Gemstar-TV Guide International Q3 2007 Earnings Call Transcript

Gemstar-TV Guide International, Inc. (GMST)

Q3 2007 Earnings Call

November 01, 2007 5:00 pm ET

Executives

Robert Carl - Vice President of Investor Relations

Rich Battista - Chief Executive Officer

Bedi Singh - Chief Financial Officer

Analysts

Barton Crockett - JPMorgan

April Horace - Janco Partners

Alan Gould - Natixis Bleichroeder

Todd Mitchell - Kaufman Brothers

Presentation

Operator

Good day, ladies and gentlemen. And welcome to the Quarter Three 2007 Gemstar-TV Guide International Earnings Conference Call. My name is Michelle, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

And, I would now like to turn the presentation over to your host for today’s call, Mr. Robert Carl, Vice President of Investor Relations.

Robert Carl

Thank you very much, Michelle. I would like to welcome everyone to Gemstar-TV Guide’s third quarter 2007 conference call. I'm joined this afternoon by Rich Battista, Gemstar-TV Guide's Chief Executive Officer, and Bedi Singh, our Chief Financial Officer. We’ll begin this afternoon’s call with Rich discussing the continued strategic progress we’ve made in the third quarter of 2007, then Bedi will follow with a financial analysis of the quarter. We’ll go right into your questions then immediately following that.

We issued a press release earlier this afternoon, which detailed Gemstar-TV Guide's financial performance for the third quarter, which ended September 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 the 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’m happy to turn the call over to Rich Battista.

Rich Battista

Thank you Rob, good afternoon everyone and thank you for joining us. Today, we will provide you with an overview of the company’s performance in the third quarter. I will cover some of the individual highlights in our business units during the quarter, and also touch on a few of our key strategic accomplishments. And then Bedi Singh, our Chief Financial Officer will take you through the quarter’s financial results.

As always before we conclude the call, we will be happy to take your questions. First, before we get in to the financial results and business highlights for the quarter, I want to take a moment to mention the company’s exploration of strategic alternatives, which as you know, we announced in July.

The strategic alternatives process is still in progress and therefore as I’m sure you can appreciate, we will not be able to discuss any details related to this review on today’s call. As I said, our last quarter's call during this review process we remained fully engaged in the operation of our businesses, and we’ll continue to focus on executing on our business plan and further improving both our operation and financial results.

So turning to the third quarter, we saw solid results as we continue to make progress in key areas around the company that are core to our strategic mission. We also continue to make investments that will be important as we move ahead.

Let’s turn first to Q3 activity in our business segments. In our Guidance Technology and Solutions segment, we’re continuing to see solid results with a 20% increase in revenue year-on-year. We remained focused on expanding our patent licensing internationally and to new media platforms.

This quarter, we announced new agreement with MediaFLO in the mobile arena, TitanTV in the online arena and with SKY Italia, Italy’s leading digital TV service. These deals continue to signify the increasing value of our intellectual property, and we continue to focus on other licensing opportunities both overseas and domestically.

IPG products and services business also continues to grow. This quarter Passport DCT, DCT 3.0 and Passport Echo launched to several MSOs in North America, South America and the Caribbean. These IPGs are both products of Aptiv Digital, which we acquired earlier this year.

During the quarter, we also completed the construction of our new IPG OCAP SA lab in Tulsa. This investment will allow the company to operationally support our guide deployments in both OCAP and SA environments.

Now, turning to the Media Networks segment, during the third quarter we continue to make strategic programming and marketing investments at TV Guide Network. As we said in past quarters, we’re in the process of transitioning TV Guide Network from a utility service to an entertainment destination.

High quality programming that will drive viewership is a key piece of the strategy, and will continue to invest in both programming and marketing to achieve this goal. Let’s turn for a moment to the originally produced and acquired programming that aired in the third quarter in particular Making News: Texas Style, Surreal Life and America’s Next Producer.

Making News: Texas Style, our first original reality series, completed its first season run and was the second most watch series for TV Guide Network during the summer. We also saw the highest episodic ratings ever in certain markets with this series. Making News delivered at 1.0 or greater rating at least once in 19 markets around the country. We are pleased with how this series progressed during its run and have renewed the program for 2008.

Our newly acquired programs Surreal Life also performed well for the network during the quarter. In particular, we saw strong demo improvements compared to programming the aired in the same time periods in 2006. On average Surreal programming was up 38% with women 18 to 34 and 10% with women 18 to 49, which are both key target audiences for the network.

Unfortunately, America’s Next Producer did not achieve the break out performance we had hope for. So that program will not return. However, we will continue to strive to produce high quality original programming that would resonate with viewers.

