Back to GetFilings.com

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2003

or

Commission file number 0-24218

GEMSTAR-TV GUIDE INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

6922 Hollywood Boulevard, 12^th Floor, Los Angeles, California 90028

(Address of principal executive offices including zip code)

(323) 817-4600

(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  x    No  ¨

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.  x

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 February 13, 2004, there were 418,373,489 shares of the registrant’s common stock outstanding. As of June 30, 2003, the aggregate market value of common stock held by non-affiliates of the registrant was approximately $1.0 billion, based on the closing sale price of $5.01 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.

Table of Contents

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement related to the 2004 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission within 120 days after December 31, 2003, are incorporated by reference into Part III of this Form 10-K.

INDEX

2

Table of Contents

PART I

ITEM 1. BUSINESS.

Overview

We are 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. Effective January 1, 2003, we restructured our businesses into four groups that also represent our reportable business segments. Segments are now organized along three industry lines in addition to a segment comprising certain corporate functions and related expenses.

Our principal business strategy is to develop technologies, products and services that provide a comprehensive solution to the television guidance needs of consumers worldwide. We believe that viewers today are overwhelmed by the increasing number of programming and channel choices, as well as the new products and services supported by digital technology, such as video-on-demand (“VOD”) and DVRs. We believe our technologies, interactive services, content and publications together are well positioned to simplify and enhance consumers’ television viewing experience. We believe that the relevance of our television guidance products will increase as more and more consumers gain access to the several hundred channel universe of digital television.

3

Table of Contents

Our interactive program guidance technologies are incorporated into television sets, VCRs, DVD recorders, DVRs, personal computers (“PCs”), and cable and satellite television set-top boxes. In addition to our interactive program guidance technologies, we own and publish TV Guide magazine and operate the website www.tvguide.com. We also own and produce original programming in the form of the TV Guide Channel, which offers editorial content and television listings directly on consumers’ television screens, and TVG, which provides horseracing programming and interactive wagering services. We sell or provide this programming to owners and operators of cable and satellite television systems, including some of the largest cable multiple system operators (“MSOs”), and other programming distributors.

Recent Developments

We have recently entered into new agreements with four of the leading cable operators and DSS providers in the United States. These transactions include licenses to our patented technology and enable the licensees to deploy our IPG, their own IPGs or IPGs developed by third parties.

Time Warner Cable. In October 2003, we signed a long-term licensing and distribution agreement with Time Warner Cable to incorporate our intellectual property and technology, as well as our TV Guide brand and content, on interactive program guides throughout Time Warner’s digital subscriber base. As part of the agreement, Time Warner has the option of providing its systems with a customized version of our interactive program guide, TV Guide Interactive. We also granted a patent license that will allow Time Warner to incorporate TV Guide branded elements and content into its own proprietary guide or into guides provided to it by third party vendors.

DirecTV. In December 2003, we signed a long-term licensing and distribution agreement with DirecTV, Inc. to use our intellectual property and technology, as well as our TV Guide brand, in interactive program guides across its subscriber base. Under this agreement, which began in January 2004, we will receive fees from DirecTV for a non-exclusive patent license that allows DirecTV to use our intellectual property and technology in its own IPGs or, alternatively, in IPGs supplied to DirecTV by its vendors. In addition, our agreement with DirecTV increased our distribution of our TV Guide Channel by over 10 million households.

Comcast. In February 2004, we signed an agreement with Comcast Corporation to form a joint IPG development group using our existing TV Guide Interactive IPG as a foundation to create an industry-leading guide for Comcast and the cable industry. We also agreed to enter into a long-term non-exclusive patent license and distribution agreement, which provides Comcast with the right to use our intellectual property and technology as well as our TV Guide brand and content on its IPGs in exchange for a one-time payment to us of $250 million in cash, payable at closing. Additionally, pursuant to the agreement, we will enter into a new distribution arrangement with Comcast that will provide for carriage of our TV Guide Channel, TV Guide On Demand and our TVG throughout various Comcast systems.

