Back to GetFilings.com

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2002

or

Commission file number 0-24218

GEMSTAR-TV GUIDE INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

135 North Los Robles Avenue, Suite 800, Pasadena, California 91101

(Address of principal executive offices including zip code)

(626) 792-5700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share

(Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ¨ No x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes x No ¨

As of June 28, 2002, the aggregate market value of Common Stock held by non-affiliates of the registrant was approximately $967.3 million, based on the closing sale price of $5.39 per share as reported by the Nasdaq Stock Market. Shares of Common Stock held by officers, directors, and 5% holders have been excluded from this calculation because such persons may be deemed to be affiliates. The determination of affiliate status is not a conclusive determination for other purposes.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement related to the 2003 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission within 120 days after December 31, 2002, are incorporated by reference into Part III of this Form 10-K.

INDEX

2

PART I

ITEM 1.    BUSINESS.

Recent Developments

In November 2002, we appointed a new management team as part of a management and corporate governance restructuring pursuant to which Dr. Henry Yuen resigned as our Chief Executive Officer and Elsie Leung resigned as our Co-President, Co-Chief Operating Officer and Chief Financial Officer. Jeff Shell, our Co-President and Chief Operating Officer since April 2002, became our Chief Executive Officer. Paul Haggerty, an Executive Vice President of our significant shareholder The News Corporation Limited (“News Corporation”), became our Acting Chief Financial Officer. (See Note 14, “Management Restructuring,” to Consolidated Financial Statements.)

In late 2002, we engaged a new independent accounting firm to audit our historical consolidated annual financial statements and to review the Company’s historical consolidated unaudited interim financial statements. Since that time, we have completed a review of our accounting policies and the application of those policies to various types of transactions. As a result of the review, we have made various adjustments that have been included in several restatements of our historical financial statements. (See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”)

Since the restructuring, Messrs. Shell and Haggerty have conducted, and have instructed management to conduct, a comprehensive review and evaluation of the Company’s disclosure controls and procedures to ensure that information required to be filed or submitted to the Securities and Exchange Commission (“SEC”) is recorded, processed, summarized and reported within the required time periods. The review and evaluation is now complete. Messrs. Shell and Haggerty were previously unable to certify the Company’s reports due to their inability to conduct a thorough review of the Company’s then-existing disclosure controls and procedures in the short period between their appointments as Chief Executive Officer and Acting Chief Financial Officer, respectively, and the date the certifications were due. This report, as well as the other reports filed by us with the SEC today, contain the required certifications.

In addition to the foregoing, we continue to face significant new challenges (which are more fully described under “Certain Risks Affecting Business, Operating Results and Financial Condition – Risks Related to Recent Developments” and Item 3, “Legal Proceedings”). The challenges we face include the following:

Overview

Gemstar-TV Guide International, Inc. is a leading media and technology company that develops, licenses, markets and distributes technologies, products and services targeted at the television guidance and home entertainment needs of consumers worldwide. Our businesses include: technology and intellectual property

3

development and licensing; interactive program guide products and services; and television media and publishing properties. Our financial reports are organized into three principal business sectors:

The Company’s principal business strategy is to develop a comprehensive solution to the television guidance needs of consumers worldwide. Television viewers today are overwhelmed by an increasing number of programming and channel choices, video on demand and subscription video on demand. We believe our technologies, interactive services, content and publications together are well positioned to provide the solution.

The Company’s electronic program guidance technologies are incorporated into television sets, VCRs, hard disk recorders, DVD recorders, and cable and satellite television set-top boxes. In addition to our electronic program guidance technologies, we own and publish TV Guide Magazine. We also own and produce original programming in the form of the TV Guide Channel and the TVG Network (which provides horseracing programming and interactive wagering services) that we sell to owners and operators of cable and satellite television systems, including some of the largest cable multiple system operators (“MSOs”), and other programming distributors.

Our television guidance properties reach more than 100 million people in the United States. The Company’s television guidance products are comprehensive and serve the varied needs of television viewers. TV Guide Magazine has over 28 million readers each week based on a circulation of over 9 million copies. TV Guide Magazine offers editorial content and television listings. TV Guide Channel reaches approximately 57 million households as measured by Nielsen. TV Guide Channel offers editorial content and television listings directly on consumers’ television screens. The Company’s GUIDE Plus+ IPG is deployed in more than 10 million television sets, while the Company’s TV Guide Interactive IPG is delivered to more than 10 million digital cable subscribers. Our IPGs consist of interactive on-screen program listing guides that allow television viewers to retrieve program listings on demand and to perform various interactive functions designed to enhance the television viewing experience. TV Guide Online (www.tvguide.com) is one of the most popular entertainment sites on the Internet with more than 5.5 million unique monthly users. TV Guide Online offers listings, features and search, vote and chat capability on TV-related subjects. We believe that the relevance of our television guidance products will increase as more and more consumers gain access to the hundred-plus channel universe of digital television.

Technology and Licensing Sector

The Technology and Licensing Sector is responsible for the development, licensing and protection of proprietary technologies and other intellectual property, including the Company’s VCR Plus+ system, the IPGs marketed under the GUIDE Plus+, G-GUIDE and TV Guide Interactive brands and the new TV Guide On Screen brand, and the Gemstar eBook. Technology and Licensing Sector operations include research and development and the creation, protection and licensing of patents and proprietary technologies.

