, Cingular Video and Verizon V-Cast, continue to add subscribers.

I am pleased with the year-to-date results in our publishing business and as Bedi will detail later, the loss range we had projected for TV Guide magazine for 2007 will come in lower than previously stated.

This past quarter saw strong ad page growth as well as improved ad revenue versus Q206. This follows the positive year-on-year growth we saw in Q1.

For Q2, 32% of conventional ad pages were from new business or new brands to the magazine. These include a wide range of categories and clients, such as Geico Insurance, Sunsilk Shampoo, Pond’s Cream, Discover Card, and Three Musketeers.

In the program promotion category, SpikeTV came into the magazine as an advertiser for the first time. This is a particularly welcome addition, given Spike’s young male demographic.

During the quarter we also saw continuing advertising business from such other younger skewing networks as BBC America, VH1, FX, and Oxygen. This quarter also saw another unique advertising integration with NBC’s My Name is Earl. The magazine offered an interactive scent card tied to a specific episode of the hit NBC show. TV Guide magazine secured the Oreo brand as a sponsor of the integration package, which included in-show, on-air integration and in-magazine product placement on the scent card.

The TV Guide issue sold 12% higher at newsstand than the average sale of the three prior issues and it also helped drive an increase in ratings for this episode of the show, specifically among a younger demographic.

We remain pleased with the editorial direction of the magazine, particularly with the renewed focus on breaking news and with the integral role that the magazine and its editorial staff are playing in our cross-platform mission.

Turning briefly to our cross-platform efforts, we remain focused on maximizing and enhancing the creation and integration of content across the company’s various media platforms and with identifying new content and advertising franchises that can seamlessly be integrated across TV Guide magazine, TV Guide online, and TV Guide network.

To that end, this quarter we named an executive editor of cross-platform content integration to spearhead this effort. We also launched a cross-platform breaking news initiative and announced the creation of the TV Guide Online Video Awards.

A new annual franchise, the TV Guide Online Video Awards will recognize the best and most innovative professional video programming created specifically for the web. The company will dedicated our numerous cross-platform resources, which reach 73 million unique consumers per week, to the promotion and coverage of the online video awards, making this a true multi-platform initiative. In the weeks and months ahead, we plan to announce more detail about these awards.

In the area of consumer marketing, we have begun several major initiatives, all designed to drive usage of our products while positioning the TV Guide brand as more contemporary and relevant, further enhancing its value in the marketplace.

One such initiative was our signing on as a major sponsor of the American Idol live tour, a 50-city concert tour featuring the hit show’s top 10 finalists, which kicked off on July 6th.

In addition to solidifying our strong association with television’s number one program, this sponsorship has given us the opportunity to directly reach more than a half million highly engaged concert attendees with the TV Guide brand. All concert goers, many of whom are in younger demographic categories, are having direct exposure to our products at every concert venue.

We are also proceeding with our plans for a major national consumer marketing campaign, set to launch in early Fall.

So to conclude, it continues to be a productive and exciting time at the company. I am very happy with the progress we’ve made throughout our businesses and I am grateful to our employees for the hard work and dedication that has put us in position to prosper in this exciting, constantly evolving media environment.

I appreciate your time today and look forward to taking your questions at the conclusion of the call. With that, I will turn it over to Bedi.

Bedi A. Singh

Thanks, Rich. As Rich discussed, we delivered another quarter of strong performance, including double-digit revenue and EBITDA growth year over year for the quarter and the half-year. Consolidated revenue for the second quarter increased 17% to $156 million. Consolidated adjusted EBITDA increased by $11 million to over $35 million. Net income was up approximately 42% to $21 million and for Q2 we recorded earnings per share of $0.05 versus $0.03 in Q206.

For the first-half of ’07, consolidated revenues were $312 million, a 13% increase versus the first-half of ’06 and operating income for the first-half was $67 million, an increase of 192% versus the first-half of ’06.