EchoStar Communications. In March 2004, we entered into a long-term non-exclusive patent license and distribution agreement with EchoStar Communications Corporation, which does business as DISH Network. The agreement includes a one-time payment by EchoStar of $190 million in cash and entitles EchoStar to utilize our intellectual property and technology as well as the TV Guide brand and content on its interactive program guides. Additionally, we entered into distribution arrangements with EchoStar providing for the launch and carriage of the TV Guide Channel as well as the extension of their existing distribution agreement for carriage of TVG. We also signed an agreement with EchoStar that resolves all outstanding litigation between us. Separately, EchoStar will acquire the assets of SNG, UVTV and SpaceCom for approximately $48 million in cash. Our sale of these assets to EchoStar is subject to certain regulatory approvals. We also agreed to purchase from Wisdom Media Group the minority interest in SNG that we do not already own for $15 million in cash. The licenses and settlement agreement will become effective upon the closing of the asset sale transaction.

In February 2004, we agreed to settle our pending legal disputes with Pioneer Corporation and its affiliates and enter into a licensing arrangement going forward. This arrangement includes a one-time payment of $14 million by Pioneer to us along with multi-year licensing agreements under which Pioneer will pay us a per-unit license fee for cable set-top boxes incorporating Pioneer IPGs and for the incorporation of our technology into various Pioneer consumer electronics products.

In February 2004, we reached an agreement to settle the consolidated shareholder class action lawsuits pending in the U.S. District Court for the Central District of California. Charges in the suits relate to certain accounting practices and financial reporting under former management. Under the proposed agreement, we will pay a total settlement amount of $67.5 million in cash and stock. We will pay an aggregate of $42.5 million in cash to the class in a combination of direct payments and payments which may be made through the SEC. In addition, we agreed to issue 4,105,090 shares of our common stock which was valued at

4

Table of Contents

$6.09 per share on the date the agreement was reached, or $25 million in the aggregate. The number of shares will increase if the price per share at the time of distribution to the class is less than $6.09 per share. The agreement also provides us with the option to substitute cash for up to 2,052,545 of the shares at $6.09 per share prior to the final settlement being approved. We will assign to the class certain of our claims against our former auditors, KPMG LLP. The class will retain all of its securities fraud claims against our former chief executive officer, former chief financial officer and KPMG LLP, and we will retain all of our claims against former management and our insurance carriers related to the defense and settlement of these actions and related matters. Pursuant to the proposed settlement, we recorded a pre-tax charge of $67.5 million in the fourth quarter of 2003. This settlement is subject to approval by the Court and notice to the class. The settlement does not resolve the related shareholder derivative suits or the non-consolidated securities fraud cases still pending against us.

Technologies, Products and Services

Interactive Program Guides

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 VOD services. We also believe that 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 features, reminder notices to viewers, programming features (for recording) and pay-per-view and VOD integration. In addition, some of our IPGs allow viewers to set a recording device to record television programming for later viewing.

We currently market and license our IPG technologies, products and 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. Our IPG products and services enable 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, pay-per-view and VOD operations. IPGs also allow programmers and programming distributors to continuously disseminate updated program information.

As of December 2003, we had deployed over 11 million CE IPGs, which are incorporated into consumer electronics devices, and over 11 million TV Guide Interactive IPGs, which are incorporated into digital cable set-top boxes. Since the beginning of 2003, we have entered into multi-year licensing agreements with several leading consumer electronics manufacturers, including LG/Zenith, Matsushita (Panasonic), Mitsubishi, Philips, Pioneer, Sony, Samsung, Sharp, Thomson and Toshiba, to incorporate our CE IPGs into various digital television or recording products. Generally, our agreements with consumer electronics manufacturers enable such manufacturers to incorporate our IPG technology into specified products in certain territories, provide that we receive royalties based on the number of units produced and shipped that incorporate our IPG products, and generally do not include minimum aggregate licensing fees or volume commitments. We currently have contracts with more than 200 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. We recently entered into licensing and distribution agreements with Time Warner Cable, DirecTV, Comcast and EchoStar pursuant to which such service providers may elect to deploy a TV Guide Interactive IPG, their own IPG or a third party IPG.

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, products and services have also been licensed by two of the largest tuner card manufacturers in the United States and incorporated into tuner cards for use in PCs.

