Macrovision-Gemstar Deal Worries Analysts

"Macrovision could be the next hub for how we consume digital media. That's the dream here," said Olson, the Piper Jaffray analyst.

Olson, though, said some cable operators may create their own software, and the company will have to contend with major competitors, such as Microsoft(MSFT Quote), which is positioning its Media Center to be the digital entertainment hub in the home.

Macrovision CFO James Budge projected a 10% to 15% growth rate for the combined company over the next five years. "Our target Ebitda margin is above 40%, and we expect to generate over $200 million in operating cash flow in 2008," which will go to pay down the debt, he said on the call.

Analysts project combined earnings before interest, taxes, depreciation and amortization of $266 million in 2008, according to Thomson Financial.

Budge said the deal would create "reasonably significant" cost synergies.

However, Schackart said the deal is "better suited for a private company that has the time and risk tolerance for integration."

As good as the team's experience is, the integration risks loom large, Schackart wrote. "Eight out of 10 big deals do not work."

He would consider reinstating his rating should Macrovision land some big movie studio contracts for bundled content protection software -- the company's traditional business line.