UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                 

Commission file number: 000-53413

Rovi Corporation

(Exact name of registrant as specified in its charter)

Delaware	26-1739297
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2830 De La Cruz Boulevard, Santa Clara, CA	95050
(Address of principal executive offices)	(Zip Code)

(408) 562-8400

(Registrant’s telephone number, including area code)

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  X      No         

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer  X      Accelerated filer          Non-accelerated filer          Smaller reporting company         

(Do not check if a smaller reporting company)            

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes            No    X

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding as of May 3, 2011
Common stock, $0.001 par value	112,935,382

ROVI CORPORATION

FORM 10-Q

INDEX

	PART I - FINANCIAL INFORMATION
		Page
Item 1.	Unaudited Financial Statements
	Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010	1
	Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2011 and 2010	2
	Condensed Consolidated Statement of Stockholders’ Equity and Comprehensive Income for the Three Months Ended March 31, 2011	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38
Item 4.	Controls and Procedures	39
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	66
Item 3.	Defaults Upon Senior Securities	66
Item 4.	(Removed and Reserved)	66
Item 5.	Other Information	66
Item 6.	Exhibits	67
Signatures		68

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PART I.        FINANCIAL INFORMATION

Item 1. Financial Statements

ROVI CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

ASSETS

	March 31,       2011			December 31,     2010
Current assets:
Cash and cash equivalents	$	280,380		$	200,195
Short-term investments		276,138			295,120
Trade accounts receivable, net		103,186			78,672
Taxes receivable		2,355			6,811
Deferred tax assets, net		35,478			15,403
Prepaid expenses and other current assets		24,786			12,639
Total current assets		722,323			608,840
Long-term marketable securities		142,101			200,852
Property and equipment, net		39,159			39,205
Finite-lived intangible assets, net		978,757			702,385
Other assets		56,819			48,785
Goodwill		1,351,834			857,216
Total assets	$	3,290,993		$	2,457,283
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	88,790		$	74,512
Deferred revenue		18,245			15,577
Current portion of long-term debt		71,268			130,816
Total current liabilities		178,303			220,905
Taxes payable, less current portion		63,256			56,566
Long-term debt, less current portion		1,025,415			378,083
Deferred revenue, less current portion		5,302			3,995
Long-term deferred tax liabilities, net		39,177			26,249
Other non current liabilities		24,619			19,293
Total liabilities		1,336,072			705,091
Redeemable equity component of convertible debt		806			3,859
Stockholders’ equity:
Common stock		119			112
Treasury stock		(211,927	)		(134,931	)
Additional paid-in capital		2,047,786			1,781,986
Accumulated other comprehensive loss		(1,203	)		(1,139	)
Retained earnings		119,340			102,305
Total stockholders’ equity		1,954,115			1,748,333
Total liabilities and stockholders’ equity	$	3,290,993		$	2,457,283

See the accompanying notes to the unaudited condensed consolidated financial statements.

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ROVI CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

	Three Months Ended March 31,
	2011			2010
Revenues	$	161,455		$	129,370
Costs and expenses:
Cost of revenues		25,265			41,456
Research and development		33,793			25,332
Selling, general and administrative		46,245			34,060
Depreciation		4,668			4,771
Amortization of intangible assets		26,118			20,582
Restructuring and asset impairment charges		2,493			-
Total costs and expenses		138,582			126,201
Operating income from continuing operations		22,873			3,169
Interest expense		(12,986	)		(10,910	)
Interest income and other, net		1,984			(396	)
Gain (loss) on interest rate swaps and caps, net		85			(6,336	)
Loss on debt redemption		(9,070	)		(14,313	)
Income (loss) from continuing operations before income taxes		2,886			(28,786	)
Income tax benefit		(14,392	)		(108,520	)
Income from continuing operations, net of tax		17,278			79,734
Discontinued operations, net of tax		(243	)		(11,639	)
Net income	$	17,035		$	68,095
Basic income (loss) per share:
Basic income per share from continuing operations	$	0.16		$	0.77
Basic loss per share from discontinued operations		0.00			(0.11	)
Basic net income per share	$	0.16		$	0.66
Shares used in computing basic net earnings per share		108,339			102,560
Diluted income (loss) per share:
Diluted income per share from continuing operations	$	0.15		$	0.75
Diluted loss per share from discontinued operations		0.00			(0.11	)
Diluted net income per share	$	0.15		$	0.64
Shares used in computing diluted net earnings per share		116,434			106,403

See the accompanying notes to the unaudited condensed consolidated financial statements.

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ROVI CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

(In thousands, except share data)

(Unaudited)

	Common stock				Treasury Stock						Additional  paid-in capital			Accumulated other comprehensive loss			Retained earnings
	Shares		Amount		Shares			Amount											Total  stockholders’ equity
Balances as of December 31, 2010		111,315,257	$	112		(5,233,975	)	$	(134,931	)	$	1,781,986		$	(1,139	)	$	102,305	$	1,748,333
Comprehensive income:
Net income		-		-		-			-			-			-			17,035		17,035
Foreign currency translation adjustment, net of tax		-		-		-			-			-			(138	)		-		(138	)
Unrealized losses in investments, net of tax		-		-		-			-			-			74			-		74
Total comprehensive income																				16,971
Issuance of common stock upon exercise of options		589,386		-		-			-			11,090			-			-		11,090
Issuance of common stock under employee stock purchase plan		657,460		1		-			-			8,344			-			-		8,345
Issuance of restricted stock, net		379,228		-		-			-			-			-			-		-
Acquisitions		5,904,419		6		-			-			356,749			-			-		356,755
Exercise of warrants		426,044		-		-			-			-			-			-		-
Equity-based compensation		-		-		-			-			13,117			-			-		13,117
Convertible debt repurchase		-		-		-			-			(145,149	)		-			-		(145,149	)
Tax benefit from convertible debt repurchase		-		-		-			-			4,336			-			-		4,336
Reclass redeemable equity component of convertible debt		-		-		-			-			3,053			-			-		3,053
Excess tax benefit associated with stock plans		-		-		-			-			589			-			-		589
Repurchase of warrant and sale of call option, net		-		-		(185,247	)		(9,975	)		13,671			-			-		3,696
Stock repurchase		-		-		(1,233,003	)		(67,021	)		-			-			-		(67,021	)
Balances as of March 31, 2011		119,271,794	$	119		(6,652,225	)	$	(211,927	)	$	2,047,786		$	(1,203	)	$	119,340	$	1,954,115

See the accompanying notes to the unaudited condensed consolidated financial statements.

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ROVI CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2011			2010
Cash flows from operating activities:
Net income	$	17,035		$	68,095
Adjustments to reconcile net income to net cash provided by (used in) operations:
Loss from discontinued operations, net of tax		243			11,639
Change in fair value of interest rate swaps and caps, net of premium		6,264			2,327
Depreciation		4,668			4,771
Amortization of intangible assets		26,118			20,582
Amortization of note issuance costs and convertible note discount		5,830			6,468
Equity-based compensation		13,117			8,404
Loss on debt redemption		9,070			13,777
Deferred taxes		(23,689	)		15,007
Other, net		1,465			1,407
Changes in operating assets and liabilities, net of assets and liabilities acquired:
Accounts receivable, net		4,211			(2,454	)
Deferred revenue		660			(2,155	)
Prepaid expenses, other current assets and other assets		(208	)		(5,181	)
Income taxes		4,945			(125,975	)
Accounts payable, accrued expenses, and other long-term liabilities		(21,154	)		(34,859	)
Net cash provided by (used in) operating activities of continuing operations		48,575			(18,147	)
Net cash used in operating activities of discontinued operations		(243	)		(306	)
Net cash provided by (used in) operating activities		48,332			(18,453	)
Cash flows from investing activities:
Purchases of long and short-term marketable investments		(90,813	)		(32,787	)
Sales or maturities of long and short-term marketable investments		171,754			28,575
Purchases of property and equipment		(1,740	)		(1,403	)
Payments for acquisition, net of cash acquired		(419,222	)		(5,748	)
Other investing, net		(1,820	)		4,113
Net cash used in investing activities of continuing operations		(341,841	)		(7,250	)
Net cash used in investing activities of discontinued operations		-			(4	)
Net cash used in investing activities		(341,841	)		(7,254	)
Cash flows from financing activities:
Payments under capital lease and debt obligations		(315,862	)		(263,645	)
Sale of convertible bond call option and repurchase of warrant, net		3,696			3,105
Purchase of treasury stock		(67,021	)		(100,000	)
Proceeds from issuance of debt, net of issuance costs		733,152			446,517
Excess tax benefits associated with equity plans		589			-
Proceeds from exercise of options and employee stock purchase plan		19,435			18,424
Net cash provided by financing activities of continuing operations		373,989			104,401
Net cash used in financing activities of discontinued operations		-			-
Net cash provided by financing activities		373,989			104,401
Effect of exchange rate changes on cash		(295	)		(469	)
Net increase in cash and cash equivalents		80,185			78,225
Cash and cash equivalents at beginning of period		200,195			165,410
Cash and cash equivalents at end of period	$	280,380		$	243,635

See the accompanying notes to the unaudited condensed consolidated financial statements.

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ROVI CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION

Rovi Corporation and its subsidiaries’ (collectively “Rovi” or the “Company”) offerings include interactive program guides (IPGs), embedded licensing technologies (such as recommendations and search capability), media recognition technologies and licensing of the Company’s database of descriptive information about television, movie, music, books, and game content and analog content protection technologies (“ACP”) and services. In addition to offering Company developed IPGs, our customers may also license our patents and deploy their own IPG or a third party IPG. With the acquisition of Sonic Solutions (“Sonic”) (see Note 3) the Company’s offerings now also include the RoxioNow entertainment delivery solution, DivX and MainConcept compression-decompression technology (“codecs”), Sonic Pro tools, and Roxio consumer tools. The Company’s solutions are deployed by companies in the consumer electronics, cable and satellite, entertainment and online distribution markets and utilized by consumers across the world.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted in accordance with such rules and regulations. However, the Company believes the disclosures are adequate to make the information not misleading. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, consisting only of normal recurring adjustments, which in the opinion of management are considered necessary to present fairly the results for the periods presented. This quarterly report on Form 10-Q should be read in conjunction with the audited financial statements and notes thereto and other disclosures contained in the Company’s 2010 Annual Report on Form 10-K.

The Condensed Consolidated Statements of Income for the interim periods presented are not necessarily indicative of the results expected for the entire year ending December 31, 2011, for any future year, or for any other future interim period.

Certain prior period amounts have been reclassified to conform to the current period presentation.

On February 26, 2010, the Company sold its 49% interest in the Guideworks LLC joint venture (“Guideworks”) to Comcast Corporation (“Comcast”) and simultaneously purchased Comcast’s interest in the patents which had been developed by Guideworks. Guideworks was a research and development joint venture with Comcast that develops interactive program guide solutions, which are distributed by the Company under the i-Guide brand. Under these agreements, the Company received a net payment of $4.2 million and realized a $1.4 million loss on sale of its interest in Guideworks. The Company had been recording its 49% interest in Guideworks as an operating expense in accordance with ASC 730-20, Research and Development Arrangements. Included in research and development expenses for the three months ended March 31, 2010, are $1.7 million in expenses related to Guideworks.

NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

As a part of the Sonic acquisition, the Company acquired certain products and services which it had not previously offered. The Company has updated its revenue recognition policy to reflect the accounting for these Sonic products and services. There have been no other material changes to the Company’s

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significant accounting policies, as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

Revenue Recognition

The Company’s revenue from continuing operations primarily consists of license fees for IPG products and patents, license fees for the Company’s codec technology, Roxio software product sales, royalty fees on copy-protected products, license fees for the Company’s content protection technologies and license fees for entertainment metadata. The Company recognizes revenue when the following conditions are met (i) there is persuasive evidence that an arrangement exists, (ii) delivery has occurred or service has been rendered, (iii) the price is fixed or determinable and (iv) collection is reasonably assured.

Revenue arrangements with multiple deliverables are divided into separate units of accounting when the delivered item has value to the customer on a stand-alone basis. The Company then determines the fair value of each element using the selling price hierarchy of “vendor specific objective evidence “VSOE”, third party evidence “TPE” or estimated selling price “ESP”, as applicable; and allocates the total consideration among the various elements based on the relative selling price method. The allocation of value may impact the amount and timing of revenue recorded in the consolidated statement of income during a given period.

The Company accounts for cash consideration (such as sales incentives) that it gives to its customers or resellers as a reduction of revenue, rather than as an operating expense unless the Company receives a benefit that is separate from the customer’s purchase from the Company and for which it can reasonably estimate the fair value.

Amounts for fees collected or invoiced and due relating to arrangements where revenue cannot be recognized are reflected on our balance sheet as deferred revenue and recognized when the applicable revenue recognition criteria are satisfied.

CE and Service Provider Licensing

The Company licenses its proprietary IPG technology, codec technology and ACP technology to consumer electronics (“CE”) manufacturers, integrated circuit makers, service providers and others. The Company generally recognizes revenue from licensing technology on a per-unit shipped model with CE manufacturers or a per-subscriber model with service providers. The Company’s recognition of revenues from per-unit license fees is based on units reported shipped by the manufacturer. CE manufacturers normally report their unit shipments to the Company in the quarter immediately following that of actual shipment by the manufacturer. The Company has established significant experience and relationships with certain ACP technology licensing customers to reasonably estimate current period volume for purposes of making an accurate revenue accrual. Accordingly, revenue from these customers is recognized in the period the customer shipped the units. Revenues from per-subscriber fees are recognized in the period the services are provided by a licensee, as reported to the Company by the licensee. Revenues from annual or other license fees are recognized based on the specific terms of the license arrangement. For instance, certain licensees enter into agreements for which they have the right to ship an unlimited number of units over a specified term for a flat fee. The Company records the fees associated with these arrangements on a straight-line basis over the specified term. The Company often enters into IPG patent license agreements in which it provides a licensee a release for past infringement as well as the right to ship an unlimited number of units over a future period for a flat fee. In this type of arrangement, the Company generally would use ESP to allocate the consideration between the release for past infringement and the go-forward patent license. As the revenue recognition criteria for the past infringement would generally be satisfied upon the execution of the agreement, the amount of consideration allocated to the past infringement would be recognized in the quarter the agreement is executed and the amount allocated to the go forward license agreement would be recognized ratably over the term. In addition, the Company enters into agreements in

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which the licensee pays the Company a one-time fee for a perpetual license to its ACP technology. Provided that collectability is reasonably assured, the Company records revenue related to these agreements when the agreement is executed as the Company has no continuing obligation and the amounts are fixed and determinable.

The Company also generates advertising revenue through its IPGs. Advertising revenue is recognized when the related advertisement is provided. All advertising revenue is recorded net of agency commissions and revenue shares with service providers and CE manufacturers.

Roxio Consumer Software Products

Except in the case of consignment arrangements, the Company recognizes revenue from the sale of its packaged software products when title transfers to the distributor or retailer. When the Company sells packaged software products to distributors and retailers on a consignment basis, it recognizes revenue upon sell-through to an end customer.

The Company’s distributor arrangements often provide distributors with certain product rotation rights. The Company estimates returns based on its historical return experience and other factors such as channel inventory levels and the introduction of new products. These allowances are recorded as a reduction of revenues and as an offset to accounts receivable to the extent the Company has legal right of offset, otherwise they are recorded in accrued expenses and other current liabilities. If future returns patterns differ from past returns patterns, for example due to reduced demand for the Company’s product, the Company may be required to increase these allowances in the future and may be required to reduce future revenues.

The Company also licenses its software to OEMs who include it with the PCs they sell. The Company generally receives a per-unit royalty and recognizes this revenue upon receipt of the customer royalty report.

RoxioNow Entertainment Delivery Solution

The Company recognizes service fees it receives from retailers and others for operating their storefronts on a straight-line basis over the period it is providing services. The Company recognizes transaction revenue from the sale or rental of individual content titles in the period when the content is purchased and delivered. Transaction revenue is recorded on a gross basis when the Company is the primary obligor and is recorded net of payments to content owners and others when the Company is not the primary obligor. The Company is generally the primary obligor when it is the merchant of record.

NOTE 3 – ACQUISITIONS

Sonic Acquisition

On February 17, 2011, the Company acquired 100% of the outstanding common stock of Sonic in a cash and stock transaction. Sonic was a leading developer of technologies, products and services that enable the creation, management, and enjoyment of digital media content across a wide variety of technology platforms. The Sonic acquisition enhances the Company’s offerings and facilitates the next step forward in its strategy of allowing consumers who have found content they are seeking using our guides, technologies and metadata, to enjoy that content in multiple environments from multiple sources on any device. The combination of the Company and Sonic also provides the opportunity for cost savings. The Company believes these factors support the amount of goodwill recorded in connection with the transaction.

The Company is accounting for the transaction under the acquisition method of accounting in accordance with the provisions Financial Accounting Standards Board (FASB) Accounting Standard

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Codification (ASC) Topic 805 “Business Combinations” (ASC 805). The total preliminary purchase price for Sonic was approximately $763.1 million and was comprised of the following (in thousands, except share and per share amounts):

Cash consideration paid to acquire the common stock of Sonic	$	398,146
Fair value of 5.8 million shares of Rovi common stock exchanged for the common stock of Sonic (1)		348,193
Cash consideration paid to terminate vested in the money Sonic employee stock options		8,242
Fair value of 0.1 million shares of Rovi common stock exchanged to terminate vested in the money Sonic employee stock options (1)		6,840
Fair value of vested Sonic employee stock options assumed		1,722
Total purchase price	$	763,143

(1) Based on the Company’s February 17, 2011, closing common stock price of $60.13 per share.

Under the acquisition method, the total estimated purchase price of the acquired company is allocated to the assets acquired and the liabilities assumed based on their fair values. The Company has made significant estimates and assumptions in determining the preliminary allocation of the purchase price. The preliminary allocation of purchase consideration is subject to change based on further review of the fair value of the assets acquired and liabilities assumed. The Company is currently obtaining additional information related to the valuation of certain contingent liabilities and certain finite lived intangible assets.

The Company’s preliminary purchase price allocation is as follows (in thousands, except lives):

	Weighted Average Estimated Useful Life (In Years)
Cash, cash equivalents and investments					$	24,361
Trade accounts receivable						27,719
Property and equipment						2,885
Goodwill						469,216
Identifiable intangible assets:
Developed technology		6	$	110,500
Trademarks/tradenames		10		17,700
Customer relationships		6		146,500
Studio relationships and content library		4		9,700
Total identifiable intangible assets						284,400
Prepaid and other assets						18,545
Accounts payable and other liabilities						(46,087	)
Deferred tax liabilities, net						(14,581	)
Deferred revenue						(3,315	)
Total purchase price					$	763,143

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Developed technology relates to Sonic’s products across all of their product lines that have reached technological feasibility, primarily the RoxioNow technology, Roxio’s developed software products and the DivX video compression / decompression software library and player application. Trademarks/tradenames are primarily related to the Roxio and DivX brandname. Customer relationships represent existing contracted relationships with consumer electronics manufacturers, retailers, distributors and others. Studio relationships and content library primarily relate to RoxioNow’s relationships with the studios and digitized content library. The estimated fair values of the developed technology, trademarks/tradenames and customer relationships were primarily determined using either the relief-from-royalty or excess earnings methods. The rates utilized to discount net cash flows to their present values ranged from 8%-12% and were determined after consideration of the overall enterprise rate of return and the relative risk and importance of the assets to the generation of future cash flows. The estimated fair values of the studio relationships and content library were determined under the cost method. The Company did not record any in process research and development assets as Sonic’s major technology projects are either substantially complete or primarily represent improvements and additional functionality to existing products for which a substantial risk of completion does not exist.

Developed technology, trademarks/tradenames and studio relationships and content library will be amortized on a straight-line basis over their estimated useful lives. As the majority of the cash flows generated by the customer relationships occur in the first four years of the intangible assets estimated useful life, the customer relationship intangible assets are being amortized based on the proportion of the expected future cash flow generated by the assets in each year to the total future cash flow expected to be generated by the asset.

For the three months ended March 31, 2011, the Company incurred approximately $2.3 million in transaction costs related to the Sonic acquisition. These costs are included in selling, general and administrative expenses on the Company’s Condensed Consolidated Statement of Income. From the period from acquisition to March 31, 2011, the acquired Sonic operations generated $20.8 million of revenue and a loss before income taxes of $7.5 million.

SideReel Acquisition

On February 28, 2011, the Company acquired SideReel, Inc. (“SideReel”) for approximately $35.5 million in cash. SideReel provides an advertising supported Website to help consumers find, track and watch online popular network and cable TV shows, movies, and Web TV series. SideReel has over 10 million monthly unique visitors and 2.5 million registered users.

2010 Acquisitions

In March 2010, the Company paid approximately $5.9 million for substantially all of the assets of MediaUnbound, Inc. The Company acquired these assets to enhance and expand its media search and recommendations capability.

Pro Forma Financial Information

The pro forma financial information presented below (in thousands, except per share amounts) assumes the acquisition of Sonic had occurred on January 1, 2010. The pro forma information presented is for illustrative purposes only and is not necessarily indicative of the results of operations that would have been realized if the acquisition had been completed on the date indicated, nor is it indicative of future operating results. The pro forma financial information does not include any adjustments for operating efficiencies or cost savings.

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	Three months ended March 31,
	2011			2010
Net revenue	$	195,387		$	174,578
Operating income (loss) (1)	$	25,970		$	(11,106	)
(Loss) income from continuing operations, net of tax (1)(2)(3)	$	(3,685	)	$	65,256
Basic (loss) earnings per share from continuing operations	$	(0.03	)	$	0.60
Diluted (loss) earnings per share from continuing operations	$	(0.03	)	$	0.58

(1) Operating loss for the three months ended March 31, 2010, includes a $24.5 million charge related to costs associated with indemnification and other claims in excess of reserves established in purchase accounting in conjunction with the Gemstar-TV Guide International (“Gemstar”) acquisition (See Note 16).

