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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2004

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 18, 2005, there were 424,205,391 shares of the registrant’s common stock outstanding. As of June 30, 2004, the aggregate market value of common stock held by non-affiliates of the registrant was approximately $1.2 billion, based on the closing sale price of $4.80 per share as reported by the Nasdaq Stock Market on such date. Shares of common stock held by officers, directors, and any stockholder whose ownership exceeds 5%, 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.

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DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement related to the 2005 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission within 120 days after December 31, 2004, are incorporated by reference into Part III of this Form 10-K.

INDEX

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PART I

Overview

Gemstar-TV Guide International, Inc. (“Gemstar” or the “Company”) is a media, entertainment and technology company that develops, licenses, markets and distributes technologies, products and services targeted at the television guidance and home entertainment needs of television viewers worldwide. In the continually evolving world of television, where consumers may have several hundred channels from which to choose, we offer comprehensive guidance solutions to television viewers. We believe that most TV viewers today have a growing demand for such solutions because they are overwhelmed by an increasing number of programming choices that include cable channels, pay-per-view and video on demand and because they are challenged by growing complexity of their home entertainment centers that may include cable or satellite receivers, digital TVs, digital video recorders (“DVRs”) and digital video discs (“DVD”) recorders. Today, the average American watches more than four hours of television every day and TV has never been more central to our leisure time or more influential in our culture. The TV Guide brand reaches over 70 million U.S. households each week, through TV Guide magazine, TV Guide Channel, TV Guide Interactive, TV Guide Online and TV Guide On Screen. Each platform serves consumers with one overarching objective—to simplify and enhance viewers’ television experience. The TV Guide brand has the highest degree of consumer awareness among sources of program information.

Our business strategy primarily focuses on using our unique assets such as the TV Guide brand, television listings data, data distribution infrastructure, intellectual property, and relationships with cable and satellite operators and consumer electronics (“CE”) manufacturers, as well as unique capabilities such as content development expertise, and the ability to localize data listings to individual markets, cable systems and even subscribers. We believe these assets and capabilities allow us to create TV guidance products and services that have broad consumer appeal. We use these unique strengths to serve consumers through multiple channels: print media; cable, satellite, and interactive TV; the Internet; and CE devices. Additionally, as a leader in interactive program guide (“IPG”) technology, our strategic relationships with companies across key media and technology industries position us well to capitalize on the future growth of digital televisions, home network centers and digital mass storage recording devices and the associated growth of content across these platforms.

Business Segments

The Company organizes its businesses into four groups that also represent its reportable business segments. The segments are organized along three industry lines, in addition to a segment comprising certain corporate functions and related expenses. Our four business segments are: Publishing; Cable and Satellite; Consumer Electronic Licensing; and Corporate. See Note 16 – Segment and Geographical Information of the Notes to the Consolidated Financial Statements for financial information regarding segment reporting.

Publishing Segment

Our Publishing Segment consists of the Company’s publishing units and Web sites including TV Guide magazine, TV Guide Online and the SkyMall catalog business. The Publishing Segment also includes TV Guide Data Solutions, a data collection and distribution business that gathers and distributes program listings and channel lineups.

TV Guide magazine has been published continuously since 1953 and appears in more than 90,000 retail outlets with more than 270,000 display pockets. TV Guide magazine is the most widely circulated paid weekly magazine in the United States, with Audit Bureau of Circulation reported circulation of approximately 9 million copies a week, and pass along readership of more than 25 million. 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. The magazine develops approximately 100,000 new program descriptions and reviews, as well as more than 3,600 “Close-up” and over 300 features per year. We publish 154 separate digest and ultimate size editions of this magazine weekly, including geographic and cable specific editions. 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 multiple system operators (“MSOs”).

TV Guide magazine’s rate base, the volume of circulation guaranteed to advertisers, was 9 million as of December 31, 2004, which was unchanged from December 31, 2003 and December 31, 2002. TV Guide magazine complies with the Audit

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Bureau of Circulations’ audit requirements. TV Guide magazine’s circulation comprises a number of sources, including newsstand sales, individually paid subscriptions and sponsored sales.

TV Guide magazine revenues have accounted for approximately 44%, 52% and 56% of our consolidated revenues in the years ended December 31, 2004, 2003 and 2002, respectively. TV Guide magazine’s circulation revenues are derived from four primary sources: new subscriptions (sold through insert cards in TV Guide magazine, our Web site 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 digital broadcast satellite (“DBS”) providers. TV Guide magazine circulation revenues and circulation per copy have declined significantly over the past several years, while many of the costs of producing and distributing the magazine are fixed and therefore have not declined correspondingly. Contributing to this decline is increased competition to our high contribution newsstand sales from larger, glossy, entertainment publications and competition from the guidance provided by free television listings included in local newspapers, IPGs incorporated into digital cable and satellite services, and other sources. Furthermore, in order to offset declining newsstand sales, reduce our reliance on sponsored sales and arrears copies, and rebuild the subscriber base of TV Guide magazine, we have provided subscribers with various forms of promotional offerings (such as low, or no, contribution per copy subscriptions). Declines in TV Guide magazine’s circulation contribution per copy and operating results may continue and could be significant. Unless the decline in newsstand sales is reversed and unless newly-acquired subscribers renew at prices greater than the initial offers, our results will continue to be adversely affected.

In 2004, TV Guide magazine carried approximately 2,300 total advertising pages. This past year, TV Guide magazine saw a substantial decline in program advertising revenue, which historically represented the majority of TV Guide magazine’s advertising revenue. As broadcast network television viewership has declined, we have seen a more limited and focused approach to broadcast network television marketing spend. The decline in program advertising revenue could be permanent. At the same time we have seen an increase in conventional advertisers such as food, drug, automobile, entertainment and packaged goods companies. New conventional advertisers this year included Milano Cookies, Red Roof Inns and La Quinta. We also saw a significant increase in advertising from Dell Computers in 2004. Conventional advertising is now the largest portion of TV Guide magazine’s advertising revenue. TV Guide magazine sells advertising principally through an internal advertising sales force. Advertisers may purchase pages in TV Guide on either a national or regional basis 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. Paper prices have begun to increase in 2005. We do not hedge against increases in paper costs. Significant increases in the price of coated and uncoated paper could have a material adverse effect on TV Guide magazine’s operating performance. 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. TV Guide magazine uses an outside company for newsstand distribution.

In the late spring of 2005, we plan to launch a new weekly publication, Inside TV. This new magazine will target young female TV fans and will reflect the way contemporary women are involved with television as well as report on the latest in entertainment news, style and trends. The magazine will be full size, four color throughout, and is expected to be sold primarily on newsstands rather than through subscription sales. We expect to incur a material amount of costs in connection with the launch and ongoing operations of Inside TV. Those start up costs include additional staffing, marketing expenses, and costs connected with acquiring distribution space in supermarkets, large retailers and other newsstand outlets. We believe that Inside TV offers an opportunity to compete more effectively against other offerings at newsstand than our current TV Guide magazine does.

TV Guide Online (www.tvguide.com) is an entertainment Web site with more than 6.5 million registered users. TV Guide Online offers listings, features, search and voting capability on television related subjects and also conducts electronic commerce. TV Guide Online generates the majority of its revenues from advertising. TV Guide Online advertising revenue has grown steadily over the past three years from $2.0 million in 2002, to $4.2 million in 2003 and $6.3 million in 2004. During 2003, TV Guide Online underwent a significant redesign, becoming more integrated with the Company’s other branded products and services, principally TV Guide magazine. Since its redesign tvguide.com has become a meaningful source of new subscription orders for TV Guide magazine.

SkyMall offers airline passengers a large selection of high-quality products and services from a wide variety of merchants and partners through the SkyMall in-flight catalog and www.skymall.com. SkyMall receives commissions on the sale of merchandise sold in its in-flight catalog or on its Web site and placement fees from participating merchants to include their products in SkyMall’s catalog. 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

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product inventory, providing maximum flexibility in merchandising the catalog and Web site. SkyMall has agreements with most 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.

SkyMall also operates programs for Marriott and various similar entities (each a “Loyalty Partner”) pursuant to which consumers are allowed to obtain merchandise with loyalty points earned from Marriott Rewards, and similar loyalty programs. Under these programs, SkyMall contracts directly with the Loyalty Partner to provide merchandising, fulfillment, customer and other related services. The Loyalty Partner pays SkyMall a pre-negotiated price for all products purchased by loyalty customers.

Due to the holiday season, placement fees and commissions received by our SkyMall business tend to be highest during the fourth quarter of each year.

Cable and Satellite

Our Cable and Satellite Segment offers technologies and services to consumers and service providers in the cable and satellite industry. The Cable and Satellite Segment includes the operations of TV Guide Channel, TV Guide Interactive, TVG Network and several other smaller related businesses.

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 MSO and DBS 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, DBS 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. Generally, the screen for TV Guide Channel is divided into two components that offer cable and satellite providers a powerful combination in the form of objective and subjective guidance. The objective guidance is illustrated in the lower portion of the screen by the scrolling program guide, which is color-coded by genre and displays updated local program listings information. This customized text portion of the screen contains viewing times, channel numbers, network identification, program titles, weather, movie descriptions, program ratings and ordering instructions for pay-per-view and, where available, video on demand (“VOD”) services, for over 2,500 unique channel lineups in the United States, Puerto Rico, and the US Virgin Islands. In the upper portion of the screen, TV Guide Channel’s subjective video guidance, via original programming, is designed to offer information about the best of what’s on and make recommendations for what’s worth watching. This portion of the screen is devoted to shows promoting upcoming programs and events, entertainment information and advertising. As of December 31, 2004, TV Guide Channel was distributed to 76.7 million households as measured by Nielsen.

TV Guide Channel’s average prime time total household viewership, as defined by Nielsen Media Research (“Nielsen”), was 0.23 million in the fourth quarter of 2004 and 2003. Although total household viewership remained constant, our average prime time total household rating, as defined by Nielsen declined to 0.30 in the fourth quarter of 2004 as compared to 0.41 in the fourth quarter of 2003. The decline in our rating is principally due to the increase in our subscriber base being primarily satellite subscribers, who have not used or do not receive TV Guide Channel’s program listing information. As total household rating is based on the universe of subscribers, we believe our rating will increase in the future if we provide our growing percentage of satellite and digital cable subscribers with a compelling programming choice, in addition to a place to go for program listing information.

TV Guide Channel revenues have accounted for approximately 16%, 15% and 13% of our consolidated revenues in the years ended December 31, 2004, 2003 and 2002, respectively. Revenues at TV Guide Channel consist primarily of affiliate fees and advertising revenue. As the majority of our affiliates are contracted under long-term agreements with only cost-of-living increases available under certain contracts, our future growth is highly dependent on advertising revenue. As such, TV Guide Channel is increasing its level of investment in new programming and marketing initiatives with an expectation that the additional investments will, in the future, result in increased viewership and advertising revenue. This will materially increase programming and marketing costs at TV Guide Channel in 2005.

TV Guide Channel advertising revenue generally tends to be highest during the fourth quarter of each year, which includes the majority of the holiday selling season.

