Technology: March 2006 Archives


23 March 2006

Those perfidious French have done it again. Apparently, they have had the temerity to tell Apple it should open up its FairPlay digital restriction management system to consumers. In effect, give consumers the means to circumvent the mechanism used to prevent songs downloaded from its iTunes store from being copied.

Well, almost.

Some people posting about how Apple should quit the French market have got a little ahead of themselves. I'm half expecting someone to demand that Apple's music players should be hardwired to reject Johnny Halliday and Jacques Brel* songs in retaliation. Anyone want to listen to a FreedomPod while they munch their freedom fries? Wired struck a more balanced note.

In reality, all that has happened so far is that the French parliament decided to pass a law that demands that digital content - of any type - bought online should be playable on any type of music player. This decision seems to affect Apple the most because the company has refused to license its FairPlay system to any other manufacturer. Microsoft will also be affected but, because it licenses its system to hardware makers, the problem looks less serious. Apple has, for some strange reason that is actually alienating consumers, decided to overreact.

A few days late, I noticed that Analog Devices has got around to rescinding its anti-takeover plan, first established in 1998 under one of my (least) favourite business euphemisms: the "shareholder rights plan". Otherwise known as poison pills - a much more descriptive term - these plans effectively prevent any attempt to buy a controlling stake in the company and dump its management.

I was always curious where the term "shareholder rights plan" came from, as it was clearly enhancing the rights of the management rather than the shareholders, who would get to cash in on the ambitions of a purchaser. However, timing is important in how these things swing in and out of fashion. 1998 was a surprisingly bad year for electronics companies relative to other stocks. After the technology mini-boom of 1995 crashed and burned, the chipmakers ended up with the third-degree scars. While Internet stocks coughed and continued skyward toward the much bigger collapse of 2001, chipmakers bounced in and out of recession. Looking cheaply valued, a number of electronics stocks decided to fend off being eaten up by deals financed with overvalued paper using these poison pills. The argument generally promulgated at the time was that shareholders would not be sold short by a temporary imbalance in stock-market valuations.

Now it's the era of corporate governance and the idea of a shareholders rights plan, which makes it notionally more difficult for shareholders to sell up, is most definitely unfashionable. I really need to look at how many other companies in the sector are throwing out these late-1990s rules. It's not all that tricky to do: the deal looks to cost ADI about $180,000 by my calculations, given that the rights were worth $0.0005 per share. But is corporate-governance chic the only motivator to toss out these rules?