(2) The Company’s historical results for the three months ended March 31, 2010, included a $108.7 million income tax benefit, primarily related to entering into a closing agreement with the Internal Revenue Service through its Pre-Filing Agreement program confirming that the Company recognized an ordinary tax loss of approximately $2.4 billion from the 2008 sale of its TV Guide Magazine business (See Note 13).

(3) As a result of recording deferred tax liabilities related to its acquisition of Sonic, the Company determined that its deferred tax valuation allowance should be reduced by $22.2 million during the three months ended March 31, 2011. As the pro forma financial information assumes the acquisition of Sonic had occurred on January 1, 2010, and this deferred tax valuation allowance reduction is non-recurring in nature and is directly related to the transaction, the $22.2 million tax benefit has been removed from the above pro forma financial information.

NOTE 4 – DISCONTINUED OPERATIONS

On September 17, 2010, the Company sold its Canadian subsidiary, Norpak Corporation (“Norpak”) which manufactured equipment for embedding data in a television signal. The results of operations and cash flows of Norpak have been reclassified to discontinued operations for all periods presented.

During the three months ended March 31, 2011 and 2010, the Company recorded $0.2 million and $11.4 million, respectively, in expenses related to indemnification for IP infringement claims relating to the Company’s Software business which was sold in 2008.

The results of operations of the Company’s discontinued businesses consist of the following (in thousands):

	Three Months Ended       March 31,
	2011			2010
Net revenue:
Norpak	$	-		$	683
Pre-tax loss:
Software	$	(243	)	$	(11,434	)
Norpak		-			(205	)
Loss from discontinued operations, net of tax	$	(243	)	$	(11,639	)

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NOTE 5 – DEBT

Convertible Senior Notes Due 2040

In March 2010, the Company issued $460.0 million in 2.625% convertible senior notes (the “2040 Convertible Notes”) due in 2040 at par. The 2040 Convertible Notes may be converted, under the circumstances described below, based on an initial conversion rate of 21.1149 shares of common stock per $1,000 principal amount of notes (which represents an initial conversion price of approximately $47.36 per share).

Prior to November 15, 2039, holders may convert their 2040 Convertible Notes into cash and the Company’s common stock, at the applicable conversion rate, under any of the following circumstances: (i) during any fiscal quarter after the calendar quarter ending June 30, 2010, if the last reported sale price of the Company’s common stock for at least 20 trading days during the 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the applicable conversion price in effect on each applicable trading day; (ii) during the five business-day period after any ten consecutive trading-day period (the “measurement period”) in which the trading price per note for each day of such measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such day; (iii) upon the occurrence of specified corporate transactions, as described in the indenture, or (iv) if the Company calls any or all of the notes for redemption, at any time prior to the close of business on the third scheduled trading day prior to that redemption date. From November 15, 2039 until the close of business on the scheduled trading day immediately preceding the maturity date of February 15, 2040, holders may convert their 2040 Convertible Notes into cash and shares of the Company’s common stock at the applicable conversion rate, at any time, regardless of the foregoing circumstances. After February 20, 2015, the Company has the right to call for redemption all, or a portion, of the 2040 Convertible Notes at 100% of the principal amount of notes to be redeemed, plus accrued interest to, but excluding, the redemption date. Holders have the right to require the Company to repurchase the 2040 Convertible Notes on February 20, 2015, 2020, 2025, 2030 and 2035 for cash equal to 100% of the principal amount of the notes to be repurchased, plus accrued interest to, but excluding, the repurchase date.

Upon conversion, a holder will receive the conversion value of the 2040 Convertible Notes converted based on the conversion rate multiplied by the volume weighted average price of the Company’s common stock over a specified observation period following the conversion date. The conversion value of each 2040 Convertible Note will be paid in cash up to the aggregate principal amount of the 2040 Convertible Notes to be converted and shares of common stock to the extent the conversion value exceeds the principal amount of the converted note. Upon the occurrence of a fundamental change (as defined in the indenture), the holders may require the Company to repurchase for cash all or a portion of their 2040 Convertible Notes at a price equal to 100% of the principal amount of the 2040 Convertible Notes being repurchased plus accrued interest, if any. In addition, following certain corporate events that occur prior to February 20, 2015, the conversion rate will be increased for holders who elect to convert their notes in connection with such a corporate event in certain circumstances.

In accordance with ASC 470, related to accounting for convertible debt instruments that may be settled in cash upon conversion, the Company has separately accounted for the liability and equity components of the 2040 Convertible Notes to reflect its non-convertible debt borrowing rate of 7.75%, at the time the instrument was issued, when interest cost is recognized. During the three months ended March 31, 2011, the Company repurchased a total of $93.8 million in par value of the 2040 Convertible Notes for $127.5 million. The Company allocated $82.1 million of the purchase price to the liability component and the remaining $45.4 million to the equity component of the 2040 Convertible Notes. In connection with the repurchases, the Company recorded a $6.2 million loss on debt redemption during the three months ended March 31, 2011.

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As of March 31, 2011 and December 31, 2010, the principal amount of the Company’s 2040 Convertible Notes was $366.2 million and $460 million, respectively. As of March 31, 2011 and December 31, 2010, the unamortized discount on the 2040 Convertible Notes was $61.8 million and $81.9 million, respectively, resulting in a carrying amount of $304.4 million and $378.1 million, respectively. During the three months ended March 31, 2011 and 2010, the Company recorded $4.1 million and $0.6 million, of interest expense for the 2040 Convertible Notes related to the amortization of the discount.

Convertible Senior Notes Due 2011

In August 2006, Rovi Solutions, a wholly-owned subsidiary of the Company, issued $240.0 million in 2.625% convertible senior notes (the “2011 Convertible Notes”) due in 2011 at par. In connection with the Gemstar acquisition, the Company entered into a supplemental indenture with respect to the 2011 Convertible Notes whereby the 2011 Convertible Notes became convertible into shares of the Company’s common stock. The 2011 Convertible Notes may be converted, under certain circumstances, based on an initial conversion rate of 35.3571 shares of common stock per $1,000 principal amount of notes (which represents an initial conversion price of approximately $28.28 per share). During the three months ended March 31, 2011, the Company repurchased a total of $88.1 million in par value of the 2011 Convertible Notes for $188.3 million. The Company allocated $88.5 million of the purchase price to the liability component and the remaining $99.8 million to the equity component of the 2011 Convertible Notes. In connection with the repurchases, the Company recorded a $2.9 million loss on debt redemption during the three months ended March 31, 2011.

Prior to June 15, 2011, holders may convert their Convertible Notes into cash and the Company’s common stock, at the applicable conversion rate, under any of the following circumstances: (i) during any fiscal quarter after the calendar quarter ending September 30, 2006, if the last reported sale price of the Company’s common stock for at least 20 trading days during the 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 120% of the applicable conversion price in effect on the last trading day of the immediately preceding fiscal quarter; (ii) during the five business-day period after any ten consecutive trading-day period (the “measurement period”) in which the trading price per note for each day of such measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such day; or (iii) upon the occurrence of specified corporate transactions, as defined in the indenture. From June 15, 2011, until the close of business on the scheduled trading day immediately preceding the maturity date of August 15, 2011, holders may convert their Convertible Notes into cash and shares of the Company’s common stock, if any, at the applicable conversion rate, at any time, regardless of the foregoing circumstances.

Upon conversion, a holder will receive the conversion value of the Convertible Notes converted equal to the conversion rate multiplied by the volume weighted average price of the Company’s common stock during a specified period following the conversion date. The conversion value of each Convertible Note will be paid in: (i) cash equal to the lesser of the principal amount of the Convertible Note or the conversion value, as defined, and (ii) to the extent the conversion value exceeds the principal amount of the Convertible Note, a combination of common stock and cash. In addition, upon a fundamental change at any time, as defined, the holders may require the Company to repurchase for cash all or a portion of their Convertible Notes upon a “designated event” at a price equal to 100% of the principal amount of the Convertible Notes being repurchased plus accrued and unpaid interest, if any.

In accordance with ASC 470, the Company has separately accounted for the liability and equity component of the 2011 Convertible Notes to reflect its non-convertible debt borrowing rate of 7.4%, at the time the instrument was issued, when interest cost is recognized. As of March 31, 2011 and December 31, 2010, the principal amount of the Company’s 2011 Convertible Notes was $46.6 million and $134.7 million, respectively. As of March 31, 2011 and December 31, 2010, the unamortized discount on the 2011

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Convertible Notes was $0.8 million and $3.9 million, respectively, resulting in a carrying amount of $45.8 million and $130.8 million, respectively. During the three months ended March 31, 2011 and 2010, the Company recorded $0.9 million and $2.4 million of interest expense for the 2011 Convertible Notes related to the amortization of the discount. As of March 31, 2011, the 2011 Convertible Notes were eligible for conversion at the option of the note holders. The Company has therefore reclassified the $0.8 million unamortized discount to temporary equity and recorded the liability component as current on its condensed consolidated balance sheet.

Concurrently with the issuance of the 2011 Convertible Notes, the Company entered into a convertible bond call option whereby the Company has options to purchase up to 7.96 million shares, subject to anti-dilution adjustments similar to those contained in the 2011 Convertible Notes, of the Company’s common stock at a price of approximately $28.28 per share. These options expire on August 15, 2011 and must be settled in net shares. The cost of the convertible bond call option was approximately $46.1 million and has been recorded as a reduction to additional paid-in-capital. In connection with the repurchase of a portion of the 2011 Convertible Notes during the three months ended March 31, 2011, the Company unwound a portion of the convertible bond call option, and in the process, received $85.6 million in cash and 0.2 million shares of its common stock with a fair value of $10.0 million. This payment and the fair value of the common stock received have been recorded as an increase to additional paid-in-capital and the common stock received has been recorded as treasury stock. As of March 31, 2011, the Company continues to have the option to purchase up to 1.7 million shares of its common stock under the terms described above.

In addition, concurrent with the issuance of 2011 Convertible Notes, the Company sold warrants to purchase up to 7.96 million shares of its common stock at a price of $32.9248 per share. The warrants expire on various dates from August 16, 2011 through the 104^th scheduled trading day following August 16, 2011, and must be settled in net shares. The Company received approximately $30.3 million in cash proceeds for the sales of these warrants which have been recorded as an increase to additional paid-in-capital. In connection with the repurchase of a portion of the 2011 Convertible Notes during the three months ended March 31, 2011, the Company unwound a portion of the warrants for $81.9 million. These payments have been recorded as a decrease to additional paid-in-capital. As of March 31, 2011, warrants to purchase up to 1.7 million shares of the Company’s common stock under the terms described above remained outstanding.

Senior Secured Term Loans

On February 7, 2011, two of the Company’s subsidiaries, Rovi Solutions Corporation and Rovi Guides Inc., jointly borrowed $750 million under a senior secured credit facility consisting of a 5-year $450 million term loan (“Term Loan A”) and a 7-year $300 million term loan (“Term Loan B”). Both term loans are guaranteed by Rovi Corporation and certain of its domestic and foreign subsidiaries, and are secured by substantially all of the Company’s assets. Term Loan A requires annual amortization payments and matures on February 7, 2016 and the Term Loan B requires quarterly amortization payments and matures on February 7, 2018. Term Loan A bears interest, at the Company’s election, at either prime rate plus 1.5% per annum or 3 month LIBOR plus 2.5% per annum and was issued at a discount of $2.8 million to par value. Term Loan B bears interest, at the Company’s election, at either prime plus 2.0% per annum or 3 month LIBOR plus 3.0% per annum, with a LIBOR floor of 1.0% and was issued at a $0.8 million discount to par value. The senior secured credit facility includes financial performance covenants (a maximum total leverage ratio and a minimum interest coverage ratio), provisions for optional and mandatory repayments (an annual excess cash flow payment and payments due upon sale of assets, among others), restrictions on the issuance of new indebtedness, restrictions on certain payments (repurchases of Company stock and dividends payments, among others) and other representations, warranties and covenants which are customary for a secured credit facility. As of March 31, 2011, the Term Loan A and Term Loan B balances were $447.3 million and $299.3 million, net of discount, respectively. The Company incurred $13.3 million in debt issuance costs related to Term Loan

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A and Term Loan B, which are being amortized to interest expense using the effective interest method.

2008 Senior Secured Term Loan

In connection with the Gemstar acquisition, the Company borrowed $550.0 million under a five year senior secured term loan credit facility (the “2008 Term Loan”). As of December 31, 2009, the Term Loan balance was $207.2 million. During the first quarter of 2010, the Company paid off and retired the 2008 Term Loan. In connection with retiring the 2008 Term Loan, the Company recorded a $12.3 million loss on debt redemption, primarily due to writing off the remaining note issuance costs.

NOTE 6 – INVESTMENTS

The following is a summary of available-for-sale and other investment securities (in thousands) as of March 31, 2011:

	Cost		Unrealized     Gains		Unrealized     Losses			Fair Value
Cash	$	58,394	$	-	$	-		$	58,394
Cash equivalents - Money markets		213,990		-		-			213,990
Cash equivalents - Corporate debt securities		7,996		-		-			7,996
Total cash and cash equivalents	$	280,380	$	-	$	-		$	280,380
Available-for-sale investments:
Auction rate securities	$	20,000	$	-	$	(2,345	)	$	17,655
Corporate debt securities		192,647		205		(149	)		192,703
Foreign government obligations		25,197		9		(33	)		25,173
U.S. Treasury/Agencies		182,679		122		(93	)		182,708
Total available-for-sale investments	$	420,523	$	336	$	(2,620	)	$	418,239
Total cash, cash equivalents and investments								$	698,619

The following is a summary of available-for-sale and other investment securities (in thousands) as of December 31, 2010:

	Cost		Unrealized     Gains		Unrealized     Losses			Fair Value
Cash	$	45,700	$	-	$	-		$	45,700
Cash equivalents - Money markets		154,495		-		-			154,495
Total cash and cash equivalents	$	200,195	$	-	$	-		$	200,195
Available-for-sale investments:
Auction rate securities	$	16,800	$	-	$	(1,801	)	$	14,999
Corporate debt securities		186,218		263		(191	)		186,290
Foreign government obligations		11,792		10		(52	)		11,750
U.S. Treasury/Agencies		283,073		166		(306	)		282,933
Total available-for-sale investments	$	497,883	$	439	$	(2,350	)	$	495,972
Total cash, cash equivalents and investments								$	696,167

As of March 31, 2011, the fair value of available-for-sale debt investments, by contractual maturity, was as follows (in thousands):

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Due in 1 year or less	$	284,134
Due in 1-2 years		124,446
Due in 2-3 years		-
Due in greater than 3 years		17,655
Total	$	426,235

Market values were determined for each individual security in the investment portfolio. The Company attributes the unrealized losses in its auction rate securities portfolio to liquidity issues rather than credit issues. The Company’s available-for-sale auction rate securities portfolio at March 31, 2011 is comprised solely of AAA rated investments in federally insured student loans and municipal and educational authority bonds. The Company continues to earn interest on all of its auction rate security instruments.

NOTE 7 – INTEREST RATE SWAPS AND CAPS

In March 2010, in connection with the issuance of the 2040 Convertible Notes, the Company entered into interest rate swaps with a notional amount of $460.0 million under which it pays a weighted average floating rate of 6 month USD – LIBOR minus 0.342%, set in arrears, and receives a fixed rate of 2.625%. These swaps expire in February 2015. In addition, in connection with the then remaining balance of the 2011 Convertible Notes, the Company also entered into interest rate swaps with a notional amount of $185.0 million under which it pays a weighted average floating rate of 6 month USD – LIBOR plus 1.241%, set in arrears, and receives a fixed rate of 2.625%. These swaps expire in August 2011. The Company entered into these swaps as it believed interest rates would increase in the future at a slower pace than the market then anticipated, thus allowing it to reduce its overall interest expense related to the convertible debt. The Company also purchased interest rate caps for $4.0 million with notional amounts that range from $270.0 million to $200.0 million from 2012 to 2015. The Company will receive payments under these interest rate caps if 6 month USD-LIBOR, on the reset dates, exceeds 6% from February 2012 to February 2013, 5% from February 2013 to February 2014, or 4% from February 2014 to February 2015.

In November 2010, after future interest rate expectations decreased, the Company entered into additional swaps with a notional amount of $460.0 million under which it pays a fixed rate which gradually increases from 0.203% for the six month settlement period ending in February 2011, to 2.619% for the six month settlement period ending in August 2015 and receives a floating rate of 6 month USD – LIBOR minus 0.342%, set in arrears. These swaps expire in August 2015. In November 2010, the Company also entered into additional swaps with a notional amount of $185.0 million under which it pays a fixed rate which increases from 1.783% for the settlement period ending in February 2011, to 1.875% for the six month settlement period ending August 2011 and receives a floating rate of 6 month USD – LIBOR plus 1.241%, set in arrears. These swaps expire in August 2011. As future interest rate expectations had declined since March 2010, the Company entered into these swaps to fix its future interest payments based on the forward LIBOR rates in effect in November 2010.

The Company has not designated any of its interest rate swaps or caps as hedges. The Company records these interest rate swaps and caps on its balance sheet at fair market value with the changes in fair value recorded as gain (loss) on interest rate swaps and caps, net, in its Condensed Consolidated Statements of Income. During the three months ended March 31, 2011 and 2010, the Company recorded a gain of $0.1 million and a loss of $6.3 million, respectively, for the change in the fair value of its interest rate swaps and caps and the semi-annual interest settlements. For information on the fair value of the Company’s interest rate swaps and caps see Note 8.

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NOTE 8 – FAIR VALUE MEASUREMENTS

In accordance with ASC 820, the Company uses three levels of inputs to measure fair value:

Level 1. Quoted prices in active markets for identical assets or liabilities.

Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or valuations in which all significant inputs are observable or can be obtained from observable market data.

Level 3. Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities.

The Company values its interest rate swaps using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each interest rate swap. This analysis reflects the contractual terms of the interest rate swaps, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The Company also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its interest rate swaps for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings.

The Company’s auction rate securities are valued using a discounted cash flow analysis or other type of valuation model. These analyses are highly judgmental and consider, among other items, the likelihood of redemption, credit quality, duration, insurance wraps and expected future cash flows. These securities were also compared, when possible, to other observable market data with similar characteristics to the securities held by the Company.

The Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period. Assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following types of instruments at March 31, 2011 (in thousands):

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	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant     Unobservable     Inputs (Level 3)
Current Assets
Money market funds (1)	$	213,990	$	213,990	$	-	$	-
Corporate debt securities (2)		143,101		-		143,101		-
Foreign government obligations (3)		10,296		-		10,296		-
U.S. agency debt securities (3)		130,737		-		130,737		-
Non-Current Assets
Auction rate securities (4)		17,655		-		-		17,655
Corporate debt securities (4)		57,598		-		57,598		-
Foreign government obligations (4)		14,877		-		14,877		-
U.S. agency debt securities (4)		51,971		-		51,971		-
Interest rate swaps and caps (5)		26,896		-		26,896		-
Total assets	$	667,121	$	213,990	$	435,476	$	17,655

(1) Included in cash and cash equivalents on the condensed consolidated balance sheet.

(2) Included $8.0 million classified as cash and cash equivalents and $135.1 million as short-term investments on the condensed consolidated balance sheet.

(3) Included in short-term investments on the condensed consolidated balance sheet.

(4) Included in long-term marketable securities on the condensed consolidated balance sheet and classified as available-for-sale securities.

(5) Included in other assets on the condensed consolidated balance sheet.

The following table provides a summary of changes in the Company’s Level 3 auction rate securities as of March 31, 2011 (in thousands):

Balance at December 31, 2010	$	14,999
Acquired ARS-Sonic Solution Acquisition		2,756
Settlements		(100	)
Balance at March 31, 2011	$	17,655

The fair value of the Company’s outstanding debt at March 31, 2011 is as follows (in thousands):

	Carrying Value		Significant Other      Observable     Inputs (Level 2)
Term Loan A	$	447,276	$	450,000
Term Loan B		299,265		301,500
2011 Convertible Notes (1)		45,768		88,374
2040 Convertible Notes (1)		304,374		483,372
	$	1,096,683

(1) The par value of the 2011 Convertible Notes and 2040 Convertible Notes is $46.6 million and $366.2 million, respectively. See Note 5 for additional details.

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NOTE 9 – EQUITY-BASED COMPENSATION

Sonic Assumed Plan

On February 17, 2011, in conjunction with the acquisition of Sonic, the Company assumed the Sonic Solutions 2004 Equity Compensation Plan, amended and restated July 2010 (the “2004 Sonic Plan”). As of February 17, 2011, on a converted basis, the 2004 Sonic Plan had 2.2 million shares reserved and 1.6 million shares available for issuance.

Stock Options Plans

The Company currently grants stock options and restricted stock awards from the 2008 Equity Incentive Plan (the “2008 Plan”), the 2000 Equity Incentive Plan (the “2000 Plan”) and, effective February 17, 2011, the 2004 Sonic Plan.

As of March 31, 2011, the Company had a total of 31.8 million shares reserved and 11.7 million shares available for issuance under the 2008, 2000 and 2004 Sonic Plans.

These equity plans provide for the grant of stock options, restricted stock awards and similar types of equity awards by the Company to employees, officers, directors and consultants of the Company. For options granted during the three months ended March 31, 2011, the vesting period was generally four years where one quarter of the grant vests at the end of the first year, and the remainder vests monthly. Options granted during the three months ended March 31, 2011 have a contractual term of seven years.

Restricted stock awards generally vest annually over four years. Restricted stock awards are considered outstanding at the time of the grant, as the stockholders are entitled to voting rights. As of March 31, 2011, the number of shares awarded but unvested was 1.7 million.

