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Gemstar Acquires NuvoMedia, SoftBook
Jim Milliot &Steven Zeitchik -- 1/24/00
Company vows to make e-books "a product category"

The fledgling e-book industry gained a well-heeled entrant last week when Gemstar International Group acquired both SoftBook Press and NuvoMedia. Although terms of the two deals were not announced, both purchases were made for stock, with Gemstar buying 100% of the two companies; investors in SoftBook and NuvoMedia, including Bertelsmann and Barnes & Noble, now own stock in Gemstar. Gemstar, which had revenues of $166 million in the year ended March 31, 1999, said the combined sales of SoftBook and NuvoMedia for the past 12 months "were not material."

Under the agreement, both SoftBook and NuvoMedia will maintain their separate operations with no plans to cut the workforce of either publisher; Nuvo has 50 employees and SoftBook has about 80. In addition, SoftBook CEO Jim Sachs and NuvoMedia CEO Martin Eberhard have signed long-term employment contracts with Gemstar. They will report to Elsie Leung, COO of Gemstar.

Gemstar, based in Pasadena, Calif., develops, markets and licenses proprietary technologies and systems aimed at making technology user-friendly for consumers. Its best-known product is VCR Plus+, which permits consumers to program VCRs by using a number code. The company has also reached an agreement to acquire TV Guide.

Henry Yuen, chairman and CEO of Gemstar, is extremely bullish on the future of e-books. "By buying two companies, we have made a strong statement that we believe in the e-book market. We're not speculating here." Yuen said he intends to get around the chicken-and-egg problem faced by e-books by "laying down a media awareness campaign that will let everyone, including hardware manufacturers, publishers and the public, know about e-books. We will turn e-books into a product category." Yuen also expects that when Gemstar begins offering a two-way paging network with its electronic programming guides, it will build the same system into e-books devices that will permit them to receive real time information.

For the two companies, the parallel acquisitions pose questions about overlapping marketplaces, even though each has been known for targeting different groups--for SoftBook, the professional and reference markets; for Nuvo, the general trade. Yuen said NuvoMedia and SoftBook will continue to develop product for the niches. The companies themselves, however, said that could change. "As the market expands, there will be crossover," Sachs said. Both Nuvo and SoftBook emphasized that the new umbrella should make it easier for publishers to work with them. And SoftBook has stressed the addition of each company's content even as it talks about eliminating "content redundancies."

The consolidation is certain to bring about hardware changes as well. Some observers speculate that it won't be long before Gemstar produces one device, although Sachs talks about the market sustaining a "family of devices." Nuvo president Doug Klein told PW that he wouldn't be surprised to see the company evolve in a different direction. "Long term, there will be a de-emphasis as we morph from branding the Nuvo hardware" and "start getting more into the content business." And in the short term, said SoftBook's Sachs, reading on the two devices will be cross-platform. "That's an obvious place we were both going and now Gemstar can facilitate it." Some readers and publishers have criticized the companies for making their systems proprietary and thus limiting access to content for those who own only one device.

For each company, Gemstar's acquisition of the other came as a surprise. But both also expressed relief that funding issues have now been resolved. "The only way we could have raised this much capital was with a wild IPO, which we weren't going to do," Klein said. As a result of the deal, all other financial partners are no longer affiliated with the two companies, though the strategic relationship between bn.com and Nuvo, Klein said would continue even as the company seeks other retail partners.
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