Net income for the first six months of ’07 increased 138% to $55 million, and we recorded EPS of $0.13 versus $0.05 in the first-half of ’06.

Capital expenditures of $8.5 million for the first six months of ’07 -- however, our projection for full-year fiscal ’07 is now $30 million to $34 million, compared to a previous range estimate of $28 million to $32 million. This includes additional capital related to the relocation of our New York offices later this year.

For the guidance technology and solutions segment, which represented 45% of consolidated revenue in Q2, revenues were up 40% to $71 million. This growth was primarily driven by revenue increases of 55% from IPG patent licensing and 21% from IPG products and services.

Significant Q-over-Q growth from IPG patent licensing came from several sources, including the patent license agreements with B-Sky-B signed in Q406 and Yahoo!, which was signed in Q306, a $6.3 million catch-up payment from a CE licensee for previously unreported IPGs, and from a year-over-year increase in the digital subscribers of our U.S. cable and satellite licensees.

At the end of Q207, we had approximately 51 million digital households under IPG patent license, of which approximately 8.6 million were international.

As Rich mentioned, this month Sky Italia, a satellite and leading pay television provider in Italy, signed a license agreement with the company. As a result of this, approximately 4.2 million new international households are now covered by an IPG patent license and the associated revenue from this agreement will be reported beginning with the third quarter of this year. We expect Sky Italia to further grow its subscriber base in the future.

IPG products and services revenue was up 21% in Q207. This growth is primarily due to Aptiv Digital, which we acquired at the end of Q107.

At the end of Q207, the total number of North American cable subscribers that received either the I-Guide IPG product or the Aptiv Digital Passport IPG product, was 14.6 million. This excludes the more than 10 million Comcast digital households which utilize the IPG provided by our Guide Works joint venture, revenue for which is reported within patent licensing.

VCR Plus revenues increased $1.4 million in Q207, including approximately $3 million from the recognition of minimum guarantees and settlements. Excluding these items, underlying revenues declined 23% versus Q206. This rate of decline is consistent with what we have previously indicated and we expect this trend to continue.

Operating costs for the guidance technology segment in Q207 increased approximately $5 million versus the prior year’s quarter, due to higher legal expenses associated with our worldwide patent protection efforts, as well as the inclusion of Aptiv Digital. However, adjusted EBITDA increased by 47% Q-over-Q, including approximately $9 million from the catch up and settlement payments mentioned earlier.

For the media network segment, which represented 32% of consolidated revenue in Q2, revenues were up 3% to $50 million. Consolidated EBITDA for Q207 was $11 million, 2% higher than Q206.

TV Guide network revenue increased 3% versus Q206, driven by an increase in advertising rates. Distribution reached 82 million Nielsen households at the end of Q207, up 5% versus the prior year’s quarter. Of this total, digital households represented 54 million, compared to 46 million digital households a year ago.

As Rich indicated, we launched new programming at the start of the third quarter. This will result in higher programming and related marketing costs when compared to the third quarter last year. This investment is expected to deliver long-term benefits as we transform the channel from a utility to an entertainment destination.

Regarding online networks, we are pleased with the year-over-year growth in uniques, especially at TV Guide.com, which saw a year-on-year increase in uniques from 2.5 million to 4 million, an increase of almost 64%.

Online networks saw both year-over-year and sequential quarter-over-quarter growth in advertising revenues and CPMs. We expect online networks to continue its forward momentum, with an up-tick in revenues in the second-half of this year versus the same period in 2006.

For TVG, our horse racing network, revenue in the second quarter of ’07 was flat versus Q206. However, we view this performance positively, given the changes in certain customer and licensee relationships in the first-half.

Despite the absence of wagering revenue in Q2 from Churchill Downs, including the Kentucky Derby, TVG generation sequential Q-on-Q double-digit revenue growth. TVG’s wagering handle grew to $125 million, up 5%, and there was an increase in the number of active ADW account holders. TVG also increased its U.S. footprint by 7 million households, up 49% over the past year to 27.5 million by the end of Q2.