Employee Stock Purchase Plan

The Company’s 2008 Employee Stock Purchase Plan (“ESPP”) allows eligible employee participants to purchase shares of the Company’s common stock at a discount through payroll deductions. The ESPP consists of a twenty-four month offering period with four six-month purchase periods in each offering period. Employees purchase shares in each purchase period at 85% of the market value of the Company’s common stock at either the beginning of the offering period or the end of the purchase period, whichever price is lower.

As of March 31, 2011, the Company had reserved, and available for future issuance, 5.5 million shares of common stock under the ESPP.

Valuation and Assumptions

The Company uses the Black-Scholes option pricing model to determine the fair value of stock options and employee stock purchase plan shares. The fair value of equity-based payment awards on the date of grant is determined by an option-pricing model using a number of complex and subjective variables. These variables include expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends. The Company determines the fair value of its restricted stock awards as the difference between the market value of the awards on the date of grant less the exercise price of the awards granted.

Estimated volatility of the Company’s common stock for new grants is determined by using a combination of historical volatility and implied volatility in market traded options. When historical data is available and relevant, the expected term of options granted is determined by calculating the average term

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from historical stock option exercise experience. When there is insufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to changes in the terms of option grants, the Company uses the “simplified method” as permitted under Staff Accounting Bulletin No. 110. For options granted after July 15, 2008, the Company changed its standard vesting terms from three to four years and its contractual term from five to seven years. Since the Company did not have sufficient data for options with four year vesting terms and seven year contractual life, the simplified method was used to calculate expected term. The risk-free interest rate used in the option valuation model is from U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model. In accordance with ASC Topic 718, Compensation – Stock Compensation, the Company estimates forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and records equity-based compensation expense only for those awards that are expected to vest. The assumptions used to value equity-based payments (excluding options assumed through the Sonic acquisition) are as follows:

	Three months ended March 31,
	2011		2010
Option Plans:
Dividends		None		None
Expected term		4.6 years		4.6 years
Risk free interest rate		1.9%		2.1%
Volatility rate		43%		37%
ESPP Plan:
Dividends		None		None
Expected term		1.3 years		1.3 years
Risk free interest rate		0.4%		0.5%
Volatility rate		37%		35%

The weighted average fair value per share of equity-based awards are as follows:

	Three months ended March 31,
	2011		2010
Weighted average fair value:
Option grants		$21.05		$11.17
Employee purchase share rights		$19.36		$8.64
Restricted stock award grants		$54.32		$30.07

In conjunction with the Sonic acquisition, the Company assumed 0.9 million shares of converted options and restricted stock units. The assumed options and restricted stock units continue to have, and be subject to, the same terms and conditions related to the applicable stock option or restricted stock unit immediately prior to the effective date of the acquisition. Since the Company did not have sufficient data for the assumed options, the simplified method was used to calculate the expected term. The assumptions used to value the assumed and converted Sonic options are as follows:

Dividends	None
Expected term	5.8 years
Risk free interest rate	2.6%
Volatility rate	39%

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The weighted average fair value of assumed and converted Sonic options was $39.50 per share.

As of March 31, 2011, there was $111.4 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested equity-based payments granted to employees. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures and is expected to be recognized over a weighted average period of 2.6 years.

The total intrinsic value of options exercised during the three months ended March 31, 2011 and 2010 was $24.3 million and $12.9 million, respectively. The intrinsic value is calculated as the difference between the market value on the date of exercise and the exercise price of the shares.

NOTE 10 – GOODWILL AND OTHER INTANGIBLE ASSETS

The following table summarizes the Company’s goodwill activity associated with its continuing operations (in thousands):

Goodwill, net at December 31, 2010	$	857,216
Changes due to foreign currency exchange rates and other		206
2011 acquisitions		494,412
Goodwill, net at March 31, 2011	$	1,351,834

The Company assesses its goodwill for impairment annually as of October 1, or more frequently if circumstances indicate impairment may have occurred. To accomplish this, the Company determines the fair value of its reporting unit using a discounted cash flow approach and / or a market approach and compares it to the carrying amount of the reporting unit at the date of the impairment analysis. As the Company only has one reporting unit, the Company’s publicly traded equity is a key input in determining the fair value of the reporting unit. When the Company conducted its impairment analysis in 2010, its fair value exceeded its GAAP equity by approximately $3.6 billion. A significant decline in the value of the Company’s publicly traded equity and /or a significant decrease in the Company’s future business prospects could require the Company to record a goodwill and / or intangible asset impairment charge in the future.

The following tables summarize the Company’s intangible assets for its continuing operations subject to amortization as of March 31, 2011 and December 31, 2010 (in thousands):

			March 31, 2011
	Gross Costs		Accumulated Amortization			Net
Finite-lived intangibles:
Developed technology and patents	$	944,324	$	(216,030	)	$	728,294
Existing contracts and customer relationships		201,534		(20,477	)		181,057
Content databases and other		61,357		(17,659	)		43,698
Trademarks / Tradenames		31,800		(6,092	)		25,708
	$	1,239,015	$	(260,258	)	$	978,757

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	December 31, 2010
	Gross Costs		Accumulated Amortization			Net
Finite-lived intangibles:
Developed technology and patents	$	828,923	$	(197,540	)	$	631,383
Existing contracts and customer relationships		47,634		(15,737	)		31,897
Content databases and other		51,674		(15,849	)		35,825
Trademarks / Tradenames		8,300		(5,020	)		3,280
	$	936,531	$	(234,146	)	$	702,385

As of March 31, 2011, the Company estimates its amortization expense in future periods to be as follows (in thousands):

	Amortization       Expense
Remainder of 2011	$	102,998
2012		128,541
2013		110,431
2014		102,888
2015		94,827
Thereafter		439,072
Total amortization expense	$	978,757

NOTE 11 – RESTRUCTURING AND ASSET IMPAIRMENT CHARGES

Sonic Acquisition Restructuring Plan

In conjunction with the Sonic acquisition, management acted upon a plan to restructure certain Sonic operations resulting in severance of $1.5 million and $1.0 million in stock compensation expense due to the contractual acceleration of restricted stock and stock options. This restructuring was done in order to create cost efficiencies for the combined Company. As of March 31, 2011, $0.1 million of these costs remained unpaid.

NOTE 12 – EARNINGS PER SHARE (EPS)

ASC 260 defines unvested share-based payment awards that contain nonforfeitable rights to dividends as participating securities that should be included in computing EPS using the two-class method. The Company’s non-vested restricted stock awards granted prior to June 30, 2009, qualify as participating securities.

Basic net EPS is computed using the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period except for periods of operating loss for which no common share equivalents are included because their effect would be anti-dilutive. The calculation of earnings per common share and diluted earnings per common share is presented below.

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	Three Months Ended       March 31,
	2011			2010
Basic income (loss) per common share
Income from continuing operations	$	17,278		$	79,734
Income allocated to participating securities		(62	)		(481	)
Income allocated to common shareholders from continuing operations	$	17,216		$	79,253
Discontinued operations	$	(243	)	$	(11,639	)
Loss allocated to participating securities		1			70
Discontinued operations allocated to common shareholders	$	(242	)	$	(11,569	)
Net income	$	17,035		$	68,095
Income allocated to participating securities		(61	)		(411	)
Net income allocated to common shareholders	$	16,974		$	67,684
Weighted average basic common shares outstanding		108,339			102,560
Income per common share from continuing operations	$	0.16		$	0.77
Loss per common share from discontinued operations		0.00			(0.11	)
Net income per common share	$	0.16		$	0.66
Diluted income (loss) per common share
Income from continuing operations	$	17,278		$	79,734
Income allocated to participating securities		(58	)		(463	)
Income allocated to common shareholders from continuing operations	$	17,220		$	79,271
Discontinued operations	$	(243	)	$	(11,639	)
Loss allocated to participating securities		1			68
Discontinued operations allocated to common shareholders	$	(242	)	$	(11,571	)
Net income	$	17,035		$	68,095
Income allocated to participating securities		(57	)		(395	)
Net income allocated to common shareholders	$	16,978		$	67,700
Weighted average diluted common shares outstanding		108,339			102,560
Dilutive potential common shares		8,095			3,843
Weighted average diluted common shares outstanding		116,434			106,403
Income per common share from continuing operations	$	0.15		$	0.75
Loss per common share from discontinued operations		0.00			(0.11	)
Net income per common share	$	0.15		$	0.64

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The following weighted average potential common shares were excluded from the computation of diluted net earnings per share as their effect would have been anti-dilutive (in thousands):

	Three months ended March  31,
	2011		2010
Stock options		844		1,031
Restricted stock		15		-
Convertible notes (1)		-		9,713
Total weighted average potential common shares excluded from diluted net earnings per share		859		10,744

(1) See Note 5 for additional details.

NOTE 13 – INCOME TAXES

The Company recorded an income tax benefit from continuing operations for the three months ended March 31, 2011 of $14.4 million including a discrete benefit of $18.7 million, primarily from the reduction in its deferred tax asset valuation allowance resulting from of its acquisitions of Sonic and SideReel and the loss on its debt redemptions. The Sonic and SideReel acquisitions resulted in a net deferred tax liability recorded for the acquired amortizable intangible assets described in Note 3. These net deferred tax liabilities are a source of future taxable income which allows the Company to reduce its valuation allowance. The change in the Company’s pre-acquisition valuation allowance which resulted from the acquired net deferred tax liabilities is not regarded as a component of the acquisition accounting under ASC 805 and has been credited to income tax expense. The Company recorded an income tax benefit from continuing operations for the three months ended March 31, 2010 of $108.5 million, primarily as a result of entering into the closing agreement with the Internal Revenue Service described below regarding the character and amount of tax loss from the 2008 sale of its TV Guide Magazine business. Income tax expense is based upon an annual effective tax rate forecast including estimates and assumptions that could change during the year.

During the three months ended March 31, 2010, the Company entered into a closing agreement with the Internal Revenue Service through its Pre-Filing Agreement (PFA) program confirming that the Company recognized an ordinary tax loss of approximately $2.4 billion from the 2008 sale of its TV Guide Magazine business. To account for the PFA closing agreement, the Company (i) recorded a discrete tax benefit for the release of $576.9 million of reserves for uncertain tax positions previously netted against its deferred tax assets, (ii) reduced the deferred tax asset originally established in connection with the tax loss by $115 million to reflect the PFA closing agreement and (iii) established a valuation allowance of $347 million against its deferred tax assets as a result of determining that it is more likely than not that its deferred tax assets would not be realized.

At March 31, 2011, the Company reviewed the determination made at March 31, 2010, that it is more likely than not that its deferred tax assets will not be realized. While the Company believes that its fundamental business model is robust, there has not been a change from the March 31, 2010 determination that it is more likely than not that its deferred tax assets will not be realized and as such has maintained a valuation allowance against deferred tax assets at March 31, 2011.

The Company conducts business globally and, as a result, files U.S. federal, state and foreign income tax returns in various jurisdictions. In the normal course of business, the Company is subject to examination

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by taxing authorities throughout the world. With few exceptions, the Company is no longer subject to income tax examinations for years before 2007.

NOTE 14 – STOCK REPURCHASE PROGRAM

In December 2010, the Company’s Board of Directors authorized the repurchase of up to $400 million of the Company’s common stock. This $400 million authorization includes any amounts which were outstanding under previously authorized stock repurchase programs. During the three months ended March 31, 2011, the Company repurchased 1.2 million shares of common stock for $67.0 million and had $333.0 million remaining under its existing stock repurchase authorization. As of March 31, 2011, treasury stock consisted of 6.7 million shares of common stock that had been repurchased, with a cost basis of approximately $211.9 million.

NOTE 15 – COMPREHENSIVE INCOME (LOSS)

The components of comprehensive income (loss), net of taxes, are as follows (in thousands):

	Three Months Ended     March  31,
	2011			2010
Net income	$	17,035		$	68,095
Other comprehensive income (loss):
Unrealized income (losses) on investments		74			(52	)
Foreign currency translation adjustments		(138	)		(1,073	)
Comprehensive income	$	16,971		$	66,970

NOTE 16 – COMMITMENTS AND CONTINGENCIES

Indemnifications

In the normal course of business, the Company provides indemnification of varying scopes and amounts to certain of its licensees against claims made by third parties arising out of the use and/or incorporation of the Company’s products, intellectual property, services and/or technologies into the licensee’s products and services, provided the licensee is not in violation of the terms and conditions of the agreement and/or additional performance or other requirements for such indemnification. In some cases, the Company may receive tenders of defense and indemnity arising out of products that are no longer provided by the Company due to having divested certain assets, but which were previously licensed by the Company. The Company’s indemnification obligations are typically limited to the cumulative amount paid to the Company by the licensee under the license agreement, however some license agreements, including those with our largest multiple system operators and digital broadcast satellite providers, have larger limits or do not specify a limit on amounts that may be payable under the indemnity arrangements. The Company cannot estimate the possible range of losses that may affect the Company’s results of operations or cash flows in a given period or the maximum potential impact of these indemnification provisions on its future results of operations.

DirecTV, Inc. v. Finisar Corporation. In April 2005, Gemstar received a notice of a potential claim for indemnification from DirecTV Group, Inc. (“DirecTV”) as a result of a lawsuit filed by Finisar Corporation (“Finisar”) against DirecTV in the United States District Court for the Eastern District of Texas. Finisar alleged that several aspects of the DirecTV satellite transmission system, including aspects of its advanced electronic program guide (“EPG”) and the storage, scheduling, and transmission of data for the EPG, infringed a Finisar patent. On July 7, 2006, the Court awarded Finisar approximately $117 million. In addition, the Court ordered DirecTV to pay approximately $1.60 per activated set-top box in

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licensing fees going forward in lieu of an injunction until the expiration of Finisar’s patent in 2012. The parties both filed appeals to the Federal Circuit, which subsequently ruled that the trial court’s construction of certain terms of the patent was too broad, vacated the jury’s verdict of infringement, held that one of the seven patent claims at issue is invalid, and left standing the remaining six claims for reconsideration by the trial court. The appeals court also reversed the jury’s finding that DirecTV’s infringement was willful. The trial court subsequently ruled in DirecTV’s favor on its summary judgment motion that the remaining claims of the subject patent were invalid, and in January 2010 the court of appeals confirmed that ruling. The Company has not established a reserve with respect to this matter in its Consolidated Financial Statements.

Comcast Cable Communications Corp., LLC v. Finisar Corporation, in the United States District Court for the Northern District of California. In support of a potential claim for indemnification, Comcast Cable Communications Corp., LLC (“Comcast”) put the Company on notice that it had received communications from Finisar asserting infringement of U.S. Patent 5,404,505 (the “‘505 patent”). On July 7, 2006, Comcast filed a declaratory judgment action in the Northern District of California asking the Court to rule, among other things, that it does not infringe the ‘505 patent and/or that the patent is invalid. On May 15, 2008, Finisar entered into a covenant and stipulation with Comcast, filed with the California Court, that it would not assert any claim of the ‘505 patent against Comcast or certain related entities, other than claim 25. On July 11, 2008, the Court ruled on Comcast’s summary judgment motion, finding that claim 25 is invalid, and therefore finding that Comcast’s non-infringement motion is moot. Comcast has not taken any further action insofar as its potential indemnity claim against the Company is concerned.

Legal Proceedings

Thomson, Inc. v. Gemstar-TV Guide International, Inc., in the Superior Court of the State of Indiana for the County of Hamilton. On May 23, 2008, Thomson, Inc. (“Thomson”) initiated this action, seeking, among other things, indemnification from the Company in connection with its settlement of the patent claims against it in SuperGuide Corporation v. DirecTV Enterprises, Inc., et al., in the United States District Court for the Western District of North Carolina. The parties reached a confidential settlement in the matter and the Company paid all amounts due in March 2010.

DIRECTV, Inc. v. Gemstar-TV Guide Interactive, Inc., American Arbitration Association—Los Angeles. On March 20, 2009, DirecTV filed this arbitration demand seeking indemnity for payments made in settlement of two patent infringement lawsuits, including the SuperGuide Corporation v. DirecTV Enterprises, Inc., et al. matter. The Company received the arbitrators’ final ruling on the matter and paid the amount that the arbitrators awarded to DirecTV in the arbitration in March 2010.

John Burke v. TV Guide Magazine Group, Inc., Open Gate Capital, Rovi Corp., Gemstar-TV Guide International, Inc. On August 11, 2009, plaintiff filed a purported class action lawsuit claiming that the Company’s former subsidiary, TV Guide Magazine, breached agreements with its subscribers and violated consumer protection laws with its practice of counting double issues toward the number of issues in a subscription. On September 10, 2009, the Company filed an answer to the complaint along with a petition to remove the case to federal court. On December 18, 2009, the case was dismissed with prejudice, and plaintiff has filed an appeal of that dismissal.

Sonic Acquisition Litigation

Vassil Vassilev v. Sonic Solutions, et al., Matthew Barnes v. Habinger [sic] et al, Diana Willis v. Sonic Solutions, et al., Mark Chropufka v. Sonic Solutions, et al. and Joann Thompson v. Sonic Solutions, et al., filed in California Superior Court for the County of Marin. On January 3, 2011, a putative class action lawsuit entitled Vassil Vassilev v. Sonic Solutions, et al. was filed in California Superior Court for the County of Marin by an individual purporting to be a shareholder of Sonic Solutions against Sonic Solutions, the members of its board of directors, the Company and Sparta Acquisition Sub, arising out of the proposed transaction between Company and Sonic. On January 10, 14 and 18, 2011, three substantially similar putative class action lawsuits were filed in the same court against the same defendants, entitled Matthew

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Barnes v. Habinger [sic] et al., Mark Chropufka v. Sonic Solutions, et al. and Diana Willis v. Sonic Solutions, et al., respectively (the “Lawsuits”). The Lawsuits allege that the members of Sonic’s board of directors breached their fiduciary duties of care and loyalty by, inter alia, failing to maximize shareholder value and by approving the merger transaction via an unfair process. The Lawsuits allege that the Company and Sparta Acquisition Sub aided and abetted the breach of fiduciary duties. In January 2011, the above actions were consolidated and an amended consolidated complaint was filed adding allegations of omissions in the Schedule 14D-9 Recommendation Statement filed by Sonic on January 14, 2011 and seeking to enjoin the acquisition of Sonic by the Company, to rescind the transaction in the event it is consummated, to impose a constructive trust, and monetary damages, fees and costs in an unspecified amount.

On January 25, 2011, another substantially similar putative class action lawsuit was filed in the same court against the same defendants, entitled Joann Thompson v. Sonic Solutions, et al. On January 28, 2011, the parties to the consolidated action reached an agreement in principle to settle. The proposed settlement, which is subject to court approval following notice to the class and a hearing, disposes of all causes of action asserted in the consolidated action and in Thompson v. Sonic Solutions, et. al. on behalf of all class members who do not elect to opt out of the settlement. Class members who elect to opt out, if any, may continue to pursue causes of action against the defendants.

DivX Acquisition Litigation

In connection with Sonic’s acquisition of DivX prior to the acquisition of Sonic by the Company, two sets of shareholder class action lawsuits were filed against DivX, members of the DivX board of directors, Sonic, Siracusa Merger Corporation, and Siracusa Merger LLC, alleging breaches of fiduciary duty by the DivX board of directors in connection with the merger. The first set of lawsuits, captioned Gahlen v. DivX, Inc. et al. (Case No. 37-2010-00094693-CU-SL-CTL), and Pared v. DivX, Inc. et al. (Case No. 37-2010-00096242-CU-SL-CTL), were filed in Superior Court of the State of California, County of San Diego, and were consolidated as In re DivX, Inc. Shareholder Litigation (Case No. 37-2010-00094693-CU-SL-CTL). The second set of lawsuits, captioned Chropufka v. DivX, Inc. et al. (C.A. No. 5643-CC), and Willis v. DivX, Inc. et al. (C.A. No. 5647-CC), were filed in Delaware Chancery Court, and were consolidated as In re DivX, Inc. Shareholders Litigation (Consolidated C.A. No. 5463-CC). The lawsuits, brought by individual DivX stockholders purportedly on behalf of a class of DivX stockholders, sought, among other things, to enjoin defendants from completing the merger pursuant to the terms of the merger agreement. The parties executed a Stipulation of Settlement on December 29, 2010. On April 22, 2011, the Court granted final approval of the settlement.

In addition to the items listed above, the Company is party to various legal actions, claims and proceedings as well as other actions, claims and proceedings incidental to its business. The Company has established loss provisions only for matters in which losses are probable and can be reasonably estimated. Some of the matters pending against the Company involve potential compensatory, punitive or treble damage claims, or sanctions, that if granted, could require the Company to pay damages or make other expenditures in amounts that could have a material adverse effect on its financial position or results of operations. At this time, management has not reached a determination that the matters listed above or any other litigation, individually or in the aggregate, are expected to result in liabilities that will have a material adverse effect on our financial position or results of operations or cash flows.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following commentary should be read in conjunction with the financial statements and related notes contained in our Annual Report on Form 10-K for the year ended December 31, 2010 as filed with the SEC.

Overview

We have pursued a strategy, for over five years, to put ourselves into the center of the marketplace for both the way entertainment content is being delivered to consumers and the way in which consumers discover, acquire, manage and enjoy content on the variety of electronic devices owned today and being developed and introduced into the marketplace in the coming years. Over the course of those years, we saw the market with respect to those strategic imperatives shift from physical to digital distribution of content, and saw the transformation caused by the Internet accelerated by the adoption of connected devices other than PCs, for instance “connected” devices (such as televisions and Blu-ray players with built-in ability to connect to the Internet), tablets and smartphones. In the course of evaluating and pursuing this strategy, we identified the importance of metadata (in-depth data about entertainment content, artists and celebrities, including socially generated data) which led us to acquire metadata operations, as well as interactive program guide (“IPG”) technology, to help consumers discover content of interest. Additionally, we recognized that certain businesses, interested in building their own IPGs or other entertainment applications, require, in addition to a patent license, capabilities or services that we can provide. Therefore, we expanded our product offerings to include Web services called Rovi Cloud Services. We have focused on delivering an end-to-end solution that enables our customers and their consumers to create, discover, manage, acquire, share and enjoy digital entertainment. Additionally, through advertising within an IPG or other application on a connected device, we have created another revenue opportunity in which our customers can share. Our customers have primarily been other businesses who deal directly with consumers. Our offerings have included IPGs, IPG advertising, Web services (such as recommendations and search capability), media recognition technologies and licensing of our extensive database of descriptive information about television, movie, music, books, and game content and content protection technologies and services. In addition, our customers have licensed our patents in order to deploy their own IPG or a third party IPG.