4

We own the patents and other proprietary rights to a large portfolio of technologies and intellectual property related to the manufacture and use of IPGs. Our IPG technologies have been licensed for, or incorporated into television sets, VCRs, TV-VCR combination units, cable set-top boxes, integrated satellite receiver decoders, DVD recorders, hard disk recorders, personal computers, PCTVs, Internet appliances and interactive services providing television programming.

Revenues for this sector consist primarily of license fees paid by third party licensees for the Company’s proprietary technologies and patents primarily related to video recording, IPGs, and electronic books. We license our technologies to consumer electronics manufacturers, service providers (including MSOs and other owners and operators of cable television systems, telephone networks, Internet service providers, Internet websites, direct-to-home broadcast satellite (“DBS”) providers, wireless systems and other multi-channel video programming distributors), software developers and consumers. We are also party to revenue sharing arrangements with a consumer electronics manufacturer and with certain service providers who license our IPGs. We share advertising revenues with these licensees for advertising sold on the IPGs incorporated into products or services marketed by these licensees.

We also own patents and other proprietary rights to electronic book technology that allows readers to download and read electronic books. We license this technology through our eBook subsidiaries to consumer products manufacturers that produce electronic book devices under the Gemstar eBook and other brands. At this time, the Company’s eBook business is still in a development stage, and the Company is evaluating all strategic alternatives for the business, including a joint venture with one or more financial or strategic investors or divestiture.

Interactive Platform Sector

The Interactive Platform Sector is responsible for and derives revenues from advertising and electronic commerce on our proprietary interactive platforms. Interactive Platform Sector activities also include the construction and operation of the infrastructure for the delivery of services and advertising to the interactive platforms; media research; and the trafficking, tracking and billing of advertising. Our interactive platforms include television sets and VCR’s incorporating the GUIDE Plus+ and G-GUIDE IPG, digital cable set-top boxes incorporating the TV Guide Interactive IPG, DVD recorders and television sets that will include the new TV Guide On Screen IPG, and the online web site www.tvguide.com. The Company also conducts electronic commerce on its www.skymall.com and www.tvguide.com websites. At this time, our electronic commerce activities are still in a development stage. The Interactive Platform Sector is also responsible for interactive wagering relating to the TVG Network.

Media and Services Sector

The Media and Services Sector is responsible for the operations of TV Guide Magazine, TV Guide Channel, TVG Network, SkyMall catalog sales, our Superstar/Netlink satellite television distribution business, UVTV, SpaceCom and other non-interactive platforms and media properties.

Editorial and television schedule guidance is provided by TV Guide Magazine, with a combined weekly circulation of about 9 million copies, and by TV Guide Channel, which reaches about 57 million households as measured by Nielsen. TVG Network produces original content sold as a separate service to service providers and consumers that includes horse-racing programming and, in certain markets, interactive betting services. SkyMall is our in-flight mail order catalogue that reaches passengers occupying approximately 565 million airline seats annually. Superstar/Netlink delivers entertainment programming to C-band home satellite dish owners. UVTV markets and distributes various television superstations to distant signal customers via C-band and DBS. SpaceCom provides two-way broadband satellite communications for various industries.

Revenues in this sector are principally composed of subscription fees, newsstand sales and advertising revenues of TV Guide Magazine and TV Guide Channel and programming package revenues from households serviced by Superstar/Netlink.

5

Technologies, Products and Services

VCR Plus+

Our first proprietary system, the VCR Plus+ system for selecting television programming for recording, was introduced in 1990. Since then, our VCR Plus+ technology has been adopted as the industry standard for VCR recording of television programming by virtually every major consumer electronics manufacturer worldwide. VCR Plus+ is offered internationally in more than 35 countries. It is incorporated into VCRs and televisions by licensed consumer electronics manufacturers and enables consumers to record a television program by simply entering a proprietary one to eight digit PlusCode^® number, via a remote control unit, into a VCR or television set. PlusCode numbers are printed next to television listings in participating newspapers and television program guides.

PlusCode numbers are generated through a patented process developed by the Company and are now carried by over 1,800 publications worldwide, with a combined circulation of over 300 million, including the New York Times, the Los Angeles Times, TV Guide, the Asahi Shimbun (Japan), the Sun (U.K.), the Daily Mirror (U.K.) and the Guangdong Dianshi Zhoubao (China). In North America, we pay an agency to manage, collect and remit payments from owners of newspapers and magazines that publish our PlusCodes; we also sell our PlusCodes to a data company that bundles the codes with other data sold to owners of newspapers and magazines. In Europe, Australia, New Zealand and Asia (other than Taiwan, Japan and South Korea), our subsidiaries directly handle our PlusCode publication contracts and manage and collect the fees under those contracts. Our InfoMedia subsidiary also collects, processes and distributes television listings data for more than 20 countries in Europe. In Japan and South Korea, the sale of PlusCodes is handled by a third party company called Gemstar Japan. In Taiwan, our PlusCodes are posted on a web site operated by another third party company called Gemstar Taiwan. Prior to our initial public offering in 1995, both Gemstar Japan and Gemstar Taiwan were wholly owned subsidiaries of our predecessor company. Upon the closing of our initial public offering, the stock of these entities was “spun-off” to entities that were controlled by former stockholders and executives of our predecessor company. The current ownership of these entities is unknown. Also upon the closing of our initial public offering, these entities entered into service contracts with the Company for PlusCode publication that have since expired, although the Company has continued to fund their operations to enable performance under the expired service contracts. In June 2002, Gemstar Japan transferred certain trademark registrations back to the Company. The Company is currently exploring whether to renew the service contracts with these entities, or to pursue other forms of distribution for our PlusCodes in Japan, South Korea and Taiwan.