Turning to TV Guide magazine, Q2 revenues increased 2% versus the prior year’s quarter, primarily due to a 16% increase in ad revenues. The performance of the magazine in the first-half was solid and we expect with continued growth in advertising to see the second-half of the year deliver revenue at a similar level as the first-half.

For Q2, the magazine achieved negative adjusted EBITDA of $1 million versus negative adjusted EBITDA of $10 million in Q206. This better performance is attributable to operational efficiencies, including staff reductions and reduced print and paper costs.

It is important to note that magazine in Q2 and first-half performance should not be taken as indicative of a run-rate for the remainder of the year. Consistent with last year, the magazine will incur significantly higher expenses related to planned marketing and subscriber acquisition efforts beginning with the third quarter.

However, based upon TV Guide magazine’s performance to date and the outlook for the remainder of the year, we currently anticipate incurring adjusted EBITDA losses of approximately $24 million to $28 million for all of fiscal year 2007. This is lower than the previously forecast loss range of $30 million to $35 million for the fiscal year 2007.

To conclude the segment review, let me turn to cross-platform costs. For Q2, expenses were $21 million, compared with $8.5 million in Q206, which benefited from the reversal of $8.9 million of liabilities related to a former CFO of the company. The primary drivers of the year-over-year increase were from planned product development and cross-platform marketing costs.

The product development and technology group, which was formed in Q206, incurred expenses of $4 million this past quarter. This group’s fiscal 2007 expense projection remains unchanged at $19 million.

In Q2, corporate marketing incurred $2 million as the prepared for the launch of a major national consumer marketing campaign, which will start in conjunction with the Fall television season and steadily ramp up through the fourth quarter of this year.

The fiscal ’07 projection for corporate marketing costs remains unchanged at $15 million to $20 million.

Corporate general and administrative expenses for Q207 were $15 million, which is $8 million higher than Q206. However, excluding the effect of the $8.9 million reversal of liabilities noted earlier for Q206, G&A expenses actually decreased this quarter by approximately 5% compared to Q2 last year.

So to summarize, the company delivered another solid quarter, with consolidated revenue up 17% and adjusted EBITDA up 46%. However, please note that our operating expenses for the second-half of the year will be significantly higher, starting in the third quarter due to the increased investment in our key businesses. These investments include the implementation of new programming and marketing initiatives at TV Guide network, subscriber acquisition initiatives at TV Guide magazine, and investment in the upcoming major national consumer marketing campaign.

With these investments and continued momentum in our other businesses, we remain excited about the prospects of the company for the remainder of the year and beyond.

With that, let me hand the call back to Rob.

Robert L. Carl

Thanks very much, Bedi. Before I turn the call over to the operator to advise our listeners on how they can enter the queue for questions, I would like to reiterate the comments made by Rich earlier in our call. While we understand that you might have questions about the strategic alternative review process, we will not discuss any details regarding this subject beyond what has been stated in our July 9th press release and public filings to date. We very much appreciate your understanding on this.

Operator, if you would please proceed.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of April Horace with Janco Partners. Please proceed.

April Horace - Janco Partners

Good morning. Congratulations on a great quarter. Just a couple of things with respect to the magazine improvements. Can the staff reductions, can you give us a little bit more clarity as to what happened this quarter, because the costs are significantly less? And then I have a couple of other follow-ups.

Bedi A. Singh

On the staff reductions, these were things we had planned to do. They were across the board, and I think some of it was even reported in the press I think earlier this year, so this was just part of the operation efficiency effort at the magazine.

April Horace - Janco Partners

But the lower loss level from $30 million to $35 million down to $24 million to $28 million, what could you attribute that to?

Bedi A. Singh

I think in addition, we had significant paper costs that came down and printing costs that came down. There was a lot of reduction in those areas, so operational costs actually came down.