For example to capitalize on a relatively high ratings that the network sees with breaking news and celebrity oriented programming, we recently announced that we’ll launch a new daily hour-long entertainment news magazine show, The Hollywood 411, which will air live from Hollywood in New York beginning in January. This daily program plays to our strength as an entertainment network, which is part of a company with deep editorial resources and we are looking forward to its addition to this schedule.

Moving to advertising, although our overall revenues at TV Guide Network were up only marginally during the quarter, I am pleased that our national advertising grew 6% year-over-year. Additionally, our national broadcast upfront, which was completed earlier this year, saw double-digit percent increases in both dollars and CPMs. In addition, our ME advertising revenues were strong this year up more than 33% year-over-year.

Moving to other businesses in our media network segment, first TV Guide broadband, which celebrated its first anniversary in Q3, and achieved 2.6 million video plays for the month of September, the highest ever level of viewing.

Several new distribution deals were also reached during the quarter with Comcast The Fan, glam.com, views.com and the newsroom.com. And we successfully closed our first upfront deals with two advertisers, P&G and Craft. For TVG, our horseracing network and wagering network Q3’07 was the best quarter in the company’s history in terms of handle, with a $148.5 million, an increase of 17% versus Q3 ’06.

Despite the losses on Churchill Downs tracks during the quarter, we saw strong growth in active advance deposit wagering accounts and double-digit handle increases from key tracks such as Belmont, Del Mar and Saratoga. As well as incremental growth from new exclusive tracks to the TVG network including Meadowlands, Monmouth Park and Yonkers.

We have very good news to report in two big states. First in California, the ADW law that was said to expire at the end of the year has been renewed indefinitely. And second, as you may have seen this morning, we announce that in New York, the country’s largest pari-mutuel wagering state, we have teamed with Yonkers Raceway to launch an online account wagering service for New York residents. We are delighted to offer wagering services in the New York market, though we also recognized it will take us a period of time to build up our customer base there.

I’m pleased to see the continued traffic growth on our online networks. September 2007 marked record traffic levels for a combined network of sites and for.TVGuide.com individually. According to Nielsen net ratings our online network of sites attracted approximately 6.3 million unique users.

Of this amount, 5.7 million unique visitors during the month were attributed to TVGuide.com alone marking a 53% year-over-year increase for the site. For the third quarter as a whole we had 5.3 million average unique visitors for a combined network of sites and 4.8 million for TVGuide.com alone, both are all time guides.

We saw a year-over-year traffic growth of 54% for TVGuide.com, which is more than doubl the growth of its closet competitor AOL TV at 22%. This increase in unique visitors helped drive ad revenue growth for our online networks for the quarter where we saw an 84% increase year-over-year.

I’m very please that we’ve also dramatically improved our multi-media capabilities across our online networks. At the end of the quarter, we formally launched our online video guide on the TVGuide.com homepage and an all show, movie and celebrity pages throughout the site.

We also launched a new video player on the site allowing the sharing of videos and other valuable features among our users. Our traffic growth can be attributed several factors including our breaking news initiative, the launch of the online video guide, our enhanced TV show and celebrity pages and our syndication strategy, where we are seeing strong growth in the syndication of our listing grid as well as editorial and video content to various websites.

Moving to TV Guide magazine, we saw a very solid performance in Q3. In ad revenue, Q3 was the highest quarter since the launch of the new magazine two years ago. Compared to Q3 ’06 we were up 22% in ad revenue and 25% in ad pages. Considering that the consumer magazine industry was down to 2.3% in ad pages during the same period, so certainly an impressive performance.

Our September 17th franchise issue Returning Favorites carried 47 ad pages our highest number for any issues since the re-launch. And the September 24th issue that featured the house Hugh Laurie on the cover carried $2.4 million in advertising, our highest revenue for any issue since the re-launch.

Our ad pages for the final three September issues from the top four broadcast networks ABC, CBS, NBC and FOX were up 92% compared to the same issues in ’06. And ad pages in the form of high impact and multi-page units from these same network advertisers was also up significantly.

In addition, conventional advertising grew 21% in paging over Q3 ’06. And new advertisers to the magazine accounted for 30% of our conventional pages. We believe that we are seeing an overall turnaround in advertisers’ acceptances of the magazine.

And continuing our focus on innovation our fall family preview special issue contained a disc with exclusive content from High School Musical II, a hugely popular Disney channel show.

The disc was sponsored by a new advertiser for us, Wal-Mart and TV Guide received special newstand promotion displays at Wal-Marts across the country promoting the issue. This was also a terrific example of a cross platform initiative that also involved TV Guide Network and TV Guide online.

We continue to see a higher percentage of readers renewing their subscriptions to the magazine and the composition of our subscriber file continues to trend younger and more affluent. Since the new magazine launched two years ago, our composition of new subs aged 18 to 34 is up 73%, compared to the Digest magazine. All in all we’ve seen some very positive signs at TV Guide magazine and Bedi will tell you how this impacts our projection shortly.

