Gambling firm in pact with Gemstar

Monday, May 21, 2001 | 11:06 a.m.

SUN WIRE REPORTS

Gemstar-TV Guide International Inc. will get a stake in Youbet.com Inc. in exchange for giving the online betting company access to the horse races broadcast on Gemstar's television network.

Youbet.com will give Gemstar part of its gambling sales and the option to buy as much as 20 percent of its shares for one-tenth of a cent each. Gemstar may get the right to buy as much as 51 percent for $2.50 a share, Youbet.com said in a statement today.

Gemstar's TVG Network lets viewers make horse-racing bets on their TV sets or personal computers, while Youbet.com customers can wager on thoroughbred and harness horse races. Today's agreement will let Youbet.com's customers bet on races at tracks broadcast on TVG, such as Churchill Downs and Belmont Park.

Youbet.com shares rose 54 cents, or 72 percent, to $1.29 in late-morning trading. Gemstar rose $1.38 to $40.60.

Gemstar became the largest maker of software for television-program guides after paying $14.9 billion to buy rival TV Guide Inc., publisher of the namesake TV listings magazine, in July. The TVG network is available in 6.5 million U.S. homes that get cable or satellite broadcasts.

Gemstar is based in Pasadena, Calif., while Youbet.com is in nearby Woodland Hills.

"We did this deal primarily because content is king, but what we did not have is half the racetrack activity because TVG-- was locked into those markets," Robert Fell, chief executive of Youbet.com, told the Wall Street Journal.

TVG has exclusive contracts with 20 major horse-racing tracks, including Churchill Downs in Louisville, Ky., and Hollywood Park in Los Angeles, that account for about 45 percent of such wagering activity, said Fell. "The biggest reason subscribers canceled with us or did not sign up is that we have not had the major track content.'

Youbet.com has about 15,000 subscribers who pay a monthly fee of about $6 for basic access to track information and activity in 39 states that permit online-wagering activity.

Mark Wilson, chief executive of TVG, said the deal "provides recognition of our intellectual-property position' and would allow both companies to "leverage our combined strengths.'

The two companies have agreed to cross-license patented intellectual property and to mutually promote each other's brands. TVG's parent, Gemstar-TV Guide, has been aggressive in acquiring patents relating to interactive TV and Internet technology and suing companies it believes infringe on its intellectual property, so the deal also could alleviate fears of any potential patent dispute down the road.

Gemstar-TV Guide is 38.5 percent owned by Rupert Murdoch's News Corp.

Youbet.com had revenue of $7 million for the year ended Dec. 31 and a net loss of $1.7 million, or 9 cents a share. Fell said the company has raised $80 million in debt and equity financing since 1998, which it has used to develop and deploy technology that allows customers to receive streaming video of horse racing and place bets online.