On February 17, 2011, we acquired Sonic Solutions (“Sonic”) for approximately $763.1 million in cash and stock. We believe the Sonic acquisition not only enhances our offerings, but more importantly facilitates the next step forward in our strategy: to acquire capability to allow consumers, who have found content they are seeking using our guides, technologies and metadata, to enjoy that content in multiple environments from multiple sources on any device.

As a part of the Sonic acquisition, we acquired the DivX, RoxioNow and Roxio Consumer Software businesses, as well as Sonic’s MainConcept and professional products groups. DivX is focused on creating products and providing services that improve the way consumers experience media. DivX offers a high-quality video compression-decompression software library, or codec, to enable distribution of content across the Internet and through recordable media. DivX codecs and media players have been downloaded by consumers hundreds of millions of times. DivX also licenses similar technology to consumer electronics (“CE”) manufacturers and certifies their products to ensure the interoperable support of DivX encoded content. DivX receives a royalty and/or license fee for DivX certified devices shipped by its customers. DivX technology has been embedded in over 400 million CE devices in a broad range of categories including DVD players, Blu-ray players, Digital Televisions, mobile phones, tablets, gaming consoles and set-top boxes (“STB”). In addition to this licensing revenue, DivX also generates revenue from licensing upgraded versions of its free software on-line directly to consumers, referral fees and content distribution.

The RoxioNow business provides a “white-label” service to companies that want to distribute, either in a sale or rental model, premium entertainment content directly to consumers using the Internet for

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delivery. Customers include traditional retailers, CE manufacturers, and companies looking to provide over-the-top (OTT) video-on-demand (VOD) services to “connected” devices. We plan on utilizing RoxioNow to offer our Service Provider customers an IP VOD offering, initially supporting VOD to non STB devices. RoxioNow has historically provided its “white-label” service to companies distributing premium entertainment content in the United States. Subsequent to acquiring RoxioNow, we launched support for an OTT VOD provider in the Middle East and we plan on providing a “white-label” service in Canada and Europe later this year. Additionally, just prior to the close of the Sonic acquisition, Sonic acquired Nowtilus Online mbH (“Nowtilus”). Nowtilus provides “white-label” OTT VOD solutions to companies looking to provide premium entertainment content to connected devices in Germany.

The Roxio Consumer Software business provides software and services that enable consumers to easily create, manage, and share personal digital media content on and across a broad range of connected devices. The Roxio Consumer Software business offers products and services under a variety of names, including BackonTrack, Backup MyPC, CinePlayer, Crunch, Just!Burn, MyDVD, MyTV To Go, PhotoShow, PhotoSuite, Popcorn, RecordNow, Roxio Burn, Roxio Copy & Convert, Roxio Creator, Roxio Easy LP to MP3, Roxio Easy VHS to DVD, Toast, VideoWave, WinOnCD, and others. These products are sold in a number of different versions and languages. These products are distributed through various channels, including “bundling” arrangements with original equipment manufacturers “OEMs”, volume licensing programs, the Roxio web store, and third party web-based and “bricks and mortar” retail stores. The Company also markets the core technology that powers Roxio software products to other companies who wish to build their own PC software products.

The professional products group offers software under the Scenarist, CineVision, and DVDit product names to major motion picture studios, high-end authoring houses and other professional customers. MainConcept provides toolkits for video encoding and decoding supporting a wide range of standard formats including an H.264 codec solution and a wide range of other high-quality video codecs and technologies for the broadcast, film, consumer electronics and computer software markets.

Additionally, on February 28, 2011, we acquired SideReel, Inc. (“SideReel”) for approximately $35.5 million in cash. SideReel provides an advertising supported website to help consumers find, track and watch online popular network and cable TV shows, movies, and Web TV series. SideReel has over 10 million monthly unique visitors and 2.5 million registered users.

We group our revenue into the following categories – (i) service providers, (ii) CE manufacturers, and (iii) consumer software and other. We include in service provider revenues any revenue related to an IPG deployed by a service provider in a subscriber household whether the ultimate payment for that IPG comes from the service provider or from a manufacturer of a set-top box. Revenue related to an IPG deployed in a set-top box sold at retail is included in CE manufacturers. Service providers deploy such products and services of ours as Passport Echo, Passport DCT, Passport, i-Guide and the Rovi Cloud Services. We also include in service provider revenues ad revenue generated from our consumer websites such as AllRovi.com and SideReel.com. CE manufacturers deploy such products and services of ours as Connected Platform, TotalGuide, RoviGuide, the Rovi Cloud Services, DivX, G-GUIDE, VCR Plus+, LASSO, Tapestry and ACP. Consumer software and other includes our Roxio consumer software business, RoxioNow, MainConcept, Sonic Pro tools as well as our business of licensing our extensive database of descriptive information about television, movie, music and video game content and our entertainment company content protection products, technologies and services such as ACP, RipGuard, CopyBlock and BD+.

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Results of Operations

The following tables present our condensed consolidated statements of income for our continuing operations compared to the prior year (in thousands).

	Three Months Ended
	March 31,
	2011			2010			Change $			Change %
Revenues:
Service providers	$	72,843		$	67,399			5,444			8%
CE manufacturers		64,141			48,579			15,562			32%
Consumer software and other		24,471			13,392			11,079			83%
Total revenues		161,455			129,370			32,085			25%
Costs and expenses:
Cost of revenues		25,265			41,456			(16,191	)		-39%
Research and development		33,793			25,332			8,461			33%
Selling, general and administrative		46,245			34,060			12,185			36%
Depreciation		4,668			4,771			(103	)		-2%
Amortization of intangible assets		26,118			20,582			5,536			27%
Restructuring and asset impairment charges		2,493			-			2,493			NA
Total costs and expenses		138,582			126,201			12,381			10%
Operating income from continuing operations		22,873			3,169			19,704			622%
Interest expense		(12,986	)		(10,910	)		(2,076	)		19%
Interest income and other, net		1,984			(396	)		2,380			-601%
Gain (loss) on interest rate swaps and caps, net		85			(6,336	)		6,421			-101%
Loss on debt redemption		(9,070	)		(14,313	)		5,243			-37%
Income (loss) from continuing operations before taxes		2,886			(28,786	)		31,672			-110%
Income tax benefit		(14,392	)		(108,520	)		94,128			-87%
Income from continuing operations, net of tax		17,278			79,734			(62,456	)		-78%
Loss from discontinued operations, net of tax		(243	)		(11,639	)		11,396			-98%
Net income	$	17,035		$	68,095			(51,060	)		-75%

Service Providers Revenue

For the three months ended March 31, 2011, revenue from service providers increased by 8%, compared to the same period in the prior year. This increase was primarily due to a $4.9 million increase in IPG product revenues. IPG product revenues benefited from continued domestic digital subscriber growth and rate increases on renewed agreements. We expect revenue from licensing our IPG products and patents to continue to grow in the future from increased international licensing, from increased licensing to our existing customers to broaden their licenses into the Online and Mobile fields of use, and from continued digital subscriber growth.

CE Manufacturers Revenue

For the three months ended March 31, 2011, revenue from the sale of our products and licensing of our patents to CE manufacturers increased by 32% compared to the same period in the prior year. Driving the increase were $9.6 million in revenue from the addition of DivX products, acquired in the Sonic acquisition, and a $6.8 million increase in legacy Rovi product revenues, due in part to increased digital TV shipments in the fourth quarter of 2010 by our licensees in Japan. Going forward, we anticipate increases in

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sales of our digital products, as well as licensing of our patents to CE manufacturers, to be significantly offset by declines in our revenue from analog products.

Consumer Software and Other Revenue

Consumer Software and Other Revenue increased primarily due to Roxio and other products acquired in the Sonic acquisition contributing $11.2 million in revenue. The Company’s content protection and entertainment metadata revenue were flat as compared to the same period in the prior year.

Cost of Revenues

For the three months ended March 31, 2011, cost of revenues decreased from the same period in the prior year primarily due to the prior year including $24.5 million in costs associated with indemnification and other claims in excess of reserves established in purchase accounting in conjunction with the Gemstar-TV Guide International (“Gemstar”) acquisition. These primarily related to the resolution of the DirecTV and Thomson matters (see Note 16 to the Condensed Consolidated Financial Statements). This decrease was partially offset by $5.7 million in additional costs related to the acquired Sonic operations and an increase in patent litigation costs.

Research and Development

For the three months ended March 31, 2011, research and development expenses increased from the same period in the prior year primarily due to $7.2 million in costs related to the acquired Sonic operations and an increase in stock compensation expense.

Selling, General and Administrative

For the three months ended March 31, 2011, selling, general and administrative expenses increased from the same period in the prior year primarily due to $8.2 million in costs related to the operations of Sonic, a $1.7 million increase in stock compensation expense and costs related to the Sonic transaction and integration activities.

Amortization of Intangible Assets

For the three months ended March 31, 2011, amortization of intangible assets increased from the same period in the prior year primarily due to amortization related to the intangible assets acquired in the Sonic and SideReel acquisitions.

Restructuring and Asset Impairment Charges

In conjunction with the Sonic acquisition, management acted upon a plan to restructure certain Sonic operations resulting in severance of $1.5 million and $1.0 million in stock compensation expense due to the contractual acceleration of restricted stock and stock options. This restructuring was done in order to create cost efficiencies for the combined Company.

Interest Expense

For the three months ended March 31, 2011, interest expense increased compared to the same period in the prior year due to an increase in average debt outstanding. On February 7, 2011, two of the Company’s subsidiaries jointly borrowed $750 million under a senior secured credit facility consisting of a 5-year $450 million term loan (“Term Loan A”) and a 7-year $300 million term loan (“Term Loan B”) (See Note 5 to the Condensed Consolidated Financial Statements).

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Interest Income and Other, Net

Interest income and other, net, was income of $2.0 million for the three months ended March 31, 2011, versus expense of $0.4 million for the three months ended March 31, 2010. The change is primarily due to the prior year including a $1.4 million loss from the sale of the Guideworks LLC joint venture. Also contributing to the change is an increase in interest income of $0.3 million and the current period including $0.3 million in foreign exchange gains while the same period in the prior year included $0.2 million in foreign exchange losses.

Gain on interest rate swaps and caps, net

We have not designated any of our interest rate swaps and caps as hedges and therefore record the changes in fair value of these instruments in our condensed consolidated statements of income. As we have entered into offsetting swaps we do not expect to have significant gains or losses on a prospective basis (see Note 7 to the Condensed Consolidated Financial Statements).

Loss on Debt Redemption

During the three months ended March 31, 2011, we repurchased $93.8 million in par value of our 2040 Convertible Notes for $127.5 million and recorded a $6.2 million loss on debt redemption. In addition we repurchased $88.1 million in par value of our 2011 Convertible Notes for $188.3 million and recorded a $2.9 million loss on debt redemption. These losses on debt redemption represent the difference between the carrying value of the convertible notes retired and the amount allocated to the liability component of the notes and the write-off of the related note issuance costs (see Note 5 to the Condensed Consolidated Financial Statements).

During the three months ended March 31, 2010, we spent $207.2 million to pay-off and retire our term loan. We realized a $12.5 million loss on redemption, primarily due to writing off the remaining note issuance costs. In addition, we repurchased $40.9 million in par value of our 2011 Convertible Notes for $56.4 million and recorded a $1.8 million loss on debt redemption which represents the difference between the carrying value of the 2011 Convertible Notes retired and the amount allocated to the liability component of the notes and the write-off of the related note issuance costs.

Income Taxes

We recorded an income tax benefit from continuing operations for the three months ended March 31, 2011, of $14.4 million including a discrete benefit of $18.7 million, primarily from the reduction in our deferred tax asset valuation allowance resulting from our acquisitions of Sonic and SideReel and the loss on debt redemptions. The Sonic and SideReel acquisitions resulted in a net deferred tax liability recorded for the acquired amortizable intangible assets described in Note 3 to the Condensed Consolidated Financial Statements. These net deferred tax liabilities are a source of future taxable income which allows us to reduce our valuation allowance. The change in our pre-acquisition valuation allowance which resulted from the acquired net deferred tax liabilities is not regarded as a component of the acquisition accounting and has been credited to income tax expense. We recorded an income tax benefit from continuing operations for the three months ended March 31, 2010, of $108.5 million, primarily as a result of entering into the closing agreement with the Internal Revenue Service described below regarding the character and amount of tax loss from the 2008 sale of our TV Guide Magazine business. Income tax expense is based upon an annual effective tax rate forecast including estimates and assumptions that could change during the year.

During the three months ended March 31, 2010, we entered into a closing agreement with the Internal Revenue Service through its Pre-Filing Agreement (PFA) program confirming that we recognized an

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ordinary tax loss of approximately $2.4 billion from the 2008 sale of our TV Guide Magazine business. To account for the PFA closing agreement, we (i) recorded a discrete tax benefit for the release of $576.9 million of reserves for uncertain tax positions previously netted against its deferred tax assets, (ii) reduced the deferred tax asset originally established in connection with the tax loss by $115 million to reflect the PFA closing agreement and (iii) established a valuation allowance of $347 million against our deferred tax assets as a result of determining that it is more likely than not that our deferred tax assets would not be realized.

At March 31, 2011, we reviewed the determination made at March 31, 2010, that it is more likely than not that our deferred tax assets will not be realized. While we believe that our fundamental business model is robust, there has not been a change from the March 31, 2010 determination that it is more likely than not that our deferred tax assets will not be realized and as such we have maintained a valuation allowance against deferred tax assets at March 31, 2011.

Discontinued Operations

Discontinued operations for the three months ended March 31, 2011, includes expenses we recorded for indemnification claims related to the Software business which was disposed of in 2008 (see Note 4 to the Condensed Consolidated Financial Statements).

Discontinued operations for the three months ended March 31, 2010, includes expenses and reserves we recorded for indemnification claims related to the Software business which was disposed of in 2008 (see Note 4 to the Condensed Consolidated Financial Statements) and the results of our Norpak subsidiary which was disposed of in September 2010.

Costs and Expenses

Cost of revenues consists primarily of service costs, patent prosecution, patent maintenance and patent litigation costs. Research and development expenses are comprised primarily of employee compensation and benefits and consulting costs. Selling and marketing expenses are comprised primarily of employee compensation and benefits, travel, advertising and an allocation of overhead and facilities costs. General and administrative expenses are comprised primarily of employee compensation and benefits, travel, accounting, tax and corporate legal fees and an allocation of overhead and facilities costs.

Critical Accounting Policies and Use of Estimates

The discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements. These Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, allowance for doubtful accounts, equity-based compensation, goodwill and intangible assets, impairment of long-lived assets and income taxes. Our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

As a part of the Sonic acquisition, we acquired certain products and services which we had not previously offered. We have updated our revenue recognition policy to reflect our accounting for these Sonic products and services. There have been no other material changes to our significant accounting policies, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

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Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, we have delivered the product or performed the service, the fee is fixed or determinable and collectability is reasonable assured. However, determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue we report. For example, for multiple element arrangements, we must: (1) determine whether and when each element has been delivered and whether the delivered element has stand-alone value to the customer (2) determine the fair value of each element using the selling price hierarchy of vendor specific objective evidence “VSOE”, third party evidence “TPE” or estimated selling price “ESP”, as applicable; and (3) allocate the total consideration among the various elements based on the relative selling price method.

We account for cash consideration (such as sales incentives) given to our customers or resellers as a reduction of revenue, rather than as an operating expense unless we receive a benefit that is separate from the customer’s purchase and for which we can reasonably estimate the fair value of the benefit.

Amounts for fees collected or invoiced and due relating to arrangements where revenue cannot be recognized are reflected on our balance sheet as deferred revenue and recognized when the applicable revenue recognition criteria are satisfied.

CE and Service Provider Licensing

We license our proprietary IPG technology, codec technology and ACP technology to CE manufacturers, integrated circuit makers, service providers and others. We generally recognize revenue from licensing our technology on a per-unit shipped model with CE manufacturers or a per-subscriber model with service providers. Our recognition of revenues from per-unit license fees is based on units reported shipped by the manufacturer. CE manufacturers normally report their unit shipments to us in the quarter immediately following that of actual shipment by the licensee. We have established significant experience and relationships with certain ACP technology licensing customers to reasonably estimate current period volume for purposes of making an accurate revenue accrual. Accordingly, revenue from these customers is recognized in the period the customer ships the units. Revenues from per-subscriber fees are recognized in the period the services are provided by a licensee, as reported to us by the licensee. Revenues from annual or other license fees are recognized based on the specific terms of the license arrangement. For instance, certain IPG licensees enter into agreements for which they have the right to ship an unlimited number of units over a specified term for a flat fee. We record the fees associated with these arrangements on a straight-line basis over the specified term. We often enter into IPG patent license agreements in which we provide a licensee a release for past infringement as well as the right to ship an unlimited number of units over a future period for a flat fee. In this type of arrangement, we generally would use ESP to allocate the consideration between the release for past infringement and the go-forward patent license. As the revenue recognition criteria for the past infringement would generally be satisfied upon the execution of the agreement, the amount of consideration allocated to the past infringement would be recognized in the quarter the agreement is executed and the amount allocated to the go forward license agreement would be recognized ratably over the term. In addition, we also enter into agreements in which the licensee pays us a one-time fee for a perpetual license to our ACP technology. Provided that collectability is reasonably assured, we record revenue related to these agreements when the agreement is executed as we have no continuing obligation and the amounts are fixed and determinable.

We also generate advertising revenue through our IPGs. Advertising revenue is recognized when the related advertisement is provided. All advertising revenue is recorded net of agency commissions and revenue shares with service providers and CE manufacturers.

Roxio Consumer Software Products

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Except in the case of consignment arrangements, we recognize revenue from the sale of packaged software products when title transfers to the distributor or retailer. When we sell packaged software products to distributors and retailers on a consignment basis, we recognize revenue upon sell-through to an end customer.

Our distributor arrangements often provide distributors with certain product rotation rights. We estimate returns based on our historical return experience and other factors such as channel inventory levels and the introduction of new products. These allowances are recorded as a reduction of revenues and as an offset to accounts receivable to the extent we have legal right of offset, otherwise they are recorded in accrued expenses and other current liabilities. If future returns patterns differ from past returns patterns, for example due to reduced demand for our products, we may be required to increase these allowances in the future and may be required to reduce future revenues.

We also license our software to OEMs who include it with the PCs they sell. We generally receive a per-unit royalty and recognize this revenue upon receipt of the customer royalty report.

RoxioNow Entertainment Delivery Solution

We recognize service fees we receive from retailers and others for operating their storefronts on a straight-line basis over the period we are providing services. We recognize transaction revenue from the sale or rental of individual content titles in the period when the content is purchased and delivered. Transaction revenue is recorded on a gross basis when we are the primary obligor and is recorded net of payments to content owners and others when we are not the primary obligor. We are generally the primary obligor when we are the merchant of record.

Liquidity and Capital Resources

We finance our operations primarily from cash generated by operations. Our continuing operating activities provided net cash of $48.6 million in the three months ended March 31, 2011, versus using cash of $18.1 million in the three months ended March 31, 2010. Cash from operating activities increased from the prior period primarily due to increased sales compared to the same period in the prior year and the prior period including the payment of costs associated with indemnification and other claims related to the resolution of the DirecTV and Thomson matters (see Note 16 to the Condensed Consolidated Financial Statements). The availability of cash generated by our operations in the future could be affected by other business risks including, but not limited to, those factors set forth under the caption “Risk Factors” contained in this Form 10-Q.

Net cash used in investing activities from continuing operations increased to $341.8 million for the three months ended March 31, 2011, from $7.3 million in the same period in the prior year. The three months ended March 31, 2011, included using $419.2 million (net of cash acquired) to acquire Sonic and SideReel partially offset by $80.9 million in net marketable securities sales. Included in 2010 investing activities was $5.7 million used to acquire MediaUnbound, Inc. We anticipate that capital expenditures to support the growth of our business and strengthen our operations infrastructure will be between $20 million and $25 million for the full year in 2011.

Net cash provided by financing activities from continuing operations increased to $374.0 million for the three months ended March 31, 2011, from $104.4 million in the same period in the prior year. During the three months ended March 31, 2011, we entered into a $750 million ($733.2 million, net of discounts and issuance costs) senior secured credit facility, repurchased $93.8 million in par value of our 2040 Convertible Notes for $127.5 million, repurchased $88.1 million in par value of our 2011 Convertible Notes for $188.3 million and repurchased $67.0 million of our common stock. During the three months ended March 31, 2010, we issued $460.0 million in convertible debt ($446.5 million, net of issuance costs)

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and paid $207.2 million to pay-off and retire the 2008 term loan. In addition, we repurchased $40.9 million in par value of our 2011 Convertible Notes for $56.4 million and repurchased $100.0 million of our common stock.

As discussed in Note 5 of the Condensed Consolidated Financial Statements, in March 2010, we issued $460.0 million in 2.625% convertible senior notes (the “2040 Convertible Notes”) due in 2040 at par. The 2040 Convertible Notes may be converted, under certain circumstances, based on an initial conversion rate of 21.1149 shares of common stock per $1,000 principal amount of notes (which represents an initial conversion price of approximately $47.36 per share). As of March 31, 2011, $366.2 million par value of the 2040 Convertible Notes remain outstanding.