Moving on to a few other areas of focus. As you know, we launched a national consumer advertising and marketing campaign in September that was tied to the start of the fall television season. This innovative multi-million dollar campaign is unique in two important ways. First, as show specific, with television and online ads tied to 13 popular fall shows; second the media strategy is innovative in that the TV ads aired only during these specific shows and the online ads were featured on the appropriate show website along with other entertainment websites.

To further support the positioning of the company as a relevant cross platform brand we also created an extensive amount of unique and exclusive show-specific content across our platforms as part of this campaign.

This content included enhanced show pages at TVGuide.com, specials that aired on TV Guide Network and in-depth features in TV Guide Magazine, all dedicated to these top 13 shows. We are confident that we have delivered on the campaign's promise that TV Guide is the brand to help TV enthusiasts get through the week between their favorite shows.

We’re continuing to invest in product development and technology, including the build out of My TV Guide, our personalized cross platform guidance products and services. As we said when we announced My TV Guide earlier this year, we are planning a phase deployment of these products and services.

The first phase of our deployment strategy is on the web and to that end, we have signed partnerships with over 60 small and mid size cable operators for their online IPGs and we expect that number to continue to grow.

In addition we are close to completing the expansion of our content and enhanced data, which now includes program graphics, video previews, celebrity and movie data and editorial recommendations.

We’ve also completed the internal development of our various back-end web services that will be required to deliver this switch content to consumers via their IPGs. Examples of these web services include cross platform search, personalized recommendations, remote recording, user profiles and advanced guide advertising.

We are now in the early phases of integrating these back-end services into our product lines including TVGuide.com, GuideWorks, Passport and TV Guide On Screen. Because they are ready for integration we are also actively discussing these services with cable, satellite, telco TV operators and mobile operators, CE companies and web portals.

Moving into the fourth quarter and beyond we will continue to make investments in this area as we look to deploy My TV Guide's products and services to set top boxes and consumer electronics devices, in the latter half of 2008 and 2009. We expect we will have more to announce in the coming months regarding My TV Guide.

On last quarter's call I mentioned our Online Video Awards, a new cross platform franchise for the company. We will recognize the best and most innovative professional web video content with a special live awards event in Los Angeles.

This event will premiere as a two hour taped television show on a broadcast network, My Network TV on December 5 with encore airings on TV Guide Network. We created this program to tap into the excitement and innovation that is currently taking place with professionally produced web only programming, and to build a new advertising franchise for the company.

Fan voting can choose the winners in 18 categories is taking place online at TVGuide.com, and we've already seen an enthusiastic response by our users with more than a million votes cast thus far.

Once again I am grateful to our employees for their hard work this quarter. We continue to make progress at the company across all of our business units and we’re privileged to be working in exciting arenas of media and technology at truly an exceptional time of change and evolution. I am delighted with our progress as we continue to work in the best interest of our shareholders.

I appreciate your time today and I look forward to taking your questions in just a few minutes.

And with that, I will turn it over to Bedi.

Bedi Singh

Thanks Rich. As Rich outlined, we achieved solid operating results in the third quarter and made good progress against many of our key business initiatives. Our financial results this quarter were also positively impacted by the non-cash benefit of reversing our deferred tax assets valuation allowance, which I will discuss in more detail shortly.

The third quarter approximate benefit of this reversal was about $0.27. For the quarter, consolidated revenue increased 7% to $160 million; operating income was $5 million and net income was $123 million;earnings per share was $0.29. For the first nine months, consolidated revenues increased 11% to $472 million and operating income doubled to $72 million.

Net income increased to $178 million and we recorded EPS of $0.42 versus $0.10 from the first nine months of '06. Net income and EPS for the first nine months benefited from the effect of the valuation allowance reversal that I mentioned a moment ago.

We had historically carried valuation allowance against the deferred tax assets on our balance sheet, due to the uncertainty about the recoverability of these assets. However, as of September 30th 2007, consistent with FAS 109, we determined that we no longer needed this valuation allowance.

As detailed in the 10-Q that we filed today, this conclusion is based on the company’s history of achieving profitability and pretax book income, as well as our expectation that we will continue to produce taxable income in the future. It is important to note that this is a non-recurring, non-cash benefit for this quarter and the full year.

Now, turning to the segments, I’ll briefly discuss the financial results on the segment-by-segment basis. For the Guidance Technology and Solutions Segment, where the past quarter represented 43% of consolidated revenue, revenues were $68 million, up 20% compared to Q3 '06.

The IPG Patent Licensing revenues increased 30% to $41 million, primarily due to the Patent License Agreements with BSkyB, which was signed in Q4 '06 and from SKY Italia, which was signed in Q3 '07.

