More Sucking Sounds at Sony

The spyware controversy won't go away for Sony (NYSE: SNE  ) . On Thursday, it came to light that the state of Texas is expanding its claims against the company. It's now saying that some of Sony's products -- using a different technology altogether from the one that caused the first controversy -- secretly downloaded programs onto users' machines, even if they rejected license agreements.

Back in November, the Sony BMG unit got into hot water over its XCP technology included on some of its musical CDs, which planted what are called "rootkits" to users' computers without their knowledge. The situation reached a high profile -- and incited some degree of consumer outrage -- when it was discovered that the technology made users' PCs vulnerable to hackers.

The new charge from Texas, as reported by CNET, pertains to Sony's MediaMax technology, which some say allows Sony to keep tabs on what users are doing with their music (which, of course, is the goal of copy protection -- to prevent users from making too many copies), even if the users rejected the license agreement upon installation. Furthermore, the attorney general from Texas said that both the XCP and the MediaMax technologies can make users' computers vulnerable to attacks. Sony responded that the technology is not hidden and that it does not collect the type of personal information that spyware is known to harvest.

I made it clear how I felt about these practices -- which hide rather clumsily behind the concept of stepped-up "copy protection" -- when the situation first came to light. A little bit more than a month later, I still can't quite fathom the idea that Sony could make decisions like these and come out unscathed, at least when it comes to the way the public views the company and its products. (And I can't say I quite understand why Sony stock had increased nearly 5% in earlier trading.)

Sony's recent earnings showed that there are many areas where the company continues to struggle. It's not lost on anyone that the once-famed creator of the Walkman lost the portable musical crown to Apple (Nasdaq: AAPL  ) and its iPods. Although its PlayStation is a popular gaming console, it faces serious competition from Microsoft's (Nasdaq: MSFT  ) Xbox product line as well as boxes from other players such as Nintendo. Even its personal-electronics products lost their shine, judging by last quarter's results.

It seems that many investors still retain a lot of belief in Sony, given that its stock price continues to go up. With a forward price-to-earnings ratio (P/E) of 73, I just can't help thinking that there's bad news ahead for this electronics giant. That's particularly true when it comes to this spyware controversy, which suggests a lack of concern about customers or their rights. It seems to me that these issues should be enough to make at least some shoppers cast a jaundiced eye toward many of Sony's products. Some will likely avoid them altogether.

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Alyce Lomax does not own shares of any of the companies mentioned.


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