Prior to November 15, 2039, holders may convert their 2040 Convertible Notes into cash and our common stock, at the applicable conversion rate, under any of the following circumstances: (i) during any fiscal quarter after the calendar quarter ending June 30, 2010, if the last reported sale price of our common stock for at least 20 trading days during the 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the applicable conversion price in effect on each applicable trading day; (ii) during the five business-day period after any ten consecutive trading-day period (the “measurement period”) in which the trading price per note for each day of such measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such day; (iii) upon the occurrence of specified corporate transactions, as described in the indenture, or (iv) if we call any or all of the notes for redemption, at any time prior to the close of business on the third scheduled trading day prior to that redemption date. From November 15, 2039 until the close of business on the scheduled trading day immediately preceding the maturity date of February 15, 2040, holders may convert their 2040 Convertible Notes into cash and shares of our common stock, if any, at the applicable conversion rate, at any time, regardless of the foregoing circumstances. On or after February 20, 2015, we have the right to call for redemption all, or a portion, of the 2040 Convertible Notes at 100% of the principal amount of notes to be redeemed, plus accrued interest to, but excluding, the redemption date. Holders have the right to require us to repurchase the 2040 Convertible Notes on February 20, 2015, 2020, 2025, 2030 and 2035 for cash equal to 100% of the principal amount of the notes to be repurchased, plus accrued interest to, but excluding, the repurchase date.

Upon conversion, a holder will receive the conversion value of the 2040 Convertible Notes converted based on the conversion rate multiplied by the volume weighted average price of our common stock over a specified observation period following the conversion date. The conversion value of each 2040 Convertible Note will be paid in cash up to the aggregate principal amount of the 2040 Convertible Notes to be converted and shares of common stock to the extent the conversion value exceeds the principal amount of the converted note. Upon the occurrence of a fundamental change (as defined in the indenture), the holders may require us to repurchase for cash all or a portion of their 2040 Convertible Notes at a price equal to 100% of the principal amount of the 2040 Convertible Notes being repurchased plus accrued interest, if any. In addition, following certain corporate events that occur prior to February 20, 2015, the conversion rate will be increased for holders who elect to convert their notes in connection with such a corporate event in certain circumstances.

In August 2006, our wholly-owned subsidiary, Rovi Solutions, issued the 2011 Convertible Notes which may be converted, under certain circumstances described below, based on an initial conversion rate of 35.3571 shares of common stock per $1,000 principal amount of notes (which represents an initial conversion price of approximately $28.28 per share). As of March 31, 2011, $46.6 million par value of the 2011 Convertible Notes remain outstanding.

Prior to June 15, 2011, holders may convert their 2011 Convertible Notes into cash and our common stock, at the applicable conversion rate, under any of the following circumstances: (i) during any fiscal quarter after the calendar quarter ending September 30, 2006, if the last reported sale price of our common stock for at least 20 trading days during the 30 consecutive trading days ending on the last trading

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day of the immediately preceding calendar quarter is greater than or equal to 120% of the applicable conversion price in effect on the last trading day of the immediately preceding fiscal quarter; (ii) during the five business-day period after any ten consecutive trading-day period (the “measurement period”) in which the trading price per note for each day of such measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such day; or (iii) upon the occurrence of specified corporate transactions, as defined in the indenture. From June 15, 2011, until the close of business on the scheduled trading day immediately preceding the maturity date of August 15, 2011, holders may convert their 2011 Convertible Notes into cash and shares of our common stock, if any, at the applicable conversion rate, at any time, regardless of the foregoing circumstances. The common stock sales price condition discussed in (i) above has been met and therefore the 2011 Convertible Notes are currently eligible for conversion.

Upon conversion, a holder will receive the conversion value of the 2011 Convertible Notes converted equal to the conversion rate multiplied by the volume weighted average price of our common stock during a specified period following the conversion date. The conversion value of each 2011 Convertible Note will be paid in: (i) cash equal to the lesser of the principal amount of the 2011 Convertible Note or the conversion value, as defined, and (ii) to the extent the conversion value exceeds the principal amount of the 2011 Convertible Note, a combination of common stock and cash. In addition, upon a fundamental change (as defined in the indenture) at any time, the holders may require us to repurchase for cash all or a portion of their 2011 Convertible Notes at a price equal to 100% of the principal amount of the 2011 Convertible Notes being repurchased plus accrued interest, if any.

In December 2010, our Board of Directors authorized the repurchase of up to $400.0 million of our common stock. This $400.0 million authorization includes any amounts which were outstanding under previously authorized stock repurchase programs. During the three months ended March 31, 2011, we repurchased 1.2 million shares of our common stock for $67.0 million and had $333.0 million remaining under our existing stock repurchase authorization. In December 2010, our Board of Directors authorized the repurchase of up to $200.0 million of our convertible notes. In February 2011, our Board of Directors replaced the December authorization with a new repurchase authorization of up to $300 million of debt outstanding. During the three months ended March 31, 2011, prior to the February 2011 authorization, we spent $113.9 million repurchasing our convertible notes under the December 2010 authorization. During the three months ended March 31, 2011, $201.9 million were repurchased under the February 2011 authorization. As of March 31, 2011, we had $98.1 million remaining under the existing February 2011 repurchase authorization. In May 2011, our Board of Directors authorized the repurchase of up to $300.0 million of debt outstanding. This authorization includes any amounts which were outstanding under previously authorized debt repurchase programs.

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On February 7, 2011, two of our subsidiaries, Rovi Solutions Corporation and Rovi Guides Inc., jointly borrowed $750 million under a senior secured credit facility consisting of a 5-year $450 million term loan (“Term Loan A”) and a 7-year $300 million term loan (“Term Loan B”). Both term loans are guaranteed by us and certain of our domestic and foreign subsidiaries and are secured by substantially all of our assets. Term Loan A requires annual amortization payments and matures on February 7, 2016 and the Term Loan B requires quarterly amortization payments and matures on February 7, 2018. Term Loan A bears interest, at our election, at either prime rate plus 1.5% per annum or 3 month LIBOR plus 2.5% per annum and was issued at a discount of $2.8 million discount to par value. Term Loan B bears interest, at our election, at either prime plus 2.0% per annum or 3 month LIBOR plus 3.0% per annum, with a LIBOR floor of 1.0% and was issued at a $0.8 million discount to par value. The senior secured credit facility includes financial performance covenants (a maximum total leverage ratio and a minimum interest coverage ratio), provisions for optional and mandatory repayments (an annual excess cash flow payment and payments due upon sale of assets, among others), restrictions on the issuance of new indebtedness, restrictions on certain payments (repurchases of Company stock and dividends payments, among others) and other representations, warranties and covenants which are customary for a secured credit facility. As of March 31, 2011, the Term Loan A and Term Loan B balances were $447.3 million and $299.3 million, net of discount, respectively.

As of March 31, 2011, we had $280.4 million in cash and cash equivalents, $276.1 million in short-term investments and $142.1 million in long-term marketable securities.

We believe that our current cash, cash equivalents and marketable securities and our annual cash flow from operations will be sufficient to meet our working capital, capital expenditure and debt requirements for the foreseeable future.

Impact of Recently Issued Accounting Standards

None.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to financial market risks, including changes in interest rates, foreign currency exchange rates and security investments. Changes in these factors may cause fluctuations in our earnings and cash flows. We evaluate and manage the exposure to these market risks as follows:

Fixed Income Investments: We have an investment portfolio of money market funds and fixed income securities, including those classified as cash equivalents, short-term investments and long-term marketable investment securities of $640.2 million as of March 31, 2011. Most of these securities are subject to interest rate fluctuations. An increase in interest rates could adversely affect the market value of our fixed income securities while a decrease in interest rates could adversely affect the amount of interest income we receive.

Our investment portfolio consists principally of money market mutual funds, U.S. Treasury and agency securities, corporate bonds, commercial paper and auction rate securities. We regularly monitor the credit risk in our investment portfolio and take appropriate measures to manage such risks prudently in accordance with our investment policies.

As a result of adverse conditions in the financial markets, auction rate securities may present risks arising from liquidity and/or credit concerns. At March 31, 2011, the fair value of our auction rate securities portfolio totaled approximately $17.7 million. Our auction rate securities portfolio is comprised solely of AAA rated federally insured student loans, municipal and educational authority bonds. The auction rate securities we hold have failed to trade for over one year due to insufficient bids from buyers. This limits the short-term liquidity of these securities.

We limit our exposure to interest rate and credit risk, by establishing and strictly monitoring clear policies and guidelines for our fixed income portfolios. The primary objective of these policies is to preserve principal while at the same time maximizing yields, without significantly increasing risk. A hypothetical 50 basis point increase in interest rates would result in a $1.3 million decrease in the fair value of our fixed income available-for-sale securities as of March 31, 2011.

While we cannot predict future market conditions or market liquidity, we believe that our investment policies provide an appropriate means to manage the risks in our investment portfolio.

Foreign Currency Exchange Rates. Due to our reliance on international and export sales, we are subject to the risks of fluctuations in currency exchange rates. Because a substantial majority of our international and export revenues, as well as expenses, are typically denominated in U.S. dollars, fluctuations in currency exchange rates could cause our products to become relatively more expensive to customers in a particular country, leading to a reduction in sales or profitability in that country. Many of our subsidiaries operate in their local currency, which mitigates a portion of the exposure related to the respective currency collected.

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Indebtedness. We have two convertible notes outstanding, our 2040 Convertible Notes with a par value of $366.2 million and the 2011 Convertible Notes with a par value of $46.6 million. In February 2011 two of our subsidiaries jointly borrowed $750 million under a senior secured credit facility. Our borrowings under our senior secured credit facility are, and are expected to continue to be, at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same. The terms of these debt instruments are more fully described in Note 5 to the Condensed Consolidated Financial Statements.

Interest Rate Swaps and Caps. In March 2010, in connection with the issuance of the 2040 Convertible Notes, we entered into interest rate swaps with a notional amount of $460.0 million under which we pay a weighted average floating rate of 6 month USD – LIBOR minus 0.342%, set in arrears, and receive a fixed rate of 2.625%. These swaps expire in February 2015. In addition, we also entered into interest rate swaps with a notional amount of $185.0 million under which we pay a weighted average floating rate of 6 month USD – LIBOR plus 1.241%, set in arrears, and receive a fixed rate of 2.625%. These swaps expire in August 2011. In November 2010, we entered into additional swaps with a notional amount of $460.0 million under which we pay a fixed rate which gradually increases from 0.203% for the six month settlement period ending in February 2011, to 2.619% for the six month settlement period ending in August 2015 and receive a floating rate of 6 month USD – LIBOR minus 0.342%, set in arrears. These swaps expire in August 2015. In November 2010, we also entered into additional swaps with a notional amount of $185.0 million under which we pay a fixed rate which increases from 1.783% for the settlement period ending in February 2011, to 1.875% for the six month settlement period ending in August 2011 and receive a floating rate of 6 month USD – LIBOR plus 1.241%, set in arrears. These swaps expire in August 2011.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). In evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting. There has been no change in the Company’s internal controls over financial reporting during the quarter ended March 31, 2011, that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting, except for the potential impact from reporting the Sonic acquisition (See Note 3 to the Condensed Consolidated Financial Statements). We are currently in the process of assessing and integrating Sonic’s internal controls over financial reporting into our financial reporting systems and expect to complete our integration activities over the next three to nine months. Prior to being acquired by us, Sonic was a public company. In conjunction with Sonic’s Form 10-K for the year ended March 31, 2010, Sonic’s management reported in its assessment that as of March 31, 2010, Sonic maintained effective internal controls over financial reporting, based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. In addition, Sonic’s independent registered public accounting firm issued an opinion that Sonic maintained, in all material respects, effective internal control over financial reporting as of March 31, 2010, based on the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in legal proceedings related to intellectual property rights and other matters. The following legal proceedings include those of the Company and its subsidiaries.

Indemnifications

DirecTV, Inc. v. Finisar Corporation. In April 2005, Gemstar received a notice of a potential claim for indemnification from DirecTV Group, Inc. (“DirecTV”) as a result of a lawsuit filed by Finisar Corporation (“Finisar”) against DirecTV in the United States District Court for the Eastern District of Texas. Finisar alleged that several aspects of the DirecTV satellite transmission system, including aspects of its advanced electronic program guide (“EPG”) and the storage, scheduling, and transmission of data for the EPG, infringed a Finisar patent. On July 7, 2006, the Court awarded Finisar approximately $117 million. In addition, the Court ordered DirecTV to pay approximately $1.60 per activated set-top box in licensing fees going forward in lieu of an injunction until the expiration of Finisar’s patent in 2012. The parties both filed appeals to the Federal Circuit, which subsequently ruled that the trial court’s construction of certain terms of the patent was too broad, vacated the jury’s verdict of infringement, held that one of the seven patent claims at issue is invalid, and left standing the remaining six claims for reconsideration by the trial court. The appeals court also reversed the jury’s finding that DirecTV’s infringement was willful. The trial court subsequently ruled in DirecTV’s favor on its summary judgment motion that the remaining claims of the subject patent were invalid, and in January 2010 the court of appeals confirmed that ruling. The Company has not established a reserve with respect to this matter in its consolidated financial statements.

Comcast Cable Communications Corp., LLC v. Finisar Corporation, in the United States District Court for the Northern District of California. In support of a potential claim for indemnification, Comcast Cable Communications Corp., LLC (“Comcast”) put the Company on notice that it had received communications from Finisar asserting infringement of U.S. Patent 5,404,505 (the “‘505 patent”). On July 7, 2006, Comcast filed a declaratory judgment action in the Northern District of California asking the Court to rule, among other things, that it does not infringe the ‘505 patent and/or that the patent is invalid. On May 15, 2008, Finisar entered into a covenant and stipulation with Comcast, filed with the California Court, that it would not assert any claim of the ‘505 patent against Comcast or certain related entities, other than claim 25. On July 11, 2008, the Court ruled on Comcast’s summary judgment motion, finding that claim 25 is invalid, and therefore finding that Comcast’s non-infringement motion is moot. Comcast has not taken any further action insofar as its potential indemnity claim against the Company is concerned.

Litigation

John Burke v. TV Guide Magazine Group, Inc., Open Gate Capital, Rovi Corp., Gemstar—TV Guide International, Inc. On August 11, 2009, plaintiff filed a purported class action lawsuit claiming that the Company’s former subsidiary, TV Guide Magazine, breached agreements with its subscribers and violated consumer protection laws with its practice of counting double issues toward the number of issues in a subscription. On September 10, 2009, the Company filed an answer to the complaint along with a petition to remove the case to federal court. On December 18, 2009, the case was dismissed with prejudice, and plaintiff has filed an appeal of that dismissal.

Sonic Acquisition Litigation

Vassil Vassilev v. Sonic Solutions, et al., Matthew Barnes v. Habinger [sic] et al, Diana Willis v. Sonic Solutions, et al., Mark Chropufka v. Sonic Solutions, et al. and Joann Thompson v. Sonic Solutions, et al., filed in California Superior Court for the County of Marin. On January 3, 2011, a putative class action lawsuit entitled Vassil Vassilev v. Sonic Solutions, et al. was filed in California Superior Court for the

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County of Marin by an individual purporting to be a shareholder of Sonic Solutions against Sonic Solutions, the members of its board of directors, the Company and Sparta Acquisition Sub, arising out of the proposed transaction between Company and Sonic. On January 10, 14 and 18, 2011, three substantially similar putative class action lawsuits were filed in the same court against the same defendants, entitled Matthew Barnes v. Habinger [sic] et al., Mark Chropufka v. Sonic Solutions, et al. and Diana Willis v. Sonic Solutions, et al., respectively (the “Lawsuits”). The Lawsuits allege that the members of Sonic’s board of directors breached their fiduciary duties of care and loyalty by, inter alia, failing to maximize shareholder value and by approving the merger transaction via an unfair process. The Lawsuits allege that the Company and Sparta Acquisition Sub aided and abetted the breach of fiduciary duties. In January 2011, the above actions were consolidated and an amended consolidated complaint was filed adding allegations of omissions in the Schedule 14D-9 Recommendation Statement filed by Sonic on January 14, 2011 and seeking to enjoin the acquisition of Sonic by the Company, to rescind the transaction in the event it is consummated, to impose a constructive trust, and monetary damages, fees and costs in an unspecified amount.

On January 25, 2011, another substantially similar putative class action lawsuit was filed in the same court against the same defendants, entitled Joann Thompson v. Sonic Solutions, et al. On January 28, 2011, the parties to the consolidated action reached an agreement in principle to settle. The proposed settlement, which is subject to court approval following notice to the class and a hearing, disposes of all causes of action asserted in the consolidated action and in Thompson v. Sonic Solutions, et. al. on behalf of all class members who do not elect to opt out of the settlement. Class members who elect to opt out, if any, may continue to pursue causes of action against the defendants.

DivX Acquisition Litigation

In connection with Sonic’s acquisition of DivX prior to the acquisition of Sonic by the Company, two sets of shareholder class action lawsuits were filed against DivX, members of the DivX board of directors, Sonic, Siracusa Merger Corporation, and Siracusa Merger LLC, alleging breaches of fiduciary duty by the DivX board of directors in connection with the merger. The first set of lawsuits, captioned Gahlen v. DivX, Inc. et al. (Case No. 37-2010-00094693-CU-SL-CTL), and Pared v. DivX, Inc. et al. (Case No. 37-2010-00096242-CU-SL-CTL), were filed in Superior Court of the State of California, County of San Diego, and were consolidated as In re DivX, Inc. Shareholder Litigation (Case No. 37-2010-00094693-CU-SL-CTL). The second set of lawsuits, captioned Chropufka v. DivX, Inc. et al. (C.A. No. 5643-CC), and Willis v. DivX, Inc. et al. (C.A. No. 5647-CC), were filed in Delaware Chancery Court, and were consolidated as In re DivX, Inc. Shareholders Litigation (Consolidated C.A. No. 5463-CC). The lawsuits, brought by individual DivX stockholders purportedly on behalf of a class of DivX stockholders, sought, among other things, to enjoin defendants from completing the merger pursuant to the terms of the merger agreement. The parties executed a Stipulation of Settlement on December 29, 2010. On April 22, 2011, the Court granted final approval of the settlement.

In addition to the items listed above, the Company is party to various legal actions, claims and proceedings as well as other actions, claims and proceedings incidental to its business. The Company has established loss provisions only for matters in which losses are probable and can be reasonably estimated. Some of the matters pending against the Company involve potential compensatory, punitive or treble damage claims, or sanctions, that if granted, could require the Company to pay damages or make other expenditures in amounts that could have a material adverse effect on its financial position or results of operations. At this time, management has not reached a determination that the matters listed above or any other litigation, individually or in the aggregate, are expected to result in liabilities that will have a material adverse effect on our financial position or results of operations or cash flows.

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Item 1A. Risk Factors

In addition to the other information contained in this Report on Form 10-Q, you should consider carefully the following risks. This list is not exhaustive and you should carefully consider these risks and uncertainties before investing in our common stock. If any of these risks occur, our business, financial condition or operating results could be adversely affected.

If we fail to develop and timely deliver innovative technologies in response to changes in the technology and entertainment industries, our business could decline.

The markets for our products and technologies are characterized by rapid change and technological evolution. We will need to continue to expend considerable resources on research and development in the future in order to continue to design and deliver enduring, innovative entertainment products and technologies. Despite our efforts, we may not be able to develop timely and effectively market new products, technologies and services that adequately or competitively address the needs of the changing marketplace. In addition, we may not correctly identify new or changing market trends at an early enough stage to capitalize on market opportunities. At times, such changes can be dramatic, such as the shift from VHS videocassettes to DVDs for consumer playback of movies in homes and elsewhere or the transition from packaged media to Internet distribution. Our future success depends to a great extent on our ability to develop and timely deliver innovative technologies that are widely adopted in response to changes in the technology and entertainment industries and that are compatible with the technologies or products introduced by other entertainment industry participants. Despite our efforts and investments in developing new products, services and technologies:

• we cannot assure you that the level of funding and significant resources we are committing for investments in new products, services and technologies will be sufficient or result in successful new products, services or technologies;

• we cannot assure you that our newly developed products, services or technologies can be successfully protected as proprietary intellectual property rights or will not infringe the intellectual property rights of others;

• we cannot assure you that any new products or services that we develop will achieve market acceptance;

• our products, services and technologies may become obsolete due to rapid advancements in technology and changes in consumer preferences; and

• our competitors and/or potential customers may develop products, services or technologies similar to those developed by us, resulting in a reduction in the potential demand for our newly developed products, services or technologies.

Our failure to successfully develop new and improved products, services and technologies, including as a result of any of the risks described above, may reduce our future growth and profitability and may adversely affect our business, results and financial condition.

Our competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements than we do, which could reduce demand for our products or render them obsolete and if competition increases or if we are unable to effectively compete with existing or new competitors, the result could be price reductions, fewer customers and loss of market share, any of which could result in less revenue and harm our business.

Our IPGs face competition from companies that produce and market program guides as well as television schedule information in a variety of formats, including passive and interactive on-screen electronic guide services, online listings, over the top applications, printed television guides in newspapers and weekly publications, and local cable television guides. Our IPG products also compete against customers who choose to build their own IPG and license our intellectual property. In the connected device middleware and metadata marketplace, there is competition not only from other companies, but also from customer-implemented internally-developed solutions. We believe that our DVD digital-to-analog copy

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protection and videocassette copy protection systems currently have limited competition. It is possible, however, that alternative copy protection technologies could become competitive. Additionally, new competitors or alliances among competitors may emerge and rapidly acquire significant market share in any of these areas.

The markets for the consumer hardware and software products sold by our OEM customers are competitive and price sensitive. Licensing fees for our technologies, products and services, particularly in the physical media area, may decline due to competitive pricing pressures and changing consumer demands. In addition, our retail sales business is also subject to competitive pricing pressures, and we may experience pricing pressures in other parts of our business. These trends could make it more difficult for us to increase or maintain our revenue and could adversely affect our operating results. To increase per unit royalties, we must continue to introduce new, highly functional versions of our technologies, products and services for which we can charge higher amounts. Any inability to introduce such technologies, products and services in the future or other declines in the amounts we can charge would also adversely affect our revenues.