Interactive Platform Services

Our data service used in conjunction with our IPG products routinely 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 also provide access to our program listings data pursuant to certain of our licensing arrangements with cable and satellite service providers. Advertising data is accumulated, as specified by our advertising customers, and entered into specialized advertising systems.

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 links, broadcast signals and satellite feeds to our IPGs. Generally, to populate

5

Table of Contents

the IPGs incorporated into consumer electronics products, the data is fed to our insertion equipment located in network head-ends, cable head-ends 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 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. In addition, we have an agreement under which we pay for the right to transmit our data in the VBI of Public Broadcasting System member stations throughout the United States. 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 relatively new and unique advertising medium, advertising sales volume is still relatively small. A portion of the 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). We are currently re-evaluating our IPG advertising strategy with the goal of maximizing what we believe could be a long-term revenue opportunity presented by this advertising medium.

The Company also conducts electronic commerce on certain websites, including www.skymall.com and www.tvguide.com.

VCR Plus+

Our first proprietary product, 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. We have developed and introduced additional features to enhance the functionality of the VCR Plus+ setup procedures, including controlling set-top boxes and updating the clock and cable channel lineup information. VCR Plus+ is offered internationally in more than 35 countries. It is incorporated into VCRs, television sets and digital devices such as DVD recorders and DVRs by licensed consumer electronics manufacturers and enables consumers to record a television program by simply entering a proprietary one- to eight-digit PlusCode number into the device via a remote control unit. 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 us and are now carried by over 1,700 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 Oriental Daily News (Hong Kong). In North America, we pay an agency to manage, collect and remit payments from owners of newspapers and magazines that publish our PlusCode numbers. We also license our PlusCode numbers 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 Japan and South Korea), our subsidiaries directly handle our PlusCode publication contracts and manage and collect the fees under those contracts. One of our subsidiaries also collects, processes and distributes television listings data for more than 20 countries in Europe. In Japan and South Korea, the sale of PlusCode numbers is handled by a third party company called Gemstar Japan. Prior to our initial public offering in 1995, Gemstar Japan was a wholly owned subsidiary of our predecessor company. Upon the closing of our initial public offering, the stock was “spun-off” to entities that were controlled by former stockholders and executives of our predecessor company. Also upon the closing of our initial public offering, Gemstar Japan entered into service contracts with us for PlusCode publication in Japan and South Korea that have since expired. In June 2002, Gemstar Japan transferred certain trademark registrations back to us. We are currently in the process of negotiating a new arrangement with Gemstar Japan with respect to the distribution of our PlusCodes in Japan and South Korea in the future.

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 television program guidance, listings and descriptions. The magazine also provides feature entertainment information about shows, stars, technology and developments in the world of on- screen entertainment. We anticipate that TV Guide magazine will continue to be a valuable and viable product in print form even with the emergence of electronic listings data because of its convenience, simplicity and integration of editorial expertise and commentary with listings. As channel choices and time shifting proliferate, we believe TV Guide magazine will become more valuable as a planning and decision tool for readers/viewers. We plan to continue to evolve TV Guide magazine as a planning tool and entertainment source to guide program choices and complement the other guidance tools that we deploy, all under one trusted brand — TV Guide.

6

Table of Contents

As of December 31, 2003, TV Guide magazine had a circulation of approximately 9 million copies that reached approximately 27 million readers each week, according to MediaMark Research, Inc. We publish over 175 separate digest and ultimate size editions of this magazine weekly, including geographic and cable specific editions. On a monthly basis, we also published The Cable Guide, which had approximately 575,000 subscribers. The magazine discontinued publishing the Cable Guide in December 2003. In addition, we produce a monthly pay-per-view guide for more than 30 cable systems in the United States. TV Guide magazine attracts new subscribers to its cable-specific editions through the continued customization of the magazine for regional cable systems and through customer marketing programs in conjunction with some of the country’s largest MSOs.

