Why Did Microsoft Cut Dolby Out Of Windows 8?
On its earnings call last Friday, audio technology company Dolby announced that the next version of Microsoft Windows might not included its technology. — Its stock dropped about 18% on the news. — Microsoft has shipped Dolby technology …
Context & Ripple Effects
Dolby told investors on its Friday earnings call that the next version of Microsoft Windows might ship without its audio technology — a characterization the company itself offered, not something Microsoft has confirmed. What is confirmed is the history behind it: Microsoft has shipped Dolby technology in Windows products for years, making the OS one of Dolby's anchor licensing channels.
The market read the risk as real. Dolby's stock fell roughly 18% on the news, an immediate repricing of how much value investors attach to the Windows relationship relative to the rest of Dolby's licensing business.
First-order effects
- If Microsoft ships Windows 8 without Dolby audio processing built in, Dolby loses a royalty stream it has collected on every Windows PC for years — the immediate driver of the ~18% share-price drop.
Second-order effects
- Rival audio-technology licensors get an opening to compete for the default slot in Windows 8, while PC makers face the prospect of licensing Dolby separately per device instead of getting it through the OS.
Third-order effects
- If the pattern holds, platform owners trimming licensed third-party components out of the base OS push feature costs downstream to hardware makers — shifting bargaining power from royalty-bearing middleware vendors toward whoever controls the operating system.
The trend: Operating-system platforms are re-examining which licensed technologies ship by default, converting built-in royalties into optional per-device decisions.