Our DivX and RoxioNow solutions face competition in the digital media markets in which we operate. We believe that our most significant competitive threat comes from companies that have the collective financial, technical and other resources to develop the technologies, services, products and partnerships necessary to create a digital media ecosystem that can compete with the DivX ecosystem. Those potential competitors currently include Adobe Systems, Apple Computer, Google, Microsoft, and Yahoo!. We also compete with companies that offer products or services that compete with specific aspects of our digital media ecosystem. For example, our digital rights management technology competes with technologies from companies such as Apple Computer, ContentGuard, Intertrust Technologies, Microsoft, Nagra Audio, NDS Group and 4C Entity, as well as the internal development efforts of certain of our licensees. In addition, we compete with companies such as Yahoo!, VUDU, Inc., a subsidiary of Wal-Mart Stores, Inc., Boxee, Inc. and with internally developed proprietary solutions developed by hardware device manufacturers and integrated circuit manufacturers in our development and marketing of technologies to enable the next generation of Internet-enabled consumer electronics devices. Our proprietary technologies also compete with other video compression technologies, including other implementations of MPEG-4 or implementations of H.264/AVC. In addition, a number of companies such as Adobe Systems, Apple Computer, Ateme, Google, Microsoft, and RealNetworks offer video formats that compete with our proprietary video format. We also face competition from subscription entertainment services, cable and satellite providers, DVDs and other emerging technologies and products related to content distribution. Our content distribution platforms and services face significant competition from services, such as peer-to-peer and content aggregator services, which allow consumers to directly access an expansive array of content without securing licenses from content providers.

Some of our current or future competitors may have significantly greater financial, technical, marketing and other resources than we do, may enjoy greater brand recognition than we do, or may have more experience or advantages than we have in the markets in which they compete. In addition, some of our current or potential competitors, such as Apple Computer, Dolby Laboratories, Microsoft and Sony, may be able to offer integrated system solutions in certain markets for entertainment technologies, including audio, video and rights management technologies related to personal computers or the Internet, which could make competing products and technologies that we develop unnecessary. By offering an integrated system solution, these potential competitors also may be able to offer competing products and technologies at lower prices than our products and technologies. Further, many of the consumer hardware and software products that include our technologies also include technologies developed by our competitors. As a result, we must continue to invest significant resources in product development in order to enhance our technologies and our existing products and introduce new high-quality technologies and products to meet the wide variety of such competitive pressures. Our ability to generate revenues from our business will suffer if we fail to do so successfully.

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Our business may be adversely affected by fluctuations in demand for consumer electronics devices incorporating our technologies.

We derive significant revenues from CE manufacturer license fees for our solutions that are based on the number of units shipped. We do not manufacture hardware, but rather depend on the cooperation of CE manufacturers to incorporate our technologies into their products. Generally, our license agreements do not require manufacturers to include our technology in any specific number or percentage of units, and only a few of these agreements guarantee a minimum aggregate licensing fee. Purchases of new CE devices, including television sets, integrated satellite receiver decoders, DVRs, DVD recorders, personal computers and Internet appliances are largely discretionary and may be adversely impacted by increasing market saturation, durability of products in the marketplace, new competing products, alternate consumer entertainment options and general economic trends in the countries or regions in which these products are offered. Global economic downturns may significantly impact demand for such CE devices. As a result, our future operating results may be adversely impacted by fluctuations in sales of consumer electronics devices employing our technologies.

Additionally, we generate revenue from PC OEMs who bundle our software with their PC on a per device basis. PC manufacturers are under intense competitive and pricing pressure and in turn regularly cut features and demand cost reductions from their suppliers. Additionally, PC sales have slowed as consumers find alternative devices to meet their needs and the continuation of this trend could adversely impact our future operating results. The decision by manufacturers to incorporate our solutions into their products is a function of what other guide technologies and products are available. Our future operating results may be adversely impacted as a result of CE manufacturers opting not to incorporate our technology into their devices as a result of other available alternatives.

Dependence on the cooperation of cable multi system operators (“MSOs”) and digital broadcast satellite (“DBS”) providers, television broadcasters, hardware manufacturers, publications, data providers and delivery mechanisms could adversely affect our revenues.

We rely on third party providers to deliver our IPG data to CE devices that include our IPG. Further, our national data network provides customized and localized listings to our IPG service for MSOs and DBS providers and licensees of our data used in third party IPGs for MSOs and DBS providers. In addition, we purchase some of our program guide information from commercial vendors. The quality, accuracy and timeliness of that data may not continue to meet our standards or be acceptable to consumers. We also rely on other arrangements in the United States, which are not long-term, with other broadcasters for secondary carriage of our IPG data to CE devices. There can be no assurance that these delivery mechanisms will distribute the data without error or that the agreements that govern some of these relationships can be maintained on favorable economic terms. Our inability to renew these existing arrangements on terms that are favorable to us, or enter into alternative arrangements that allow us to effectively transmit our IPG data to CE devices could have a material adverse effect on our CE IPG business.

Our IPG data to CE devices broadcast can be, and has been in the past in some markets, deleted or modified by some of the local service providers. Widespread deletion or modification of this data by service providers could have a material adverse impact on our CE IPG business. Furthermore, in order for CE devices that incorporate our IPG to receive our data, such data must also be able to pass through any receivers through which such CE devices are receiving television programming signals. Even if our IPG data is passed to cable subscribers through cable networks by the service providers, there is a risk that the cable set-top boxes deployed by such subscribers can impede the passage of our IPG data to CE devices. Widespread impedance of our IPG data to CE devices in any of the manners set forth above could have a material adverse impact on our CE IPG business.

We are currently making significant investments in the United States, Europe and Japan to build the capability to provide our program listings information via digital broadcast signals to support the next generation of products from our manufacturing partners. This involves in some cases deploying equipment to aggregate and insert listings data, and securing bandwidth in digital broadcast streams to deliver that

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data. If we are unable to complete this digital delivery build-out in each of our regions in time to meet the planned deployment of the next generation of digital broadcast reliant CE devices, this could have a material adverse impact on our CE IPG business.

We deliver our data to our IPG service for MSOs and to licensees of our data used in third party IPGs for MSOs via satellite transmission, among other means. While we have built in certain redundancies in our data delivery operation, a third party provides us with satellite capacity to transmit our data to our IPG service for certain MSOs and to licensees of our data used in third party IPGs for MSOs. Our arrangement with the third party provider may be terminated on little or no notice. In the event that a provider of satellite capacity elects not to provide this capacity to transmit our data, there can be no assurance that all of our customers who currently receive our data via such provider will be able to receive our data via alternative means without significant delay or additional cost to us. In the event that such provider elects not to transmit our data, our business, operating results and financial condition could be adversely affected.

We are exposed to risks associated with our changing technology base through strategic acquisitions, investments and divestitures.

We have expanded our technology base in the past through strategic acquisitions of companies with complementary technologies or intellectual property and intend to do so in the future. Acquisitions hold special challenges in terms of successful integration of technologies, products and employees. We may not realize the anticipated benefits of acquisitions and divestitures we have completed in the past or the benefits of any other acquisitions or divestitures we may complete in the future, and we may not be able to incorporate any acquired services, products or technologies with our existing operations, or integrate personnel from the acquired businesses, in which case our business could be harmed.

Acquisitions, divestitures and other strategic investments involve numerous risks, including:

• problems integrating and divesting the operations, technologies, personnel or products over geographically disparate locations;

• unanticipated costs, litigation and other contingent liabilities;

• continued liability for pre-closing activities of divested businesses or certain post-closing liabilities which we may agree to assume as part of the transaction in which a particular business is divested;

• adverse effects on existing business relationships with suppliers and customers;

• risks associated with entering into markets in which we have no, or limited, prior experience;

• incurrence of significant exit charges if products acquired in business combinations are unsuccessful;

• significant diversion of management’s attention from our core business and diversion of key employees’ time and resources;

• inability to retain key customers, distributors, vendors and other business partners of the acquired business; and

• potential loss of our key employees or the key employees of an acquired organization.

Our operating expenses have increased due to the increased headcount, expanded operations and changes related to the Sonic acquisition. These expenses exceed the anticipated savings from the elimination of duplicative expenses, the realization of economies of scale, and cost savings and revenue synergies related to the integration of the businesses following the completion of the Sonic acquisition. In addition, we may incur additional material charges in subsequent fiscal quarters following the acquisition to reflect additional merger-related costs.

The merger agreement governing the acquisition of Sonic and its subsidiaries also did not contain any post-closing indemnification provisions. Therefore, any claims for known or unknown Sonic or DivX

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liabilities, whether related to intellectual property ownership, infringement or otherwise, are our responsibility. Any such claim, with or without merit, could be time consuming to defend, result in costly litigation and divert management’s attention.

To the extent that expenses increase but revenues do not, there are unanticipated expenses related to the process of integrating the Sonic or DivX businesses, or there are significant costs associated with presently unknown liabilities, our business, operating results and financial condition may be adversely affected. In addition, failure to minimize the numerous risks associated with the post-acquisition integration strategy also may adversely affect the trading price of Rovi’s common stock.

Financing for future acquisitions may not be available on favorable terms, or at all. If we identify an appropriate acquisition candidate for any of our businesses, we may not be able to negotiate the terms of the acquisition successfully, finance the acquisition or integrate the acquired business, products, technologies or employees into our existing business and operations. Future acquisitions and divestitures may not be well-received by the investment community, which may cause the value of our stock to fall. We cannot ensure that we will be able to identify or complete any acquisition or divestiture in the future. Further, the terms of our indebtedness constrains our ability to make and finance additional acquisitions or divestitures.

If we acquire businesses, new products or technologies in the future, we may incur significant acquisition-related costs. In addition, we may be required to amortize significant amounts of identifiable intangible assets and we may record significant amounts of goodwill that will be subject to annual testing for impairment. We have in the past and may in the future be required to write off all or part of one or more of these investments that could harm our operating results. If we consummate one or more significant future acquisitions in which the consideration consists of stock or other securities, our existing stockholders’ ownership could be significantly diluted. If we were to proceed with one or more significant future acquisitions in which the consideration included cash, we could be required to use a substantial portion of our available cash. Acquisitions could also cause operating margins to fall depending upon the financial models of the businesses acquired.

Our strategic investments may involve joint development, joint marketing, or entry into new business ventures, or new technology licensing. Any joint development efforts may not result in the successful introduction of any new products by us or a third party, and any joint marketing efforts may not result in increased demand for our products. Further, any current or future strategic acquisitions and investments by us may not allow us to enter and compete effectively in new markets or enhance our business in our existing markets and we may have to write off our equity investments in companies as we have done in the past.

Our success is heavily dependent upon our proprietary technologies.

We believe that our future success will depend on our ability to continue to introduce proprietary solutions for digital content and technologies. We rely on a combination of patent, trademark, copyright and trade secret laws, nondisclosure and other contractual provisions, and technical measures to protect our intellectual property rights. Our patents, trademarks or copyrights may be challenged and invalidated or circumvented. Our patents may not be of sufficient scope or strength or be issued in all countries where products incorporating our technologies can be sold. We have filed applications to expand our patent claims and for improvement patents to extend the current expiration dates, however, expiration of some of our patents may harm our business. If we are not successful in protecting our intellectual property, our business would be harmed.

Others may develop technologies that are similar or superior to our technologies, duplicate our technologies or design around our patents. Effective intellectual property protection may be unavailable or limited in some foreign countries. Despite efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise use aspects of processes and devices that we regard as proprietary. Policing

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unauthorized use of our proprietary information is difficult, and the steps we have taken may not prevent misappropriation of our technologies. Such competitive threats could harm our business.

Our ability to maintain and enforce our trademark rights has a large impact on our ability to prevent third party infringement of our brand and technologies and if we are unable to maintain and strengthen our brands, our business could be harmed.

Maintaining and strengthening our brands is important to maintaining and expanding our business, as well as to our ability to enter into new markets for our technologies and products. If we fail to promote and maintain these brands successfully, our ability to sustain and expand our business and enter into new markets may suffer. Because we engage in relatively little direct brand advertising, the promotion of our brand depends, among other things, upon hardware device manufacturing partners displaying our trademarks on their products. If these partners choose for any reason not to display our trademarks on their products, or if our partners use our trademarks incorrectly or in an unauthorized manner, the strength of our brand may be diluted or our ability to maintain or increase our brand awareness may be harmed. We generally rely on enforcing our trademark rights to prevent unauthorized use of our brand and technologies. Our ability to prevent unauthorized uses of our brand and technologies would be negatively impacted if our trademark registrations were overturned in the jurisdictions where we do business. Our brand and logo are widely used by consumers and entities, both licensed and unlicensed, in association with digital video compression technology, and if we are not vigilant in preventing unauthorized or improper use of our trademarks, then our trademarks could become generic and we would lose our ability to assert such trademarks against others. We also have trademark applications pending in a number of jurisdictions that may not ultimately be granted, or if granted, may be challenged or invalidated, in which case we would be unable to prevent unauthorized use of our brand and logo in such jurisdiction. We have not filed trademark registrations in all jurisdictions where our brand and logo are used.

We may be subject to legal liability for the provision of third-party products, services, content or advertising.

We periodically enter into arrangements to offer third-party products, services, content or advertising under our brands or via distribution on our websites or in connection with our various products or service offerings. For example, we license or incorporate certain entertainment metadata into our data offerings. Certain of these arrangements involve enabling the distribution of digital content owned by third parties, which may subject us to third party claims related to such products, services, content or advertising, including defamation, violation of privacy laws, misappropriation of publicity rights, violation of United States federal CAN-SPAM legislation, and infringement of intellectual property rights. We require users of our services to agree to terms of use that prohibit, among other things, the posting of content that violates third party intellectual property rights, or that is obscene, hateful or defamatory. We have implemented procedures to enforce such terms of use on certain of our services, including taking down content that violates our terms of use for which we have received notification, or that we are aware of, and/or blocking access by, or terminating the accounts of, users determined to be repeat violators of our terms of use. Despite these measures, we cannot guarantee that such unauthorized content will not exist on our services, that these procedures will reduce our liability with respect to such unauthorized third party conduct or content, or that we will be able to resolve any disputes that may arise with content providers or users regarding such conduct or content. Our agreements with these parties may not adequately protect us from these potential liabilities. It is also possible that, if any information provided directly by us contains errors or is otherwise negligently provided to users, third parties could make claims against us, including, for example, claims for intellectual property infringement. Investigating and defending any of these types of claims is expensive, even if the claims do not result in liability. If any of these claims results in liability, we could be required to pay damages or other penalties, which could harm our business and our operating results.

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We may initiate patent infringement or patent interference actions or other litigation to protect our intellectual property, which could be costly and harm our business.

We are currently engaged in litigation, and litigation may be necessary in the future, to enforce our patents and other intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others.

We, and many of our current and potential competitors, dedicate substantial resources to protection and enforcement of intellectual property rights. We believe that companies will continue to take steps to protect their technologies, including, but not limited to, seeking patent protection. Companies in the technology and content-related industries have frequently resorted to litigation regarding intellectual property rights. Disputes regarding the ownership of technologies and their associated rights are likely to arise in the future and we may be forced to litigate to determine the validity and scope of other parties’ proprietary rights. Any such litigation could be very costly, could distract our management from focusing on operating our business, and might ultimately be unsuccessful. The existence and/or outcome of such litigation could harm our business.

We may be subject to intellectual property infringement claims or other litigation, which are costly to defend and could limit our ability to use certain technologies in the future.

From time to time we receive claims and inquiries from third parties alleging that our internally developed technology, technology we have acquired or technology we license from third parties may infringe other third parties’ proprietary rights (especially patents), including those relating to digital media standards such as MPEG-4, H.264, MP3 and AAC. Third parties have also asserted and most likely will continue to assert claims against us alleging infringement of copyrights, trademark rights or other proprietary rights relating to video or music content, or alleging unfair competition or violations of privacy rights. We have faced such claims in the past, we currently face such claims, and we expect to face similar claims in the future. Regardless of the merits of such claims, any disputes with third parties over intellectual property rights could materially and adversely impact our business, including by resulting in the loss of management time and attention to our core business, the significant cost to defend ourselves against such claims or reducing the willingness of licensees to incorporate our technologies into their products. Additionally, we have also been asked by content owners to stop the display or hosting of copyrighted materials by our users or ourselves through our service offerings, including notices provided to us pursuant to the Digital Millennium Copyright Act. We have and will promptly respond to legitimate takedown notices or complaints, including but not limited to those submitted pursuant to the Digital Millennium Copyright Act, notifying us that we are providing unauthorized access to copyrighted content by removing such content and/or any links to such content from our websites. Nevertheless, we cannot guarantee that our prompt removal of content, including removal pursuant to the provisions of the Digital Millennium Copyright Act, will prevent disputes with content owners, that infringing content will not exist on our services, or that we will be able to resolve any disputes that may arise with content providers or users regarding such infringing content. If any of these claims were to prevail, we could be forced to pay damages, comply with injunctions, or stop distributing our products or providing our services while we re-engineer them or seek licenses to necessary technology, which might not be available on reasonable terms or at all. We could also be subject to claims for indemnification resulting from infringement claims made against our customers, strategic partners or the current owners of businesses that we divested, which could increase our defense costs and potential damages. For example, we have received notices and lawsuits from certain customers requesting indemnification in patent-related lawsuits. We evaluate the requests and assess whether we believe we are obligated to provide such indemnification to such customers on a case by case basis. Customers or strategic partners making such requests could become unwilling or hesitant to do business with us if we decline such requests. An adverse determination with respect to such requests or in any of these events described above could require us to change our business practices and have a material impact on our business and results of operations. Furthermore, these types of disputes can be asserted by our licensees or prospective licensees or by other third parties as part of negotiations with us or in private actions seeking monetary damages or injunctive relief. Any disputes with our licensees or potential

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licensees or other third parties could harm our reputation and expose us to additional costs and other liabilities.

Litigation could harm our business and result in:

• substantial settlement or related costs, including indemnification of customers;

• diversion of management and technical resources;

• either our customers discontinuing to use or ourselves discontinuing to sell infringing products;

• our expending significant resources to develop non-infringing technology; and

• our obtaining licenses to infringed technology, which could be costly.

We are involved in the business of powering the discovery and enjoyment of digital entertainment, including over the Internet. There has been, and we believe that there will continue to be, an increasing level of litigation to determine the applicability of current laws to, and impact of new technologies on, the use and distribution of content over the Internet and through new devices. As we develop products and services that protect, provide or enable the provision of content in such ways, the risk of litigation against us may increase.

The effects of the global recession may impact our business, operating results, financial condition or liquidity.

The global recession has caused a general tightening in the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy, an unprecedented level of intervention from the United States federal government and other foreign governments, decreased consumer confidence, overall slower economic activity and extreme volatility in credit, equity and fixed income markets. While the ultimate outcome of these events cannot be predicted, these macroeconomic developments could negatively affect our business, operating results, financial condition or liquidity in a number of ways. For example, if the economic downturn makes it difficult for our customers and suppliers to accurately forecast and plan future business activities, they may delay, decrease or cancel purchases of our solutions or reduce production of their products. As many of our solutions are licensed on a per-unit fee basis, our customers’ decision to decrease production of their products or devices may decrease our licensing revenue and adversely impact our operating results.

Furthermore, as our customers face a weak economy, they may not be able to gain sufficient credit in a timely manner, which could result in an impairment of their ability to place orders with us or to make timely payments to us for previous purchases. If this occurs, our revenue may be reduced, thereby having a negative impact on our results of operations. In addition, we may be forced to increase our allowance for doubtful accounts and our days sales outstanding may increase, which would have a negative impact on our cash position, liquidity and financial condition. We cannot predict the timing or the duration of this or any other economic downturn in the economy and we are not immune to the effects of general worldwide economic conditions.

In addition, financial institution failures may cause us to incur increased expenses or make it more difficult either to utilize our existing debt capacity or otherwise obtain financing for our operations, investing activities (including the financing of any future acquisitions), or financing activities (including an increase in our liability to counterparties under interest rate swap contracts and the timing and amount of any repurchases of our common stock or debt we may make in the future). Our investment portfolio, which includes short-term debt securities, is generally subject to general credit, liquidity, counterparty, market and interest rate risks that may be exacerbated by the recent global financial crisis. If the banking system or the fixed income, credit or equity markets deteriorated or remained volatile, our investment portfolio may be impacted and the values and liquidity of our investments could be adversely affected.

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Finally, like other stocks, our stock price can be affected by global economic uncertainties and if investors have concerns that our business, operating results and financial condition will be negatively impacted by a worldwide economic downturn, our stock price could decrease.

We have indebtedness which could adversely affect our financial position.

As of March 31, 2011, we had total debt with a par value of approximately $1,162.8 million of which $46.6 million of borrowings are under 2011 Convertible Notes issued by one of our subsidiaries and $366.2 million are under our 2040 Convertible Notes. On February 7, 2011, two of our subsidiaries, Rovi Solutions Corporation and Rovi Guides Inc., jointly borrowed $750 million under a senior secured credit facility consisting of a 5-year $450 million term loan and a 7-year $300 million term loan. Both term loans are guaranteed by us and certain of our domestic and foreign subsidiaries and are secured by substantially all of our assets. The 5-year term loan requires annual amortization payments and matures on February 7, 2016 and the 7-year term loan requires quarterly amortization payments and matures on February 7, 2018. Our indebtedness may:

• limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions or other general business purposes;

• limit our ability to use our cash flow or obtain additional financing for future working capital, capital expenditures, acquisitions or other general business purposes;

• require us to use a substantial portion of our cash flow from operations to make debt service payments;

• limit our flexibility to plan for, or react to, changes in our business and industry;

• place us at a competitive disadvantage compared to our less leveraged competitors; and

• increase our vulnerability to the impact of adverse economic and industry conditions.