TV Guide Interactive licenses technologies and services related to television IPGs, to cable and satellite service providers primarily in the United States and provide them with operational support, content and data. Cable and satellite service providers

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can enter into service agreements with us to deploy our TV Guide Interactive IPG (“TVGI IPG”) or agreements to license our technologies to deploy our TVGI IPG, their own IPG or a third party IPG. An IPG is an on-screen listing of television program information with interactive functions that enable viewers to navigate through, sort, select and schedule television programming for viewing and recording. 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. Our TVGI IPG allows service providers to customize certain elements of IPGs for their subscribers and also allows these providers to upgrade over time the features and services they can offer to their subscribers. Our IPG is compatible with service providers’ subscription management, pay-per-view and VOD services. Our IPG also allows service providers to provide their viewers with current and future program information.

Our national data network provides customized and localized listings data to our TVGI IPGs and our data licensees in all 210 U.S. Designated Media Markets, as defined by Nielsen. The listing data is continuously delivered to local affiliate cable systems for delivery to set-top boxes in subscribers’ homes. We have license and distribution agreements with the majority of the MSOs and DBS providers including Adelphia Communications, Charter Communications, Comcast Corporation (“Comcast”), Time Warner Cable, DirecTV and EchoStar Communications Corporation. As a result, as of December 31, 2004, over 32.7 million subscribers receive either our TVGI IPG or another party’s IPG provided under a patent license for which we are paid.

In August of 2004, we launched a new TVGI IPG, the i-Guide, in the United States and Canada. This new IPG delivers enhanced features in high resolution to digital cable homes in systems throughout the U.S. and Canada. This new service offers continued support of high definition (“HD”) programming, VOD, DVR, and advanced interactive television technologies.

We also offer advertising on our TVGI IPG. Marketers can advertise through a variety of display formats incorporated into the guide screens. Advertising opportunities are “hot”, displaying additional text information and/or ad copy when clicked on via the remote control. Broadcaster ads can hot link directly to a TV channel. Advertisers can target specific audiences by airing ads at certain times of the day, or target by viewers’ programming preferences (e.g., movies, sports or children). Our ability to provide IPG advertising is generally at the discretion of the MSO and DBS providers if they deploy their own IPG or a third party IPG. The majority of subscribers for which we are paid a license fee are receiving a TV Guide branded third party IPG. Our agreements with MSO and DBS providers generally require us to share a portion of the advertising revenue we receive from IPG advertising on their systems. The MSO providing us with the majority of our advertising carriage, has notified us that they will no longer carry IPG advertising when they migrate to a TV Guide branded third party IPG in the first quarter of 2005.

We plan on launching an on-demand, cross-platform television network featuring originally produced and repurposed short-form video entertainment programs that provide editorial guidance to the most compelling fare on television each week. Expected to launch in 2005 to over 10 million cable households, the network will feature a 24-hour on-demand experience with a monthly and weekly schedule, featuring various short-form original programs—all rooted in providing television guidance in an entertaining and engaging environment. It will also be available to broadband users on tvguide.com (www.tvguide.com).

On March 31, 2004, the Company and Comcast formed a joint venture, Guideworks LLC (“Guideworks”), to develop IPGs and related middleware for the cable industry using the existing TVGI IPG software as the basis for development. We transferred our TVGI IPG research and development employees to the venture, as well as certain intellectual property rights and development tools. We own 49% of the joint venture and Comcast owns 51%, with Comcast serving as the managing member. Comcast has the right to use the joint development products in connection with products and services Comcast offers across its digital subscriber base. We have the exclusive right to distribute the joint development products in connection with products and services we offer to other multichannel video programming distributors. Guideworks also provides development support for our existing and future affiliate partners. We have agreed to fund an annual commitment, subject to annual maximums.

TVG Network, is a cable and satellite sports entertainment television network that combines live horse racing from many of the premier horse racetracks in the United States with the convenience of interactive wagering from home. In addition to live racing, the television programming also features commentary, race analysis and interviews with the sport’s newsmakers, handicapping tutorials, and originally-produced programming for racing’s major events. TVG Network, which is 94.5% owned by the Company, delivers racing content and accepts state-licensed pari-mutuel account wagers on races from horse racetracks in return for a fee based on a percentage of gross pari-mutuel wagering by TVG Network subscribers.

TVG Network is an exclusive marketing partner of the National Thoroughbred Racing Association and has exclusive agreements for television and interactive wagering with the following horse racetracks: Aqueduct, Arlington Park, Belmont Park, Calder, Churchill Downs, Del Mar, Ellis Park, Emerald Downs, Fair Grounds, Fairplex Park, Hollywood Park, Hoosier Park, Keeneland, Kentucky Downs, Los Alamitos, Oak Tree at Santa Anita, Prairie Meadows, Ruidoso Downs, Saratoga Raceway,

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Saratoga Race Course, Turf Paradise and Turfway Park. TVG Network currently maintains wagering accounts for residents of the following states: California, Idaho, Indiana, Kentucky, Louisiana, Maryland, Massachusetts, North Dakota, Ohio, Oregon, Washington and Wyoming. TVG Network customers may wager on horse races through the Internet, by phone, and where available, set-top remote control.

Youbet.com, Inc. and America TAB, Ltd. license certain intellectual property and sublicense certain audiovisual and pari-mutuel account wagering rights from TVG Network. Youbet.com and America TAB maintain wagering accounts for residents of certain states in which TVG Network does not, as well as in states that TVG Network currently does, offer wagering accounts. As a result, TVG Network is paid a royalty based upon account wagering processed by Youbet.com and America TAB from certain horse racetracks.

TVG Network also earns revenue from traditional advertising sales and direct response advertising sales from its growing television distribution. As of December 31, 2004, TVG Network was available in 14.3 million U.S. households. With the continued development of TVG Network distribution in major racing markets and the expansion of markets from which accounts are accepted, we believe that increased fee revenue, network advertising, merchandising and interactive advertising opportunities may become available.

TVG Network 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 its distribution and the integration of interactive wagering technologies for online and interactive television applications.

TVG Network experiences fluctuations in gaming and licensing revenue due to the seasonal nature of horse racing. TVG Network’s wagering and licensing revenue tend to be highest during the second and third quarter.

Consumer Electronic Licensing

Our CE Licensing Segment licenses the Company’s proprietary technologies and intellectual property to CE manufacturers and recognizes advertising revenues related to IPGs incorporated in CE devices. The CE Licensing Segment licenses video recording technology currently marketed under the VCR Plus+ brand in North America and under other brands in Europe and Asia, and IPGs marketed under the TV Guide On Screen brand in North America, under the G-GUIDE brand in Asia and under the GUIDE Plus+ brand in Europe. This Segment also has licensed certain IPG patents to manufacturers of set-top boxes for the DBS industry, and continues to license certain IPG patents to interactive television providers and program listing providers in the online, personal computer and other non-television businesses. In addition, the CE Licensing Segment incurs costs associated with patent prosecution and litigation related to the enforcement and defense of patent claims.

We license our technology to major CE manufacturers around the world. Our licensees include Hitachi, JVC, LG, Matsushita (Panasonic), Mitsubishi, Philips, Pioneer, Samsung, Sharp, Sony, Thomson, TiVo, Toshiba and others. Generally, our agreements with CE manufacturers enable them to incorporate our technology into specified products in certain territories provided we receive license fees based on the number of units produced and shipped that incorporate our technology. We have also entered into long-term IPG patent license agreements with certain CE manufacturers. Our CE Segment does not receive a license fee on set-top boxes that are manufactured by our CE partners for a MSO or DBS provider who has also licensed our IPG technology through our Cable and Satellite Segment.

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 and digital devices such as low priced DVRs, DVD recorders and DVD-HDD combination digital / analog products 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 generated through a patented process developed by us and are printed next to television listings by over 1,700 newspapers and program guides 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), we directly handle our PlusCode publication contracts and manage and collect the fees under those contracts. In Japan, the sale of PlusCode numbers is handled by an unrelated third party company called Gemstar Japan.

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TV Guide On Screen (Guide Plus+ in Europe and G-Guide in Japan) is an IPG incorporated in CE products, including mid to high-end digital, plasma and LCD televisions, DVRs and recordable DVD players. The guide offers interactive on-screen program listings that enable viewers to quickly and easily navigate, sort, select, and schedule television programming for viewing and recording, all with simple remote control commands. TV Guide On Screen’s patented technology delivers continuously updated multi-day program listings to users, regardless of whether they receive their television signal via cable or over-the-air broadcast. TV Guide On Screen works by simply plugging in the television or recording device and activating the guide through a pre-programmed set-up process. The guide requires no subscription or special data input connection.

The roll out of our IPG incorporated in CE products has been slower than we anticipated for, among other reasons, the long lead times manufacturers need to incorporate our IPG into their products. Albeit further off in the future than previously anticipated, we still expect success for our IPG with manufacturers of mid-range to high-end digital televisions, DVRs and DVD recorders as consumers demand more advanced guidance and recording technologies in such devices. This business is dependent upon the anticipated consumer demand for such devices materializing.

As a result of an agreement with DirecTV that became effective January 1, 2004, the Company no longer collects one-time fees from manufacturers of DirecTV set-top boxes, but instead is paid by DirecTV on a recurring revenue model based initially on new subscribers. Revenues earned from DirectTV are recognized by the Cable and Satellite Segment.

In order to encourage the incorporation of our IPG in CE products, we are offering certain large CE manufacturers the opportunity to bundle both our IPG and VCR Plus+ technology at a significant discount beginning with sales reported in fiscal 2005. We anticipate this could lead to a decrease in combined IPG and VCR Plus+ revenues in fiscal 2005, however, we believe this will ultimately accelerate the incorporation of our IPG to our benefit.

We use the VBI, or vertical blanking interval, in the analog television signals and/or its digital equivalent in the digital 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 program listing information to our IPGs incorporated in CE products in the U.S. Norpak Corporation, a majority-owned Canadian subsidiary of the Company and developer of television-based data transmission systems and interactive on-line information systems, manufactures and supplies us with the VBI insertion equipment. We use a variety of terrestrial, satellite and broadband Internet transmission means to deliver listings data to our IPGs incorporated in CE products internationally.

License revenue from our VCR Plus+ and TV Guide On Screen services experience fluctuations due to the seasonality of CE shipments. Shipments of CE products tend to be higher in the second and fourth calendar quarters. We recognize revenues associated with our technology incorporated in these CE products when the shipments are reported to us, generally in the third and first calendar quarters. In addition, manufacturer shipments vary from quarter to quarter depending on a number of factors, including retail inventory levels and retail promotional activities. As a result, we may experience variability in our licensing revenues on a quarterly or annual basis.

Corporate

Our Corporate Segment comprises various centralized functions, including corporate management, corporate legal, corporate finance and other functions, and related costs such as litigation (excluding amounts relating to cases involving the enforcement or defense of patent claims which are included in the CE Segment) and insurance costs.

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 critical 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 IPGs, which broadly covers fundamental advances related to IPG 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 CE manufacturers, MSOs and DBS providers. We currently market IPGs under brands that include TV Guide On Screen, GUIDE Plus+, G-GUIDE and TV Guide Interactive. We currently have over 280 issued U.S. patents in the general area of audio-visual technologies with more than 8,000 claims, and over 700 issued foreign patents. Each of our issued patents will expire at a different time based on the particular filing date or

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issue date of that respective patent, with expiration dates as late as 2023. We continue to actively pursue a worldwide intellectual property program and currently have approximately 300 United States and 700 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, TV Guide Channel, GUIDE Plus+ (G-GUIDE in Asia), VCR Plus+ (VIDEO Plus+, ShowView and G-CODE in Europe and Asia), PlusCode, Gemstar, TV Guide Online, TVG and SkyMall.