We also saw a healthy year-over-year increase in the number of digital subscribers for our U.S. cable and Satellite licensees. At the end of Q3, we had approximately 57 million digital households under IPG Patent Licenses, up 38% versus the prior year’s quarter.

Included in this number roughly 13 million international households; of this, approximately 4.2 million are SKY Italia. IPG products and services revenue increased 26% to $19 million. This was primarily driven by inclusion of revenue for the Passport IPG of Aptiv Digital, a company that we acquired in late March 2007.

At the end of Q3, the total number of cable subscribers that received either our iGuide IPG product or our Passport IPG product was approximately $15 million. This excludes more than 11 million Comcast Digital homes, which also receive an iGuide IPG through our GuideWorks joint venture. Revenue associated with these Comcast subscribers is reported as patent licensing revenue in our segment of that.

Operating expenses for the Guidance Technology segment in Q3 increased 12% for approximately $3 million due to the inclusion of Aptiv Digital operating expenses. Including such ongoing expenses adjusted EBITDA for the segment increased 24% Q-over-Q.

We are also pleased with the positive EBITDA contribution Aptiv is making to the company. For the Media Networks Segment, which represented 32% of consolidated revenue in Q3, revenues were $51 million, slightly higher compared to last year’s quarter.

As a result of making the investments in programming and promotion at TV Guide Networks, which Rich discussed earlier ,this segment’s adjusted EBITDA was $3 million, which was lower than Q3 last year. TV Guide Network revenue was $31 million, basically flat compared to Q3 ’06. Distribution increased 4%, and the Network reached 83 million Nielsen households at the end of Q3.

Of this total digital households grew 18% to 57 million, while analog households decreased 17% to 26 million households. This migration to digital households we have spoken about on prior calls require us to continue the investments we are making in new programming formats for the Network.

It is our expectation that for the remainder of the year, revenues for the network will be just slightly ahead of the same period last year. TV Guide Network launched its new programming towards the end of Q3. This programming and its associated promotion resulted in approximately $9 million of additional investment in Q3 compared to the prior year.

This incremental investment supports our longer term strategy to transform the Network from a utility to an entertainment destination. Regarding Online Networks performance improved significantly and translated into healthy year-over-year growth in both unique and revenues, with increases of 70% and 84% respectively.

The increase on revenue was largely driven by program advertising related to our fall preview and ME cross-platform templates as well as ad placements on our new Online Video Guide and double-digit gains in average CPMs versus Q3 ’06. It is our expectation that full year 2007 revenues for Online Networks will grow at the expected double-digit industry average growth for Internet display ads.

For TVG, our horseracing network, revenue in Q3 was flat year-over-year. Although TVG’s direct wagering handle grew 17% to $148.5 million, the record single quarter handle, licensing revenue declined in Q3 due to the non-renewal of our license agreement with AmericaTAB, which is now a wholly owned subsidiary of Churchill Downs.

TVG’s U.S. distribution footprint continued to grow this past quarter with the Network now reaching just over 28 million digital households, an increase of 9.5 million over Q3 ’06. It is our expectation that for the reminder of year revenues for TVG Network will be just slightly ahead of the same period last year.

Turning to TV Guide Magazine, total revenues for this past quarter were $41 million, down 6% from the prior year’s quarter, primarily because ‘06 included an extra fiscal week with an associated $2.6 million in revenue.

Rich highlighting the Magazine’s solid performance during the quarter, including the strong increases in ad paging. This increase in paging resulted in a 22% increase Q3 ad revenues. In the quarter, we also saw a strong revenue growth from conventional advertisers with approximately a third of the increase coming from new advertisers such as Ritz, Oscar Mayer and Smuckers to name just a few.

Given our revenue of this past quarter, we now expect to finish the second half of this year with revenues up slightly versus the first half of this year. During the third quarter, the Magazine also experienced $6.6 million decrease is subscription revenues; $1.7 million of this decrease is attributable to Q3 ‘06, having included revenue for an extra fiscal week as noted in 10-Q.

In addition, we experienced and anticipated decline in average subscriber rate per copy as we continue to focus on stabilizing our total subscriber base. Going forward, we project that our subscription revenues will continue to further decline due to slight decreases in RPC before reaching a sustainable level from our renewal, and new business pools in the second half of 2008 onwards.

For Q3 the publishing segment achieved a lower negative adjusted EBITDA of $2.2 million versus negative adjusted EBITDA of $7.3 million in Q3 '06. This better performance is attributable mainly to the acceleration of operational efficiencies, including general and administrative cost reductions, and reduced print and paper costs.

In addition we successfully outsourced our fulfillment services in Q3 '07. As planned and as mentioned in our Q2 call the Magazine is going to incur significant expenses related to subscriber acquisition efforts in the fourth quarter this year.