We continue to develop and introduce additional features based on the VCR Plus+ technology that manufacturers can license from the Company to enhance the functionality of the VCR Plus+ system. These features include functions that are capable of automating the VCR Plus+ setup procedures, controlling set-top boxes and updating the clock and cable channel lineup information. The VCR Plus+ system and all its attendant enhancement functions are also licensed for incorporation into digital devices such as hard disk recorders and DVD recorders.

Interactive Program Guides

Our IPGs allow television viewers to retrieve program listings and content information on demand and to perform various interactive functions designed to enhance the television viewing experience. We believe that interactive television guidance technology is quickly becoming a must-have tool for television viewers bombarded with an increasing number of programming choices, an increasing number of digital cable and satellite television channels, and video on demand and subscription video on demand. We also believe that our IPGs will become an entry point for consumers to avail themselves of a range of new services and content that will be available on television screens.

Program listings and detailed program descriptions can be viewed on our IPGs by time, channel or category, or the listings can be scanned alphabetically. Other functions offered by our IPGs include parental control

6

features, reminder notices to viewers, programming features (for recording) and pay-per-view and video-on-demand integration. In addition, some of our IPGs allow viewers to record television programming for later viewing.

As of December 2002, the Company had deployed over 10 million GUIDE Plus+ IPGs, which are incorporated into consumer electronics devices, and over 10 million TV Guide Interactive IPGs, which are incorporated into digital cable set-top boxes. In addition, the Company’s IPG technologies have been incorporated into tuner cards for use in PCs.

We currently market and license our IPG technology, IPG products and IPG services to consumer electronics manufacturers and to service providers and manufacturers that supply service providers with cable and satellite set-top boxes. In the consumer electronics business, our IPG technology enables licensed manufacturers to enhance the functionality and appeal of their products and to realize additional revenue through premium pricing. In the service provider business, our IPG technology enables service providers to deliver advertising and market additional services and content to subscribers. Our IPG technology allows service providers to customize certain elements of our IPGs for their subscribers and also allows them to upgrade over time the features and services they can offer to their subscribers. Our IPGs are compatible with service providers’ subscription management and pay-per-view operations. IPGs also allow programmers and programming distributors to continuously disseminate updated program information.

Our IPG technology, IPG products and/or IPG services have been licensed to significant consumer electronics manufacturers and MSOs. We recently announced a multi-year licensing agreement with consumer electronics manufacturer Royal Philips Electronics (“Philips”) to incorporate our new TV Guide On Screen IPG into DVD recorders and television sets, and to use other electronic program guides in DBS set-top boxes. This agreement does not have minimum aggregate licensing fee or volume commitments. We currently have contracts with 244 cable system operators and telephone companies in the United States that license our IPG products and services for distribution to their subscribers in television sets and set-top boxes.

In the computer and Internet business, we have licensed our IPG technology to a leading software company, which has adopted our IPG technology in a number of its product offerings. Our IPG technology, IPG products and IPG services have also been licensed by one of the largest tuner card manufacturers in the United States and incorporated into tuner cards for use in PCs.

Electronic Book Publishing

In early 2000, we entered the eBook business with the acquisition of Softbook Press, Inc. (“Softbook”) and NuvoMedia, Inc. (“NuvoMedia”), two pioneering companies in the eBook business, and later, Les Editions 00h00, an electronic publisher in Europe (our European eBook operations are being discontinued). We earn revenues in our eBook business through licensing technology and selling e-book devices and content. At this time, the Company’s eBook business is still in a development stage, and the Company is evaluating strategic alternatives for the business, including a joint venture with one or more financial or strategic investors or divestiture.

Interactive Platform Services

Our data service used in conjunction with our IPG products continually updates the data that appears on these products. That data includes the most currently available program listings and advertising data, which we regularly accumulate from our shared listings databases, and specialized advertising systems for distribution to our IPG products and licensees. We use both our internal data operations and external commercial suppliers to obtain program listings data. Advertising data is accumulated and entered into specialized advertising systems as specified by our advertising customers. We process and format the program listings and advertising data into proprietary data formats and deliver it via a variety of transmission means, including land-line telephone link,

7

broadcast signals and satellite feed. Generally, to populate consumer electronics appliances, the data is fed to our insertion equipment located in network headends, cable headends and broadcast stations for inclusion in the vertical blanking interval (“VBI”) of television signals. Norpak Corporation, a majority-owned Canadian subsidiary of the Company, manufactures and supplies us with the VBI insertion equipment. We have arrangements for carriage of our data in the VBI of television stations included in the public broadcasting network, independently-owned stations, and stations owned and operated by various station group owners. In exchange for the right to transmit our data in a station’s VBI, we generally provide the station with a preferred position on the IPG in its designated market area. To populate cable set-top boxes, the data is continuously delivered to local affiliate cable systems for delivery to set-top boxes in subscribers’ homes via out-of-band data frequencies.

