Oh No, Sony
Spyware bugs people

1. Deluge

Music buyers got hosed this week by Sony BMG.

The joint venture of Japan's Sony ( SNE) and Germany's Bertelsmann soaked its loyal customers by sneaking some anticopying software onto music compact discs.

The software was aimed at bolstering sales by preventing CD-copying on Windows-based personal computers, but it didn't end up working quite that way. Rather than protecting the precious intellectual property of Celine Dion , the so-called Extended Copy Protection program ended up spurring an anti-Sony rebellion.

Sony BMG came under fire from all sides after alert techies revealed that the software could expose computers to virus attacks. Irate CD buyers called for a boycott. Media reports raised the specter of spyware infestation. Computer security outfits, led by Microsoft ( MSFT), rushed to neutralize the threat.

Sony BMG rallied, distributing a patch that fixed the virus vulnerability. It also discontinued its use of the software and recalled the discs. "We stand by content protection technology as an important tool to protect our intellectual property rights and those of our artists," the company said in a statement on its Web site. Even so, "we deeply regret any possible inconvenience this may cause."

On the plus side, the fiasco might give embattled Sony BMG chief Andrew Lack the inside track on a plush new office in Redmond, Wash. After all, how often does Microsoft come out of a software mishap looking this good?

Dumb-o-Meter score: 91. Sony BMG doesn't mind playing the heavy, that's for sure.

To view Colin Barr's humorous video take on Sony's spyware, click here .

Conscience Is His Guidant
Dollens knows when to go

2. Heartthrobs

The heartache is over for Guidant ( GDT) and Johnson & Johnson ( JNJ).

Only a week ago, the big medical device companies appeared well on their way to an ugly legal standoff. But on Tuesday, they came to terms on a revised merger deal that offers something for everyone. J&J gets a shot at new growth markets at a price it can stomach. Guidant shareholders get $21 billion in cash and stock, locking in gains of recent years. And Guidant chief Ron Dollens finally gets to retire in style.

Last December, when the companies first announced merger plans, J&J projected a third-quarter completion date. Dollens, who by then was looking to head off into the Indianapolis sunset, said he would retire at closing. "The complementary strengths of both firms ... should allow for a very smooth transition," Dollens said during a Dec. 16, 2004, conference call.

But the transition turned rough indeed after safety concerns pushed Guidant to recall a bunch of defibrillators and pacemakers. Those problems, and Guidant's handling of them, led to the last-minute wrangling that had J&J backing away from the table, and Guidant suing its suitor.

Finally, this week the sides worked out a new agreement that's supposed to close in the first quarter of 2006, replete with a $4 billion haircut for Guidant shareholders. And this time around, Dollens is taking no chances. Rather than sticking around to sign all the papers at closing, he said Tuesday he'd step down immediately, to be succeeded on an interim basis by Chairman James Cornelius.

"I am confident that it is the proper time to pursue my previously announced retirement," Dollens said in a press release Tuesday morning. "I've been privileged to lead Guidant over the last 11 years and build a solid foundation of organic growth from innovation, global sales distribution capabilities, access to key markets and a dedicated leadership team."

Privilege sounds like the right word. As The Indianapolis Star pointed out last week , Dollens' retirement promises to be a lavish affair. He and Cornelius managed to cash out $33 million worth of Guidant stock in April. They were aided by an unusual provision that vested their stock options upon shareholder approval, not at closing, as is the norm.

That little twist allowed Guidant's top two to sell their stock at $74 and change, a sight better than the $62.50 Guidant has been fetching lately. But then, we always knew having a dedicated leadership team would pay off.

Dumb-o-Meter score: 88. Only time will tell how many yachts Dollens and Cornelius can water ski behind.

Seeing Stars
Sternlicht disgusted by hotels' unloading

3. Fallen Star

Former Starwood ( HOT) chief Barry Sternlicht has some stern words for his successor.

Starwood, the lodging giant that Sternlicht built over 10 years before his departure this spring, said Monday it would sell 38 upscale hotels to rival Host Marriott ( HMT). Top managers at Starwood and Host Marriott were predictably worked up. "We are thrilled to announce this acquisition," Host's Chris Nassetta said.

"This transaction puts a strategic stake in the ground," said Starwood's Steve Heyer, explaining his desire to shift Starwood's focus toward marketing.