However, based upon TV Guide Magazine’s performance to-date and our outlook for the reminder of the year, we are reducing our estimate from negative adjusted EBITDA to the $20 million to $23 million range for the full year 2007. Also we now anticipate continuing with declining losses for approximately the next two to three years thereafter.

To conclude the financial review, let me finish with the cross platform cost segment. For the quarter total cross platform segment expenses were $27 million compared with $17 million for Q3 ‘06, which had included a reversal of $3.9 million in accrued legal expenses relating to a former CEO.

Product development and technology expenses were approximately $5 million this past quarter and are $13 million year-to-date. As noted on our last call we expect full year 2007 to come in at approximately $19 million.

Corporate marketing incurred approximately $7 million in costs this past quarter, as we launched the national cross platform, consumer marketing campaign Rich described earlier. Year-to-date corporate marketing costs are $10 million, and we expect these to ramp up through the fourth quarter.

We expect full year 2007 costs to be approximately $22 million. Corporate general and administrative expenses, which as you know are also shown separately within the cross platform cost segment, were approximately $16 million in Q3.

For the nine months year-to-date, we have incurred approximately $31 million in G&A expenses. This year-to-date amount includes $3.2 million of expenses related to the strategic alternatives process and the benefit of the positive contribution in Q1 from the reversal of $10.7 million in accrued liabilities, relating to a patent rights agreements with a former CEO.

Excluding both these items, we had a 14% decrease in corporate G&A costs for the nine months of 2007, compared with the same period in the prior year, primarily due a reduction in corporate legal expenses and corporate overhead.

The full year of 2007, we expect to incur a total of approximately $50 million in corporate general and administrative expenses. And this includes a total of approximately $5.5 million in costs of the strategic alternatives review process and the benefit of the $10.7 million reversal I just mentioned.

Regarding capital expenditures, for the first nine months '07, we invested approximately $16 million and consistent with the comments made in our Q2 call, we expected total capital expenditures of approximately $34 million for 2007.

This includes capital of approximately $7 million to be spent in the fourth quarter for the relocation of our New York offices from 1211 Avenue of the Americas to 11 West 42nd Street. In addition, we have made considerable progress on our content infrastructure, which is the backbone system that provides the foundation for all our current and future product offerings. As planned for full year 2007 we will invest approximately $11 million and we expect this project to be completed by the middle of next year.

So to summarize, the company delivered another strong quarter with 7% Q-over-Q increase in consolidated revenue and adjusted EBITDA of $17 million. On a nine month basis the company has increased consolidated revenue by 11% to $472 million; increased adjusted EBITDA by 67% to $104 million and doubled its operating income to $72 million. Relative to December 31, 2006, we have also increased our cash, cash equivalents and marketable securities by $33 million to $547 million of September 30, 2007.

We are very pleased with the results for 2007 year-to-date and looking ahead we remain on course to further develop our revenue potential, particularly in international markets and on emerging platforms.

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

Robert Carl

Thanks very much, Bedi. Before I turn it over to the operator to advise our listeners as to how they can enter the queue for questions, I’d like to reiterate the comments made by Rich earlier in our call.

While, we understand that you might have questions about the strategic alternatives review process, we will not be discussing any details regarding this subject and I appreciate your understanding on this.

Now, operator if you would please proceed.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Barton Crockett of JP Morgan.

Barton Crockett - JPMorgan

Thanks for taking the question. I wanted to ask you something about IPG advertising, which does not appear to be a material number in terms of the discussion you just went through but I think it’s an area of historically high expectations and maybe potentially high expectations again.

I’m just wondering if you could fill us in little bit as to why IPG advertising is such kind of limited business right now? Is it something technological, or is it something where the cablers and DBS companies don’t want to go there, the advertisers don’t want to go there? And is there something someone could bring to the table that would make it more interesting?

Rich Battista

I tell you, of the three you just mentioned, it’s mostly technological. I think it’s a little bit with the cable operators and satellite providers have to decide whether they want to plunge into that area. Advertisers absolutely are very intrigued by it.

So it’s mostly on the technological side and really the bottom line is, today there just isn't the ability to provide ads that are that compelling, either for consumers or advertisers.

There's no ability quite yet to create back-end measurement, which is critical; there’s not an ability to create great video ads, we're just starting with those but the ability to see an actual full-blown video ad, the bandwidth just isn’t there today to do that; the ability to have interactive advertisements.

So those are some of the three key points, but as part of our whole My TV Guide plan as we mentioned in our investments, we are making real investments in advanced advertising for IPGs, but we're just in that process today and don’t expect any material IPG advertising in the near future.