We began efforts to sell advertising on our IPG platforms in 1999. Our IPG advertisers today include some of the most recognized names in American product and service marketing and some significant programmers and entertainment distributors. Since the IPG is a new and unique advertising medium, advertising sales volume is still relatively small. The majority of advertising on our IPGs is advertising from third parties with which we have other business relationships. In many cases, these relationships require us to make payments to the advertiser in the form of market development or similar funds related to our IPGs, or to provide economic incentives to such advertisers through the use of advertising inventory on other Company advertising platforms. We account for such transactions as multiple-element arrangements (see Note 1, “Description of Business and Summary of Significant Accounting Policies,” to Consolidated Financial Statements). Accordingly, substantially all of the revenues from these advertisers are recognized in other sectors. We expect to continue to account for IPG advertising associated with multiple-element arrangements in this manner until such time as we conclude that we can determine the fair value of IPG advertising in a reliable, verifiable and objective manner. At this time, in all instances in which IPG advertising is part of a multiple-element transaction, no revenue is allocated to IPG advertising or the Interactive Platform Sector for accounting purposes, and all revenue is allocated to other elements of the transaction and other sectors. (See Note 1, “Description of Business and Summary of Significant Accounting Policies,” to Consolidated Financial Statements.) The Company is currently reviewing its commitment to IPG advertising as part of its re-evaluation of its IPG business strategy.

The Company also conducts electronic commerce on its www.skymall.com and www.tvguide.com web sites. At this time, our electronic commerce activities are still in a development stage.

TV Guide Magazine

TV Guide Magazine has been published continuously since 1953 and is the most widely circulated paid weekly magazine in the United States. TV Guide Magazine offers television viewers both television program listings and descriptions and editorial content, including feature articles covering programming, entertainers and the entertainment industry. We expect the program listing aspect of TV Guide Magazine to decrease in value as the number of channels and programming choices increases and alternative means of obtaining program schedule information continue to proliferate (including IPGs and online services). On the other hand, we expect the editorial aspect of TV Guide Magazine to increase in value as the need for guidance and recommendations on what to watch increases because of the increase in programming choices due to digital technologies. The Company plans to follow a strategy based on these predictions by building TV Guide Magazine into a valued planning tool to guide program choices and complement the other guidance tools that the Company deploys, all under one trusted brand—TV Guide.

As of December 31, 2002, TV Guide Magazine had a circulation of over 9 million copies that reached approximately 28 million readers each week, according to MediaMark Research, Inc. We publish over 200 separate digest and ultimate size editions of this magazine weekly, including geographic and cable specific editions. On a monthly basis, we also publish The Cable Guide, which has approximately 800,000 subscribers. In addition, our custom publishing unit produces a monthly pay-per-view guide for more than 140 cable systems in the United States. TV Guide Magazine attracts new subscribers to its cable-specific editions through the

8

continued customization of the magazine for regional cable systems and through customer marketing programs in conjunction with the country’s largest MSOs.

TV Guide Magazine’s rate base, the volume of circulation guaranteed to advertisers, as of December 31, 2002 was unchanged from 9.0 million as of December 31, 2001. The magazine’s rate base was last adjusted from 9.9 million in June 2001 to 9.0 million. TV Guide Magazine fully complies with the Audit Bureau of Circulations’ audit requirements. TV Guide Magazine’s circulation is comprised of a number of sources, including newsstand sales, individually paid subscriptions and subscriptions sold in bulk. Bulk sold subscriptions increased from 1.5 million copies at December 31, 2001 to 2.6 million copies at December 31, 2002. Bulk sold subscriptions produce little or no circulation contribution and are of substantially lesser economic value than other sources of circulation.

TV Guide Magazine revenues have accounted for more than 40% of our consolidated revenues for each of the last three fiscal years. In the nine months and year ended December 31, 2000, and in the years ended December 31, 2001 and December 31, 2002, TV Guide Magazine’s revenues accounted for 42%, 43%, and 42%, respectively, of our consolidated revenues for such years. TV Guide Magazine’s circulation revenues are derived from four primary sources: new subscriptions (through insert cards in TV Guide Magazine, direct mail and direct mail agents), subscription renewals, single-copy newsstand sales, and subscriptions and subscription renewals for cable and satellite-specific editions. TV Guide Magazine circulation revenues decreased in 2002 and 2001 due to declines in the number of new subscribers, lower renewal rates and reduced newsstand sales. The decrease in circulation revenues due to declines in the number of new TV Guide Magazine subscribers, however, has been partially offset by an increase in the number of subscribers to cable and satellite-specific editions of the magazine. The overall decrease in circulation revenues of TV Guide Magazine may continue and could be significant.

In the year ended December 31, 2002, TV Guide Magazine carried more than 2,450 total advertising pages. The national feature section, which has traditionally attracted general-appeal category advertisers such as food, drug, automobile, entertainment and packaged goods companies, comprised approximately 48% of these pages. Network and cable tune-in advertising, traditionally included in the listings section, comprised 39% of total advertising pages; and insert advertising represented approximately 13% of these pages. TV Guide Magazine sells advertising principally through an internal advertising sales force, TV Guide Media Sales. Advertisers may purchase pages on either a national or regional basis in TV Guide according to their needs.

The printing of TV Guide Magazine and the other publications published by the TV Guide Magazine group is outsourced to seven independent commercial printers located throughout the United States. We believe that there is an adequate supply of alternative printing services available to publish TV Guide Magazine at competitive prices should the need arise. The principal raw materials used in the publication of TV Guide Magazine are coated and uncoated paper. Paper prices are affected by a variety of factors, including demand, capacity, pulp supply and general economic conditions. Material changes in the price of coated and uncoated paper could have a material adverse effect on TV Guide Magazine’s operating performance. The Company does not hedge against increases in paper costs. Postage for product distribution and direct mail solicitations is also a significant expense to TV Guide Magazine and a material increase in postage prices could affect the magazine’s operating performance.