TV Guide magazine’s rate base, the volume of circulation guaranteed to advertisers, was 9 million as of December 31, 2003, which was unchanged from December 31, 2002. The magazine’s rate base was last adjusted from 9.9 million in June 2001 to the current 9 million. TV Guide magazine fully complies with the Audit Bureau of Circulations’ audit requirements. TV Guide magazine’s circulation comprises a number of sources, including newsstand sales, individually paid subscriptions and sponsored sales sold in bulk. Sponsored sales increased from a monthly average of 2.2 million copies in December 2002 to 2.7 million copies in December 2003. Sponsored sales, which support advertising revenues, 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 42%, 42% and 43% of our consolidated revenues in the years ended December 31, 2003, 2002 and 2001, respectively. TV Guide magazine’s circulation revenues are derived from four primary sources: new subscriptions (sold through insert cards in TV Guide magazine, our website tvguide.com, direct mail and direct mail agents), subscription renewals, single-copy newsstand sales, and subscriptions for cable and satellite-specific editions sold through MSOs and satellite TV companies. TV Guide magazine circulation revenues have been decreasing due to declines in the number of subscribers available for renewal promotion, lower renewal prices and reduced newsstand sales. The overall decrease in circulation revenues of TV Guide magazine may continue and could be significant.

In 2003, TV Guide magazine carried more than 2,400 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 50% of these pages. The listings section, which typically includes network and cable tune-in advertising, comprised 34% of total advertising pages; and insert advertising represented approximately 16% 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 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. Increases in the price of coated and uncoated paper could have a material adverse effect on TV Guide magazine’s operating performance. We do 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 would adversely 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.

SkyMall

Acquired in July 2001, SkyMall is a specialty retailer that offers airline passengers a large selection of premium-quality products and services from a wide variety of merchants and partners through the SkyMall in-flight catalog and www.skymall.com. SkyMall has a sophisticated vendor relationship management 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 approximately 600 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 captive audience with upscale demographics for its quarterly catalogs.

7

Table of Contents

TV Guide Channel

TV Guide Channel is an entertainment network that offers television viewers information on programs, celebrities and trends in television, as well as program listings and descriptions. We offer 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, DSS service providers, advertisers and consumers.

TV Guide Channel is typically included in a basic or expanded basic viewing package offered by programming distributors to their subscribers, and is generally available in both analog and digital channel lineups. Subscribers do not need additional equipment 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 VOD, creates an entertainment environment in which media buyers want to place their clients’ advertising and gives consumers customized entertainment information on 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 2,300 cable TV distribution systems around the country on a daily basis. As of December 31, 2003, TV Guide Channel was distributed to 57.1 million households as measured by Nielsen and now reaches nearly 70 million households as a result of its January 2004 launch on DirecTV. In January 2004, we launched a revamped TV Guide Channel that features a new programming line-up, on-air branding and a new studio.

TVG

We own 93% of TVG. We produce, market and distribute TVG, 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. In 2003, TVG delivered racing content and accepted wagers on races from 62 horse racetracks in return for a fee based on a percentage of gross wagering handled by TVG.

As of December 31, 2003, TVG’s television network was available in more than 12.3 million U.S. households on DISH Network satellite service (basic tier), DirecTV satellite service, which carries TVG in its SPORTS Pack premium package, C-band satellite systems and on cable systems in regional areas. In certain states, TVG customers may establish wagering accounts to wager on the horse races through patented, proprietary interactive applications utilizing automated telephone, online closed loop subscriber-based systems and digital set-top box remote control software developed or in development by us.

In early 2002, TVG 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 is also party to license and content agreements with Youbet.com, Inc. and America TAB, Ltd. Pursuant to these agreements, TVG receives royalties in exchange for licenses to certain of its intellectual property and sublicenses to certain of its audiovisual and pari-mutuel account wagering rights for content from various horse racetracks.

TVG is a growing business in which we have made substantial investment. Future 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.

SNG Direct-to-Home Satellite Programming Services

We own approximately 80% of SNG. SNG 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 DSS and cable television systems. DSS providers such as DISH Network and DirecTV transmit on the Ku band, which uses a higher power signal than C-band satellites, enabling DSS customers to use smaller, less obtrusive satellite dishes. In addition, DSS and digital cable operators transmit digital signals that allow for a larger number of channels, including local network stations.