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

Competition

Our technologies, products and services compete with those of other companies. Many of our present and potential 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 or services of the Company.

Our CE IPG and TVGI IPG also, in a sense, compete with each other. To the extent we enter into an IPG technology license with a MSO or DBS provider, our contracts generally prohibit us from also being paid by a CE manufacturer for any set-top boxes integrating an IPG or allowing for the integration of an IPG, for which a MSO or DBS provider pays us.

Improvements in software porting and in software substitutability, together with government mandated introduction of an OpenCable Applications Platform, 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 products or 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 and services 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

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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 or service other than the VCR Plus+ system that allows the user to program a VCR by entering a numerical code. However, several products and services on the market offer other simplified VCR programming functions and thus compete with the VCR Plus+ system. Such products and services 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 are expected to continue to decrease, due to the introduction of digital recording devices. The VCR Plus+ system is beginning to be incorporated into some of these digital recording devices, notably low-priced 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 / Inside TV magazine

TV Guide magazine competes with other entertainment magazines at the newsstand and for marketers’ advertising spend. As a source of guidance, TV Guide magazine competes with 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, interactive and online programming guides; and our own interactive and Internet program listings guide services.

With its current mix of television listings and editorial content, we no longer believe TV Guide magazine, in its current format, can recapture its former sales levels at the newsstand. We also believe our digest size puts us at a disadvantage to competing standard 8” x 10.5” magazines such as People and US. We also have a higher cost structure than these magazines. We currently publish 154 different editions nationwide to address each local market compared to certain competitors’ one national edition. This higher cost structure also puts us at a significant competitive disadvantage. We are currently reviewing our newsstand strategy for TV Guide magazine.

Inside TV Magazine will compete with TV Guide magazine and with entertainment magazines that target young women at the newsstand and for marketers’ advertising spend. Several other established magazines and other media outlets also target this market segment.

TV Guide Channel

As a source of guidance, TV Guide Channel has 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, interactive and online programming guides; and our own interactive and Internet program listings guide services. In addition, the TV Guide Channel also faces competition from cable television operators who may wish to launch their own programming guide channels.

We have recently begun investing in original programming, including programming revolving around various entertainment awards shows. We believe, by focusing on programming celebrating television we can draw an audience beyond those that currently tune in solely for television programming guidance. For this investment in programming and marketing to pay off, we will need to achieve higher ratings and thus greater advertising revenue. This means we will compete with general entertainment channels for television viewership and marketers’ advertising spend.

In addition, TV Guide Channel competes with other programming for limited analog cable television system channel slots. The competition for channel slots has increased, and we believe 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.

TVG Network

TVG Network has competitors in television and pari-mutuel account wagering. In the television area, the only known competitor to TVG Network on a national basis is HRTV, a subsidiary of Magna Entertainment Corporation (“MEC”). HRTV offers wagering in significantly more states than TVG Network. MEC also owns and operates racetracks in the United States and abroad. In the area of pari-mutuel account wagering, TVG Network’s primary competitors are Xpressbet, also a subsidiary of

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MEC, Youbet.com, Inc., America TAB, Ltd., Greenwood Racing, Inc. (also known as OneClickBetting) and various offshore entities. TVG Network 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 Network 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. 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. SkyMall also competes with the merchandisers who advertise in SkyMall’s catalog as many of these merchandisers also have their own catalogs and Web sites. 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 2004, 2003 and 2002 were $25.7 million, $27.0 million and $27.4 million, respectively. Our expenses in 2004 include our 49% share of Guideworks’ research and development expenses (See Note 1 to the Consolidated Financial Statements). As we are not the managing member of Guideworks, we have limited ability to direct Guideworks research and development efforts and cannot assure that any technology developed will meet our commercial needs. We cannot assure, 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.

VBI and Digital Data Carriage Matters

We use the VBI, or vertical blanking interval, in the analog television signals and/or its digital equivalent in the digital 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

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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.

Compatibility Between Cable Systems and Consumer Electronic Equipment

On September 10, 2003, the FCC adopted regulations implementing an agreement between cable MSOs and CE 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 DBS 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 CE industries successfully negotiate a bi-directional “plug-and-play” agreement. Such an agreement could affect demand for IPGs incorporated into set-top boxes or CE devices, such as TV Guide Interactive and our CE IPGs.

Pari-Mutuel Wagering

TVG Network derives a substantial portion of its revenue from pari-mutuel wagering, which is subject to extensive statutory and regulatory oversight. As such, the gaming activities of TVG Network are extensively regulated. TVG Network’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.). Adverse changes in the political climate, new legislation or regulatory activity could harm our business. From time to time, members of Congress and state legislatures have introduced bills that would prohibit or severely restrict off-track interstate pari-mutuel wagering. In addition, a leading payment system has, on behalf of its member financial institutions, recently taken an interest in limiting the use of credit cards for non face-to-face gaming transactions as a means of combating illegal Internet-based gambling operations. Although such efforts to restrict payment mechanisms may not be targeted at the lawful activity of licensed operations such as TVG Network, the resulting inconvenience to our customers caused by such measures could harm our business or growth prospects.

Geographical Information

Information regarding our operations by geographical area is contained in Note 16, “Segment and Geographical Information,” to Consolidated Financial Statements.

Employees

As of December 31, 2004, we employed 2,011 individuals, of whom 154 were employed outside the United States.

Executive Officers of the Registrant

The current executive officers of the Company are as follows (the ages shown are as of February 25, 2005):

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Web site Access to SEC Reports

Our Internet Web site can be found at www.gemstartvguide.com. Information contained on our Internet Web site 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 Web site, 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 Web site: www.sec.gov.

The following table sets forth the location, approximate square footage, use, and related business segment of each of the principal properties used by the Company. We lease all of these properties with the exception of the Phoenix, Arizona site where we own the building and lease the land. All properties are leased under operating leases. Such leases expire at various times through 2015. The Phoenix, Arizona land lease period may be extended to 2065 at our option.

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We believe that our facilities are adequate to meet our needs for the foreseeable future. Should we need additional space, management believes that we will be able to secure additional space at reasonable rates.

We operate an uplink in Tulsa, Oklahoma for our TV Guide Channel that allows us to monitor our signal on a real-time basis. In addition, we lease uplink station facilities in other cities as needed. Information is generally delivered to the uplink

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transmission station via satellite, dedicated telephone or fiber optic lines and is usually scrambled at the uplink transmission site to avoid unauthorized receipt.

We entered into a long-term capital sublease with a News Corporation controlled entity for a transponder to be used by our TV Guide Channel operations. The sublease expires in 2019 and annual payments are $1.6 million per year.

In addition to the items listed below, we are party to various legal actions, claims and proceedings incidental to our business. Except as expressly noted herein, we intend to vigorously defend or prosecute all pending legal matters.

SEC Matters

On October 17, 2002, the Securities and Exchange Commission (“SEC”) issued a formal order of investigation to determine whether there were violations of the federal securities laws by the Company and/or others involved with the Company. In June of 2004, the Company reached a final settlement with the SEC that concluded the SEC’s investigation into the Company in a matter captioned Securities and Exchange Commission v. Gemstar-TV Guide International, Inc., in the United States District Court for the Central District of California, Case No. CV 04-4506 RGK (CTx). Under the terms of the settlement, the Company paid a civil penalty of $10.0 million, without admitting or denying the SEC’s allegations, from funds that had been set aside restricted cash in connection with the Company’s settlement agreement related to the Consolidated Shareholder Class Action as described below.

In May of 2003, in a proceeding captioned In the Matter of an Application for a Temporary Order Pursuant to Section 1103 of the Sarbanes-Oxley Act, Securities and Exchange Commission v. Gemstar-TV Guide International, Inc., in the United States District Court for the Central District of California, Case No. CV-03-3124 MRP (PLAx), the Court ordered the Company to maintain approximately $37.0 million in segregated, interest-bearing bank accounts (“funds”). The Company had originally set those funds aside for payment to its former Chief Executive Officer, Dr. Henry C. Yuen, and its former Chief Financial Officer, Ms. Elsie Ma Leung, in connection with the Company’s November 2002 management and corporate governance restructuring. The Court’s order prevents the Company from paying any portion of those funds to Dr. Yuen or Ms. Leung absent further order of the Court. On July 1, 2003, in a case captioned Securities and Exchange Commission v. Henry C. Yuen, et al., in the United States Court of Appeals for the Ninth Circuit, Case No. 03-56129, Dr. Yuen and Ms. Leung filed an appeal of the orders requiring the Company to maintain the funds in its accounts. On May 12, 2004, a panel of the Ninth Circuit Court of Appeals overturned the decision and remanded the appeal to the district court for further proceedings. On May 26, 2004, the SEC petitioned the Ninth Circuit Court for a rehearing en banc. Dr. Yuen and Ms. Leung opposed the SEC’s petition. On September 24, 2004, the Ninth Circuit Court of Appeals granted the SEC’s petition for rehearing en banc. The rehearing took place on December 15, 2004, but no decision has been issued by the Court.

On June 19, 2003, the SEC filed an action entitled Securities and Exchange Commission v. Henry C. Yuen, et al., in the United States District Court for the Central District of California, Case No. CV 03-4376 NM (MANx), alleging violations of the federal securities laws by Dr. Yuen and Ms. Leung and seeking declaratory and injunctive relief in connection with alleged violations of the federal securities laws, disgorgement of all monies received as a result of their alleged illegal conduct, and civil penalties under Section 20(d) of the Securities Act of 1933 and Section 21(d)(3) of the Securities Exchange Act of 1934. On January 6, 2004, the SEC amended its action to include three more of the Company’s former employees, Peter C. Boylan, Jonathan B. Orlick, and Craig Waggy. On July 13, 2004, the SEC filed a third amended complaint against defendants Yuen, Leung, Waggy, and Orlick. The Company was not named as a party in either of the amended complaints. In August 2004, the Court approved a settlement between Mr. Boylan and the SEC. On January 20, 2005, the Court approved a settlement between Mr. Orlick and the SEC.

In January 2005, defendants Yuen and Leung, and the Los Angeles Office of the SEC reached a negotiated settlement which remains subject to the approval of the Commission in Washington D.C. Also in January 2005, defendant Waggy reached a settlement with the Los Angles Office of the SEC which remains subject to the approval of the Commission in Washington D.C. The trial date for this case has been postponed pending entry of final judgments in accordance with these settlements.

Claims Under the Company’s Directors and Officers Liability Insurance Policies

The Company has tendered various claims, including claims for defense costs related to the SEC investigation and various related shareholder and derivative actions, to the issuers of its directors and officers liability insurance policies. The Company’s insurance carriers have reserved their rights under the policies with respect to the payment of these claims, have disputed the availability of coverage under these policies on various grounds, and have made no payments under the policies for the vast majority of the costs incurred by the Company and its current or former officers and directors in connection with these matters. In April of 2004, the Company commenced a formal dispute resolution process pursuant to the policies.