Heyer, of course, is the former Coca-Cola ( KO) second-in-command who fled the sugar-water giant after he was passed over for CEO in favor of Neville Isdell. When Heyer joined Starwood last year, Sternlicht -- a notoriously hard-to-please boss who remains the company's largest shareholder -- was anything but stingy in his praise.

"Steve embodies all that we were searching for in a new CEO," said Sternlicht in a Sept. 20, 2004, press statement. "I believe this will be a momentous day in the company's short history as we bring in an executive of Steve's caliber from outside the industry to look at Starwood, explore new avenues for growth globally and approach our core hotel business with a fresh set of eyes."

Judging by this week's events, though, Sternlicht is tired of fresh eyes.

"This is a very black day for Starwood shareholders and its board," Sternlicht told The Wall Street Journal. "I am 100% certain that private-equity interests would have paid more for these assets," he added, calling the deal "amateur hour."

Just another momentous day at Starwood.

Dumb-o-Meter score: 85. It sounds like the the Sternlicht-Heyer partnership may have lost its fizz.

Agarn and O'Rourke Online
With commercials, too!

4. Ad Infinitum

America Online bounced back in a big way this week.

Just days after the Time Warner ( TWX) unit suffered a strategic setback , AOL delivered an on-demand programming windfall of mind-blowing proportions.

Viewers everywhere wept tears of joy as AOL and corporate sibling Warner Bros. unveiled plans to team up on a broadband television service called In2TV . The free service will give viewers unfettered access to the episodes of Chico and the Man, Eight Is Enough and F Troop that one and all have been crying out for. The companies also promise interactive quizzes, games, polls and contests, if you can imagine. And best of all, the shows will have commercials!

Monday's announcement was enough to soothe the pain AOL was surely feeling only last Thursday, when Net giant Yahoo! ( YHOO) bowed out of Time Warner's slow-motion auction of a stake in AOL. Time Warner has by now fielded feelers from Microsoft ( MSFT), Google ( GOOG) and Comcast ( CMCSA) as big players jockey for position with Internet advertisers.

Of course, all the big communications players are talking a big game nowadays about on-demand video. But at Time Warner, "we are enabling Web users to experience and interact with television programming in an entirely new way," said Kevin Conroy, executive vice president, AOL Media Networks. "Visitors will be able to program their own personal network, making it a TV lover's dream come true," added Eric Frankel, president, Warner Bros. Domestic Cable Distribution.

A network of nothing but 20-year-old Spenser for Hire reruns? Well, that is a dream come true.

Dumb-o-Meter score: 80. Next up on our wishlist for AOL: a partnership with Telkonet (TKO), the broadband outfit that recently filed its quarterly report a minute late because it "was not able to connect to the Internet in timely manner."

5. Kitchen Sync

The folks at Intellisync ( SYNC) know a good deal when they see it.

The San Jose, Calif., Blackberry wannabe agreed Wednesday to be acquired by wireless titan Nokia ( NOK) for $5.25 a share. The deal, which Intellisync valued at $430 million, "underscores Intellisync's position in the mobile industry and its leadership in the carrier and enterprise markets in providing multi-device, multi-platform wireless software, mobile applications and synchronization," the company said.

"This agreement recognizes the key roles that Intellisync and our people play in the mobile market, and reflects the power of our brand, our products, our team and our technology," CEO Woody Hobbs added. "Our combined teams will present the most compelling mobility offering to enterprises and carriers all over the world."

Sounds great. Investors in rival Research In Motion ( RIMM) certainly took note, sending the patent-plagued Blackberry maker down 4%.

Yet Intellisync shareholders didn't seem to share Hobbs' enthusiasm. Intellisync didn't immediately return a call seeking comment, but reader John von Colditz thinks the price tag -- which has Nokia paying 5% less than Tuesday's closing price -- might bear some of the blame. "The first time I've seen a deal for less than the closing price!" he notes in an email. "Management has reduced shareholder value!"

Yes, but what a small price to pay to underscore Intellisync's leadership.

Dumb-o-Meter score: 75. "'Powered by Intellisync' has become synonymous with 'any device, any platform, any mobile application,'" the company claims in its press release -- overlooking the inconvenient fact that no one gives a hoot.
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