Backstretch boost: TVG's landing of Breeder's Cup fights could bolster Gemstar.

GEMSTAR-TV Guide International Inc.'s TVG Network--a cable channel dedicated to horse racing and in-home wagering that is available in 40 million U.S. homes--has won the right to carry racing and process bets from the Meadowlands and Monmouth Park tracks.

The victory is a coup for the network and could provide a small boost for the bottom line of Gemstar-TV Guide, which has struggled to right its financial ship since a 2002 accounting scandal.

The company was awarded a one-year contract for exclusive TV distribution and account wagering rights for the two high-profile New Jersey racetracks. Making the rights even more valuable for TVG, the Meadowlands recently landed the Breeders Cup, a $20 million thoroughbred race second only to the Kentucky Derby in terms of audience appeal.

"We were looking for a television platform with broad distribution throughout the entire country and we wanted programming to go with it," said Jerry Zaro, an attorney and commissioner of the New Jersey Sports and Exposition Authority, the state entity that oversees Giants Stadium, Continental Airlines Arena, the Meadowlands and Monmouth Park. "Of the bidders, only TVG came in with that."

The awarding of the rights, which was announced last month, was not without contention.

XpressBet was among the bidders, and is disputing the award. That strategy has reheated the rivalry between Gemstar and XpressBet's Canadian parent company, Magna Entertainment Corp., which owns TVG rival HRTV. That firm had broadcast races for the New Jersey tracks under the previous contract.

XpressBet formally protested the award to the sports authority but was denied, as was a court injunction last month.

There has been bad blood between Magna and Gemstar since 2003. At that time, Gemstar was suing online wagering site Youbet.com, with whom Magna had several lucrative contracts.

Magna executives weren't available for comment and XpressBet representatives did not return phone calls seeking comment on the matter.

Zaro, though, didn't mince words about his perception of the bidders' differences.

"We have seen steadily declining numbers and we were on HRTV in the past. The idea that we would continue with what we were doing is foolish," he said. "To be honest, it's like looking at color versus black and white. There is more programming on TVG and it's vastly superior."

First, he said, it came down to distribution reach, with TVG extending into more households than the other two bidders. The second difference between TVG and XpressBet, Zaro said, was the breadth and quality of programming.

New Jersey is one of the few states where traces run races at night, another boost for Gemstar's TVG, which has little evening content. The tracks needed the broader reach that TVG could provide relative to the racing world, and TVG is also developing original programming for the tracks.

"It really helps TVG fill in evening programming content and complete an underdeveloped niche in offering harness racing," said Gemstar spokesman Chip Tuttle.

Good performance

TVG is just one piece in a Gemstar financial puzzle that's been under a cloud for the past few years.

The company has seen strong performance recently in its cable and satellite operations, which along with the company's consumer electronics division, has fared well. But Gemstar, which owns TV Guide magazine and TV Guide channel, has seen its publication division consistently struggle. The publishing unit, anchored by the namesake magazine, lost $9 million in the most recent quarter. Year-to-date losses are $33.1 million. It has also grappled with fallout from a 2002 financial scandal: The Securities and Exchange Commission said late last month that it will hand out $83 million in cash and stock to shareholders of the company who were hurt by a scheme that involved inflating revenues to meet financial targets.

Gemstar's third-quarter numbers, released in November, show income from continuing operations before taxes of $19.8 million, compared with a loss of $2.1 million for the same quarter last year. Earnings per share came to 4 cents, while analysts expected only 1 cent per share, according to Reuters Estimates.

The financial performance has been good, but that hasn't been enough for investors. After hovering around the $6-a-share mark in January 2005, the stock tumbled to the $2 range this summer before pulling up to around $4 last month.

"I don't think growth for TVG will be as significant for Gemstar as fixing TV Guide magazine or increasing the number of homes that have access to their interactive program guide," said analyst Alan Gould of Natexis Bleichroder Inc.

Racing attendance is on the decline nationally and the widening availability of online gambling and other forms of entertainment is further eroding its market share.

"TVG has a very nice niche in a declining business," said David Kestenbaum, a Gemstar analyst with Morgan Joseph & Co Inc. "It's hard to predict racing will come back, though when and if there's a Triple Crown winner in the future, it will generate much more excitement."