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Derivative Shareholder Litigation

Commencing in April 2002, the Company, along with certain directors and others, was sued in three purported shareholder derivative actions in the California Superior Court for the County of Los Angeles. These purported derivative lawsuits were consolidated as Priebe, et al., v. Boylan, et al., [In re Gemstar-TV Guide International Derivative Litigation], Case No. GC029296 (the “State Court Derivative Litigation”). On August 12, 2003, plaintiffs filed a consolidated third amended complaint alleging, among other things, that the Company’s directors had breached various duties in connection with the transactions that underlie the Consolidated Shareholder Class Action described below, and seeking unspecified monetary damages. On November 18, 2003, the Company filed its answer and defenses to the consolidated third amended complaint.

In November 2002, a separate derivative lawsuit captioned Knowles v. Yuen, et al., in the United States District Court for the Central District of California, Case No. CV-02-8440 (the “Federal Court Derivative Litigation”) was filed based on the same core allegations as the Consolidated Shareholder Class Action and the State Court Derivative litigation discussed above and seeking unspecified money damages.

In December 2004, the Company and plaintiffs in both the State Court Derivative Litigation and the Federal Court Derivative Litigation entered into an agreement to settle those actions without any admission of wrongdoing, subject to approval of the appropriate state and federal courts. The settlement agreement provides for the implementation and/or formalization of certain corporate governance provisions and a payment of attorneys’ fees by the Company. On January 12, 2005, the Court presiding over the State Court Derivative Litigation entered a judgment dismissing that litigation pursuant to the terms of the settlement agreement described above, and awarding plaintiffs’ counsel (in the State Court Derivative Litigation and the Federal Court Derivative Litigation) attorneys’ fees. On February 10, 2005, the Court presiding over the Federal Court Derivative Litigation entered judgment dismissing that action pursuant to the terms of the settlement agreement described above.

Consolidated Shareholder Litigation

As previously disclosed, the Company settled the purported class action complaints alleging violations of the federal securities laws by the Company in a matter captioned In re Gemstar-TV Guide International Securities Litigation, Case No. CV 02-2775, NM (PLAx), in the United States District Court for the Central District of California (the “Consolidated Shareholder Class Action”). Also named as defendants were Dr. Yuen, the Company’s former Chief Executive Officer, and Ms. Leung, the Company’s former Chief Financial Officer. Although the settlement resolves all claims asserted against the Company in the Consolidated Shareholder Class Action, plaintiffs have retained their claims against Dr. Yuen and Ms. Leung who remain defendants. In addition, the following three lawsuits have been filed against the Company by individual investors based upon the same core allegations as in the Consolidated Shareholder Class Action.

Non-Consolidated Shareholder Litigation

State of New Jersey v. Gemstar, et al., in the California Superior Court for the County of Los Angeles, Case No. GC030987. In January 2003, the Company was served with the complaint by the Investment Division of the State of New Jersey against the Company, Dr. Yuen and Ms. Leung seeking unspecified monetary damages, including punitive damages, restitution, and attorneys’ fees and costs. On January 5, 2005, the Company executed an agreement with the State of New Jersey to settle the case in its entirety as against all defendants without any admission of wrongdoing. On January 11, 2005, the Court entered a judgment of dismissal as against all defendants.

Silvertree Capital LLC v. Gemstar, et al., in the United States District Court for the Central District of California, Case No. CV 03-5093. On July 17, 2003, Silvertree Capital LLC filed an action against the Company seeking unspecified monetary damages and attorneys’ fees and costs. On December 7, 2004, the Company reached an agreement with plaintiff to settle the case without any admission of wrongdoing. On December 20, 2004, the Court entered a judgment of dismissal as against all defendants.

Minas Litos and Anastasia Litos, et al., v. Gemstar-TV Guide International, Inc., in the United States District Court for the Northern District of Indiana, Case No. CV 04-8595 MRP (PLAx). On February 17, 2004, individual shareholders filed an action against the Company alleging various breaches of fiduciary duty, violations of state and federal securities laws and seeking unspecified money damages, and attorneys’ fees and costs. On April 16, 2004, the Company filed a Motion to Transfer and Motion to Dismiss plaintiffs’ complaint. In October 2004, the District Court in Indiana granted the Company’s motion to transfer the case to the Central District of California.

Patent and Antitrust Litigation

As of December 31, 2004, the Company had resolved certain of the patent and antitrust litigations that it was previously involved in, but was still involved in several pending patent and antitrust litigations, as described below.

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The following events have occurred with regard to the patent and antitrust litigation matters consolidated under the action captioned In re Gemstar Development Corporation Patent Litigation, in the United States District Court for the Northern District of Georgia, Master File No. MDL-1274-WBH (the “MDL Litigation”). As a result of the Company’s previously announced settlements with General Instrument Corporation, Thomson Inc., Pioneer Corporation, and EchoStar Communications Corporation and their affiliates, Gemstar and Scientific-Atlanta, Inc. (“SA”) were the only parties remaining in the MDL Litigation throughout the remainder of 2004. Gemstar-TV Guide is currently in settlement and cross-licensing discussions with Scientific-Atlanta to resolve outstanding litigation between the two companies. There can be no assurance that a settlement will be reached or on the specific terms of any settlement. However, based on the discussions to date, Gemstar-TV Guide does not anticipate that any settlement payment Gemstar-TV Guide may receive would have a material impact on the company’s operating results or financial condition.

(a) Scientific-Atlanta, Inc. v. Gemstar International Group Limited, Gemstar Development Corporation and Index Systems, Inc., in the United States District Court for the Northern District of Georgia, Civil Action File No. 98-CV-3477-WBH. On December 3, 1998, Scientific-Atlanta (“SA”) commenced this action against the Company (its complaint was amended several times). As of December 31, 2004, SA was seeking a declaratory judgment of non-infringement, invalidity and unenforceability of United States Patent Nos. 4,751,578, 4,908,713, 4,963,994, 5,038,211, 5,193,357, 5,508,815, 5,915,068 and 5,568,272. The complaint also alleges that the Company engaged in anticompetitive conduct, including violations of federal antitrust laws and seeks declaratory relief, monetary damages (including treble damages and costs of litigation) and injunctive relief. Gemstar filed a counterclaim for infringement of the ‘815, ‘272, ‘578, ‘713 and ‘068 patents, seeking declaratory relief, monetary damages (including treble damages, costs of litigation and attorneys fees) and injunctive relief. On August 29, 2003, the Court entered two consent orders. One consent order dismissed without prejudice SA’s declaratory judgment claims concerning the ‘994 patent based on the Company’s representations with respect to the lack of ownership of that patent. The second consent order gave effect to the parties’ stipulation that certain SA digital set-top box products did not infringe the ‘713 patent. The Court entered summary judgment of non-infringement by certain SA digital and analog set-top box products as to the ‘815 and ‘272 patents in orders dated August 30, 2002, and November 1, 2002. On June 30, 2003, the Court granted SA’s motion for summary judgment of non-infringement of the ‘357 and ‘211 patents. On July 18, 2003, the Court ruled that SA did not infringe the ‘578 patent. In March 2004, the Court granted SA’s motions for summary judgment of non-infringement of the ‘068 and ‘713 patents. The Court also granted each of Gemstar’s three motions for partial summary judgment on SA’s Federal anti-trust claims against the Company, thereby dismissing SA’s sham litigation, advertising tie, and patent product tie antitrust claims. In April of 2004, the Company moved the Court for separate entry of final judgment on the summary judgment rulings that SA did not infringe the asserted patents in the MDL Litigation under Federal Rule of Civil Procedure 54(b) (“Rule 54(b)”). On July 16, 2004, the Court denied the Company’s Rule 54(b) motion. The parties engaged in discovery throughout the remainder of 2004. Pursuant to the settlement discussions between the Company and SA discussed above, the parties obtained Court approval for a further stay of discovery and an extension of the time within which to file a consent scheduling order.

(b) Gemstar Development Corporation and Index Systems Inc. v. Scientific-Atlanta, Inc., in the United States District Court for the Northern District of Georgia, Civil Action File No. 99-CV-1242-WBH (transferred from the Central District of California). On December 4, 1998, the Company commenced this action against SA in the United States District Court for the Central District of California, Case No. CV 98-9781 HLH (RNBx). On December 10, 1998, the Company filed a First Amended Complaint alleging infringement of United States Patent Nos. 5,508,815 and 5,568,272 and seeking monetary damages (including treble damages, costs of litigation and attorneys fees), and injunctive relief. The case was transferred to the Northern District of Georgia and consolidated with the MDL Litigation. On August 30, 2002, the Court ruled that the SA digital set-top boxes at issue did not infringe the ‘815 and ‘272 patents. On November 1, 2002, the Court ruled that the remaining products at issue did not infringe these patents. By Order dated September 25, 2002, the Court ruled that the invalidity issues would not be heard unless, and until, the summary judgment orders were reversed in whole or in part. Although these rulings resolved all of the claims in this case, the Court did not enter judgment in this consolidated case. In July of 2004, after denial of the Company’s Rule 54(b) motion described in paragraph (a) above, the Company moved to have judgment entered on the merits in this case, where all pleaded claims had been ruled upon. On October 15, 2004, the Court granted the Company’s motion and entered judgment in favor of SA. On November 9, 2004, the Company filed a Notice of Appeal. Pursuant to the settlement discussions between the Company and SA discussed above, the parties have by agreement obtained an extension of the Company’s time to file its opening appellate brief.

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(c) The Company is a party in an ancillary proceeding in the United States District Court for the Northern District of Oklahoma captioned In re Gemstar Development Corp., N.D. Ga. Master File No. MDL-1274-WBH, Case No. 02-MC-18-EA(J), in which SA seeks monetary and non-monetary sanctions in a contempt proceeding against the Company and Peter Boylan, a former employee of the Company. On December 17, 2003, a magistrate judge issued a Report and Recommendation (“R&R”) recommending that the district court grant the Company’s motion for summary judgment dismissing the contempt proceedings brought by SA against the Company. On October 5, 2004, the district court judge adopted the magistrate judge’s R&R and granted the Company’s motion for summary judgment. On October 19, 2004, SA filed a motion for reconsideration of the Court’s decision granting the Company’s motion for summary judgment. On November 4, 2004, the Court denied SA’s motion for reconsideration. An evidentiary hearing and order to show cause with respect to the remaining contempt claim against Mr. Boylan was scheduled to commence on February 2, 2005. Pursuant to the settlement discussions between the Company and SA described above, the parties obtained Court approval to extend the date for the evidentiary hearing until May 18, 2005.

Non-MDL Patent Litigation in the Northern District of Georgia

Scientific-Atlanta, Inc. v. StarSight Telecast, Inc., in the United States District Court for the Northern District of Georgia Civil Action No. 99-CV-1671-WBH. On June 25, 1999, SA filed an action against StarSight in the U.S. District Court for the Northern District of Georgia, seeking a declaratory judgment of invalidity and non-infringement of two patents: 4,706,121 and 5,479,268. StarSight answered the complaint and counterclaimed against SA for infringement of the patents, seeking damages and injunctive relief. On January 21, 2003, SA amended its complaint in this case seeking declaratory relief of invalidity, unenforceability, and non-infringement of the ‘121 and ‘268 patents, as well as a declaration that SA is the true owner of the ‘121 patent by virtue of an assignment; a declaration of patent misuse for both patents, exceptional case damages and its costs. On January 17, 2003, StarSight moved the Court to stay the case pending the results of the ITC investigation (discussed below), which motion the Court granted as unopposed on February 28, 2003. Since February 28, 2003, the action has been stayed pending completion of the appeal of the ITC Investigation. Neither the parties nor the Court have moved to reactivate this matter.