To further its strategy of reducing operational involvement in this business while maximizing profitability, in 1999, SNG entered into a marketing alliance agreement to promote and solicit orders for DISH Network. In exchange, SNG receives an initial commission for each SNG subscriber who subscribes to DISH Network and a monthly residual commission over the life of the

8

Table of Contents

agreement, which expires at the end of 2005. In 2003, the total number of C-band subscribers in the industry decreased by 27% to approximately 428,000 subscribers. At December 31, 2003, SNG provided service to 236,000 of these subscribers, a decrease of 35% from the subscribers served by SNG at December 31, 2002. We expect the decline in our C-band business to continue and this decline may be accelerated by our agreement with EchoStar. In March 2004, we entered into an agreement with EchoStar that, among other things, includes the sale of substantially all of the assets of SNG. In February 2004, we also agreed to purchase from Wisdom Media Group the minority interest in SNG that we do not already own.

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 DSS, and the Denver 5 networks to C-band subscribers. 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. In March 2004, we entered into an agreement with EchoStar that, among other things, includes the sale of substantially all of the assets of UVTV.

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. In March 2004, we entered into an agreement with EchoStar that, among other things, includes the sale of substantially all of the assets of SpaceCom.

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. We earned revenues in our eBook business through licensing technology and selling e-book devices and content. During 2003, we significantly scaled back the operations of our eBook subsidiaries. Sales of eBook reading devices and content were discontinued in June and July 2003, respectively. Although consumers can no longer purchase new devices or content, current device owners are able to access previously purchased content and add unencrypted content to their content libraries.

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. We protect our 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. We are engaged in significant litigation regarding our intellectual property. See “Legal Proceedings.”

Our technology and intellectual properties have been licensed to significant consumer electronics manufacturers and MSOs. We currently market IPGs under brands that include TV Guide On Screen, GUIDE Plus+, G-GUIDE and TV Guide Interactive. We currently have over 260 issued U.S. patents in the general area of audio-visual technologies with more than 6,500 claims, and over 600 issued foreign patents. Each of our 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. We continue to actively pursue a worldwide intellectual property program and currently have approximately 360 United States and 1,000 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 we have registrations or applications to register in the United States or foreign countries include TV Guide, TV Guide Interactive, TV Guide On Screen, GUIDE Plus+ (G-GUIDE in Asia), VCR Plus+ (VIDEO Plus+, ShowView and G-CODE in Europe and Asia), PlusCode, Gemstar, TVGuide.com, TVG and SkyMall.

We hold various domain names relating to our trademarks and service marks including gemstar.com, tvguide.com, gemstartvguide.com, tvgnetwork.com and skymall.com.

9

Table of Contents

Competition

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

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 our 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 our 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 us. We are currently developing a variety of enhancements to our IPGs. We cannot assure you that any enhancements developed by us 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 our ability to offer certain products and services. There can be no assurance that we are or will be aware of all patents containing claims that may pose a risk of infringement by our products and services. In addition, patent applications are generally confidential for a period of 18 months from the filing date, or until a patent is issued in some cases, so we 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 prior to their publication. In general, if one or more of our products or services were to infringe patents held by others, we 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. In addition, we may be required to defend ourselves or certain of our licensees against claims of infringement by third parties. We cannot assess the extent to which we may be required in the future to defend our products or those of our licensees or to obtain licenses with respect to patents held by others, whether such licenses would be available or, if available, whether we would be able to obtain such licenses on commercially reasonable terms. If we were unable to obtain such licenses, we may not be able to redesign our products or services to avoid infringement.

Although we believe that our IPGs are in a strong competitive position with respect to our known competitors, there may be competitors with additional strengths that are unknown to us. 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.

VCR Plus+ System

We are 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 products, such as DVRs, permit consumers to record programs directly from air, cable or satellite for later viewing through the use of memory chips and hard disk drives contained in the devices. Worldwide shipments of VCRs decreased in 2003 and are expected to continue to decrease in future years due to the introduction of these digital recording devices. The VCR Plus+ system is beginning to be incorporated into some of these digital recording devices, notably DVD recorders and DVRs. However, to the extent that IPGs with recording capability are widely adopted, such guides may reduce the need for VCR Plus+. All IPGs, including those that do not have a point-and-click recording feature, may compete with the printed television guides, and may adversely affect our PlusCode number coverage and publication license income.

