OT/Philips, Sony to buy InterTrust for $453 mln
By Jana Sanchez and Eric Auchard
AMSTERDAM/NEW YORK, Nov 13 (Reuters) - Consumer electronics giants Philips and Japan's Sony Corp., joint inventors of the compact disc, teamed up on Wednesday to buy InterTrust <ITRU.O> Technologies for $453 million -- a deal expected to speed up copyright security for digital music, films and software.
The purchase by Netherlands-based Philips <PHG.AS> and Sony of Japan to buy a top U.S. patent holder in the field of 'digital rights management' software could help tiny InterTrust mount a formidable challenge to rival Microsoft <MSFT.O>.
The acquisition also takes aim at Macrovision <MVSN.O>, the dominant supplier of copy protection for feature films worldwide, which only last week purchased Midvar, a top supplier of technology used to thwart digital music piracy.
InterTrust, based in Santa Clara, in the heart of California's Silicon Valley, holds 26 U.S. patents for a mix of software and hardware techniques used to protect easy-to-copy digital material from unauthorized duplication by business rivals, fans or criminal pirates.
"This validates the market for digital copy protection," said Steve Lidberg of Pacific Crest Securities in Portland, Oregon. "We are seeing the market grow up."
Analysts said the deal comes to the rescue of financially struggling InterTrust, which has been embroiled in a patent battle with Microsoft, and could help insulate InterTrust from losing control of a potentially lucrative anti-copy business.
Philips and Sony, the electronics giants who introduced the CD format 20 years ago, said the deal would enable secure distribution of content as more films and music are sold over the Internet and other media in digital format.
INTERTRUST COULD BECOME THIRD FORCE
Philips said the companies would start an open licensing program and would encourage content providers to use the technology, which can protect all digital formats, including CDs, MP3 music and digital video disc (DVD) films.
The two firms said in a statement they would pay about $453 million, or $4.25 per share, for InterTrust Technologies Corp. The price offered represents a 26 percent premium to Tuesday's closing price for the digital rights management firm.
InterTrust shares rallied 26.41 percent on the Nasdaq stock market to $4.26. Shares of Sony listed on the New York Stock Exchange dropped 2 percent to $40.90 while Philips shares closed at 16.28 euros in Amsterdam, little changed on the day.
Shares of Macrovision fell nearly 5 percent to $14.79 while Microsoft gained nearly 1 percent to $55.02, both on Nasdaq.
Sony, the world's largest electronics group and a major provider of film and music entertainment, and Philips, Europe's largest maker of consumer electronics, formed a vehicle called Fidelio Corp. to purchase the company.
InterTrust, a pioneer in the field of corporate intellectual property protection, recently has shifted its focus to include the consumer media market, where Macrovision holds a wide lead and Microsoft is so far less of a player.
Yet Lidberg, who recommends Macrovision as a buy to investors but does not rate InterTrust, said that, to date, InterTrust has shown "zero traction commercially" in the consumer media market.
MACROVISION HAS BIG LEAD
The Pacific Crest analyst sees little impact from Philips and Sony's backing of InterTrust for at least the next 18 months. "If you look at the lead that Macrovision has in getting face time with customers and in demonstrating workable technology, Macrovision has a big lead," Lidberg said.
Some analysts say Microsoft may lose if Philips and Sony are successful at promoting the InterTrust technology throughout the entertainment industry because Microsoft's technology push would have a tougher time making inroads among media companies who fear the software giant's power.
InterTrust filed a patent infringement suit against Microsoft in April 2001. Philips declined to comment on the future of that lawsuit.
All the major music labels, in particular BMG, Sony Music and Universal Music have been investing heavily in copy-proof technologies to protect their artists.
As creators of the CD, the pair have previously locked horns with major music companies over the insertion of errors that prevented consumers from making a copy.
"We come very much from the side of the consumer and we believe the consumer should have the right to reproduce content for their own use," said Philips spokesman Jeremy Cohen.
Analysts said the deal would probably revive the technology of InterTrust, which has struggled to survive due to a very slow uptake of digital sales.
"All of the music the major labels produce is available now for free online, so there has been little call for digital rights management technology for online distribution," said Simon Dyson, analyst at London-based publisher Inform Media Group.
"But the joint involvement of these companies could mean a faster development of copyright protection and that's very good for the music industry," he said.
Sony in particular, as the world's second-largest music company, would benefit in terms of sales of the technology and protection of its CD format, Dyson said.
(Additional reporting by Christopher Borowski in Amsterdam and Bernhard Warner in London)
11/13/02 17:39 ET
Copyright 2002 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. All active hyperlinks have been inserted by AOL.
AI