April Horace - Janco Partners

With respect to the Aptiv acquisition, does that help get your foot in the door with Time Warner? And now that Maestro has tripped, how do you view that opportunity?

Richard Battista

Well, Time Warner is a major client of Aptiv so it absolutely allows us to expand our relationship with Time Warner. I can’t comment exactly on Maestro’s progress or not but certainly Aptiv is there for Time Warner to help them with any of their guide needs and because they are already a client with Aptiv, we look at that as a very positive thing.

April Horace - Janco Partners

Could that be an opportunity to expand in Time Warner’s footprint?

Richard Battista

I can’t comment specifically on roadmap discussions with our clients but suffice to say, I think Time Warner is very happy with Aptiv and we think we’ve created a great relationship with Aptiv and I think that is a real positive thing for the company.

April Horace - Janco Partners

You’ve made a lot of in-roads with respect to Internet licensing over the quarter, and we know that you’ve had discussions with Google. Can you give us any other insight into potentially getting that Google license?

Richard Battista

I can’t comment on any specific customers. Suffice to say, we believe our patents are -- we know they are platform agnostic and so clearly we think they are valid in all these other platforms and we continue to proceed as we have and I think our track record is showing that we are getting some real good success in these new media platforms, but I can’t talk specifically about any one client.

April Horace - Janco Partners

Lastly, how do you see getting licensing agreements with international cable operators, or telcos for that matter?

Richard Battista

How do we see it -- could you repeat the question?

April Horace - Janco Partners

Should we continue to expect additional licensing opportunities as it relates to cable operators or telco operators internationally?

Richard Battista

We do believe that there is strong opportunities in international cable and satellite going forward beyond what we have already done.

April Horace - Janco Partners

So can we still see double-digit growth in that particular area?

Richard Battista

I don’t want to give specific percentages but we expect to continue to have strong growth across that arena.

April Horace - Janco Partners

Okay, great. Thank you.

Operator

Please stand by for your next question.

Robert L. Carl

Operator, we’ll go ahead and take the next question.

Operator

All right, and your next question comes from the line of Barton Crockett with J.P. Morgan. Please proceed.

Barton Crockett - J.P. Morgan

Great. Thank you very much for taking the question. I know that you don’t want to talk about the merger topic so I am going to have one attempt to skirt around the edges of it and I appreciate your patience and I understand if you won’t address this but given that this is the elephant standing in the room, I have to at least try and go around the edges. The question that I would describe as being around the edges is this -- without getting into the details of how you will handle the process, I was just wondering if you could comment very generally about why now? Was there something that forced your hand externally or just your view that this is the optimal time for some reason to engage in this process? That will be the first attempt there.

Richard Battista

As I said in the remarks, I am not going to be able to comment beyond what we already have put into our press release and what is publicly available, so I am not going to comment further on that.

Barton Crockett - J.P. Morgan

Okay, all right. Well, I had to make that attempt and I appreciate your response. To the business here, I was wondering if you could talk a little bit about the IPG advertising. Give us a sense of where that stands right now as a business. I heard commentary that maybe Comcast is back-end with the rolling out IPG advertising on a few million homes in a couple of markets. I was wondering if you could give us color there and what you see happening in terms of where it is being place and what the momentum potential is and the size of the revenue now and maybe the hopes that maybe this re-emerges as kind of a meaningful opportunity.

Richard Battista

I would say the following; I think currently today, as we know, it is not that material. I would say that there need to be some important developments technologically in the business and product wise. As you will see from our My TV Guide demos that we’ve done in the marketplace, we believe the next generation guide products will have I think a terrific opportunity to monetize IPG advertising. I think it is a couple of things.

One, the technology just isn’t there currently on the set-top boxes and in the cable homes to create rich media ads and video-enable ads. We are just starting trialing of that but we just don’t have enough robust back-end to do. So once you are able to have rich media advertising and strong video advertising, I think that is going to make a big difference.