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 television stars and programs; other electronic,

10

Table of Contents

interactive and online programming guides; and our 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 we believe competition 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 such as Cablevision, which may wish to launch their own programming guide channels, and from Zap2it, a unit of Tribune Media.

SNG

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

In March 2004, we entered into an agreement with EchoStar that, among other things, includes the sale of substantially all of the assets of our C-band direct-to-home business. In February 2004, we also agreed to purchase from Wisdom Media Group the minority interest in SNG that we do not already own.

TVG

TVG has competitors in television and pari-mutuel account wagering. In the television area, the only known competitor to TVG on a national basis is HRTV, a subsidiary of Magna Entertainment Corporation (“MEC”). In the area of pari-mutuel account wagering, TVG Network’s primary competitors are Xpressbet, also a subsidiary of MEC, Youbet.com, Inc., America TAB, Ltd., Greenwood Racing, Inc. (also known as OneClickBetting) and various offshore entities. TVG is party to agreements with Youbet.com, Inc. and America TAB, Ltd. pursuant to which it receives royalties in exchange for licenses to certain of its intellectual property and sublicenses to certain of its audiovisual and pari-mutuel account wagering rights for content from various horse racetracks. While we believe that TVG is in a strong competitive position with its television distribution agreements, intellectual property portfolio and racetrack content agreements, there may be competitors with additional strengths that are unknown to us.

SkyMall

Our SkyMall subsidiary faces competition from a variety of sources. In our airline catalog business, competitors, typically other catalog retailers, have attempted to secure contracts with various airlines to offer merchandise to their customers. SkyMall also faces competition for customers from airport-based retailers, duty-free retailers, specialty stores, department stores and specialty and general merchandise catalogs, many of which have greater financial and marketing resources. In addition, SkyMall competes for customers with other in-flight marketing media, such as airline-sponsored in-flight magazines and airline video programming.

Research and Development

The market for our products and services is subject to rapid and significant changes in technology and frequent new service and product introductions. We believe that one of the keys to our future success will be our ability to enhance our existing technologies and to introduce products and services using such new technologies on a competitive basis. Accordingly, we will continue to engage in significant research and development activities. Our expenses for research and development in 2003, 2002 and 2001 were $27.0 million, $27.4 million and $31.1 million, respectively. We cannot assure, however, that we will successfully complete the development of any future technology. There is also no assurance that this technology, even if fully developed, could be incorporated in our products and services or in products of third parties. Any significant delay or failure to develop new or enhanced technology could have a material adverse effect on us.

Regulation

The satellite transmission, cable and telecommunications industries are subject to pervasive federal regulation, 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 us, they affect programming distributors, a primary customer for our products and services. We monitor pending legislation and administrative proceedings to ascertain relevance, analyze impact and develop strategic direction surrounding regulatory trends and developments within the industry.

11

Table of Contents

Satellite Home Viewer Improvement Act of 1999

The Satellite Home Viewer Improvement Act of 1999 (“SHVIA”) restricts the distribution of distant network stations and superstations to dish owners by UVTV and these restrictions may increase the cost of uplinking distant network stations and superstations. In addition, although SNG is not a satellite carrier, certain programming sold by SNG is subject to these rules. Congress is currently considering legislation to reauthorize the distant station provisions of SHVIA, which expires on December 31, 2004. Although we believe Congress is likely to approve this legislation, it is too early to determine whether such legislation will include any changes in the law that could impact UVTV or SNG.

“Local-Into-Local”

SHVIA provides satellite carriers with a 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). We have no plans to distribute local signals in the C-band markets. DSS carriers now provide local-into-local service in many of the top 100 television markets and have announced plans to serve all 210 television markets with local stations. The distribution of local signals enhances the ability of DSS carriers to compete with cable. SHVIA also permits the distribution of superstations and distant network stations to DSS subscribers in certain circumstances. The availability of local signals to DSS, without corresponding local signals for C-band, may contribute to the ongoing decline of C-band subscribers.

