Gemstar: the quest for credibility

What with all the other worries Rupert Murdoch has – advertising recession, squabbles with media rivals and, of course, succession – the Digger could have probably done without having to write off $6bn (£3.9bn) on an investment in a TV technology company with accounting problems. Given the headaches Gemstar must create for Mr Murdoch, he's putting on a brave face.

Last week Mr Murdoch was saying, Gemstar aside, all wasn't going too badly. He said that Gemstar gave News Corp a "black eye" but added: "This is not quite as dramatic as it appears on the surface. It's a paper thing but we can rebuild the company."

To understand how Mr Murdoch's News Corporation got into this mess, you have to go back a couple of years. Then News Corp owned a business called TV Guide, which had started out as America's version of TV Times but moved into electronic guides for the plethora of TV stations in the US. Its main rival was Gemstar, a business created by Chinese-born mathematics genius Henry Yuen.

Mr Murdoch, who had only just wed another Chinese-born media figure, Wendy Deng, pursued a marriage between TV Guide and Gemstar. The deal gave News Corp a stake worth $14bn in those days.

Since then there has been all sorts of bad news afflicting Gemstar. To add insult to injury, it delayed its half-year results announcement last week and admitted it was not able to sign the certificate verifying its financial figures, as required under President Bush's market confidence building new laws.

Rupert Murdoch thrives on adversity. He has used the troubles of Gemstar to remove the irritation that is Henry Yuen. For two years Mr Murdoch had been trying to sideline Mr Yuen and his finance sidekick, Elsie M Leung, in favour of long-standing Murdoch lieutenant, Jeff Shell. In a deal struck late last week, Mr Yuen and Ms Leung have agreed to give up their executive positions – though they will still keep seats on the Gemstar board – and Mr Shell will take charge.

There is still a lot to do. Mr Shell needs to rebuild the credibility of Gemstar. And here analysts are speculating that another Murdoch business could come into play – News Data Systems, the 80 per cent-owned subsidiary which makes encryption technology for BSkyB among others.

Despite an embarrassing corporate espionage case involving a subsidiary of Vivendi Universal, NDS has a pretty good reputation. Why would Rupert Murdoch want to control two viewing technology businesses when their expertise could help each other?

As they said in The Six Million Dollar Man: "We can rebuild him, we have the technology." Perhaps this will be true of the Six Billion Dollar Loss.