Revenge, integrity, and my tiny role in the downfall of Henry Yuen

henry yuenIn the year 2000, when I was the top technology analyst in the television industry, I began to see the outlines of the transformation of television. TiVo had delivered a big shock to the television schedule. Video on-demand was another tremor. I could see the whole edifice shaking. I wrote a piece called “The End Of TV (As We Know It)” that described the new shape of TV. And then the head of one of the most powerful companies in television called the CEO of my company and asked that he fire me.

Gemstar made money from anyone working on TV technology. Its CEO, Henry Yuen, used patents viciously to enforce the company’s monopoly on electronic program guides. He used this tactic to force a merger with TV Guide, which owned other key patents. The combined company could block or squeeze fees out of every company making TVs or set-top boxes, delivering cable or satellite, or attempting to innovate with new TV technology. Nobody had ever beat the company in court. Yuen’s patent tactics created a drag on innovation and all of my clients, from startups to huge media companies, resented him.

In my piece on the future of TV I had made the innocuous statement that Gemstar’s power would weaken as the TV schedule became less important. No one took on Henry Yuen, which is why my CEO got the phone call.

Integrity is crucial to the job of analyst. Your clients must trust you to articulate whatever the research reveals, regardless of who benefits or suffers, or the research is worthless. My CEO not only backed me up, but told me “If I don’t get a few calls like that every year, we’re not trying hard enough.” That was great, but I was still pissed.

My plan for revenge

I hatched a three-part plan for revenge. Each part would both give me personal satisfaction and strengthen my integrity as an analyst. I would:

  1. Get somebody to compete with Gemstar. This would break the monopoly and allow the industry to move forward.
  2. Get quoted in TV Guide magazine. Since getting quoted was part of the analyst job, this was an appropriate thing to seek.
  3. Actually get Gemstar to pay for me to advise them in making a better program guide.

None of this seemed remotely possible. If I could do any of it, it would take a while. But revenge is a dish best served cold.

I knew that Microsoft had already paid to license Gemstar’s technology for Windows program guides. So I called my contact at Microsoft and told him they were the only company that could compete with Gemstar without risking a lawsuit. “The cable operators need an alternative; you need a foothold in that market,” I said. He was dubious. But a year later, he called me back to announce that Microsoft had indeed created a program guide as the entry-point for its set-top box strategy. Gemstar had competition, and I had ticked off one box.

More than a year later, I was seated next to legendary industry columnist Max Robins as we listened to CBS chairman Mel Karmazin address a room full of advertisers. We talked about digital video recorders. He promised to quote me in his Robins Report column in TV Guide, and he did. While TV Guide was the flagship media property of Henry Yuen’s empire, I doubted that Yuen read the magazine, but hey, I’d checked off box two.

As Comcast grew to be the largest cable operator in the world, it became frustrated with the slow rate of innovation of Gemstar’s guide. The division of Gemstar that built cable guides had started to buy my company’s consumer data, so we had a relationship. They asked me to come to Philadelphia to speak with a small group of Comcast and Gemstar execs working on an improved guide, and they paid for it. I checked box three.

While I’d accomplished my three-part plan, it had taken more than five years. The revenge was cold and not particularly tasty. But this wasn’t the end of the story.

Real satisfaction

You can’t do the kinds of things that Henry Yuen did without it catching up to you. In the scheme of media machinations, I’m nobody. But the government is not, and judges eventually shut down people who abuse the system.

In 2002, Gemstar finally lost a patent suit. The judge ruled that the company had abused the patent process.

In 2003, the SEC filed suit against Henry Yuen and his CFO, Elsie Leung, alleging that Gemstar claimed over $200 million in fraudulent revenue. A large set-top box company had stopped paying license fees to Gemstar; not only had Gemstar sued, but it had reported the missing payments as if they had actually been received. Yuen and Leung got about $100 million in bonuses based on the invented revenues.

In 2006, the SEC won the suit and assessed a fine of over $20 million, the largest fine ever for an individual convicted of securities fraud.

Henry Yuen is missing and the US government now considers him a “fugitive from justice.”

Seeing this happen to a person who held back an entire industry creates some satisfaction for me — far more than my three-part plan for revenge.

But what I feel best about is that I was right. The TV schedule is increasingly irrelevant with DVRs, VOD, YouTube, and streaming content. My prediction was right on target.

That meal is pretty damned cold by now. But it’s still tasty.

Image: Bloomberg Business Week

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  1. I read that report when it came out and think about it all the time these days. How do you feel about the word “visionary”?

  2. What really upsets me is the way the SEC deals with corporate fraud.
    “Yuen and Leung got about $100 million in bonuses based on the invented revenues. In 2006, the SEC won the suit and assessed a fine of over $20 million…”

    Guilty, but they still made a hefty profit off their fraud.

  3. Henry, though you may not like him, was one hell
    of a success story. Rupert Murdoch had more to do with Henry’s demise than anything or anyone else.
    Not only are program guides not as relevant as they used to be, neither are magazines.
    It’s a different world today and America is not as relevant as it used to be either , but China has been booming over the past few decades. Hmmmm take a Chinese born man with a PHD in mathematics from Cal-tech, a law degree from Loyola and the experience of dominating an industry and profiting handsomely. You can’t help but wonder where Henry is today and the enormous wealth and success he is enjoying.

    I still have a copy of your magazine in my filing cabinet. I’ll add this blog post to it. Those were interesting times.

  4. We should talk. Henry is Chapter 4 in my new book entitled, “Death by Ego: what we can lean from entrepreneurs who kill their companies with hubris” – appendix b are excerpts from the conclusions of the 9th circuit related to Henry and Elsie. I was Crying technology Office for part of that time and reported directly to Henry. The proceedings remind us that Henry pleaded the Fifth when asked about his salary between 1999 and 2002 and sold $49 million of stock 4 days before the company announced it would restate earnings and the stock dropped 37 percent the next day. I would be very pleased to send you a copy as soon as I get one – hopefully in the next 5-8 weeks. Dave Carlson

  5. Yes, I would say a too tiny part to be noticed.

    I was directly involved in the wars that he had, spending many hours with him.

    He definitely crossed the lines, and deserves the consequences. This was true of all too many companies in those dot com days, like Worldcom. Revenue swapping was a thing then.

  6. Funny thing. I’m an attorney who worked for Henry Yuen when he was in the very early stages of developing the project. All I knew was it was a secret.). He fucked me over, then he divorced his wife without her knowing about it, and a number of other things. So I, too, was pleased to see when he was taken down by his own hubris. I will say that he was one of the most brilliant people I ever interacted with in my life. But he was absolutely, without doubt, the most blinded by hubris. I ended up having to be deposed because of a mistake he made with a legal case and that was—again-/based on hubris. I had to cover his ass and he never knew it and he sure as hell never would’ve thanked me if he had.