Media and software company Gemstar-TV Guide International is seeking to be a best-seller in electronic books in a potential link-up with the largest U.S. bookseller, Barnes & Noble , analysts said on Tuesday.
The Wall Street Journal reported on Tuesday that the two were in talks about a possible combination of their businesses. Analysts said, however, it was more likely that any deal would be some kind of strategic alliance in the tiny but growing electronic book business in which customers can download books from the Internet.
This could be part of a strategic move by Gemstar, which provides program guides for television, to compete as a key player in the electronic publishing business, analysts said.
"I could definitely see them doing a deal that involves e-Books," said Robert Hertzberg, analyst at Jupiter Communications. "That makes all the sense in the world."
Barnes & Noble holds less than 1 percent of Gemstar, acquired when Gemstar bought e-book hardware manufacturer NuvoMedia Inc., in which Barnes & Noble had an investment.
A Barnes & Noble spokeswoman, Mary Ellen Keating, said the two companies had discussed the possibility of cooperation in electronic publishing.
"As for a merger between the two companies, this is something that we are definitely not at all contemplating," she said. Keating declined further comment. Gemstar also declined comment.
Part of Gemstar's business is developing and licensing technology and software for interactive television guides. Consumers already can download e-books on Barnes & Noble's Web site. The two could put their heads together developing technology and selling the books, analysts said.
Gemstar Chief Executive Henry Yuen "is a master of arranging all the pieces on the chessboard," said John Corcoran, analyst at CIBC World Markets.
"If they could work together they could grow the e-books faster than if they work separately," he said.
The electronic book publishing market is becoming more and more competitive, with companies like Microsoft Corp. jumping in to get a piece of the action.
The Seattle-based computer giant said in August it was teaming up with top online retailer Amazon.com Inc. to sell digital books. Traditional publishers such as Simon & Schuster also have been trying to get in on the act.
Analysts, however, were very skeptical whether the electronic publishing market would get off the ground, given how expensive it is - the reader device used to download the books costs about $300 - and how much simpler it is just to buy a book rather than download from the Internet.
"I'm not sure we're going to see masses of people downloading Stephen King instead of buying a paperback," said Jim Penhune, media analyst at the Yankee Group. "It's hard to see the big value add."
Jupiter's Hertzberg said companies like Gemstar might be overestimating the growth of the electronic book publishing market, betting that it would grow into a multibillion dollar market.
He predicted there will be 1.9 million electronic book readers in 2005 from 50,000 at the current time.
The readers are plugged into a computer for people to download and then read books on. Hertzberg also said he expects electronic book revenues to grow to $826 million in 2005 from $13.4 million at the moment.
"Gemstar is making a bet that the skepticism about e-Books is unwarranted, and that it will be a significant revenue driver," he said. "We don't see it as a multibillion opportunity in this time frame," Hertzberg said.