Prior to 2002, a wholly owned subsidiary of the Company provided newsstand distribution for TV Guide Magazine and magazines published by unaffiliated parties. In 2002, we shut down this distribution company and effectively exited the distribution business. The decision to exit the business was driven by the general level of consolidation in the magazine distribution industry, which made it economically impractical for TV Guide Magazine to maintain its own distribution operation. Our former distribution business was responsible for billing and collections for all non-affiliated publishers, a practice that increased our accounts receivable collection risk. The shutdown was achieved by contracting with an outside company for distribution of TV Guide Magazine and assigning existing contracts with unaffiliated publishers to that company.

9

TV Guide Channel

The TV Guide Channel offers multichannel video providers a fully customized and localized television network, continuously delivering updated entertainment information that promotes the provider’s networks and programs. TV Guide Channel’s hosted format is designed to appeal to cable operators, advertisers and consumers. TV Guide Channel generated a prime time total household Nielsen rating of 0.5 during the fourth quarter of 2002, exceeding Nielsen ratings received by other well-known information networks such as CNBC, MSNBC, The Weather Channel, and VH1.

TV Guide Channel is typically included in a basic or expanded basic viewing package offered by programming distributors to their subscribers, and is available in both analog and digital form. Subscribers do not need additional equipment (converters or “sidecars”) to receive the channel. The screen for TV Guide Channel is divided into two components, with the upper half devoted to programming that drives the cable operator’s primary revenue generators, such as pay-per-view or video on demand, creates an entertainment environment in which media buyers want to place their clients’ advertising and gives consumers up to the minute, customized entertainment information on every aspect of upcoming programs. This portion of the screen combines behind-the-scenes footage, in-depth interviews and localized information with reviews, recommendations and previews related to upcoming programming options. The lower half of the screen displays listings that contain viewing times, channel numbers, network identification, program titles, weather, movie descriptions, program ratings and ordering instructions for pay-per-view services, updated in 2,600 cable TV distribution headends around the country on a daily basis.

We seek to establish the TV Guide Channel as the premier source for programming guidance in video form.

TVG Network

We own 93% of TVG Network. We produce, market and distribute TVG Network, a cable and satellite sports entertainment television network that combines live horseracing from many of the premier horse racetracks in the United States with the convenience of interactive wagering from home. TVG Network has entered into exclusive and non-exclusive agreements with 59 horse racetracks to deliver racing content to and accept wagers from subscribers in return for a fee based on a percentage of gross wagering handled by TVG Network and transaction fees.

As of December 31, 2002, TVG Network’s television network is available in more than 8.5 million U.S. households on EchoStar Satellite Corporation’s DISH Network (“DISH Network”) satellite service (basic tier), C-band satellite systems and on cable systems in regional areas. In certain states, TVG Network customers may establish wagering accounts to wager on the horse races through patented, proprietary interactive applications utilizing automated telephone, online virtual private network and digital set-top box remote control software developed or in development by the Company.

In early 2002, TVG Network began to offer wagering services to residents of California, the most substantial revenue producing opportunity for the business to date. With the development of television distribution in California and other major racing markets and the expansion of markets from which accounts are accepted, we believe that increased fee revenue, network advertising, merchandising and data delivery, home shopping, e-commerce and interactive advertising opportunities may become available.

TVG Network is a development stage business in which the Company has made substantial investment. Growth in the business will depend on the legislative and regulatory environment on both Federal and state levels, the continued expansion of cable and satellite television distribution and the integration of interactive wagering technologies for online and interactive television applications.

SkyMall

Acquired in July 2001, SkyMall is a specialty retailer that offers airline consumers the opportunity to mail-order a large selection of premium-quality products and services directly from a wide variety of merchants and

10

partners through SkyMall magazine, an in-flight catalog, and www.skymall.com. SkyMall has a sophisticated vendor relationship management and shipment tracking system, which can be customized to interface with a merchant’s sales and distribution system in a turn-key manner. With this business model, SkyMall holds minimal product inventory, providing maximum flexibility for the type of products that may be made available to consumers from time to time. The SkyMall in-flight catalogs currently reach airline passengers making 565 million paid trips annually. SkyMall has agreements with all of the major domestic airlines, representing 93% of the total passengers boarded in the United States each year, granting it access to a majority of domestic airline seats holding a captive audience with upscale demographics for its quarterly catalogs. Although the Company believes that SkyMall has an attractive and valuable business model, the Company also believes that this business is “non-core” to the Company’s overall business strategy; the Company is evaluating strategic alternatives for this business, including divestiture.

Superstar/Netlink Direct-to-Home Satellite Programming Services

We own approximately 80% of Superstar/Netlink. Superstar/Netlink markets and distributes entertainment programming to C-band home satellite dish owners in the United States in subscription periods of one, three, six and twelve months. The C-band business is declining primarily as a result of competition from DBS and cable television systems. DBS providers such as DISH Network and DirecTV transmit on the Ku band, which uses a higher power signal than C-band satellites, enabling DBS customers to use smaller, less obtrusive satellite dishes. In addition, DBS and digital cable operators transmit digital signals that allow for a larger number of channels, including local network stations, with better audio and video quality than analog systems.