Scientific-Atlanta, Inc. v. Gemstar-TV Guide International, Inc., Gemstar Development Corporation, Index Systems, Inc. and Index Systems B.V., in the United States District Court for the Northern District of Georgia, Civil Action No. 99-CV-1040-WBH. On April 23, 1999, SA filed an action against the Company alleging infringement of SA’s U.S. Patents 4,885,775, 4,991,011 and 5,477,262, and seeking damages and injunctive relief. This case was consolidated for pretrial proceedings with the case captioned Scientific-Atlanta, Inc. v. StarSight Telecast, Inc., in the United States District Court for the Northern District of Georgia, Civil Action No. 99-CV-1890 (see below). The parties were engaged in discovery throughout the remainder of 2004. Pursuant to the settlement discussions between the Company and SA described above, the parties have obtained Court approval for a further stay of discovery and an extension of time within which to file a consent scheduling order.

Scientific-Atlanta, Inc. v. StarSight Telecast, Inc., in the United States District Court for the Northern District of Georgia Civil Action No. 99-CV-1890. On July 23, 1999, SA filed an action against the Company’s StarSight subsidiary in the U.S. District Court for the Northern District of Georgia, alleging infringement of the same three patents at issue in the Civil Action No. 99-CV-1040 described above, and seeking damages and injunctive relief. The parties were engaged in discovery throughout the remainder of 2004. Pursuant to the settlement discussions between the Company and SA described above, the parties have obtained Court approval for a further stay of discovery and an extension of time within which to file a consent scheduling order.

Gemstar-TV Guide International Inc., and StarSight Telecast, Inc., v. Scientific-Atlanta, Inc., in the United States District Court for the Northern District of Georgia, Civil Action No. 01-CV-0406-WBH. On February 9, 2001, the Company filed an action against SA asserting claims for infringement of United States Patent numbers 5,809,204, 5,479,268, and 5,253,066, seeking injunctive relief, damages, treble damages, and attorneys fees. On March 29, 2001, instead of answering the complaint SA moved to stay the case because of the pending ITC investigation. On October 24, 2001, the Court stayed the case until the ITC determination became final. Neither the parties nor the Court have moved to reactivate this matter.

Personalized Media Communications, LLC v. Scientific-Atlanta, Inc., and PowerTV, Inc., in the United States District Court for the Northern District of Georgia, Atlanta Division, Civil Action No. 02-CV-824 (CAP). On November 6, 2002, SA and PowerTV, Inc. (“Power TV”) filed a counterclaim against the Company in this case seeking a declaration of non-infringement, invalidity and unenforceability of certain patents as to which the Company is a licensee. On February 21, 2003, the Company answered SA’s and Power TV’s counterclaims and asserted causes of action against SA for patent infringement and against PMC for breach of contract. A claim construction hearing on the infringement claims was held in February 2004. The parties are awaiting a ruling from the Court. On January 25, 2005, Personalized Media Communications, LLC (“PMC”) filed a motion for

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summary judgment against the Company on the breach of contract issue. On January 31, 2005, SA and Pioneer TV filed a motion to supplement their prior art statement. On February 14, 2005, PMC filed its opposition to that motion.

Pegasus Development Corp. and Personalized Media Communications, LLC v. DirecTV Inc., Thomson Multimedia, Inc., Thomson Consumer Electronics, Inc., Philips Electronics North America Corp., and Hughes Electronics Corp.; Thomson Multimedia, Inc. and Thomson Consumer Electronics, Inc., v. Pegasus Development Corp. and Personalized Media Communications, LLC, TVG-PMC, Inc., StarSight Telecast, Inc., and Gemstar-TV Guide International, Inc., in the United States District Court for the District of Delaware, Case No. 00-CV-01020 (GMS). On December 4, 2000, Pegasus and PMC filed suit for infringement of U.S. Patents Nos. 4,694,490, 4,704,725, 4,965,825, 5,109,414, 5,233,654, 5,335,277, and 5,887,243. Plaintiffs’ seek monetary damages and attorneys’ fees and costs. On November 9, 2001, Thomson Multimedia filed a third-party complaint against TVG-PMC, StarSight Telecast, and Gemstar-TV Guide (collectively “Gemstar”), seeking a declaratory judgment of noninfringement and invalidity of certain patents as to which Gemstar is a licensee, and also alleging antitrust violations under federal and state law. On November 21, 2002, Gemstar filed counterclaims against Thomson and cross-claims against Pegasus and Personalized Media Communications for breach of contract. Thomson’s third-party complaint against Gemstar and Gemstar’s counterclaim against Thomson were settled and dismissed with prejudice on June 23, 2003. The case has been stayed pending reexamination of the patents in suit by the U.S. Patent & Trademark Office.

The ITC Investigation

On February 14, 2001, the Company and its StarSight subsidiary filed a complaint requesting that the United States International Trade Commission (“ITC”) commence an investigation pursuant to Section 337 of the Tariff Act of 1930, as amended, 19 U.S.C. Section 1337 (“Section 337”), regarding imports of certain set-top boxes and components thereof. The complaint alleged that Pioneer Corporation, Pioneer Digital Technologies, Inc., Pioneer North America, Inc., Pioneer New Media Technologies, Inc., SA, EchoStar Communications Corporation, and SCI Systems, Inc. (collectively “Respondents”) violated Section 337 by their unlawful importation into the United States, sale for importation into the United States, and/or sale in the United States after importation of set-top boxes and/or components that infringe directly, contributorily or by inducement, of certain patents owned by the Company. On or about March 16, 2001, the ITC instituted the requested investigation referred to as In the Matter of Certain Set-Top Boxes and Components Thereof, Investigation No. 337-TA-454 (ITC) (the “ITC Investigation”). On June 21, 2002, the Administrative Law Judge issued his final initial determination (“FID”) finding that all of the patents were valid, that none of the patents at issue had been infringed by any of the Respondents, that one of the patents at issue was unenforceable, both because it had been misused by the Company and also because a co-inventor had not been named on the patent, and that the Company failed to establish the technical prong of the ITC’s domestic industry requirement, which requires the practice of inventions covered by the patents in suit. On August 29, 2002, the ITC determined not to review the FID and entered an additional finding with regard to the technical prong of the domestic industry requirement on one claim of one of the patents. The Commission took no position on the patent misuse findings of the Administrative Law Judge.

On October 25, 2002, the Company filed a notice of appeal of the ITC’s determination to the United States Court of Appeals for the Federal Circuit (the “Federal Circuit”) in a case captioned Gemstar-TV Guide International, Inc. and StarSight Telecast, Inc. v. International Trade Commission and Scientific Atlanta Inc., Case No. 03-1052. On September 16, 2004, the Federal Circuit issued its opinion vacating the ITC’s ruling that SA did not infringe two of the three patents at issue, vacating the ITC’s ruling that the Company did not satisfy the technical prong of the domestic industry requirement for those two patents, and reversing the ITC’s ruling that one patent was unenforceable for failure to name a co-inventor. On November 1, 2004, SA filed a petition for rehearing en banc with the Court of Appeals for the Federal Circuit in the ITC appeal. As previously disclosed, the Company settled this matter with all Respondents other than SA and dismissed them from the case before the opinion was issued. On November 1, 2004, SA filed a Petition for Rehearing or for Rehearing En Banc with the Court of Appeals for the Federal Circuit in the ITC appeal. On November 29, 2004, the Federal Circuit denied SA’s Petition for Rehearing or for Rehearing En Banc. On December 3, 2004, SA filed a motion to stay the issuance of the mandate pending the filing of a petition for certiorari to the U.S. Supreme Court within 30 days. On January 11, 2005, the Federal Circuit judgment issued a mandate to the International Trade Commission as a result of SA’s failure to file a petition for certiorari.

On February 8, 2005, the ITC issued an order requiring the parties to submit comments to the ITC about how they believe the investigation should proceed.

The SuperGuide Case

On March 23, 2001, the Company’s subsidiary Gemstar Development Corporation (“GDC”), was added as a third-party defendant in the matter of SuperGuide Corporation v. DirecTV Enterprises, Inc., et al., in the U.S. District Court for the Western District of North Carolina, Civil Action No. 1:00CV144-T. The lawsuit alleges patent infringement by the original defendants

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sued by SuperGuide (Pioneer Electronics, Inc., DIRECTTV and Echostar) with respect to three patents owned by SuperGuide but licensed to GDC (the “SuperGuide Patents”). After being added as a party, GDC brought claims for declaratory relief and breach of contract against SuperGuide Corporation relating to a 1993 license agreement between SuperGuide Corporation and GDC and claims against EchoStar for infringing the SuperGuide Patents within GDC’s defined fields of use. On July 25, 2002, the District Court granted the defendants’ motion for summary judgment finding that the defendants did not infringe the SuperGuide Patents and dismissing all remaining claims in the case without prejudice. On August 23, 2002, GDC appealed the District Court’s decision to the Federal Circuit. On February 12, 2004, the Federal Circuit issued its decision vacating the District Court’s summary judgment ruling and remanding the case for further proceedings. In reversing the District Court’s summary judgment ruling the Federal Circuit found that the District Court incorrectly construed certain patent claims in reaching its decision. The defendants filed a joint petition for rehearing and rehearing en banc of the Federal Circuit’s decision. In April 2004, the Federal Circuit denied the defendants’ petition and the case has been remanded to the district court in North Carolina for further proceedings. On July 1, 2004, SuperGuide filed a motion to amend its complaint alleging, among other things, that GDC breached its license agreement by licensing parties outside of our field of use and failing to pay SuperGuide accordingly. All parties have agreed, subject to the Court’s approval, to stage the proceedings so that no further activity will occur with respect to the new counterclaim or discovery until the Court rules on the scope of the license to GDC. GDC awaits the Court’s ruling on the parties’ proposal and for an appropriate scheduling order to be issued.

Other Litigation

United Magazine Company et al. v. Murdoch Magazines Distribution, Inc. et al, in the U.S. District Court for the Southern District of New York, Case No. S.D.N.Y No. 00 Civ. 3367 (PKC)(DFE). On May 3, 2000, a complaint was filed against Murdoch Magazines Distribution, Inc. (now TV Guide Distribution) and other parties by United Magazine Company, Inc. (“Unimag”) and related entities. The complaint alleged claims against Murdoch Magazines for violation of the Robinson-Patman Act, assorted common law tort and contract claims, and violation of federal and state antitrust laws. The complaint seeks monetary damages plus treble and punitive damages, attorneys’ fees and costs. On August 31, 2000, Unimag filed an amended complaint, (i) adding TV Guide Distribution as a named defendant, (ii) adding six other national distributors as defendants, and (iii) adding claims for unjust enrichment and violation of the New York Franchise Sales Act. After the case was dismissed twice on the pleadings, plaintiffs filed a second amended complaint and the case proceeded to discovery in 2002. On June 19, 2003, one of the plaintiffs, the Scherer Companies, withdrew its claim against Murdoch Magazines, denominated as Count VIII alleging theft of trade secrets. The only claim remaining against Murdoch Magazines was the Robinson-Patman Act claim. After discovery closed in January 2004, defendants sought to move to dismiss on summary judgment on a number of grounds. The Court directed defendants to move first on the issue of whether defendants, including Murdoch Magazines, could be liable even though plaintiffs did not purchase magazines from them but from the publishers, who were not parties to the action. On December 29, 2004, the Court entered its decision on the defendants’ motion for summary judgment. The Court found that Murdoch Magazines and other national distributors did not set the prices and terms of sale, but held that a material issue of fact existed regarding whether Murdoch Magazines and other national distributors set discriminatory returns policies in violation of the Robinson-Patman Act. On January 10, 2005, plaintiffs made a request to reargue the Court’s decision on summary judgment. On January 25, 2005, the Company, and others, filed a joint response opposing plaintiffs’ request. Plaintiffs’ motion for reargument is currently pending. The Court has scheduled a conference to take place on February 28, 2005. The Company, together with the other defendants, filed a letter to the Court on February 14, 2005, setting forth grounds for further dispositive motions in the case and requesting a briefing schedule.

