The balance of power in interactive television is shifting, though the medium's profits seem as elusive as ever. In signs of change Monday among ITV businesses, shares in onscreen program guide developer Gemstar-TV Guide ( GMST) plunged in response to
an adverse court decision, while cable programming and investment conglomerate Liberty Media ( L) announced plans to acquire interactive advertising firm Wink Communications ( WINK). While Gemstar faces new skepticism over its ability to further penetrate the multichannel television market and increase its licensing revenue, Liberty -- controlled by cable TV veteran John Malone -- continues to build on its goal of becoming a key participant in the ITV business, presumably to the detriment of Gemstar. Yet, as RBC Capital Markets analyst David Lee Smith points out, the payoff for Liberty and other companies with ITV interests won't take place overnight. The cable TV operators who dominate the multichannel TV market in the U.S. "are only going to do two or three things at a time," says Smith. "Interactive is the fourth thing." (Smith has an outperform rating on Liberty; his firm hasn't done underwriting for the company.) With several brokerage houses downgrading the stock Monday, Gemstar's shares fell 39% to close at $5. The stock is down 90% from its 52-week high. Though Gemstar could prevail in separate ongoing litigation, the implications for Gemstar appear to be larger than the money at issue in this particular case, including the $114 million in licensing revenue from Scientific-Atlanta that Gemstar has recognized since 1999, even though Gemstar hasn't been able to collect a dime of that from its courtroom adversary. Friday's court ruling hints that Gemstar CEO Henry Yuen isn't the infallible master of intellectual property that other companies may have previously believed him to be. The implications for Gemstar, according to SoundView Technology analyst Lisa Haas, are "severe," starting with the likelihood that the company will have to write down its Scientific Atlanta revenue, which in Gemstar's latest quarter accounted for 6% of sales. The ruling, writes Haas, "questions the sustainability of growth in GMST's key technology and Interactive Platform segments." If cable TV operators and satellite service providers can create their own program guides for free, she writes, Gemstar might not continue receiving royalties, and its interactive guide might not grow past its current tally of about 15 million households -- a user base too small to attract national advertisers, she says. Haas has an underperform rating on Gemstar; her firm hasn't done banking for the company. a suit ACTV filed in December 2000 alleging that an Internet play-along version of Disney's ( DIS) then-hit show Who Wants to Be a Millionaire had infringed on ACTV's patents. With ACTV's patents presumably valued lower than they might have been before following that ruling, the fate of any Liberty transaction and the price of such a transaction remain unclear. Spokespersons for ACTV and Liberty Broadband Interactive Television didn't return phone messages Monday.