There is also not measurement -- it is very difficult to measure and so that is another area that in the next generation of guidance, we think that will be an area that will be solved. And so I think those are two important parts, and I think if you see our My TV Guide demos that we do, we believe that advertising can have a strong future but it is not this year or next year.

Barton Crockett - J.P. Morgan

Is it happening -- is there IPG -- can you give us a sense of where it is being placed right now, some sense of how many homes and which systems or which markets?

Bedi A. Singh

Comcast is experimenting with IPG advertising, as we know. The revenues are very, very modest right now. As Rich said, this is more for the future.

Richard Battista

Basically our I Guide subscribers today, and a little bit with Comcast.

Barton Crockett - J.P. Morgan

Okay. All right, that’s great. And then, switching gears here a little bit to the magazine, could you give us a sense -- you know, the ad pages were up I think 25% but the advertising revenue was only up 16%. What is happening there? Is there some discounting or is it a mix issue? You know, total revenues even though the advertising was up strongly, total revenues really weren’t in the magazine. Give us some sense of why that is happening and any sense for that maybe to turn around on the total top line in the back-half or not.

Bedi A. Singh

I think advertising mix is always constantly changing, depending on the issue of the week, so obviously the percentages can move up and down depending on what the mix is.

Clearly we have a lot more conventional advertisers coming into the magazine, like pharma. Whenever you have higher pharma coming in, they always have two pages, sometimes even three pages. The revenue mix can change depending on how many pharma advertisers you had in a particular issue or a particular quarter.

I think overall we are very pleased with the revenue growth. It is up 16%. I think that is a pretty good number. Obviously we expect that this will continue into the second-half of the year.

I think we are very positively encouraged by what we are seeing.

Barton Crockett - J.P. Morgan

And the final question here on the TV Guide cable channel; can you give us some sense of how discussions are going with you in terms of advertising for the upcoming season, how that is going?

Richard Battista

We are in the throes of it, probably at the back-end of it, so I don’t have -- I can’t give you the details and the finals but I can tell you that we are encouraged by what we are seeing and we think we are going to do -- we are going to be pleased and think we are going to do well, both in volumes and CPMs. But it is too -- we don’t have the final numbers yet.

Barton Crockett - J.P. Morgan

Great. I’ll leave it there. Thanks a lot.

Operator

Your next question comes from the line of Alan Gould. Please proceed.

Alan Gould - Natexis Bleichroeder

Thank you. I have a few questions. First, Rich, what is the timeframe before you start selling or monetizing the next-generation guide? I know it is still in alpha, beta type of stage. It was developed outside of Guide Works, so if Comcast decided they wanted to deploy that guide, are they covered by the Guide Works license or would that be incremental licensing?

Richard Battista

I think you have to look at it -- you should not look at it as one master product. What we are creating are a number of products and features and solutions. Think of it more as a Chinese menu kind of approach. So we are talking to all of the players in cable, satellite and IPTV, and in the CE manufacturers as well about offering these next generation services like personalization solutions and the ability to do remote recording, the ability to take enhanced data and the like.

So I don’t think you should look at it as -- it’s a next guide that would be offered. And it is really not a guide, as I said. It is next generation guidance products and solutions, if you will.

And then to your question about the financial piece of it, as I said before, this is a three- to five-year timeframe. We are starting on the Internet because that is the platform that can move the quickest but in order to integrate some of these features and products, it can take 12 to 18 months, so we don’t expect material revenues in this area until probably 2010, 2011.

But right now the key is we are having very productive conversations with a range of players to begin the talks of deploying these products. The remote recording deals we have done, for instance, with Direct and Echo and Verizon are sort of a step one in working with them on My TV Guide like features. So it is much more of an incremental approach but we’ll see we think in four to five years the material revenue come in.

Alan Gould - Natexis Bleichroeder

And the cross-platform marketing, given the strategic review, and I realize there is no guarantee something’s going to occur, wouldn’t it make sense to scale back on that a little bit?

