Dolby (DLB)

Founded by Ray Dolby (wife Dagmar Dolby, son David Dolby). The founder is dead and the company is still largely owned by the family.

The company has two classes of shares A (which is traded) and B (which is largely owned by the family). They are each  50M in numbers. Holders of Class A shares have 1 vote while the holders of class B have 10. The family owns ~ 100% of class B and ~ 0% of class A. Hence, they have ~ 90% voting power.

They develop sound/imaging technologies, patent them and then earn money by licensing them to OEMs (like Samsung for their cellphones, Microsoft for Surface, Movies etc). They do face competition in these. For example, they were not included in Windows 8 or in Samsung Galaxy S5.

There are several open source models and it is difficult to judge for me if they will continue to have the moat. No one buys a mobile, laptop because it has Dolby on it.

The second main problem I see is from the management point of view. The founding family has rightly hired Kevin Yeaman (CFO 2005-2009 and then CEO 2009-), to run the business and are paying him very well, mostly in stocks ( ~ 18M in the last 3 years in total, out of which $9M in options and $6M in stocks). Unfortunately, with the founding member gone and the son controlling the voting power, I am unable to handicap the politics either.

Disclosure: No position. No plan to start one.

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