Henry Yuen and Elsie Leung Arbitration, American Arbitration Association Case Nos. 13 Y 116 01305 03 and 13 Y 116 01300 03. On May 30, 2003, the Company’s former employees, Dr. Henry Yuen and Ms. Elsie Leung, commenced arbitration proceedings against the Company to contest their April 18, 2003 termination for cause, seeking monetary damages, interest, and attorneys’ fees and costs. On July 9, 2003, the Company filed a consolidated response and counterclaim alleging breach of representations and warranties under agreements entered into in connection with the Company’s November 2002 management and corporate governance restructuring, seeking monetary damages and other relief. In a separate proceeding captioned Gemstar-TV Guide International, Inc. and News Corporation Ltd., Petitioners v. Henry C. Yuen and Elsie M. Leung Respondents, in the California Superior Court for the County of Los Angeles, Case No. BS 086054, the Company petitioned the Court to consolidate the two separate arbitration proceedings on the grounds that both arbitrations arose from the same transactions and involve common issues of law and fact. On November 20, 2003, the Arbitration Panel (i) granted the motion to dismiss News Corporation as a defendant in this action; (ii) granted, in part, plaintiffs’ motion to dismiss the Company’s counterclaims; and (iii) granted plaintiffs’ motion seeking an interim payment of attorneys’ fees. On November 24, 2003, the California Superior Court issued an order granting the Company’s motion to consolidate the two proceedings for all purposes. On January 26, 2004, Dr. Yuen and Ms. Leung challenged the order of consolidation by filing a petition for Writ of Mandate with the Court of Appeal of the State of California (State Appellate Court) in a case captioned Henry C. Yuen and Elsie Ma Leung, Petitioners v. Superior Court of the State of California, County of Los Angeles Respondent and Gemstar- TV Guide International, Inc. and News Corporation Ltd., Real Parties in Interest, Court of Appeal Case No. B172662. On August 24, 2004, the State Appellate Court

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granted their petition. On October 1, 2004, the Company petitioned the Supreme Court of the State of California for review of the State Appellate Court’s decision in a case captioned Henry C. Yuen, et al., Petitioners v. Superior Court of Los Angeles County, Respondent and Gemstar- TV Guide International, Inc., et al., Real Parties in Interest, Supreme Court Case No. S128174. On December 1, 2004, the California Supreme Court denied Gemstar’s petition for review of the State Appellate Court’s decision. Thus, the Court of Appeals’ decision requiring the parties to return to the American Arbitration Association (“AAA”) for resolution of the issue regarding the consolidation of the Yuen and Leung arbitrations is final. On December 31, 2004, the Company sent a letter to the AAA requesting that the arbitrations be reactivated.

In late October of 2004, following the dismissal of a case captioned Henry C. Yuen and Elsie M. Leung v. Gemstar-TV Guide International, Inc., which had been filed by Dr. Yuen and Ms. Leung in the Chancery Court of the State of Delaware, the parties initiated a AAA proceeding arising out of the Company’s challenges to the reasonableness of the attorneys’ fees and expenses submitted to the Company for advancement by Yuen and Leung. The Company sought a reduction in the amount of fees and expenses that must be advanced. On January 7, 2005, the arbitrator ruled in favor of the Company and reduced the amount of fees and expenses that the Company must advance to Yuen and Leung in connection with various matters. The arbitrator did so without prejudice to the Company’s right to seek repayment of all advancements to Yuen and Leung by challenging their right to indemnification in future proceedings.

Jonathan Orlick, Claimant and Respondent by Counterclaim and Gemstar — TV Guide International, Inc., Respondent and Counterclaimant, JAMS Arbitration No. 1220030308. On June 19, 2003, the Company’s former general counsel, Jonathan Orlick, filed a demand for arbitration with a third-party mediation service for employment termination claims and relief including monetary damages, interest, and attorneys’ fees and costs. On July 25, 2003, the Company answered Mr. Orlick’s demand and filed counterclaims for breach of contract, breach of fiduciary duty, disgorgement of compensation and other profits, concealment/fraudulent inducement of contract, recovery of personal property, state and federal statutory violations, and seeking monetary damages and other declaratory relief. The arbitration proceeding commenced in September of 2004. On October 27, 2004, the parties entered into a settlement agreement that resolved all claims between the Company and Mr. Orlick. As a result of the settlement, the Company no longer has any obligation to advance reasonable costs and expenses to Mr. Orlick.

Due to the preliminary nature of certain of these proceedings and the uncertainty of litigation generally, the outcome of individual cases is not predictable with any assurance. We are unable to predict at this time the likely outcome of the litigation or estimate its liability, if any, with regard to these or other incidental cases. We have established loss provisions only for matters in which losses are probable and can be reasonably estimated. However, we may be required to incur expenses or costs in these and other incidental litigation matters in aggregate amounts that could have a material adverse effect on our financial condition or results of operations. Some of the litigation matters pending against us involve potential compensatory, punitive or treble damage claims, or sanctions that if granted, could require us to pay damages or make other expenditures in amounts that could have a material adverse effect on our financial position or results of operations. At this time, we have not reached a determination that any of the matters listed above, or our other litigation, are expected to result in liabilities that will have a material adverse effect on our financial position or results of operations.

None.

PART II

Our common stock is traded on the Nasdaq Stock Market under the symbol GMST. The sole market for our common stock continues to be the Nasdaq Stock Market in the United States.

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The following table sets forth the range of high and low sales prices for our common stock for the periods indicated and reflects all stock splits we effected:

The reported closing sales price of our common stock on the Nasdaq Stock Market on February 18, 2005 was $5.58. As of February 18, 2005, there were 424,205,391 million shares of our common stock outstanding and approximately 687 holders of record.

We have not paid any dividends on our common stock since our common stock began trading on the Nasdaq Stock Market. Our Board of Directors has no current plans to pay cash dividends. Future dividend policy will depend on our earnings, capital requirements, financial condition and other factors considered relevant by our Board of Directors.

Equity Compensation Plans

The table below outlines the number of shares of our common stock that are subject to outstanding options and stock unit awards granted under our stock compensation plans, the per share weighted-average exercise price of those options and stock unit awards, and the number of shares of Company common stock remaining available for future awards under our stock compensation plans. The numbers in the table are as of December 31, 2004 (in thousands).

The selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements and related Notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement to the accompanying consolidated financial statements and footnotes to help provide an understanding of our financial condition, changes in financial condition and results of operations.

Overview

Gemstar is a media, entertainment and technology company that develops, licenses, markets and distributes technologies, products and services targeted at the television guidance and home entertainment needs of television viewers worldwide. Our TV Guide brand reaches nearly 100 million U.S. households, through TV Guide magazine, TV Guide Channel, TV Guide Interactive, TV Guide Online and TV Guide On Screen. During 2004, we generated revenue of $732.3 million (compared to $695.1 million in 2003), recorded a net loss of $94.5 million (compared to $577.4 million in 2003) and had cash flow from operations of $387.1 million (compared to $5.1 million in 2003). In 2004 we also strengthened our balance sheet by repaying the $138.4 million outstanding under our revolving credit facility, primarily from funds received in prepaid patent license agreements entered into by our Cable and Satellite Segment.

Gemstar Businesses

Our businesses are organized into four groups that also represent our reportable business segments. The segments are organized along three industry lines, in addition to a segment comprising certain corporate functions and related expenses.

Publishing- Our Publishing Segment consists of our print and electronic publishing units and Web sites including TV Guide magazine, as well as TV Guide Online and the SkyMall catalog business. The Publishing Segment also includes TV Guide Data Solutions, a data collection and distribution business that gathers and distributes program listings and channel lineups. In 2004 the Publishing Segment generated revenue of $383.8 million, which represented 52.4% of our total revenue. Our Publishing Segment generates revenue primarily through subscription and newsstand sales of TV Guide magazine and advertising revenue received by TV Guide magazine.

TV Guide Magazine subscription revenues declined again this past year. We also continued to invest significantly in subscriber acquisition to offset declining newsstand sales and to reduce our reliance on sponsored sales and arrears copies. In doing so, our overall contribution per copy declined as we used heavy promotional offers to attract new subscribers. While we believe these new subscribers will renew and eventually become profitable, depending on the acquisition program under which they joined, this could take several years.

Newsstand sales also declined again this year. With its current mix of television listings and editorial content, we no longer believe TV Guide magazine can recapture a competitive position at the newsstand. We also believe our digest size puts us at a disadvantage to competing standard 8” x 10.5” magazines such as People and US. Additionally, we have a higher cost structure than these magazines. We currently publish 154 different editions nationwide to address each local market compared to certain competitors’ one national edition. This higher cost structure puts us at a significant competitive disadvantage given the decline in our revenue base. We are currently reviewing our newsstand strategy.

We still believe TV Guide magazine is a viable and valuable product to consumers. We are actively evaluating enhancements to the magazine’s format, content and operations in an effort to increase the magazine’s profitability.

In the late spring of 2005, we plan to launch a new weekly publication, Inside TV. This new magazine will target young female TV fans and will reflect the way contemporary women are involved with television as well as report on the latest in entertainment news, style and trends. The magazine will be full size, four color throughout, and is expected to be sold primarily on newsstands rather than through subscription sales. We expect to incur a material amount of costs in connection with the launch and ongoing operations of Inside TV. Those start up costs include additional staffing, marketing expenses, and costs connected with acquiring distribution space in supermarkets, large retailers and other newsstand outlets. We believe that Inside TV offers an opportunity to compete more effectively against other offerings at newsstand than our current TV Guide magazine does.

Cable and Satellite- Our Cable and Satellite Segment includes the operations of TV Guide Channel, TV Guide Interactive, TVG Network and several other smaller related businesses. In 2004 the Cable and Satellite Segment generated $230.9 million in revenue, which represented 31.5% of our total revenue. The Cable and Satellite Segment generates revenue primarily from subscription and advertising fees received by TV Guide Channel, interactive program guide (“IPG”) service and licensing revenue received by TV Guide Interactive and gaming and licensing fees received by TVG Network.

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In 2004, TV Guide Interactive achieved revenue growth of 203.4%, which was driven by a 185.1% increase in domestic cable and satellite subscribers that receive either our IPG or another party’s IPG provided under a patent license and for which we are paid. This growth was driven by recent IPG license agreements with Echostar, DirecTV, Comcast and Time Warner. In 2005 we plan to continue to increase the number of subscribers who receive our IPG or another party’s IPG provided under a patent license as well as continue working with our MSO and DBS partners to develop an IPG advertising platform that is appealing to both our partners and to advertisers.