Richard Battista

For us, all the cross-platform initiatives that we are undertaking we believe are really important to the growth of the company and we will absolutely proceed with those. It’s business as usual and we are feeling very good about the direction they are going in.

Alan Gould - Natexis Bleichroeder

And then for Bedi, the 10-Q shows a partial victory versus the insurance companies. Could you update us on your efforts to collect that $50 million?

Bedi A. Singh

It is difficult for me to comment on matters which are still under proceedings and discussions, so I don’t think I can say a lot on that beyond what we have said in the Q.

Alan Gould - Natexis Bleichroeder

Could you quantify the additional 3Q marketing and programming expenses at the TV Guide network for the new shows?

Bedi A. Singh

I don’t think I could give you a specific number but we are going to have increased spend on both the programming side and the related marketing starting in Q3, and it will be significant. This is not -- it won’t be like tiny numbers.

Alan Gould - Natexis Bleichroeder

So like $10 million?

Bedi A. Singh

I could not comment on a specific number.

Alan Gould - Natexis Bleichroeder

Okay.

Operator

Your next question comes from the line of Todd Mitchell with Kaufman Brothers.

Todd Mitchell - Kaufman Brothers

Good morning. Thank you for taking my question. I have three questions here. First of all, in regard to the guidance business, I was wondering two things; first of all, the one-time payments in the quarter include $3 million from VCR Plus, so it is about $9 million. Is that correct?

Richard Battista

Correct, yes.

Todd Mitchell - Kaufman Brothers

Also, now that you have re-segmented it, I was wondering; can you give us some kind of quantitative measurement for how the organic growth of the IPG CE licensing is? It seems now that business proves always hard to get visibility on and now it seems to be even harder to get visibility on it. Can you flesh that out for us somehow?

Bedi A. Singh

I am not exactly clear what you mean by CE IPG licensing.

Todd Mitchell - Kaufman Brothers

Money you are collecting for IPGs that go into devices as opposed to networks.

Bedi A. Singh

Into devices. We’ve not traditionally given numbers on units incorporated and things like that. It is kind of difficult to correlate revenues with the number of units that are being shipped.

Todd Mitchell - Kaufman Brothers

How is the CE segment growing, if you were still reporting a CE segment.

Bedi A. Singh

CE is growing, as you will read in the Q, it is a mixture of different sorts of deals. We had some deals which are kind of flat and all-you-can-eat, and -- so as we find new deals or we renew existing deals, that’s what keeps the revenue going in the CE segment.

Richard Battista

I think we’ve said in the past that internationally in Europe and Asia, we expect to see nice growth in the CE business, and I think in the U.S. we mentioned that we think it is going to be much more moderate growth.

Bedi A. Singh

I think it is difficult to correlate it with specific units shipped or volume --

Todd Mitchell - Kaufman Brothers

I understand that but is it in fact growing in the first six months of this year versus the first six months of last year?

Bedi A. Singh

I think it is but I don’t think we give out the specific numbers, but it is growing. You can see that by the fact that, for example, we just announced in the U.S. a deal with Mitsubishi, a CE deal, so to speak, so that is additional revenue. So it is deals like that that will give you an indication that revenue is growing.

Todd Mitchell - Kaufman Brothers

Second of all, in terms of your cross-platform expenses, help me also with the -- you’ve broken out the cross-platform expenses and the marketing. I’m assuming that’s where the benefit from the Yuen litigation, so it seems that corporate was about $25 million this quarter. Is that correct and is that number high, or am I misreading this?

Bedi A. Singh

So let’s step back. When we look at cross-platform costs, there are three components in there. The first component is product development, which is the group that develops the My TV Guide products that Rich was talking about.

Todd Mitchell - Kaufman Brothers

Right, and that’s broken out.