Barton Crockett - JPMorgan

Okay, and so just to make sure I understand the technological concerns which you consider is the largest. Is it more in software and server or is it more in bandwidth constraints?

Rich Battista

Yes, I think it's actually both. There is the variety of set top boxes out there, some that can handle the bandwidth. Obviously, the newer boxes can handle it and that's why when you start seeing the set top boxes that you get in the market place you're going to see this become a much more interesting opportunity for everybody.

But it’s also the idea of have the proper software for measurement, which also is coming. All these things are coming so we actually feel quite positive about the future opportunity in IPG advertising but it's going to take some time.

Barton Crockett - JPMorgan

All right. And I wanted to switch a little bit just to make sure that I understand what you have said about this strategic process which I understanding you're not going to elaborate on anything at this point, but my understanding from what you have said is, basically it’s a review and really you haven’t specifically excluded anything as part of this review so one of the questions that I hear from people is, would they only contemplate the sale of the entire company or would they contemplate other things potentially a splitting up of the company?

My understanding is that you haven’t elaborated on one thing or another and that nothing is really explicitly off the table. I just want to make sure I’m correct on that?

Rich Battista

I think that is what we said in the initial press release, which is basically we're exploring strategic alternatives, which is a range of various options. And obviously, I am not going to comment right now and elaborate on that but suffice it to say that that’s what we said in the press release.

Barton Crockett - JPMorgan

Okay. So that doesn’t specifically exclude anything, as I understand it, correct?

Rich Battista

If that’s how you read it, I would think that’s the way you would read it. Yes.

Barton Crockett - JPMorgan

Okay. All Right. And then one final thing, then I'll let others ask questions. If you can talk a little bit about the My TV Guide initiative and the integration into the set top box, can you give us some sense of what the features are that you would get from that on the set top box, it’s hard for me even to envision; I was wondering if you could elaborate?

Rich Battista

Sure. Few things, I think one feature for instance would be what we call Smart Recommendations, so one of the features of this is the ability to understand who the person is, who is watching the Guide and be able to provide enhanced guidance for them because you know who they are, so the idea that we could have favorite shows or favorite celebrities or favorite channels all ear-marked for people.

And so that you can push to them the experience on their screen, that’s more relevant to them. So that’s one big piece of it. A lot of things you can do on the Internet today; so the idea in that if you're interested in learning more about a TV star, you go on TVGuide.com today and type in that star's name and you get a plethora of information about that star; you'll get photos, you get videos of that star.

The idea that all of that could happen in 10 foot experience in your living room. Now anything you do is going to be less text driven, because it’s harder to read probably on a screen but the idea of all this enhanced graphics and data and the like is another big part of it so that rich media piece.

And then the ability to make it cost platform is a really big part of this. We like to use remote recorders as an example of that. The idea that I could be sitting in my desk at work and I forgot to record my favorite show that night at home on my DVR I could do it right on to my computer at work, or I can do it on my mobile phone.

The ability that if I check preferences on My TV at home those preferences will be shut and locked online as well and on a mobile phone too so to create a custom user interface across the three and have them talk to each other.

Those three things I just mentioned are all, research shows, consumers are very interested in.

Barton Crockett - JPMorgan

Okay. That’s sound really interesting. I'll let others ask questions. Thank you very much.

Operator

Your next question comes from the line of April Horace, of Janco Partners.

April Horace - Janco Partners

I wanted to kind of follow up on Barton's question on advertising and technology. Is this when you talk about the technology and the software, are there companies out there, that you’ve looked at that already has this kind of software developed that you could just incorporate into My TV Guide; that you could get that product to market quicker?

Rich Battista

There are a range of companies that we're talking to. I can’t tell you that exactly someone has the perfect solution today. But there absolutely are companies that we're talking to that are looking at providing these kinds of services.

But I think anything you do would have to have some customization to it. There is not really an of- the shelve solution today, but clearly companies that are looking at that space and that we’re talking to.

April Horace - Janco Partners

Would that be companies like Aquinas and the obvious of Google?.

Rich Battista

I’m not going to comment on specific companies April, but if you’re familiar with the space you may have an idea of who some of those players are.

April Horace - Janco Partners

Okay. Then, you went through it pretty quickly, an update on reporting to the SA box and where you are with respect to Charter and Cox?

Rich Battista

We’re continuing the development of iGuide, it’s still in process. I would say it’s nearing completion to the point that the [] is beginning. That said this is something that takes time; it’s a process that takes time; integrating the service is complicated.

And so, I can’t tell you today it’s complete, but I can tell that’s it’s well underway, and I think we’ve said previously that we believe in '08 we’ll be deploying this product and I think we still feel that that makes sense. That sounds right.

April Horace - Janco Partners

First half or second half of '08?

Rich Battista

I said first half of ’08.