Our ability to provide IPG advertising is generally at the discretion of the MSO and DBS providers if they deploy their own IPG or a third party IPG. The majority of subscribers for which we are paid a license fee are receiving a TV Guide branded third party IPG. Our agreements with MSO and DBS providers generally require us to share a portion of the advertising revenue we receive from IPG advertising on their systems. In 2004, our IPG advertising was limited to the same MSO partners as in 2003. The MSO providing us with the majority of our advertising carriage in 2004 has notified us that they will no longer carry IPG advertising when they migrate to a TV Guide branded third party IPG in the first quarter of 2005.

In 2004, TV Guide Channel achieved revenue growth of 13.2% and subscriber growth, as measured by Nielsen Households of 34.3%. In 2004, we lowered our average subscription rates to lock in long-term carriage for the TV Guide Channel. Due to these long-term carriage agreements, future TV Guide Channel revenue growth will be largely dependent on our ability to grow advertising revenue. In 2005 we plan on leveraging our increased carriage by continuing to invest in new programming and marketing initiatives with an expectation that the additional investments will, in the future, result in increased viewership and advertising revenue. We believe our advertising revenue should also benefit from the continued strengthening of the advertising market and the migration of advertising spending to cable and satellite channels. This investment in new programming and marketing initiatives will result in a material increase in programming and marketing costs in 2005.

In 2004, TVG Network achieved revenue growth of 37.5% on household viewership growth of 16.3%. As a result, TVG Network’s total wagers handled was over $300 million for the first time in our history. In 2005 we expect to continue expanding TVG Network’s distribution and increase wagering by converting viewers into wagering subscribers.

Consumer Electronics Licensing- Our CE Licensing Segment earns revenue from licensing our proprietary technologies and services to the CE manufacturing industry. In 2004 the CE Licensing Segment generated $117.5 million in revenue, which represented 16.1% of our total revenue. The CE Licensing Segment licenses video recording technology currently marketed under the VCR Plus+ Brand in North America and under other brands in Europe and Asia, and IPGs marketed under the TV Guide On Screen brand in North America and under the G-Guide brand in Asia and under the Guide Plus+ brand in Europe.

In 2004, our CE IPG business achieved revenue growth of 92.7%. The majority of this growth was due to a $16.8 million increase in one-time settlements and a $6.4 million or 104.2% increase in revenue from incorporating our IPG in CE products. The roll out of our IPG incorporated in CE products has been slower than we anticipated for, among other reasons, the long lead times manufacturers need to incorporate our IPG into their products. This has, however, had the unexpected benefit of continuing the life cycle for our VCR Plus+ business by a greater than expected incorporation of this technology into digital recorders. Albeit further off in the future than previously anticipated, we still expect success for our IPG with manufacturers of mid-range to high-end digital televisions, DVRs and DVD recorders, as consumers demand more advanced guidance and recording technologies in such devices. This business is dependent upon the anticipated consumer demand for such devices materializing.

In 2004, our VCR Plus+ business achieved revenue growth of 1.2%. The anticipated impact from the decline in VCR shipments has, for now, been offset by manufacturers incorporating our VCR Plus+ technology in lower priced digital devices such as DVRs, DVD recorders, DVD-HDD and combination digital/analog products. While sales of our VCR Plus+ technology appear to have stabilized, we still believe that VCR Plus+ revenues are likely to decrease some time in the future as consumers demand more advanced guidance and recording technologies in digital devices and the costs of incorporating such technologies decrease. We further believe that, at the same time, our CE IPG revenues will increase as a result of these factors and offset the decrease in VCR Plus + revenues. In order to encourage the incorporation of our IPG in CE products, we are offering certain large CE manufacturers the opportunity to bundle both our IPG and VCR Plus+ technology at a significant discount beginning with sales reported in fiscal 2005. We anticipate this could lead to a decrease in combined IPG and VCR Plus+ revenues in fiscal 2005, however, we believe this will ultimately accelerate the incorporation of our IPG to our benefit.

Corporate- Our Corporate Segment comprises various centralized functions, including corporate management, corporate legal, corporate finance and other functions related to costs such as litigation and insurance costs. In 2004, corporate expenses were $78.9 million, a 53.4% decline from the prior year. The decline in corporate expenses was primarily due to a $77.2 million decline in legal settlement costs in 2004, primarily due to the $67.5 million charge recorded in 2003 relating to the settlement of the Consolidated Shareholder Class Action and the SEC investigation.

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Recent Developments

We are currently in settlement and cross-licensing discussions with Scientific-Atlanta, Inc. to resolve outstanding litigation between our two companies. There can be no assurance that a settlement will be reached or on the specific terms of any settlement. However, based on the discussions to date, we do not anticipate that any settlement payment that we may receive would have a material impact on our operating results or financial condition. In the absence of such a settlement, our legal expenses are not likely to be significantly lower than last year. In any event, we anticipate that our legal expenses, while lower than last year, will continue to be significant.

Consolidated Results of Operations

Year ended December 31, 2004 compared to year ended December 31, 2003

The following table sets forth certain financial information for the years ended December 31, 2004 and 2003, in thousands.

For the year ended December 31, 2004, revenues were $732.3 million, an increase of $37.2 million, or 5.4%, compared to the same period in 2003. The increase in revenues was driven by increases of $69.2 million in our Cable and Satellite Segment and $7.8 million in our CE Licensing Segment, partially offset by a decrease of $39.8 million in our Publishing Segment’s revenues. Segment activities are discussed in greater detail in the “Segment Results of Operations,” elsewhere in this MD&A.

        For the year ended December 31, 2004, operating expenses, excluding the impact of the Gemstar eBook lease settlement described below, were $667.1 million, a decrease of $109.4 million, or 14.1%, compared to the same period in 2003. The largest contributor to this decrease was a $77.2 million or 97.6% decline in legal settlement costs. The decline in legal settlement costs was primarily due to the $67.5 million charge recorded in the fourth quarter of 2003 relating to the Consolidated Shareholder Class Action settlement agreement. The decrease in operating expenses was also due to $20.1 million in costs incurred in the prior year to improve editorial content and enhance marketing efforts for TV Guide magazine. Similar expenses were not incurred in 2004. Additionally, there was an $8.4 million reduction in expenses relating to our significantly scaled back Gemstar eBook business.

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Lease Settlement

On June 30, 2004, we settled all obligations related to the premises previously occupied by our Gemstar eBook operations. When these premises were vacated during the year ended December 31, 2002, we reserved $16.2 million to provide for the estimated net present value of future lease obligations. We paid the landlord $5.0 million as a full settlement of all remaining lease obligations. We recognized the reversal of the remaining reserve of $10.1 million in operating expenses during the second quarter of 2004. This item is presented as a separate line item in the accompanying consolidated statements of operations.

Stock Compensation

Stock compensation for 2004 consists of amortization of the portion of the purchase price of acquired businesses assigned to unearned compensation for unvested stock options we assumed in the acquisition of TV Guide, Inc. (“TV Guide”) and the fair value of restricted stock units awarded to certain members of our Board of Directors. The unearned compensation is being amortized over the remaining vesting period of the options using an accelerated method.

For the year ended December 31, 2003, stock compensation included $33.7 million related to stock options held by Dr. Yuen and Ms. Leung. As described more fully in Note 14, we terminated the former executives’ employment for cause on April 18, 2003. In 1998, the executives entered into employment agreements that provided for accelerated vesting of options granted in the period 1995 to 1998, as well as an extended post-employment exercise period to the remaining term of the options. Prior to the 1998 agreements, such options were only exercisable during the employment period with a limited post-employment exercise period. Due to the extension of the post-employment exercise period, a new measurement date occurred, at which time the intrinsic value of the modification was determined to be $33.7 million. The intrinsic value was computed as the difference between the exercise price per share and the stock price per share on the new measurement date multiplied by the number of options. Compensation expense was recognized only when we determined that these executives benefited from the extension of the post-employment exercise period. As a result of the termination, we recognized a pre-tax stock compensation charge of $33.7 million during the first quarter of 2003.

In addition, stock compensation for the year ended December 31, 2003, included $2.8 million recognized for amortization of unearned compensation related to unvested stock options we assumed in the acquisition of TV Guide, and a net reversal of $2.9 million related to previously amortized unearned compensation ($4.8 million recognized in the first quarter of 2003 and subsequently reversed in the second quarter of 2003, and $2.9 million recognized in 2002). The reversal related to restricted stock that was to be issued to Dr. Yuen and Ms. Leung in connection with the management restructuring in the fourth quarter of 2002. The previously recorded expense was reversed in the second quarter of 2003, since these executives were terminated in April 2003 and the restricted stock will not be issued.

Depreciation and Amortization

For the year ended December 31, 2004, depreciation and amortization was $40.5 million, a decrease of $93.0 million, or 69.6%, compared to the same period in 2003. The substantial year-over-year reduction is due to decreased amortization expense related to certain finite-lived intangible assets. These finite-lived intangible assets, which generated $97.6 million of amortization expense for the year ended December 31, 2003, became fully amortized in July 2003 and therefore had no amortization in 2004.

Impairment of Intangible Assets

Impairment of intangible assets for the year ended December 31, 2004 was $131.6 million. Despite spending approximately $20.1 million in the TV Guide magazine business, primarily in the third and fourth quarters of 2003, to improve editorial content and enhance marketing efforts with the hope of stabilizing paid circulation and increasing advertising revenues at the magazine, we were unable to reverse the continuing declines in newsstand sales, subscription revenues and advertising sales. While we still believe TV Guide magazine is a viable and valuable product to consumers, it became apparent during our annual budgeting process, which coincided with the preparation and review of our interim financial statements for the quarter ended September 30, 2004, that we needed to reassess our outlook for the TV Guide magazine business. This triggered an interim assessment of the fair value of TV Guide magazine’s goodwill and indefinite-lived intangible assets. With the assistance of a third-party valuation expert, we estimated the fair values of these indefinite-lived intangible assets as of September 30, 2004. As a result, we recorded an impairment charge representing the write-off of the remaining goodwill ($72.2 million) and publishing rights and trademarks ($59.4 million).

Impairment of intangible assets for the year ended December 31, 2003 was $391.0 million. The impairment primarily included the write-down of the carrying amount of goodwill at TV Guide magazine ($199.7 million) and the write-down of TV Guide magazine’s publishing rights and trademark ($190.6 million). These impairments were recorded as part of our annual

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impairment test of goodwill and indefinite-lived intangible assets as of October 31, 2003. The primary cause of these impairment charges was management’s reassessment of the outlook for the magazine as compared to its forecasts and expectations in 2002.

Interest income (expense), net

For the year ended December 31, 2004, net interest income was $5.7 million, compared to $4.2 million of net interest expense for the same period in 2003. The change is attributable to a combination of the payoff of TV Guide’s credit facility on April 26, 2004, and interest income earned on our higher cash balances.

Other income, net

For the year ended December 31, 2004, other income, net was $ 14.7 million, a $10.9 million increase compared to the same period in 2003. The increases in other income, net was primarily due to a $13.2 million gain on the sale of our equity investment in Youbet.com, Inc. during the third quarter of 2004. Gains on sales of marketable securities for the year ended December 31, 2003 were $2.7 million.