Bedi A. Singh

That’s broken out. The second piece that is broken out is marketing, and so that is where we do the consumer marketing campaigns. And the third piece is what we call corporate, general and administrative. So in that piece, that is where we have the Yuen reversal of liabilities. It is in corporate G&A.

Todd Mitchell - Kaufman Brothers

Right. So without that, that number would have been about 25, and is that a --

Bedi A. Singh

If you look at 2006, we saw in the Q that the $8.9 million impacted the second quarter of 2006. Now, you can do the math.

Todd Mitchell - Kaufman Brothers

And just what I said, that is the math.

Bedi A. Singh

That is the math.

Todd Mitchell - Kaufman Brothers

Okay, and lastly in terms of the operating expense benefits at the magazine, can you give us some idea -- I mean, you’ve said that magazine expenses go up, it will primarily be marketing and subscriber acquisition costs. Can you give us some way of thinking about this quarter? As is, is this a base run-rate quarter?

Bedi A. Singh

No, as I said in my prepared remarks, you should not take this quarter or the first-half as a run-rate for the rest of the year.

Todd Mitchell - Kaufman Brothers

No, but I --

Bedi A. Singh

The reason is because we are going to have planned higher subscription acquisition costs and marketing costs in the second-half, beginning in Q3.

Todd Mitchell - Kaufman Brothers

Right. I understand that. But let’s assume those costs are variable and the costs of operating the magazine are fixed. Is this a fixed-cost quarter?

Bedi A. Singh

I am not sure I completely follow what you are saying there.

Todd Mitchell - Kaufman Brothers

Could the magazine be operated at these sorts of levels if you did not go into --

Bedi A. Singh

It cannot because you have to spend money on subscriber acquisition and marketing costs in the second-half. That is a cost that you have to incur.

Richard Battista

That is an absolute cost of doing business.

Todd Mitchell - Kaufman Brothers

Okay, I hear you. And here’s my last one, I’m going to try again as Barton did; can you tell us what was the catalyst for seeking a strategic review?

Richard Battista

I am not going to comment beyond what we said, Todd.

Todd Mitchell - Kaufman Brothers

All right. Thank you very much.

Operator

Your next question comes from the line of Mark Argento with Craig-Hallum Capital. Please proceed.

Mark Argento - Craig-Hallum Capital

Good morning, gentlemen. A quick question for you; first off, on the online business, it looks like the uniques were down sequentially from Q1 to Q2, which I can understand given the seasonality of the TV business. Any ideas, any plans in terms of building additional unique users? Kind of talk about what you are doing, buying keywords or anything you are doing there to hopefully be able to grow that and ultimately be able to drive bigger CPMs.

Richard Battista

We have a number of initiatives and one of them is search engine optimization, which is one of the most important ones, which we were not very good at when I got to the company and now we’ve dramatically increased that and we believe there is further upside there. And that’s basically when you type in a celebrity’s name or a TV show, that we are high in the results. We are showing much more improvement in that and that will continue to improve.

Syndication is a big part of our strategy. We are growing dramatically the number of sites that are taking either our listings or our content and we are seeing great traffic boosts because of that, because people click back to us.

Our online video guide which we launched we believe has terrific opportunity of building traffic for the site. Our breaking news initiative, which is on the homepage. We’ve seen I think triple the traffic to the homepage, breaking news page than we were seeing a year ago because it is just much better.

We’ve acquired some other sites that are getting better so we think there is going to be runway there, so there’s a number of things that all told together we think are going to be very beneficial to us.

Mark Argento - Craig-Hallum Capital

Have you quantified what your organic, the organic traffic versus bought traffic, kind of what that metric looks like?

Richard Battista

It is primarily organic. Bought traffic is pretty small.

Mark Argento - Craig-Hallum Capital

And then just quickly on TVG, despite not having the Churchill content and the Kentucky Derby, it looks like you guys were able to actually at least keep that business essentially flat. I was just curious how you were able to do that and actually even grow -- it looks like you grew wager volume a little bit despite not having that content.

