Ever used your TV’s remote control to search for a favorite movie, sporting event, or television program? Chances are you were using a service provided by Rovi Corporation (ROVI)
Rovi develops and licenses interactive TV programming guides; descriptive information about television, movie, music, book, and game content; and copyright technology for protection against the piracy of video content and recorded music.
The company’s interactive programming guides, which include information on more than 3.5 million TV programs and 450,000 movies, enable TV and video viewers to navigate through, sort, select, and schedule video programming for viewing and recording.
Its copyright protection technologies have been used to protect billions of videocassettes since 1985 and billions of DVDs since 1997. Nearly every DVD player, DVD recorder, DVD drive, and personal computer that’s manufactured with a DVD drive contains Rovi software, hardware, or both.
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This past July, Rovi began to offer a new interactive programming guide, under the name TotalGuide, to cable and satellite TV companies in North America and Europe. That application enables users of consumer electronic devices to easily find desired content, whether that content is located on a broadcast TV network channel or the Internet. Rovi has established relationships with the following online content distributors to make their content available through its TotalGuide application: Blockbuster, Showtime, Rhapsody, and Starz.
The company is developing a similar application, under the name TotalGuide xD, for use in electronic tablet devices and smartphones.
Rovi offers its products and services to cable and satellite TV operators, movie studios, and telecommunications and Internet service providers as well as to manufacturers of household electronics products, such as TV set-top boxes and DVD players.
The company’s interactive guides are used by approximately 130 million TV viewers and its technology is embedded in approximately 219 million consumer electronic devices. Meanwhile, the company’s professional production tools help to create and deliver millions of titles on the web and on DVD and Blu-ray discs. It has approximately 5,100 issued or pending patents.
Rovi maintains offices in every major region of the world, including locations in New York, San Francisco, San Diego, London, Tokyo, Seoul, and Shanghai, as well as in Luxembourg, Germany, and Russia. During the year ended Dec. 31, 2010, Rovi derived approximately 48 percent of its revenues from sales in the United States and 52 percent of its revenues from sales in other countries.
Its customers include the following service providers and consumer electronics manufacturers: Comcast, Cox Communications, Time Warner Cable, DirectTV, Dish Network, Panasonic, Pioneer, Sony, Samsung, Mitsubishi Electric, and LG Electronics.
The business opportunity
The expansion of network bandwidth, increased availability of devices that allow people to enjoy digital content, and increased mobility are helping the entertainment media market to experience a major transformation from analog to digital content.
Meanwhile, the demand for high-quality digital content in different formats is increasing at a rapid rate, as users of that content seek ways to legally acquire and add content to their electronic databases and to have access to that content on different devices.
In short, a rapidly increasing number of users of digital electronic devices want to easily find and access movies, music, and photos and to enjoy that content where and when they want it. Rovi Corporation provides the applications that are need by makers of those devices to embed that type of functionality into their devices.
Separately, the company’s copyright protection applications enable recording artists and movie studios to combat illegally copying of their materials in an environment where almost anyone can use inexpensive, in-home copying devices (i.e. DVD recorders) to make unauthorized copies of video, audio, and software content.
Lastly, cable and satellite operators as well as web portals are seeking ways to attain or or maintain a competitive advantage in the evolving digital entertainment world. Rovi’s applications help to fulfill that need by enabling those entities to interact with their customers and to thereby create new revenue opportunities. For example, Rovi’s applications enable cable and satellite operators to offer exclusive downloads and to make streamed or downloaded movie available for purchase simultaneously within a home video distribution framework.
Operation results and financial condition
Rovi Corporation has grown its revenues and earnings at a healthy pace since it went public during 1997, with its revenues rising to $111.6 million and its net income rising to $212.8 million for the year ended Dec. 31, 2010, from $20.3 million and $3.8 million, respectively, for the year ended Dec. 31, 1997.
Meanwhile, the company is strong financially, with cash and short-term marketable securities equal to 2.8 times current financial obligations and long-term debt equal to approximately 36 percent of the company’s total assets as of June 30, 2011.
Yet Rovi’s stock is appears to be trading at a bargain price relative to its long-term opportunities, with the company at a price-to-earnings growth (PEG) ratio of just 0.85 as of Sept. 29.
My research indicates that Rovi will grow its revenues and earnings at a fast rate over the next few years. In addition, the company’s stock currently is holding up above a major price-support level in spite of the recent turmoil in the financial markets, so now appears to be a good time to establish a position in its stock.
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