Legal and Other Loss Contingencies

A significant amount of management estimation is required in determining when, or if, an accrual should be recorded for a contingent matter and the amount of such accrual, if any. Due to the uncertainty of determining the likelihood of a future event occurring and the potential financial statement impact of such an event, it is possible that upon further development or resolution of a contingent matter, a charge could be recorded in a future period that would be material to our consolidated results of operations and financial position.

Liabilities related to contingent matters at December 31, 2004 and December 31, 2003 were $31.2 million and $81.7 million, respectively. The decline in accrued liabilities for contingent matters is primarily due to us paying $45.3 million in connection with the Consolidated Shareholder Class Action settlement and $10.0 million in connection with the SEC settlement, which are more fully described in Note 13 to the Consolidated Financial Statements.

Outside legal expenses were $68.0 million and $77.4 million for the years ended December 31, 2004 and 2003, respectively. We expect outside legal expenses to decline, however, we continue to expect outside legal expenses to be significant for the foreseeable future.

Income Taxes

We have income both from foreign and domestic sources. In the preparation of our financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate, including estimating both our actual current tax exposure and assessing temporary differences resulting from differing treatment of items for tax and accounting purposes.

The overall effective tax rate we report in any single period is impacted by, among other things, the country in which earnings or losses arise, applicable statutory tax rates and withholding tax requirements for particular countries, the availability of net operating loss carryforwards and the availability of tax credits for taxes paid in certain jurisdictions. Because of these factors, our current and future tax expense or benefit as a percentage of income or loss before income taxes may vary from period to period.

Our effective tax benefit rate on loss from continuing operations before income taxes was 10.3% and 9.8% for the years ended December 31, 2004 and 2003, respectively. As described in Impairment of Intangible Assets above, we recorded an impairment charge of $72.2 million to write-off the remaining goodwill of TV Guide magazine. This impairment charge is not deductible for tax purposes. In 2004, we also reduced our deferred tax asset valuation allowance by $28.0 million, primarily due to the tax effect of current year capital losses that will be carried back to offset prior year capital gains and increased our tax reserves by $20.5 million, as described below. The effective tax rate for the year ended December 31, 2003, was 9.8% primarily due to an increase in the valuation allowance due to uncertainty of whether or not we will realize the benefit associated with our deferred tax assets and the non- deductibility of goodwill impairment write-offs.

At December 31, 2004 we had available net operating loss carryforwards aggregating approximately $106.1 million to offset future United States income taxes expiring in fiscal years 2009 through 2021. As a result of previous transactions, which involved an ownership change as defined in the applicable section of the Internal Revenue Code, we will be subject to an annual limitation of $5.2 million on the use of $66.4 million of these net operating loss carryforwards. The remaining $39.7 million of net operating losses are also subject to limitations. To the extent that we have deferred tax assets, we must assess the likelihood that our deferred tax assets will be recovered from taxable temporary differences, tax strategies or future taxable income and to

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the extent that we believe that recovery is not likely, we must establish a valuation allowance. As of December 31, 2004 and 2003, we have established valuation allowances of $148.5 million and $176.4 million, respectively, against our deferred tax assets. In the future, we may adjust our estimates of the amount of valuation allowance needed and such adjustment would impact our provision for income taxes in the period of such change.

Assessment of the Company’s current tax exposure includes assessing tax strategies, the status of tax audits and open audit periods with the taxing authorities. The IRS is currently examining the Company’s U.S. federal tax returns for years 2000 and 2001. In 2004, the Company increased reserves primarily to reflect adjustments proposed by the IRS. The ultimate resolution of the Company’s current tax exposure items may result in the recognition of significant amounts of income or significant cash outlays in future periods. We believe that adequate reserves have been made for any adjustment that might be assessed for open years.

Discontinued Operations

In March 2004, we entered into various agreements with EchoStar Communications Corporation and/or certain of its subsidiaries (“EchoStar”) to sell substantially all of the operating assets of the Superstar/Netlink Group LLC (“SNG”), UVTV distribution services, and SpaceCom Systems (“SpaceCom”) businesses (collectively, the “SNG Businesses”) for approximately $48.0 million in cash. In addition, EchoStar agreed to assume certain liabilities. The SNG and UVTV distribution services sales closed on April 5, 2004. The SpaceCom sale closed on July 7, 2004. Accordingly, the SNG Businesses, previously reported as part of the Cable and Satellite Segment, are shown as discontinued operations in the accompanying consolidated statements of operations.

For the year ended December 31, 2004, pre-tax income from discontinued operations was $15.6 million, an increase of $9.7 million and 165.4% compared to the same period of 2003. The increase is primarily due to $25.5 million of impairment charges recorded in 2003 relating to the Company’s SNG C-band business that were not recorded in 2004. The effect of the impairment charge was offset by the closing of the SNG and UVTV businesses at the beginning of the second quarter and the closing of the SpaceCom sale early in the third quarter of 2004. Additionally, a $28.9 million pre-tax loss on disposal of discontinued operations was recognized in connection with the sale of the SNG Businesses to EchoStar.

Year ended December 31, 2003 compared to year ended December 31, 2002

The following table sets forth certain financial information for the years ended December 31, 2003 and 2002, in thousands.

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In 2003, revenues were $695.1 million, a decrease of $49.3 million, or 6.6%, compared to the same period in 2002. The decrease in revenues was primarily due to a $52.9 million decrease in newsstand and subscription revenues at TV Guide magazine.

In 2003, operating expenses were $776.4 million, an increase of $54.2 million, or 7.5%, compared to the same period in 2002 (excluding the impact of the Gemstar eBooks lease abandonment charge discussed below). The increase in 2003 was primarily due to expenses of $84.2 million related to litigation settlements and other contingent matters and expenditures totaling $20.1 million for editorial improvements and enhanced marketing efforts designed to stabilize TV Guide magazine’s paid circulation and increase its advertising revenues. In addition, legal expenses for patent-related and other litigation totaled $77.4 million in 2003, an increase of $15.1 million, or 24.3%, from $62.3 million in 2002. The increases were partially offset by $29.4 million in termination fees that were associated with the November 2002 management and corporate governance restructuring, $14.8 million in expenses related to our magazine wholesale distribution business, which ceased operations in 2002 and an $21.4 million decline in bad debt expense, primarily resulting from bad debt recoveries in 2003.

Lease Abandonment Charge

Our eBooks subsidiary vacated certain leased premises during the year ended December 31, 2002. We established a reserve of $16.2 million in December 2002 to provide for the estimated net present value of the associated future lease obligations.

Stock Compensation

Stock compensation was $33.6 million in 2003 as compared with $24.0 million for 2002. Stock compensation in 2003 included $33.7 million related to stock options held by the Company’s former chief executive officer and former chief financial officer. See Note 14 to the Consolidated Financial Statements for additional information.

Stock compensation also includes amortization of the portion of the purchase price of acquired businesses assigned to unearned compensation for unvested stock options we assumed in the merger between us and TV Guide, Inc. The unearned compensation is being amortized over the remaining vesting period of the options using an accelerated method. Amortization of unearned compensation totaled $2.8 million and $8.0 million in 2003 and 2002, respectively. In addition, stock compensation for 2002 included $12.9 million of accelerated unearned compensation associated with the departure of an executive.

Additionally, stock compensation in 2003 included a reversal of $2.9 million related to unearned compensation amortized in 2002. The amounts were related to restricted stock that was to be issued to two former executives in connection with the management restructuring in the fourth quarter of 2002. The previously recorded expense was reversed in the second quarter of 2003, since these executives were terminated in April 2003 and the restricted stock will not be issued.

Depreciation and Amortization

Depreciation and amortization in 2003 was $133.6 million, a decrease of $182.1 million, or 57.7% compared to the same period in 2002. The decrease in depreciation and amortization was primarily attributable to decreased amortization expense related to finite-lived intangible assets. During 2002, we recorded impairment charges of $1.3 billion to the carrying values of certain intangible assets with finite lives. Additionally, certain other finite-lived intangible assets became fully amortized in 2003.

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Impairment of Intangible Assets

Impairment of intangible assets for the year ended December 31, 2003 was $391.0 million. The impairment primarily included the write-down of the carrying amount of goodwill at TV Guide magazine ($199.7 million) and the write-down of TV Guide magazine’s publishing rights and trademark ($190.6 million). These impairments were recorded as part of our annual impairment test of goodwill and indefinite-lived intangible assets as of October 31, 2003. The primary cause of these impairment charges was management’s reassessment of the outlook for the magazine as compared to its forecasts and expectations in 2002.

Impairment of intangible assets for the year ended December 31, 2002 was $2.4 billion. This impairment charge included a $1.3 billion impairment charge to finite-lived intangible and impairment charges of $1.0 billion and $112.6 million to goodwill and trademark, respectively, based on analyses performed as of June 30, 2002 and October 31, 2002. Impairment charges in 2002 were principally the result of then-new management’s change in strategy for the U.S. cable and satellite IPG business, slower than expected growth in distribution and advertising revenue, and unexpected adverse rulings in certain legal cases.

Other income (expense), net

In 2003, other income, net was $3.8 million, an increase of $105.8 million, from other expense, net of $102.0 million in 2002. The decrease was primarily due to a $51.4 million impairment charge to the carrying value of an equity method investee and $41.0 million associated with the abandoned DIVA acquisition in 2002. There were no comparable charges recorded in 2003.

In 2002, the financial condition of one of our former joint ventures deteriorated significantly, including a substantial decrease in its revenues and cash shortages. Because of these facts, we determined that it was not likely that our investment would be recovered in the future, and we recorded an impairment charge of $50.9 million to write off the remaining carrying value of our investment. This charge was recorded as other income (expense), net. In 2004, we sold this joint venture for a $0.8 million gain. This gain was recorded in other income (expense), net.

Income Taxes

Our effective tax benefit rate on losses from continuing operations before income taxes and cumulative effect of an accounting change in 2003 was 9.8% compared to 21.4% for 2002. The decrease in the effective tax rate in 2003 was primarily due to an increase in the valuation allowance due to the uncertainty of whether or not we will realize the benefit associated with our deferred tax assets and the non deductibility of goodwill written off in 2003.

Discontinued Operations

For the year ended December 31, 2003, pre-tax income from discontinued operations was $5.9 million, a decrease of $28.7 million and 83.0% compared to the same period of 2002. The decrease was primarily due to the continued decline in SNG’s C-band subscribers. At December 31, 2003, SNG provided service to 236,000 C-band subscribers, a decrease of 34.6% from the 361,000 subscribers served by SNG at December 31, 2003.

Cumulative Effect of Accounting Change

The cumulative effect of accounting change, net of tax relates, to our adoption of Statement 142 effective January 1, 2002. We were required to test goodwill and any intangible assets identified as having an indefinite useful life for impairment in accordance with the provisions of Statement 142 and report any transitional impairment loss as the cumulative effect of a change in accounting principle as of January 1, 2002 in the consolidated statement of operations. The transitional impairment loss for goodwill and indefinite lived intangible assets from application of these rules was $4.2 billion, net of tax.

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Segment Results of Operations

Year ended December 31, 2004 compared to year ended December 31, 2003

Segment information for 2004 and 2003 is presented and reconciled to consolidated loss from continuing operations before income taxes in accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, as follows (in thousands):