Our ability to meet our debt service obligations will depend on our future performance, which will be subject to financial, business, and other factors affecting its operations, many of which are beyond our control.

Covenants in our debt agreements restrict our business in many ways and if we do not effectively manage our covenants, our financial conditions and results of operations could be adversely affected.

On February 7, 2011, two of our subsidiaries, Rovi Solutions Corporation and Rovi Guides Inc., jointly borrowed $750 million under a senior secured credit facility. The senior secured credit facility contains various covenants that limit our ability and/or our restricted subsidiaries’ ability to, among other things:

• incur or assume liens or additional debt or provide guarantees in respect of obligations of other persons;

• issue redeemable preferred stock;

• pay dividends or distributions or redeem or repurchase capital stock;

• prepay, redeem or repurchase certain debt;

• make loans, investments and capital expenditures;

• enter into agreements that restrict distributions from our subsidiaries;

• sell assets and capital stock of our subsidiaries;

• enter into certain transactions with affiliates; and

• consolidate or merge with or into, or sell substantially all of our assets to, another person.

In addition, our senior secured credit facility contains restrictive covenants and requires us to maintain specified financial ratios. Our ability to meet those financial ratios can be affected by events beyond our

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control, and we may be unable to meet those ratios. A breach of any of these covenants could result in a default under our senior secured credit facility and/or our other indebtedness, which could in turn result in an acceleration of a substantial portion of our indebtedness. In such event, we may be unable to repay all of the amounts that would become due under our indebtedness. If we were unable to repay those amounts, the lenders under our senior secured credit facility could proceed against the collateral granted to them to secure that indebtedness. In any case, if a significant portion of our debt was accelerated, we may be forced to seek bankruptcy protection.

We may not be able to generate sufficient cash to service our debt obligations.

Our ability to make payments on and to refinance our indebtedness will depend on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Our credit agreements restrict our ability to dispose of assets, use the proceeds from any disposition of assets and to refinance our indebtedness. We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due.

In addition, our borrowings under our senior secured credit facility are, and are expected to continue to be, at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income would decrease.

Repayment of debt is dependent on cash flow generated by our subsidiaries and their respective subsidiaries.

Rovi Corporation’s subsidiaries, including Rovi Solutions Corporation and Rovi Guides Inc., own a significant portion of our assets and conduct substantially all of our operations. Each subsidiary is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on the 2040 Convertible Notes or cash payments required to settle conversions of the 2011 Convertible Notes, which were issued by Rovi Solutions Corporation but are convertible into cash and stock of Rovi Corporation. Accordingly, repayment of our indebtedness depends, to a significant extent, on the generation of cash flow by the subsidiaries, including Rovi Solutions Corporation and Rovi Guides Inc., the senior secured position of their bank debt, and their ability to make cash available to us, by dividend, debt repayment or otherwise. Because they are not guarantors or a co-issuer of the 2040 Convertible Notes, our subsidiaries do not have any obligation to pay amounts due on those notes or to make funds available for that purpose. Similarly, Rovi Solutions Corporation, while obligated to repay the 2011 Convertible Notes at maturity, has no obligation to make cash available to us to fund the settlement of our conversion obligations upon conversion of those notes. Conversely, the ability of Rovi Solutions Corporation and Rovi Guides Inc. to repay their indebtedness under the senior secured credit facility and in the case of Rovi Solutions Corporation, the 2011 Convertible Notes depends, in part, on the generation of cash flow by their respective subsidiaries. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us, Rovi Solutions or Rovi Guides Inc. to make payments in respect of our indebtedness.

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Despite our current level of indebtedness, we may still be able to incur more indebtedness. This could increase the risks associated with our indebtedness.

We and our subsidiaries may incur additional indebtedness in the future. The terms of our indentures do not prohibit us or our subsidiaries from incurring additional indebtedness. If we incur any additional indebtedness that ranks equally with existing indebtedness, the holders of that indebtedness will be entitled to share ratably with the holders of our existing debt obligations in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding-up of us. If new indebtedness is added to our current debt levels, the related risks that we and our subsidiaries now face could intensify.

Changes in, or interpretations of, tax rules and regulations, may adversely affect our effective tax rates.

We are subject to income taxes in the U.S. and foreign tax jurisdictions. Our future effective tax rates could be unfavorably affected by changes in tax laws or the interpretation of tax laws, by changes in the amount of revenue or earnings that we derive from international sources in countries with high or low statutory tax rates, or by changes in the valuation of our deferred tax assets and liabilities. Unanticipated changes in our tax rates could affect our future results of operations.

In addition, federal, state, and foreign tax jurisdictions may examine our income tax returns, including income tax returns of acquired companies and acquired tax attributes included therein. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. In making such assessments, we exercise judgment in estimating our provision for income taxes. While we believe our estimates are reasonable, we cannot assure you that the final determination from these examinations will not be materially different from that reflected in our historical income tax provisions and accruals. Any adverse outcome from these examinations may have a material adverse effect on our business and operating results, which could cause the market price of our stock to decline.

We may be subject to market risk and legal liability in connection with the data collection capabilities of our various online services.

Many components of our online services include interactive components that by their very nature require communication between a client and server to operate. To provide better consumer experiences and to operate effectively, we collect certain information from users. Collection and use of such information may be subject to United States state and federal privacy and data collection laws and regulations, standards used by credit card companies applicable to merchants processing credit card details, and foreign laws such as the EU Data Protection Directive. We post our privacy policies concerning the collection, use and disclosure of user data, including that involved in interactions between client and server products. Any failure by us to comply with such posted privacy policies, any failure to comply with standards set by credit card companies relating to privacy or data collection, any failure to conform the privacy policy to changing aspects of our business or applicable law, or any existing or new legislation regarding privacy issues could impact the market for our online services, technologies and products and subject us to fines, litigation or other liability.

In addition, the Children’s Online Privacy Protection Act imposes civil and criminal penalties on persons collecting personal information from children under the age of 13. We do not knowingly distribute harmful materials to minors, direct our websites or services to children under the age of 13, or collect personal information from children under the age of 13. However, we are not able to control the ways in which consumers use our technology, and our technology may be used for purposes that violate this or other similar laws. The manner in which such laws may be interpreted and enforced cannot be fully determined, and future legislation similar to this law could subject us to potential liability if we were deemed to be non-compliant with such rules and regulations.

Improper conduct by users could subject us to claims and compliance costs.

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The terms of use and end-user license agreements for our products and services prohibit a broad range of unlawful or undesirable conduct. However, we are unable to block access in all instances to users who are determined to gain access to our products or services for improper motives. Claims may be threatened or brought against us using various legal theories based on the nature and content of information or media that may be created, posted online or generated by our users or the use of our technology. This risk includes actions by our users to copy or distribute third-party content. Investigating and defending any of these types of claims could be expensive, even if the claims do not ultimately result in liability. In addition, we may incur substantial costs to enforce our terms of use or end-user license agreements and to exclude certain users of our services or products who violate such terms of use or end-user license agreements, or who otherwise engage in unlawful or undesirable conduct.

We may incur litigation costs and distraction of management relating to defending shareholder lawsuits filed against Sonic, the members of its board of directors, and Rovi challenging the acquisition, and handling related indemnification claims.

As described in Note 16 to the unaudited Condensed Consolidated Financial Statements contained in this Form 10-Q, Sonic, the members of its board of directors, and Rovi are named as defendants in purported shareholder class action lawsuits brought by certain Sonic shareholders as plaintiffs, on the grounds that Sonic’s directors allegedly breached their fiduciary duties of care and loyalty by, inter alia, failing to maximize shareholder value, by approving the merger transaction via an unfair process and by causing omissions in the Schedule 14D-9 Recommendation Statement filed by the Company on January 14, 2011.

We have obligations under certain circumstances to hold harmless and indemnify each of the defendant directors against judgments, fines, settlements and expenses related to claims against such directors and otherwise to the fullest extent permitted under applicable law and our bylaws and articles of incorporation and their indemnification agreements. Such obligations may apply to the lawsuits. An unfavorable outcome, to the extent not covered by Sonic’s directors and officers insurance, could result in substantial costs to the Company.

For our business to succeed, we need to attract and retain qualified employees and manage our employee base effectively.

Our success depends on our ability to hire and retain qualified employees and to manage our employee base effectively. Because of the specialized nature of our business, our future success will depend upon our continuing ability to identify, attract, train and retain other highly skilled managerial, technical, sales and marketing personnel, particularly as we enter new markets. Competition for people with the skills that we require is intense, particularly in the San Francisco Bay area where our headquarters are located and Los Angeles where we have significant operations, and the high cost of living in these areas makes our recruiting and compensation costs higher. If we are unable to hire and retain qualified employees, our business and operating results could be adversely affected.

Establishing and maintaining licensing relationships with companies are important to build and support a worldwide entertainment technology licensing ecosystem and to expand our business, and failure to do so could harm our business prospects.

Our future success will depend upon our ability to establish and maintain licensing relationships with companies in related business fields, including:

• DVD authoring facilities, mastering houses and replicators;

• DVD authoring tools software companies and replicator test equipment suppliers;

• semiconductor and equipment manufacturers;

• operators of entertainment content distributors, including PPV and VOD networks;

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• consumer electronics, digital PPV/VOD set-top hardware manufacturers, DVD hardware manufacturers and PC manufacturers;

• content right holders;

• retailers and advertisers;

• DRM suppliers; and

• Internet portals and other digital distribution companies.

Substantially all of our license agreements are non-exclusive, and therefore our licensees are free to enter into similar agreements with third parties, including our competitors. Our licensees may develop or pursue alternative technologies either on their own or in collaboration with others, including our competitors.

Some of our third party license arrangements require that we license others’ technologies and/or integrate our solutions with others. In addition, we rely on third parties to report usage and volume information to us. Delays, errors or omissions in this information could harm our business. If these third parties choose not to support integration efforts or delay the integration of our solutions, our business could be harmed.

If we fail to maintain and expand our relationships with a broad range of participants throughout the entertainment industry, including motion picture studios, broadcasters and manufacturers of CE products, our business and prospects could be materially harmed. Relationships have historically played an important role in the entertainment industries that we serve. If we fail to maintain and strengthen these relationships, these entertainment industry participants may not purchase and use our technologies, which could materially harm our business and prospects. In addition to directly providing a substantial portion of our revenue, these relationships are also critical to our ability to have our technologies adopted as industry standards. Moreover, if we fail to maintain our relationships, or if we are not able to develop relationships in new markets in which we intend to compete in the future, including markets for new technologies and expanding geographic markets, our business, operating results and prospects could be materially and adversely affected. In addition, if major industry participants form strategic relationships that exclude us, our business and prospects could be materially adversely affected.

It may be more difficult for us, in the future, to have our technologies adopted as individual industry standards if entertainment industry participants collaborate on the development of new or different industry standard technologies.

Increasingly, standards-setting organizations are adopting or establishing technology standards for use in a wide-range of CE products. As a result, it is more difficult for individual companies to have their technologies widely adopted as an informal industry standard. In addition, there are a large number of companies, including companies that typically compete against one another, involved in the development of new technologies for use in consumer entertainment products. As a result, these companies often license their collective intellectual property rights as a group, making it more difficult for any single company to have its technologies adopted widely as a de facto industry standard or to have its technologies adopted as an exclusive, explicit industry standard. Examples of this include MPEG-LA (codecs and DRM licensing); Blu-ray DVD (high definition DVD format); and Digital Living Network Alliance (DLNA) and the Universal Plug and Play (UPnP) Forum (interoperability of consumer electronics devices). If our technologies are not supported by these standards bodies or patent pools, it may be more difficult for us to grow our business in the future. Our major customers may have a large influence on industry standards and the widespread adoption of new technologies. The selection of alternative technologies to ours or to those on which our technologies operate would harm our business.

Because many of our technologies, products and services are designed to comply with industry standards, to the extent we cannot distinguish our technologies, products and services from those sold

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by our competitors, our current distributors and customers may choose alternate technologies, products and services or choose to purchase them from multiple vendors.

We cannot provide any assurance that the industry standards for which we develop new technologies, products and services will allow us to compete effectively with companies possessing greater financial and technological resources than we have to market, promote and exploit sales opportunities as they arise in the future. Technologies, products and services that are designed to comply with standards may also be viewed as interchangeable commodities by certain customers. We may be unable to compete effectively if we cannot produce technologies and products more quickly or at lower cost than our competitors. Further, any new technologies, products and services developed may not be introduced in a timely manner or in advance of our competitors’ comparable offerings and may not achieve the broad market acceptance necessary to generate significant revenues.

We rely on distributors, resellers and retailers to sell our consumer products, and disruptions to these channels could affect adversely our ability to generate revenues from the sale of these products.

We sell our retail consumer software to end-users via retail channels through a network of distributors and resellers, and rely on two distributors for a significant portion of sales. Any decrease in revenue from these distributors or the loss of one of these distributors and our inability to find a satisfactory replacement in a timely manner could negatively impact our operating results. Moreover, our failure to maintain favorable arrangements with our distributors and resellers may adversely impact our business. If our competitors offer our distributors, resellers or retailers more favorable terms, those distributors, resellers or retailers may de-emphasize, fail to recommend or decline to carry our products. If our distributors, resellers or retailers attempt to reduce their levels of inventory or if they do not maintain sufficient levels to meet customer demand, our sales could be impacted negatively. Further, if we reduce the prices of our products, we may have to compensate our distributors, resellers or retailers for the difference between the higher price they paid to buy their inventory and the new lower prices of our products. In addition, we are exposed to the risk of product returns from distributors, resellers or retailers through their exercise of contractual return rights.

In addition, certain of our offerings are embedded in various PC and CE devices, which are then distributed through multiple retail channels. If we are not successful in establishing and maintaining appropriate OEM and distribution relationships, or if we encounter technological, content licensing or other impediments, our ability to grow these offerings could be adversely impacted, which could harm our business and operating results.

Because a portion of our revenue is generated through OEM customers, sales of these technologies, products and services are tied to OEM product sales.

A portion of the revenue attributable to the products acquired through the Sonic acquisition is derived from sales through OEM customers who either license the technologies, products and services and incorporate them into or bundle them with their products. Temporary fluctuations in the pricing and availability of the OEM customers’ products could negatively impact sales of our technologies, products and services, which could in turn harm our business, financial condition and results of operations. Moreover, sales of these technologies, products and services depend in large part on consumer acceptance and purchase of PCs and CE devices such as DVD players, BD players, DVD recorders, television sets, mobile handsets and other digital media devices marketed by our OEM customers. Consumer acceptance of these OEM products depends significantly on the price and ease of use of these devices, among other factors. If the demand for these OEM products is impaired, our OEM sales may suffer a corresponding decline.

OEM customers can be demanding with respect to the features they demand, as well as with respect to quality and testing requirements and economic terms. Because there are a relatively small number of

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significant OEM customers, if they demand reduced prices, we may not be in a position to refuse such demands, which would adversely impact revenues and results of operations. If particular OEMs demand technologies, products or services that we are unable to deliver, or if they impose higher quality requirements than we are able to satisfy, we could lose those relationships, which would adversely impact our revenues and results of operations. Also, if our competitors offer their OEM customers more favorable terms than we do or if our competitors are able to take advantage of their existing relationships with OEMs, then these OEMs may not include our offerings with their products. Although we have maintained relationships with many of our OEMs for many years, if an OEM agreement with a major customer were terminated and we were unable to replace such relationship or if we are unable to maintain or expand our relationship with OEMs, our business and results of operations would suffer.

The recent earthquake, tsunami and resulting damage to CE device manufacturers and distributors based in Japan may adversely impact our future business in Japan.

Approximately 37% of our pro forma CE revenue in 2010 was derived from companies that operate in Japan. The March 11, 2011 earthquake and tsunami in Japan and resulting damage may result in an interruption in our business in Japan if the businesses of our CE manufacturer customers are interrupted because their factories, manufacturing facilities or distribution network are damaged or inoperable due to this natural disaster or resulting damage. If our CE manufacturer customers are unable to manufacture or distribute products that incorporate our technologies because of such business interruptions, our future operating results will be adversely impacted by such decreases in sales of CE devices employing our technologies.

The markets for our Advertising platform, web services and RoxioNow service may not develop and we may fail in our ability to fully exploit these new opportunities if these markets do not develop as we anticipate.

The market for Advertising is at an early stage of development and we cannot assure you that we will succeed in our efforts to develop our Advertising platform as a medium widely accepted by consumers and advertisers. In addition, MSO, DBS and Internet protocol television, or IPTV, providers who have a patent license from us are not required to provide Advertising, although many have. Therefore our ability to derive Advertising revenues from our patent licensees is also dependent on the implementation of Advertising by such licensees.

Our RoxioNow Service is a “white-label” service to companies that want to distribute, either in a sale or rental model, premium entertainment content directly to consumers using Internet Protocol for delivery. There is no assurance that consumers will widely adopt the RoxioNow Service or that it will become profitable. Online video distribution is a relatively new enterprise, and successful business models for delivering digital media over the Internet are not fully tested. We will invest significant time and money in building and organizing the premium content business, and its success could be jeopardized by difficulties in implementing and maintaining premium content information technology systems and infrastructure and/or by increased operating expenses and capital expenditures required in connection with online premium content offerings. Because we have limited experience with online premium content offerings, we cannot assure you that it will be successful or profitable.

Limitations on control of IPG Inc. may adversely impact our operations.

We hold a 46% interest in IPG Inc., as a joint venture with nonaffiliated third parties, which hold the remaining interest. As a result of such arrangement, we may be unable to control the operations, strategies and financial decisions of IPG Inc. which could in turn result in limitations on our ability to implement strategies that we may favor, or to cause dividends or distributions to be paid. In addition, our ability to transfer our interests in IPG Inc. may be limited under the joint venture arrangement.

Consolidation of the cable and satellite broadcasting industry could adversely affect existing agreements.

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We have entered into agreements with a large number of MSOs and DBS providers for the licensing or distribution of our technology, products and services. If consolidation of the cable and satellite broadcasting industry continues, some of these agreements may be affected by mergers, acquisitions or system swaps which could result in an adverse effect on the amount of revenue we receive under these agreements.

We have limited control over existing and potential customers’ and licensees’ decisions to include our technology in their product offerings.

In general, we are dependent on our customers and licensees—including producers and distributors of content for films and videos—to incorporate our technology into their products. Although we have license agreements with many of these companies, many of these license agreements do not require any minimum purchase commitments, or are on a non-exclusive basis, or do not require incorporation of our technology in their products. If our customers were to determine that the benefits of our technology do not justify the cost of licensing the technology, then demand for our technology would decline. Furthermore, while we may be successful in having one or more industry standards-setting organizations require that our technology be used in order for a product to be compliant with the standards promulgated by such organizations, there is no guarantee that products associated with these standards will be successful in the market. Our licensees and other manufacturers might not utilize our technology in the future. If this were to occur, our business would be harmed.

Our web-based revenue is vulnerable to third party operational problems and other risks.

We make certain of our products and services available through web-based retail sites operated by third party resellers. Under these arrangements, our reseller partners typically utilize co-branded sites, provide the infrastructure to handle purchase transactions through their secure web sites, and deliver the product (whether via web download or physical fulfillment). Our web store operations are subject to numerous risks, including unanticipated operating problems, reliance on third party computer hardware and software providers, system failures and the need to invest in additional computer systems, diversion of sales from other channels, rapid technological change, liability for online content, credit card fraud, and issues relating to the use and protection of customer information. We rely on the third party resellers who operate these web stores for their smooth operation. Any interruption of these web stores could have a negative effect on our business. If our web store resellers were to withdraw from this business or change their terms of service in ways that were unfavorable to us, there might not be a ready alternative outsourcing organization available, and we might be unprepared to assume operation of the web stores. If any of these events occurs, our results of operations could be harmed.

Qualifying, certifying and supporting our technologies, products and services is time consuming and expensive.

We devote significant time and resources to qualify and support our software products on various PC and CE platforms, including Microsoft and Apple operating systems. In addition, we maintain high-quality standards for products that incorporate our technologies and products through a quality-control certification process. To the extent that any previously qualified, certified and/or supported platform or product is modified or upgraded, or we need to qualify, certify or support a new platform or product, we could be required to expend additional engineering time and resources, which could add significantly to our development expenses and adversely affect our operating results.

The success of certain of our solutions depends on the interoperability of our technologies with consumer hardware devices.

To be successful we design certain of our solutions to interoperate effectively with a variety of consumer hardware devices, including personal computers, DVD players and recorders, Blu-ray players, digital still cameras, digital camcorders, portable media players, digital TVs, home media centers, set-top

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boxes, video game consoles, MP3 devices, multi-media storage devices and mobile handsets. We depend on significant cooperation with manufacturers of these devices and the components integrated into these devices, as well as software providers that create the operating systems for such devices, to incorporate certain of our technologies into their product offerings and ensure consistent playback of encoded files. Currently, a limited number of devices are designed to support our technologies. If we are unsuccessful in causing component manufacturers, device manufacturers and software providers to integrate our technologies into their product offerings, our technologies may become less accessible to consumers, which would adversely affect our revenue potential.

Some software we provide may be subject to “open source” licenses, which may restrict how we use or distribute our software or require that we release the source code of certain products subject to those licenses.