VBI and Digital Data Carriage Matters

We use 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 networks to supply updates throughout the day of program listing information to our TV Guide On Screen and 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, we filed a Petition for Reconsideration of this ruling. Subsequent negotiations between us and Time Warner Cable led to an agreement which provided for carriage by Time Warner of our program listing information in either the VBI or within the digital signal of broadcast television stations. As a result of the agreement with Time Warner Cable, on December 5, 2003, we filed a Petition to Dismiss the Petition for Reconsideration, which was granted on January 15, 2004.

In the digital television context, the local affiliates of major broadcast networks and national cable networks plan to carry our CE IPG updating information in their digital broadcast signals. In January 2001, the FCC suggested that 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 such data when transmitted as part of the digital signals of broadcast stations carried on those systems. 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 our CE IPG services.

In a related proceeding, the FCC issued a Notice of Inquiry (“NOI”) on January 18, 2001 concerning Interactive Television (“Interactive TV”), questioning whether cable operators who are affiliated with Interactive TV providers should be subject to a non-discrimination requirement to prevent them from using their broadband platforms to favor affiliated Interactive TV services over third-party providers. The NOI also indicated the FCC’s tentative conclusion that Interactive TV includes electronic program guides, interactive video content, and supplementary signals that wrap around video and provide additional content or services. The NOI is still pending before the FCC.

Compatibility Between Cable Systems and Consumer Electronic Equipment

On September 10, 2003, the FCC adopted regulations implementing an agreement between cable MSOs and consumer electronics manufacturers to facilitate the retail availability of unidirectional “plug and play” digital televisions and other digital devices that connect directly to cable systems and receive one-way digital services without the need for a set-top box. The parties have begun negotiations on a bi-directional “plug-and-play” agreement, which would allow interactive services to be provided on digital televisions and other digital devices without the need for a set-top box. In April 2003, the FCC extended to July 1, 2006 a deadline under which multichannel video program distributors (except DSS providers) must phase out consumer electronic navigation devices (e.g., set-top boxes) with combined security and non-security functions. The FCC has indicated that it may eliminate this separation requirement altogether if the cable and consumer electronics industries successfully negotiate a bi-directional “plug-and-play” agreement. Such an agreement could affect demand for IPGs incorporated into set-top boxes or consumer electronics devices, such as TV Guide Interactive and our CE IPGs.

12

Table of Contents

Pari-Mutuel Wagering

TVG’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 is permitted to do business in Oregon, California and other states where pari-mutuel wagering on horseracing is legal. Currently, TVG maintains wagering accounts for residents of California, Idaho, Indiana, Kentucky, Louisiana, Maryland, Massachusetts, New Mexico, New York, North Dakota, Ohio, Oregon and Wyoming.

Segment and Geographical Information

Information regarding our 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, 2003, we employed 2,166 individuals, of whom 133 were employed outside the United States.

Executive Officers of the Registrant

The following table provides information regarding the Executive Officers. The ages shown are as of March 1, 2004.

13

Table of Contents

14

Table of Contents

Website Access to SEC Reports

Our 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.

15

Table of Contents

CERTAIN RISKS AFFECTING BUSINESS,

OPERATING RESULTS AND FINANCIAL CONDITION

This section highlights specific risks affecting our business, operating results and financial condition. The order in which the risks appear is not intended as an indication of their relative weight or importance.

TV Guide magazine, which is a significant business, has experienced significant declines in circulation and operating results and such declines may continue.

We provide TV Guide magazine to households and newsstands and customized weekly and monthly program guides to customers of cable and satellite service providers. TV Guide magazine has seen circulation decline significantly over the past several years. The primary cause of this decline is increased competition from free television listings included in local newspapers, IPGs incorporated into digital cable and satellite services, and other sources. Declines in TV Guide magazine’s circulation and operating results may continue and could be significant. Although we made a substantial investment in redesigning the magazine during the third and fourth quarters of 2003, there can be no assurance that this redesign will affect these declines or address competitive pressures. To date, we have not seen a reversal in the decline in our newsstand sales, which are important to TV Guide magazine’s profitability. Unless the decline in newsstand sales is reversed, our results will continue to be adversely affected.

Our C-band business, which is a significant business, is declining as a result of competition from superior technologies.