Richard Battista

I think what that shows more than anything is the power of television and the fact is, we redirected our limited of shelf space that we have to other racetracks. And as a result, we showed great increases in those race tracks. I think it really re-emphasizes and hits home the point that when we expose race tracks on our television network, the wagering goes up pretty significantly.

So by substituting those tracks from Churchill in others, we saw a lot of success.

Mark Argento - Craig-Hallum Capital

Who is your -- I know -- I think AmericaTab was purchased by Churchill so they are not a licensee anymore of yours. Who do you have other than YOUBET? Do you guys have any other larger licensees that are the betting end of the TVG tracks right now?

Richard Battista

The main one is YOUBET, which is a far bigger player than AmericaTab. And then I believe we have deals with some other smaller players as well.

Mark Argento - Craig-Hallum Capital

But the big contributor from external licenses would be YOUBET though?

Richard Battista

For sure, yes.

Mark Argento - Craig-Hallum Capital

Thanks, guys, appreciate it.

Operator

Your next question is a follow-up from April Horace with Janco Partners. Please proceed.

April Horace - Janco Partners

I just want to follow up on a question that Barton raised on advertising. You’ve got a lot of cross-platform initiatives and there’s a lot of other solutions as it relates to ads, ad insertion. Would you guys be willing to partner with the likes of aQuantive or Google or Microsoft on some of those ad initiatives?

Richard Battista

We wouldn’t rule out any of those kinds of partnerships. We think going forward, those are something we would look at, among other things, so no, we wouldn’t rule those out.

April Horace - Janco Partners

Okay. That’s all I got. Thanks.

Robert L. Carl

Operator, we’ll take one more question.

Operator

All right. And your final question comes from the line of David Kestenbaum with Morgan Joseph. Please proceed.

David B. Kestenbaum - Morgan Joseph & Co.

Thanks for letting me on the call. Could I just ask you -- you did a nice job on the publishing side. I’m just wondering, does that change your thinking as far as the break-even timeframe on the magazine?

Bedi A. Singh

No, I think what I said in my remarks and I think what we said in the Q is that we still expect continuing but declining losses for the next three years. It hasn’t changed.

David B. Kestenbaum - Morgan Joseph & Co.

And as far as the timing on the strategic review, is there any timeframe that you are going to give this review before you would back away from it?

Richard Battista

We are not going to comment on that, David.

David B. Kestenbaum - Morgan Joseph & Co.

By year-end, say?

Richard Battista

We’re not going to comment on it.

David B. Kestenbaum - Morgan Joseph & Co.

Okay, and considering that Henry Yuen recently filed a motion, do you have a better sense of where he is, and do you feel more comfortable that you are going to be able to ultimately collect the money from him that he owes the company?

Richard Battista

I’m not going to give any comments on that, based on the fact that it is pending litigation.

David B. Kestenbaum - Morgan Joseph & Co.

Okay, and then finally, Bedi, any other one-time items in the third quarter that we can expect, kind of like the $6.3 million in this quarter?

Bedi A. Singh

No, there is no -- I can’t give you any specifics.

David B. Kestenbaum - Morgan Joseph & Co.

Nothing at this point? Okay, thanks.

Robert L. Carl

Operator, it looks like we’ve finished our call queue for the day and I appreciate everybody joining us this morning. Operator, if you could let our investors know how they can get a replay of this conference call, that would be great.

Operator

Thank you. Ladies and gentlemen, you host for today’s conference is making your call available for replay, which will be hosted for one week following the conclusion of the call. To access the replay, call 888-286-8010 domestic, or 617-801-6888 international. The conference ID is 68489329. An audio archive will also be hosted on the company’s investor relations website at http://ir.gemstartvguide.com. Replays will be available approximately two hours following the conclusion of the call.

This concludes your investor relations call. Thank you very much for your participation and you may all now disconnect.

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