To further its strategy of reducing operational involvement in this business while maximizing profitability, in 1999, Superstar/Netlink entered into a marketing alliance agreement to promote and solicit orders for DISH Network. In exchange, Superstar/Netlink receives an initial commission for each Superstar/Netlink subscriber who subscribes to DISH Network and a monthly residual commission over the life of the agreement, which expires at the end of 2005. During the year ended December 31, 2002, the number of C-band subscribers decreased by 29% to approximately 587,000 subscribers. At December 31, 2002, Superstar/Netlink provided service to 361,000 of these subscribers, a decrease of 34% from the subscribers served by Superstar/Netlink at December 31, 2001. We expect the decline in our C-band business to continue and this decline may be accelerated by our agreement with DISH Network.

UVTV Satellite Distribution of Video Entertainment Services

Through our UVTV subsidiary, we market and distribute television superstations WPIX (New York) and KTLA (Los Angeles) to cable systems and direct-to-home subscribers, including C-band and DBS. In addition, we market and distribute the “Denver 5” television stations. During 2002, we ceased to operate a separate business that sold programming packages to satellite master antenna television systems serving hotels and multi-unit dwellings.

SpaceCom Satellite Transmission Services for Private Networks

Our SpaceCom subsidiary provides point-to-multipoint and commercial point-to-point two-way broadband satellite communications for various industries throughout North and South America, including radio programmers, paging network operators, financial information providers, news services, Internet service providers and other private business networks. SpaceCom leases two Ku-band satellite transponders and several portions of other Ku and C-band transponders, communications on which originate from its teleport facility. We believe that this business is “non-core” to our overall business strategy and are evaluating strategic alternatives for this business, including divestiture.

11

Intellectual Property Rights and Proprietary Information

We operate in an industry in which innovation, investment in new ideas and protection of our intellectual property rights are important for success. The Company protects its innovations and inventions via a variety of means, including but not limited to applying for patent protection internationally and domestically. We believe we have one of the world’s most extensive portfolios of intellectual property in the area of interactive program guides, which broadly covers fundamental advances related to interactive program guide information delivery, storage, retrieval, advertising, two-way interaction, electronic commerce, and related user interfaces, including those relevant to online and interactive television services.

Our technology and intellectual properties have been licensed to significant consumer electronics manufacturers and MSOs. We currently market IPGs under brands that include GUIDE Plus+ and TV Guide Interactive, and have entered into an agreement to market our TV Guide On Screen IPG in consumer electronics devices manufactured by Philips.

The Company currently has over 240 issued U.S. patents in the general area of audio-visual technologies with more than 6,000 claims, and over 490 issued foreign patents. Each of the Company’s issued patents will expire at a different time based on the particular filing date or issue date of that respective patent, with expiration dates as late as 2020. The Company continues to actively pursue a worldwide intellectual property program and currently has approximately 350 U.S. and 1,300 foreign patent applications pending.

We hold extensive trademark and service mark registrations throughout the world and have multiple trademark and service mark applications pending for a variety of marks. Marks for which the Company has registrations or applications to register in the United States or foreign countries include TV Guide, GUIDE Plus+ (G-GUIDE in Asia), TV Guide Interactive, TV Guide On Screen, VCR Plus+ (VIDEO Plus+, ShowView and G-CODE in Europe and Asia), PlusCode, Gemstar, Gemstar eBook, TVGuide.com, TVG and SkyMall.

We hold various domain names relating to the Company’s trademarks and service marks including gemstar.com, tvguide.com, gemstartvguide.com, gemstarebook.com, tvgnetwork.com and skymall.com.

Competition

The Company’s technologies, products and services compete with those of other companies. Many of the Company’s present and potential future competitors have, or may have, substantially greater resources than the Company to devote to further technological and new product developments. The Company believes that it will compete effectively based primarily on the originality of its concepts, the speed with which it can introduce such concepts to the market, the uniqueness of its designs, the focus of its business approach, the strength of its intellectual property portfolio, the extensiveness of its business relationships, the quality and innovation of its technologies and its ability to identify and meet consumer needs.

VCR Plus+ System

The Company is not aware of any product other than the VCR Plus+ system that allows the user to program a VCR by entering a numerical code. However, several products on the market offer other simplified VCR programming functions and thus compete with the VCR Plus+ system. Such products include on-screen program guides incorporating point-and-click recording capability. In addition, some new products permit consumers to record programs directly from air or cable for later viewing through the use of memory chips and hard disk drives contained in the devices. Worldwide shipments of VCRs decreased in 2002 and are expected to continue to decrease in future years due to the introduction of these new digital recording devices. The VCR Plus+ system is beginning to be incorporated into some of these digital recording devices, notably hard disk recorders and DVD recorders. However, to the extent that electronic program guides with recording capability offered by companies other than the Company are widely adopted, such guides may reduce the need for VCR Plus+. All electronic program guides, including those that do not have a point-and-click recording feature, may compete

12

with the printed television guides, and may adversely affect the Company’s PlusCode number coverage and publication license income.

Interactive Program Guides

Competition in the market for the delivery of television program schedule information is intense. There are a number of companies that produce and market television schedule information in various formats and that compete or will compete with the Company’s IPG products and services. These alternative formats currently include traditional printed television guides (including our own TV Guide Magazine and other printed cable guides), as well as passive and interactive on-screen electronic guide services, printed television guides in newspapers and weekly publications, and local cable television guides, many of which are similar to other products of the Company.

Improvements in software porting and in software substitutability, together with government mandated introduction of so-called Open Cable platforms, will increasingly permit the creation of new guides and their quick placement in set-top boxes—both those purchased from service providers and those purchased at retail. We intend to modify and improve our technology to be competitive on these new platforms.