We market and distribute entertainment programming to C-band satellite dish owners in the United States through our approximately 80% owned subsidiary, SNG. The C-band business is declining primarily as a result of competition from DSS and cable television systems. DSS providers such as DISH Network and DirecTV transmit on the Ku band, which uses a higher power signal than C-band satellites, enabling DSS customers to use smaller, less obtrusive satellite dishes. In addition, DSS and digital cable operators transmit digital signals that allow for a larger number of channels, including local network stations and subscribers of C-band programming are encountering reduced availability of programming as the number of channels transmitted as analog signals capable of being received and descrambled by C-band satellite equipment decreases.

In 1999, SNG entered into a marketing alliance agreement with EchoStar to promote and solicit orders for its DISH Network. In exchange, SNG receives an initial commission for each SNG subscriber who subscribes to DISH Network and a monthly residual commission over the life of the agreement, which expires at the end of 2005. We expect the decline in our C-band business to continue and this decline may be accelerated by our agreement with Echostar. In March 2004, we entered into an agreement with EchoStar that, among other things, includes the sale of substantially all of the assets of SNG. In February 2004, we also agreed to purchase from Wisdom Media Group the minority interest in SNG that we do not already own.

The market for interactive program guides may not develop rapidly.

The market for IPGs, is rapidly evolving and is increasingly competitive. Demand and market acceptance for IPGs are subject to uncertainty and risk. We cannot predict whether, or how fast, this market will grow or how long it can be sustained. For our CE IPGs, the deployment rate depends on the strength or weakness of the consumer electronics industry, and in particular, the sale of television sets, DVD recorders and DVRs. For TV Guide Interactive, which is deployed through digital set-top boxes, the deployment rate depends on the growth of digital cable and DSS subscribers and our penetration of the market for IPGs for these subscribers. Revenues from the licensing of our IPG technology to cable and satellite distributors will also depend upon the growth of digital cable television subscribers in the systems operated by our licensees. Purchases of consumer electronics products and digital cable and DSS subscriptions are largely discretionary and may be affected by general economic trends in the countries or regions in which such products or subscriptions are offered. If the market for our IPG products and services, and those of our licensees, develops slowly or becomes saturated with competitors, our operating results could be adversely impacted.

Our business may be adversely affected by fluctuations in demand for consumer electronics devices employing our technologies.

We derive significant revenues from manufacturer license fees for our VCR Plus+ and CE IPG technologies based on the number of units shipped. We do not manufacture hardware, but rather depend on the cooperation of consumer electronics manufacturers to incorporate our technology into their products. Generally, our license agreements do not require manufacturers to include our technology in any specific number or percentage of units, and only a few of these agreements guarantee a minimum aggregate licensing fee. Demand for new consumer electronics devices, such as television sets, VCRs, integrated satellite receiver decoders, DVRs, hard disk recorders, personal computers and Internet appliances, may be adversely impacted by increasing market saturation, durability of products in the marketplace, new competing products and alternate consumer entertainment options. As a result, our future operating results may be adversely impacted by fluctuations in sales of consumer electronics devices employing our technologies. In addition, our license agreements recently expired with three consumer electronics manufacturers. We cannot assure you that we will be able to renew these agreements, or others that will expire in the future, upon terms as favorable to us as those contained in prior contracts.

16

Table of Contents

VCR Plus+ revenues have declined and may decline further due to full penetration of the product in a declining market.

Revenues derived from VCR Plus+ have declined and may decline further due to the fact that virtually all major VCR manufacturers have licensed the VCR Plus+ technology and the fact that we have already expanded into most major markets worldwide. The worldwide shipment of VCRs is expected to decline as VCRs are replaced by digital recording devices such as DVD recorders and DVRs. Although VCR Plus+ is now being incorporated into some digital recording devices, there is no assurance that this practice will become widespread. In addition, our license agreements recently expired with three consumer electronics manufacturers. There can be no assurance that we will be able to renew these agreements, or others that will expire in the future, upon terms as favorable to us as those contained in prior contracts.

Any infringement by us or some of our licensees on patent rights of others could result in litigation.

Patents of third parties may have an important bearing on our ability to offer certain products and services. Many of our competitors as well as other companies and individuals have obtained, and may be expected to obtain in the future, patents that concern products or services related to the types of products and services we plan to offer. We cannot provide assuranc