Some of the products we support and some of our proprietary technologies incorporate open source software such as open source MP3 codecs that may be subject to the Lesser Gnu Public License or other open source licenses. The Lesser Gnu Public License and other open source licenses typically require that source code subject to the license be released or made available to the public. Such open source licenses typically mandate that software developed based on source code that is subject to the open source license, or combined in specific ways with such open source software, become subject to the open source license. We take steps to ensure that proprietary software we do not wish to disclose is not combined with, or does not incorporate, open source software in ways that would require such proprietary software to be subject to an open source license. However, few courts have interpreted the Lesser Gnu Public License or other open source licenses, and the manner in which these licenses may be interpreted and enforced is therefore subject to some uncertainty. We also take steps to disclose any source code for which disclosure is required under an open source license, but it is possible that we have or will make mistakes in doing so, which could negatively impact our brand or our adoption in the community, or could expose us to additional liability. In addition, we rely on multiple software programmers to design our proprietary products and technologies. Although we take steps to ensure that our programmers (both internal and outsourced) do not include open source software in products and technologies we intend to keep proprietary, we cannot be certain that open source software is not incorporated into products and technologies we intend to keep proprietary. In the event that portions of our proprietary technology are determined to be subject to an open source license, or are intentionally released under an open source license, we could be required to publicly release the relevant portions of our source code, which could reduce or eliminate our ability to commercialize our products and technologies. Also, in relying on multiple software programmers to design products and technologies that we intend, or ultimately end up releasing in the open source community, we may discover that one or multiple such programmers have included code or language that would be embarrassing to us, which could negatively impact our brand or our adoption in the community, or could expose us to additional liability.

We depend on studios to license or make available content for certain of our services and formats.

Our ability to provide our content delivery service depends on studios licensing content for online delivery. The studios have great discretion whether to license their content, and the license periods and the terms and conditions of such licenses vary by studio. If studios change their terms and conditions, are no longer willing or able to provide us licenses, or if we are otherwise unable to obtain premium content on terms that are acceptable, the ability to provide our content delivery service will be adversely affected, which could harm our business and operating results. In addition, a limited number of studios have agreed to make certain video content available in our media format but there is no assurance that we can enter into agreements with additional studios. In the event that we fail to reach agreement with such studios, our format may become less compelling to consumers and to retailers and potentially to CE licensees.

Our operating results may fluctuate, which may cause us to not be able to sustain our revenue levels or rate of revenue growth on a quarterly or annual basis which may cause our common stock price to decline.

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Our quarterly and annual revenues, expenses and operating results could vary significantly in the future and period-to-period comparisons should not be relied upon as indications of future performance. We may not be able to sustain our revenue levels, or our rate of revenue growth, on a quarterly or annual basis. In addition, we may be required to delay or extend recognition of revenue on more complex licensing arrangements as required under generally accepted accounting principles in the United States. Fluctuations in our operating results have in the past caused, and may in the future cause, the price of our common stock to decline.

Other factors that could affect our operating results include:

• the acceptance of our technologies by system operators and CE manufacturers;

• expenses related to, and the financial impact of, possible acquisitions of other businesses and the integration of such businesses;

• expenses related to, and the financial impact of, the dispositions of businesses, including post-closing indemnification obligations;

• the timing and ability of signing high-value licensing agreements during a specific period;

• the potential that we may not be in a position to anticipate a decline in revenues in any quarter until (i) late in the quarter due to the closing of sales agreements late in the quarter or (ii) after the quarter ends due to the delay inherent in reporting from certain licensees;

• the extent to which new content technologies or formats replace technologies to which our solutions are targeted; and

• adverse changes in the level of economic activity in the United States or other major economies in which we do business as a result of the threat of terrorism, military actions taken by the United States or its allies, or generally weak and uncertain economic and industry conditions.

Our quarterly operating results may also fluctuate depending upon when we receive royalty reports from certain licensees. We recognize a portion of our license revenue only after we receive royalty reports from our licensees regarding the manufacture of their products that incorporate our technologies. As a result, the timing of our revenue is dependent upon the timing of our receipt of those reports, some of which are not delivered until late in the quarter or after the end of the quarter. This may put us in a position of not being able to anticipate a decline in revenues in any given quarter. In addition, it is not uncommon for royalty reports to include corrective or retroactive royalties that cover extended periods of time. Furthermore, there have been times in the past when we have recognized an unusually large amount of licensing revenue from a licensee in a given quarter because not all of our revenue recognition criteria were met in prior periods. This can result in a large amount of licensing revenue from a licensee being recorded in a given quarter that is not necessarily indicative of the amounts of licensing revenue to be received from that licensee in future quarters, thus causing fluctuations in our operating results.

A significant portion of our revenue is derived from international sales. Economic, political, regulatory and other risks associated with our international business or failure to manage our global operations effectively could have an adverse effect on our operating results.

As of March 31, 2011, we had 5 major locations (defined as a location with more than 50 employees) and employed 683 employees outside the United States. We face challenges inherent in efficiently managing employees over large geographic distances, including the need to implement appropriate systems, controls, policies, benefits and compliance programs. Our inability to successfully manage our global organization could have a material adverse effect on our business and results of operations.

We expect that international and export sales will continue to represent a substantial portion of our revenues for the foreseeable future. Our future growth will depend to a large extent on worldwide acceptance and deployment of our solutions.

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To the extent that foreign governments impose restrictions on importation of programming, technology or components from the United States, the demand for our solutions in these markets could diminish. In addition, the laws of some foreign countries may not protect our intellectual property rights to the same extent as do the laws of the United States, which increases the risk of unauthorized use of our technologies. Such laws also may not be conducive to copyright protection of digital content, which may make our content protection technology less effective and reduce the demand for it.

Because we sell our products worldwide, our business is subject to the risks associated with conducting business internationally, including:

• foreign government regulation;

• changes in diplomatic and trade relationships;

• changes in, or imposition of, foreign laws and regulatory requirements and the costs of complying with such laws (including consumer and data protection laws);

• changes in, or weakening of copyright and intellectual property (patent) laws;

• difficulty of effective enforcement of contractual provisions in local jurisdictions or difficulty in obtaining export licenses for certain technology;

• import and export restrictions and duties, including tariffs, quotas or taxes and other trade barriers and restrictions;

• fluctuations in our net effective income tax rate driven by changes in the percentage of revenues that we derive from international sources;

• changes in a specific country’s or region’s political or economic condition, including changes resulting from the threat of terrorism;

• difficulty in staffing and managing foreign operations, including compliance with laws governing labor and employment; and

• fluctuations in foreign currency exchange rates.

Our business could be materially adversely affected if foreign markets do not continue to develop, if we do not receive additional orders to supply our technologies or products for use by foreign system operators, CE manufacturers and PPV/VOD providers or if regulations governing our international businesses change. Any changes to the statutes or the regulations with respect to export of encryption technologies could require us to redesign our products or technologies or prevent us from selling our products and licensing our technologies internationally.

We face risks with respect to conducting business in China due to China’s historically limited recognition and enforcement of intellectual property and contractual rights and because of certain political, economic and social uncertainties relating to China.

In addition to other risks associated with our global business, we face risks due to the operations we conduct in China, which could be adversely affected by political, economic and social uncertainties in China. As of March 31, 2011, we had 320 employees in China, primarily carrying out research and development activities. Operations in China are subject to greater political, legal and economic risks than operations in other countries. In particular, the political, legal and economic climate in China, both nationally and regionally, is fluid and unpredictable. Our ability to operate in China may be adversely affected by changes in Chinese laws and regulations such as those related to, among other things, taxation, import and export tariffs, environmental regulations, land use rights, intellectual property, employee benefits and other matters. In addition, we may not obtain or retain the requisite legal permits to continue to operate in China, and costs or operational limitations may be imposed in connection with obtaining and complying with such permits. Enforcement of existing laws or agreements may be sporadic and

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implementation and interpretation of laws inconsistent. Any of the foregoing could limit the remedies available in the event of any claims or disputes with third parties.

In addition, we have direct license relationships with many consumer hardware device manufacturers located in China and a number of the OEMs that license our technologies utilize captive or third-party manufacturing facilities located in China. We expect consumer hardware device manufacturing in China to continue to increase due to its lower manufacturing cost structure as compared to other industrialized countries. As a result, we face additional risks in China, in large part due to China’s historically limited recognition and enforcement of contractual and intellectual property rights. In particular, we have experienced, and expect to continue to experience, problems with China-based consumer hardware device manufacturers underreporting or failing to report shipments of their products that incorporate our technologies, or incorporating our technologies or trademarks into their products without our authorization or without paying us licensing fees. We may also experience difficulty enforcing our intellectual property rights in China, where intellectual property rights are not as respected as they are in the United States, Japan and Europe. Unauthorized use of our technologies and intellectual property rights by China-based consumer hardware device manufacturers may dilute or undermine the strength of our brands. If we cannot adequately monitor the use of our technologies by China-based consumer hardware device manufacturers, or enforce our intellectual property rights in China, our revenue could be adversely affected.

We have made and expect to make significant investments in infrastructure which, if ineffective, may adversely affect our business results.

We have made and expect to make significant investments in infrastructure, tools, systems, technologies and content, including initiatives relating to digital asset and rights management and data warehouses, aimed to create, assist in the development or operation of, or enhance our ability to deliver innovative products and services across multiple media, digital and emerging platforms. These investments may ultimately cost more than is anticipated, their implementation may take longer than expected and they may not meaningfully contribute to or result in successful new or enhanced products, services or technologies.

Some terms of our agreements with licensees could be interpreted in a manner that could adversely affect licensing revenue payable to us under those agreements.

Some of our license agreements contain “most favored nation” clauses. These clauses typically provide that if we enter into an agreement with another licensee on more favorable terms, we must offer some of those terms to our existing licensees. We have entered into a number of license agreements with terms that differ in some respects from those contained in other agreements. These agreements may obligate us to provide different, more favorable, terms to licensees, which could, if applied, result in lower revenues or otherwise adversely affect our business, financial condition, results of operations or prospects. While we believe that we have appropriately complied with the most favored nation terms included in our license agreements, these contracts are complex and other parties could reach a different conclusion that, if correct, could have an adverse effect on our financial condition or results of operations.

Changes in the nature or level of customer support we provide customers of our technology, product and service offerings could cause us to defer the recognition of revenue, which could adversely impact our short-term operating results.

Our technologies, products and services contain advanced features and functionality that may require us to increase the levels of, or revise the nature of, our end user support. Our customers may also require us to provide various benefits over longer service terms. To the extent that we offer a greater degree of customer support and ongoing services, we may be required to defer a greater percentage of revenues into future periods, which could harm short-term operating results.

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Our products could be susceptible to errors, defects, or unintended performance problems that could result in lost revenues, liability or delayed or limited market acceptance.

We develop and offer complex solutions, which we license to customers. The performance of these products typically involves working with sophisticated software, computing and communications systems. Due to the complexity of these products, and despite our quality assurance testing, the products may contain undetected defects or errors that may affect the proper use or application of such products by the customer. Because our products are embedded in digital content and other software, our solutions’ performance could unintentionally jeopardize our customers’ product performance. Any such defects, errors, or unintended performance problems in existing or new products, and any inability to meet customer expectations in a timely manner, could result in loss of revenue or market share, failure to achieve market acceptance, diversion of development resources, injury to our reputation, increased insurance costs and increased service costs, any of which could materially harm our business.

In addition, we rely on customers and third party replicators to properly use our products to protect the software and applications to which our technology may be applied. Any improper use or application of the software by customers or third party replicators may render our technologies useless and result in losses from claims arising out of such improper use of the products.

Because customers rely on our products as used in their software and applications, defects or errors in our products may discourage customers from purchasing our products. These defects or errors could also result in product liability or warranty claims. Although we attempt to reduce the risk of losses resulting from these claims through warranty disclaimers and limitation of liability clauses in our agreements, these contractual provisions may not be enforceable in every instance. Furthermore, although we maintain errors and omissions insurance, this insurance may not adequately cover these claims. If a court refused to enforce the liability-limiting provisions of our contracts for any reason, or if liabilities arose that were not contractually limited or adequately covered by insurance, our business could be materially harmed.

In protecting copyrights and other intellectual property rights of our customers, our products affect consumer use of our customers’ products. Consumers may view this negatively and discontinue or threaten to discontinue purchase or use of our customers’ products unless our customers stop using our technologies. This may cause a decline in demand for our products or legal actions against us by our customers or consumers.

Government regulations may adversely affect our business.

The satellite transmission, cable and telecommunications industries are subject to pervasive federal regulation, including FCC licensing and other requirements. These industries are also often subject to extensive regulation by local and state authorities. While these regulations do not apply directly to us, they affect cable television providers and other multi-channel video programming distributors, or MVPDs, which are the primary customers for certain of our products and services. FCC regulations prohibit MVPDs (except DBS providers) from deploying after July 1, 2007 consumer electronic navigation devices (e.g., set-top boxes) with combined security and non-security functions (the “integration ban”). The FCC has granted a number of requests for waiver of the integration ban, and denied several petitions for waivers or deferrals. Petitions for reconsideration of the decisions denying waivers are pending before the FCC. Further developments with respect to these issues or other related FCC action could impact the availability and/or demand for “plug and play” devices, including set-top boxes, all of which could affect demand for IPGs incorporated in set-top boxes or CE devices and correspondingly affect our license fees.

Legislative initiatives seeking to weaken copyright law or new governmental regulation or new interpretation of existing laws that cause resulting legal uncertainties could harm our business.

Consumer rights advocates and other constituencies continuously challenge copyright law, notably the U.S. Digital Millennium Copyright Act of 1998, or DMCA, through both legislative and judicial actions. Legal uncertainties surrounding the application of the DMCA may adversely affect our business. If copyright law is compromised, or devices that can circumvent our technology are permitted by law and

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become prevalent, this could result in reduced demand for our technologies, and our business would be harmed.

Many laws and regulations are pending and may be adopted in the United States, individual states and local jurisdictions and other countries with respect to the Internet. These laws may relate to many areas that impact our business, including copyright and other intellectual property rights, digital rights management, property ownership and taxation. These types of regulations are likely to differ between countries and other political and geographic divisions. Other countries and political organizations are likely to impose or favor more and different regulation than that which has been proposed in the United States, thus furthering the complexity of regulations. In addition, state and local governments may impose regulations in addition to, inconsistent with, or stricter than federal regulations. Changes to or the interpretation of these laws could increase our costs, expose us to increased litigation risk, substantial defense costs and other liabilities or require us or our customers to change business practices. It is not possible to predict whether or when such legislation may be adopted, and the adoption of such laws or regulations, and uncertainties associated with their validity, interpretation, applicability and enforcement, could materially and adversely affect our business.

Business interruptions could adversely affect our future operating results.

The provision of certain of our products and services depends on the continuing operation of communications and transmission systems and mechanisms, including satellite, cable, wire, over the air broadcast communications and transmission systems and mechanisms. These communication and transmission systems and mechanisms are subject to significant risks and any damage to or failure of these systems and mechanisms could result in an interruption of the provision of our products and services.

Several of our major business operations are subject to interruption by earthquake, fire, power shortages, terrorist attacks and other hostile acts, and other events beyond our control. The majority of our research and development activities, our corporate headquarters, our principal information technology systems, and other critical business operations are located near major seismic faults. Our operating results and financial condition could be materially harmed in the event of a major earthquake or other natural or man-made disaster that disrupts our business. The communications and transmission systems and mechanisms that we depend on are not fully redundant, and our disaster recovery planning cannot account for all eventualities.

If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements could be impaired, which could increase our operating costs and affect our ability to operate our business.

We have a complex business that is international in scope. Ensuring that we have adequate internal financial and accounting controls and procedures in place to help ensure that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. We are continually in the process of documenting, reviewing and, if appropriate, improving our internal controls and procedures in connection with Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accountants on the effectiveness of our internal controls over financial reporting. If we or our independent registered public accountants identify areas for further attention or improvement, implementing any appropriate changes to our internal controls may require specific compliance training of our directors, officers and employees, entail substantial costs in order to modify our existing accounting systems, and take a significant period of time to complete. We have in the past identified, and may in the future identify, significant deficiencies in the design and operation of our internal controls, which have been or will in the future need to be remediated. Furthermore, our independent registered public accountants may interpret the Section 404 requirements and the related rules and regulations differently from how we interpret them, or our independent registered public accountants may not be satisfied with our internal control over financial reporting or with the level at which these controls are documented, operated or reviewed in the future. Finally, in the event we make a significant

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acquisition, or a series of smaller acquisitions, we may face significant challenges in implementing the required processes and procedures in the acquired operations. As a result, our independent registered public accountants may decline or be unable to report on the effectiveness of our internal controls over financial reporting or may issue a qualified report in the future. This could result in an adverse reaction in the financial markets due to investors’ perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements.

We will incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could affect our operating results.

We have incurred, and will continue to incur, significant legal, accounting and other expenses associated with corporate governance and public company reporting requirements, including requirements under the Sarbanes-Oxley Act of 2002, as well as rules implemented by the SEC and NASDAQ. As long as the SEC requires the current level of compliance for public companies of our size, we expect these rules and regulations to require significant legal and financial compliance costs and to make some activities time-consuming and costly. These rules and regulations may make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage than was previously available. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as our executive officers.

We may be subject to assessment of sales and other taxes for the sale of our products, license of technology or provision of services.

We generally do not collect sales or other taxes on the sale of our products, license of technology or provision of services in states and countries other than those in which we have offices or employees. Our business would be harmed if one or more states or any foreign country required us to collect sales or other taxes from past sales of products, licenses of technology or provision of services, particularly because we would be unable to go back to customers to collect sales taxes for past sales and would likely have to pay such taxes out of our own funds.

The price of our common stock may be volatile.

The market price of our common stock has been, and in the future could be, significantly affected by factors such as:

• actual or anticipated fluctuations in operating results;

• announcements of technical innovations;

• new products or new contracts;

• announcements by competitors or their customers;

• announcements by our customers;

• governmental regulatory and copyright action;

• developments with respect to patents or proprietary rights;

• announcements regarding acquisitions or divestitures;

• announcements regarding litigation or regulatory matters;

• changes in financial estimates or coverage by securities analysts;

• changes in interest rates which affect the value of our investment portfolio;

• changes in tax law or the interpretation of tax laws; and

• general market conditions.

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Announcements by satellite television operators, cable television operators, major content providers or others regarding CE business combinations, evolving industry standards, consumer rights activists’ “wins” in government regulations or the courts, motion picture production or distribution or other developments could cause the market price of our common stock to fluctuate substantially.

There can be no assurance that our historic trading prices, or those of technology companies in general, will be sustained. In the past, following periods of volatility in the market price of a company’s securities, some companies have been named in class action suits.

Further, the general stock market instability and economic uncertainty may adversely affect the global financial markets, which could cause the market price of our common stock to fluctuate substantially.

Our telephone and computer networks are subject to security and stability risks that could harm our business and reputation and expose us to litigation or liability.

Online business activities depend on the ability to transmit confidential information and licensed intellectual property securely over private and public networks. Any compromise of our ability to transmit such information and data securely or reliably, and any costs associated with preventing or eliminating such problems, could harm our business. Online transmissions are subject to a number of security and stability risks, including:

• our own or licensed encryption and authentication technology, and access and security procedures, may be compromised, breached or otherwise be insufficient to ensure the security of customer information or intellectual property;

• we could experience unauthorized access, computer viruses, system interference or destruction, “denial of service” attacks and other disruptive problems, whether intentional or accidental, that may inhibit or prevent access to our websites or use of our products and services;

• someone could circumvent our security measures and misappropriate our, our partners’ or our customers’ proprietary information or content or interrupt operations, or jeopardize our licensing arrangements, which are contingent on our sustaining appropriate security protections;

• our computer systems could fail and lead to service interruptions or down-time for our ecommerce web sites; or

• we may need to grow, reconfigure or relocate our data centers in response to changing business needs, which may be costly and lead to unplanned disruptions of service.

The occurrence of any of these or similar events could damage our business, hurt our ability to distribute products and services and collect revenue, threaten the proprietary or confidential nature of our technology, harm our reputation, and expose us to litigation or liability. Because some of our technologies and businesses are intended to inhibit use of or restrict access to our customers’ intellectual property, we may become the target of hackers or other persons whose use of or access to our customers’ intellectual property is affected by our technologies. We may be required to expend significant capital or other resources to protect against the threat of security breaches, hacker attacks or system malfunctions or to alleviate problems caused by such breaches, attacks or failures.

Our Internet-based product and service offerings rely on a variety of systems, networks and databases, many of which are maintained by us at our data centers. We do not have complete redundancy for all of our systems, and we do not maintain real-time back-up of our data, so in the event of significant system disruption, particularly during peak periods, we could experience loss of data processing capabilities, which could cause us to lose customers and could harm our operating results. Notwithstanding our efforts to protect against “down time” for products and services, we do occasionally experience unplanned outages or technical difficulties. In order to provide our Internet-based products and services, we must protect the security of our systems, networks, databases and software.

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We utilize non-GAAP reporting in our quarterly earnings press releases.

We publish non-GAAP financial measures in our quarterly earnings press releases along with a reconciliation of non-GAAP financial measures to those measures compiled in accordance with accounting principles generally accepted in the United States (“GAAP”). The reconciling items have adjusted GAAP net income and GAAP earnings per share for certain non-cash, non-operating or non-recurring items and are described in detail in each such quarterly earnings press release. We believe that this presentation may be more meaningful to investors in analyzing the results of operations and income generation as this is how our business is managed. The market price of our stock may fluctuate based on future non-GAAP results if investors base their investment decisions upon such non-GAAP financial measures. If we decide to curtail use of non-GAAP financial measures in our quarterly earnings press releases, the market price of our stock could be affected if investors analyze our performance in a different manner.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Removed and Reserved

Item 5. Other Information

None.

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Item 6. Exhibits

		Incorporated by Reference
Exhibit     Number	Exhibit Description	Form	Date	Number	Filed       Herewith
31.01	Certification of the Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-15(e) and 15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X
31.02	Certification of the Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-15(e) and 15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X
32.01	Certification of the Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.				X
32.02	Certification of the Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.				X
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Document

*XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement or Prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Rovi Corporation
Authorized Officer:
Date:	May 10, 2011	By:	/s/ Alfred J. Amoroso
			Alfred J. Amoroso
			Chief Executive Officer
Principal Financial Officer:
Date:	May 10, 2011	By:	/s/ James Budge
			James Budge
			Chief Financial Officer
Principal Accounting Officer:
Date:	May 10, 2011	By:	/s/ Peter C. Halt
			Peter C. Halt
			Chief Accounting Officer

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