April Horace - Janco Partners

First half. Okay.

Rich Battista

So we still feel good about that. This stuff always takes longer than you hoped.

April Horace - Janco Partners

Yes, it does. The licensing revenue increased from last year of 57 to this year of 68, is that all BSkyB, SKY Italia?

Bedi Singh

Yes, it’s primarily that and also increases in the digital cable; permanent satellite.

April Horace - Janco Partners

Would that be more…?

Bedi Singh

Domestic.

April Horace - Janco Partners

Would that account for 80% from BSkyB and SKY Italia?

Bedi Singh

Unfortunately, we’re not giving that kind of split but I think you can read my script and make your own conclusion.

April Horace - Janco Partners

And then lastly, just a quick question, I think you said you spent $3.3 million on the strategic alternatives this quarter and the total for the year is going to be $5.5?

Bedi Singh

Correct.

April Horace - Janco Partners

Any clarity as to why that number would go down?

Bedi Singh

It’s an estimate; it could go up. I mean, I think that’s our best estimate.

Rich Battista

What was your question?

April Horace - Janco Partners

I was just wondering, why the strategic moneys that were spent this quarter were $3.3 and now it’s going to go $5.5 for the year, which means it’s going sequentially go down Q-over-Q?

Bedi Singh

It’s an estimate as I said; I mean, it could a million here or there.

Rich Battista

There’s no magic to it.

Bedi Singh

There’s no magic to it.

April Horace - Janco Partners

Okay. And then lastly, it seems like, you’re still giving a lot of cushion to the Magazine based upon the $9 million of losses to-date and you’re still going to spend versus $20 to $23?

Bedi Singh

As I said in my remarks, the Magazine is going to spend significantly on subscriber acquisition efforts in Q4, which is traditionally, what they do during the holiday time. And they did the same thing last year. So I think, that’s spend that’s already been committed as well, but we won’t be spending more in Q4.

April Horace - Janco Partners

Okay. That’s all I got. I just want to say congratulations on all of your cross platform initiatives.

Rich Battista

Thank you, April.

Operator

Your next question comes from the line of Alan Gould of Natexis.

Alan Gould - Natexis

Thank you. I’ve got two questions for you. First, how is your R&D and all your advances in this next generation guidance product My TV Guide impact GuideWorks? Does GuideWorks take part of that or is it just all separate from GuideWorks?

Rich Battista

It’s absolutely separate although obviously we are working closely with GuideWorks to integrate a number of these features. Some of those things I just talk about in a minute ago, rich media, enhanced data, personalized recommendations, we are working with them closely to figure out how to best integrate it into the iGuide.

But it's also content that we’re creating not just for our iGuide and potentially Passport but one important point to make is we’re also looking at offering these services as an hour part basis to our patent licensee clients. So if someone doesn’t take our Guide that doesn’t mean we can’t offer these services to them. So that’s another big part of what we will be offering through that $19 million we are spending.

So I just want to make it clear to people that My TV Guide isn’t just the suite of services that will be offered to our iGuide and Passport clients. We’re also offering these as à-la-carte offerings to our patent licensee clients.

And then of course the CE business also will be offering My TV Guide, so that $19 million also includes what we’re doing to develop our My TV Guide for the consumer electronics business. And then the Internet of course too. I don’t want you to think this is just a GuideWorks specific type initiative; it’s much, much broader than that.

Alan Gould - Natexis

Okay. And then my second question is how long can the strategic review go on before it starts impacting your employees and your ongoing business?

Rich Battista

Again Alan, I know you want to get more color on this, but unfortunately I just can’t talk any further about it.

Alan Gould - Natexis

Okay. Thanks a lot.

Operator

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

Todd Mitchell - Kaufman Brothers

Good evening gentlemen. I want to go back to the launch of the iGuide on Cox and Charter and the acquisition of Aptiv, how many different guides do you have out there? And how long or is the plan to standardize on a single platform or two platforms, and how long would that take and how important is that to the My TV Guide initiative?

Rich Battista

I mean, there’s essentially really two products that have some have high variations to them, but the main two products are the Passport product that Aptiv develops with some corollaries and then obviously iGuide. So it’s really two guides that we offer to the cable community.

I’m not going to go into specific strategic decisions just for competitive reasons. Obviously the market will dictate demand. We’re absolutely moving forward on Aptiv in creating a set of My TV Guide products suites of services for sure, but we’re also doing that with iGuide.

And we feel like for us to have a variety of products in the marketplace will serve us very well because not every client wants the same product and not every client has the same needs and uses. Some clients really like the Aptiv product and want to continue with that, some folks love the iGuide products. So we think it’s serving us very well.