Many of the Company’s competitors and other companies and individuals have obtained, and may be expected to obtain in the future, patents that may directly or indirectly affect the products or services offered or under development by the Company. The Company is currently developing a variety of enhancements to its IPGs. We cannot assure you that any enhancements developed by the Company would not be found to infringe patents that are currently held or may be issued to others. Patents of third parties may have an important bearing on the Company’s ability to offer certain of its products and services. There can be no assurance that the Company is or will be aware of all patents containing claims that may pose a risk of infringement by the Company’s products and services. In addition, patent applications in the United States are generally confidential until a patent is issued, so the Company cannot evaluate the extent to which certain products and services may be covered or asserted to be covered by claims contained in pending patent applications. In general, if one or more of the Company’s products or services were to infringe patents held by others, the Company may be required to stop developing or marketing the products or services, to obtain licenses to develop and market the services from the holders of the patents or to redesign the products or services in such a way as to avoid infringing the patent claims. The Company cannot assess the extent to which it may be required in the future to obtain licenses with respect to patents held by others, whether such licenses would be available or, if available, whether the Company would be able to obtain such licenses on commercially reasonable terms. If the Company were unable to obtain such licenses, the Company may not be able to redesign its products or services to avoid infringement.

Although the Company believes that its IPGs are in a strong competitive position with respect to its known competitors, there may be competitors with additional strengths that are unknown to the Company. Such potential competitors, which may include hardware manufacturers, software developers, broadcasters or service providers, could be larger, more established companies with greater resources in the program information delivery market.

Electronic Book Publishing

The market for eBooks is developing. However, a number of companies of significant size and strength (such as Microsoft, Hewlett Packard and Palm) have introduced products to compete in the field. In addition, the Company faces competition from the distribution of electronic content over the Internet.

TV Guide Magazine and TV Guide Channel

TV Guide Magazine and TV Guide Channel have the following primary sources of competition: television listings included in local and national newspapers, as well as free supplements in Sunday newspapers; niche cable-guide publications; general entertainment and other magazines and television programming focused on

13

television stars and programs; other electronic, interactive and online programming guides; and the Company’s own interactive and Internet program listings guide services. In addition, TV Guide Channel competes with other programming for limited analog cable television system channel slots. This competition has increased, and the Company believes will continue to increase, as programming distributors recapture analog channels to launch digital services. To date, the impact of channel recapture has not been significant to TV Guide Channel. In addition, the TV Guide Channel also faces competition from cable television operators, which may wish to launch their own programming guide channels, and from Zap2it, a unit of Tribune Media.

Superstar/Netlink

The C-band direct-to-home satellite industry is declining primarily as a result of competition from DBS and cable television systems. DBS providers such as DISH Network and DirecTV transmit on the Ku band, which uses a higher power signal than C-band satellites, enabling DBS customers to use smaller, less obtrusive satellite dishes. In addition, DBS and digital cable operators transmit digital signals that allow for a larger number of channels, including local network stations, with better audio and video quality than analog systems, and subscribers of C-band programming are encountering reduced availability of programming as the number of channels broadcast as analog signals capable of being received and descrambled by a typical C-band satellite dish decreases.

Research and Development

The market for the Company’s products and services is subject to rapid and significant changes in technology and frequent new service and product introductions. The Company believes that one of the keys to its future success will be its ability to enhance its existing technologies and to introduce products and services using such new technologies on a competitive basis. Accordingly, the Company will continue to engage in significant research and development activities. The Company’s expenditures for research and development for the year ended December 31, 2002, the year ended December 31, 2001 and the nine months ended December 31, 2000 were $21.0 million, $32.0 million and $20.0 million, respectively. There can be no assurance, however, that the Company will successfully complete the development of any future technology or that such technology will be compatible with, accepted by or incorporated in the products and services of the Company or in products of third parties. Any significant delay or failure to develop new or enhanced technology could have a material adverse effect on the Company.

Regulation

The satellite transmission, cable and telecommunications industries are subject to federal regulatory conditions, including Federal Communications Commission (“FCC”) licensing and other requirements. The industries are also often subject to extensive regulation by local and state authorities. Although most cable and telecommunication industry regulations do not apply directly to the Company, they affect programming distributors, a primary customer for the Company’s products and services. The Company monitors pending legislation and administrative proceedings to ascertain relevance, analyze impact and develop strategic direction surrounding regulatory trends and developments within the industry.

Satellite Home Viewer Improvement Act of 1999

The Satellite Home Viewer Improvement Act of 1999 (“SHVIA”) was signed into law November 29, 1999, as part of an appropriations bill. SHVIA applies new rules, exemptions and added regulatory requirements to the C-band and DBS industry generally, the combined effect of which restricts and may ultimately make uneconomic the up-linking and distribution of distant network stations and superstations to dish owners by UVTV. In addition, although Superstar/Netlink is not a satellite carrier, certain programming sold by Superstar/Netlink, such as Denver 5, is subject to these rules. UVTV’s Denver 5, WPIX and KTLA services, as satellite carriers, are subject to the new provisions and rules adopted under SHVIA.