The other important point I think to make is iGuide is really a cable-focused guide in the U.S. With the Aptiv acquisition, we have the ability to build a whole international opportunity there in the telco space and the like, so that’s something we’re exploring and I don’t have any answers for you today on that and where that could go, but that’s obviously an interesting opportunity for us.

Todd Mitchell - Kaufman Brothers

Okay. On the TVG and the Yonkers betting, how does this portend for further carriage?

Rich Battista

I think it’s a real positive.

Todd Mitchell - Kaufman Brothers

Forgive me here, but do you have any carriage in New York at this point?

Rich Battista

We do some sports carriage with Cablevision. But again we haven’t had wagering there, so we think in New York there are some real opportunity to expand our distribution.

Todd Mitchell - Kaufman Brothers

And is there an administrative process that you would have to go on beyond partnering with this entity in order to offer waggering in this market, if you would go with straight carriage and have people go to your website to basically gamble?

Rich Battista

Not that I’m aware of. No.

Todd Mitchell - Kaufman Brothers

Okay. And then the last question is in regards to the cancellation of the Top Producer show. Is that a 3Q or a 4Q ‘08 and is that reflected in the 3Q or 4Q numbers?

Bedi Singh

The cost for that show is in Q3.

Todd Mitchell - Kaufman Brothers

And it’s done?

Bedi Singh

Yes.

Todd Mitchell - Kaufman Brothers

Okay. Thank you very much

Operator

(Operator Instructions) And your next question is a follow-up form the line of Barton Crockett from J.P. Morgan

.

Barton Crockett - JPMorgan

I wanted to ask you a question about the marketing spend. You were talking I think before about cross platform marketing of 15 to 20 now you’re taking it up to 22. Why is that?

Bedi Singh

I think it’s a very small variance from what we had before. I mean, we won’t read too much into it.

Barton Crockett - JPMorgan

Okay. All right. And then on, in terms of the guidance for eventual profitability on the TV Guide Magazine, you are now saying two to three and before you were talking three, so you’re seeing a possibility of an earlier turn to profits than you would contemplate before?

Rich Battista

I would interpret it that way, yes.

Barton Crockett - JPMorgan

Okay. All right. And then on, in terms if we look at the IPG, the license business, you just did this deal with Qualcomm and in cell phones I think are an interesting idea conceptually just because there’s so many of them and so much interest in using them in video.

Can you give us some sense of a) was there anything from the Qualcomm deal in the quarter or would we potentially see anything meaningful in the fourth quarter and then b) over time how material could this opportunity be for you?

Rich Battista

I think in the next few quarters it’s going to be immaterial, certainly Q3, Q4; but I don’t want to be specifically on MediaFLO but we think this whole category will become a meaningful licensing opportunity for us down the road.

Barton Crockett - JPMorgan

I mean, in order for it to become meaningful, do you need people to be commonly watching TV on their cell phones; it’s hard for me to see that cell phones providers will be spending a lot for a feature, if nobody is really watching TV on their cell phones?

Rich Battista

Well, I think there’s three things. One is, it’s not just about people watching live streaming television, it’s also people potentially seeing on-demand clips and on-demand programming. You may want to watch a three-minute clip from a show or even in that scenario you may need a guide, so either way the carriers have gone pretty big in video on mobile phones.

And obviously, the handset usage in Japan is a nice proxy; we know that U.S. doesn’t always equate to Japan but clearly videos is going to be, we believe and I think that projections are there will be 50 million to 60 million people in the U.S. alone in 2011 that consume video on their mobile phones, so for us, you are going to need a guide if you are going to do that no matter what really form that video is in. So we think it’s a real opportunity.

Barton Crockett - JPMorgan

And then one final thing here, you were spending $7 million in CapEx for the relocation in New York while you were in the midst of review of strategic alternatives. Is there some possibility that you would wait on that while you just kind of finish up the strategic review?

Rich Battista

No, that’s happening and will be done by year-end.

Barton Crockett - JPMorgan

Okay. All right. Great.

Rich Battista

Operator we’ll take one more question and then after that if you could inform our listeners how they can get access to a replay of the conference call that would be great. We’ll take one more question.

Operator

Thank you. And your final question will be a follow-up from the line of April Horace.

April Horace - Janco Partners

Just one quick question on the licensing revenue, can you give us any color as to the split as to how much is coming from domestic versus international?

Bedi Singh

We don’t actually provide that split. But we gave you numbers on the number of subscribers international and domestic and I think we've said previously that international revenues tend to be a little lower than domestic revenues so that might give you something to play with, figure that out.

Operator

And ladies and gentlemen your host is making today’s conference 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 number is 80647495.

An audio archive will also be hosted on the company's Investor Relation website at http://ir.gemstartvguide.com. Replays will be available approximately two hours following the conclusion of the call. This concludes our investor conference call. Thank you very much for your participation.

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