14

“Local-Into-Local”

SHVIA provides satellite carriers a new compulsory copyright license, which is permanent and royalty-free, for the delivery of local network stations into local markets (defined as the station’s designated market area, or DMA, and county of license). The Company has no plans to distribute local signals in the C-band markets. DBS carriers have announced plans to serve all 210 television markets with local stations. The distribution of local signals will enhance direct broadcast carriers’ ability to compete with cable and may enhance, subject to the limitations above, the distribution of superstations and distant network stations to DBS subscribers. The availability of local signals to DBS, without corresponding local signals for C-band, may contribute to the ongoing decline of C-band subscribers.

Interactive Television Matters

On January 18, 2001, the FCC issued a Notice of Inquiry (“NOI”) concerning Interactive Television (“Interactive TV”). The NOI is still pending before the FCC and no final action has been taken. The NOI raised a series of questions that suggest that cable systems might be regarded as essential, open platforms of spectrum for non-discriminatory third-party access, rather than facilities-based providers competing in a wider market. Interactive TV is a service so new that the FCC had difficulty defining it, but the FCC stated in the NOI that it considered Interactive TV to embrace at least electronic program guides, interactive video content, and supplementary signals that wrap around video and provide additional content or services. The NOI sought comments on the nature of Interactive TV (e.g., what is it, who will provide it, how will it be provided, what are the business models for its provision), and whether cable systems will be a “superior platform” for the provision of Interactive TV. Although positioned as a Notice of Inquiry (which cannot lead directly to the adoption of rules), the NOI asked very detailed questions many of which arise from a common regulatory premise: that cable operators who are affiliated with Interactive TV providers should not be permitted to “discriminate” in favor of their own Interactive TV services with respect to spectrum usage; and that Interactive TV providers affiliated with cable operators may need to be subjected to non-discrimination rules so that they may not obtain leverage from any exclusive arrangement they would otherwise negotiate with popular programmers. The outcome of the NOI will determine whether or not a subsequent rulemaking will be held in order to create regulations for the interactive television industry. Any regulation of this industry could have a direct impact on TV Guide Interactive as well as TVG Network, but at this time, it is too speculative to determine what those rules or their impact may be.

VBI and Digital Data Carriage Matters

The Company uses the VBI, or vertical blanking interval, in the analog television signals of the local affiliates of major broadcast networks such as PBS (through National Datacast), ABC, CBS, NBC, Fox and national cable stations to supply updates throughout the day of program listing information to its GUIDE Plus+ branded consumer electronics devices in the United States. On December 6, 2001, Time Warner Cable, a division of AOL/Time Warner, obtained a ruling from the FCC that it is within the discretion of a cable MSO to retransmit or strip out data transmitted in the VBI lines of broadcast stations carried on that MSO’s system. On January 7, 2002, the Company filed a Petition for Reconsideration of this ruling, supported by parties including the Consumer Electronics Association, the Association for Maximum Service Television, Inc., National Datacast, the Media Access Project, the Center for Digital Democracy, Consumers Union, Consumer Federation of America and the United Church of Christ, Office of Communication, Inc. Notwithstanding the foregoing, the Company has commercial arrangements with many of the largest cable MSOs to provide for carriage of the Company’s data. At this time, it is too early to assess what the economic impact, if any, of a denial by the FCC of the Company’s reconsideration petition would be on the Company’s GUIDE Plus+ interactive program guide service. In the digital television context, the local affiliates of major broadcast networks and national cable stations plan to carry GUIDE Plus+ updating information in their digital broadcast signals. In January 2001, the FCC suggested that in many instances, electronic program guide enabling data in the digital context would not be considered “program-related” and therefore cable systems would not be required to pass through to subscribers

15

such data when transmitted as part of the digital signals of broadcast stations carried on those systems. The Company has asked the FCC to reconsider this decision, and the FCC is currently evaluating how ultimately to define “program-related” in the digital context. At this time, it is too early to assess what economic impact, if any, a final decision by the FCC that electronic program guide data in digital signals is not “program-related,” would have on the Company’s GUIDE Plus+ and TV Guide On Screen interactive program guide services.

Pari-Mutuel Wagering

TVG Network’s pari-mutuel account wagering operations are located in Oregon and operated pursuant to a license granted by the Oregon Racing Commission. Operations must be in compliance with Oregon law and regulations. Oregon law also states that licensees must comply with the applicable provisions of the Federal Interstate Horseracing Act (15 U.S.C. Sections 3001 – 3007 et. seq.). Pursuant to its compliance with Oregon and federal law, TVG Network is permitted to do business in Oregon, California and other states where pari-mutuel wagering on horseracing is legal.

Segment and Geographical Information

Information regarding the Company’s business segments and operations by geographical area is contained in Note 16, “Segment and Geographical Information,” to Consolidated Financial Statements.

Employees

As of December 31, 2002, the Company employed 2,209 individuals, of whom 141 were employed outside the United States. The Company’s 11 employees in France are covered by a collective bargaining agreement. The Company has not experienced any work stoppages and considers its employee relations to be good.

Executive Officers of the Registrant

The following table provides information regarding the Executive Officers of the Company. The ages shown are as of April 1, 2003.

16

17

Website Access to SEC Reports

The Company’s Internet website can be found at www.gemstartvguide.com. Information contained on our Internet website is not part of this report. Our Annual Reports on Form 10-K, Quarterly Reports on Form  10-Q, Current Reports on Form 8-K and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available on our website, free of charge, as soon as reasonably practicable after such reports are filed with or furnished to the SEC.

Alternatively, you may access these reports at the SEC’s Internet website: www.sec.gov.

18

CERTAIN RISKS AFFECTING BUSINESS,

OPERATING RESULTS AND FINANCIAL CONDITION