CRISIS COMMUNICATIONS
HELPING SONICblue FIGHT A MAJOR LAWSUIT

Downloadable File: 1-SONICblue Crisis.doc
Date: 11/22/2002


SITUATION:

In October 2001, one year after undergoing a shift from graphics chipmaker to consumer electronics (CE) products company, SONICblue was in deep trouble. The company had offloaded divisions, endured rounds of layoffs and taken write-downs for several acquisitions. The stock price had plunged to an all-time low of $.76 and the company now faced possible de-listing from the NASDAQ. Investors were starting to (or threatening to) sell off their holdings.

Then, the day we were to announce Q3 earnings, and just as Q4, the biggest selling season for CE companies began, came the big blow. SONICblue was hit with a lawsuit over copyright infringement and a commercial skip feature by all the major television networks and most of the large studios: ABC, NBC, SONY/Columbia Pictures, AOL-Time Warner, Disney and Paramount - eventually 28 co-plaintiffs. If successful, the lawsuit could stop sale of the company’s new ReplayTV 4000, the flagship product on which SONICblue had been positioning its revenue recovery.

With an imperiled stock, uncertain future and investors on the phone asking for our response, SONICblue and The Bohle Company needed to move fast.

RESEARCH: Our first step was to gather information to help us convince our target audiences that SONICblue could win the lawsuit and survive. Our research included:

·Past court decisions and legislation supporting SONICblue’s claims that the contested functionality of the product was protected under consumer “fair use” rights

·The Home Recording Rights Coalition (HRRC)’s previous lobbying efforts on the Hill, directed at consumers’ rights regarding video recording devices

·Coverage of previous consumer rights lawsuits, to determine plaintiff and defendant strategy

·Dow Jones search on competitive products (TiVo, Microsoft UltimateTV), to be sure we had every reporter covering personal video recorders (PVRs) on our target outreach list

·Advertising rates/revenue trends, to identify factors contributing to the decrease in TV ad revenues

·Third-party supporters/industry influencers who would comment

·Consumer advocacy groups whose spokespeople we could use for speeches, press references and letters to congressmen, as well as to issue press releases

OBJECTIVES:

·Help SONICblue’s law firm stave off an injunction against the ReplayTV 4000

·Get consumers excited about SONICblue and its ability to produce cutting-edge technology products

·Stimulate investor interest in the company, raising the stock price to $5 by January, the month SONICblue planned to do an ADR

TARGET AUDIENCES: Consumers, early adopters of technology, CE retailers, other potential strategic partners, current shareholders, Wall Street investment community, legislators being lobbied by the opposition

STRATEGIES:

·Promote the suit as an attempt by the “Goliath” networks to keep an exciting product away from the consumer

·Paint the networks as trying to control the consumers’ living room and unwilling to consider new business models that would allow them to benefit from distribution of their programs via the Internet

·Stimulate doubt about the viability of the suit by saturating the media with information on past court decisions supporting consumers’ fair use rights

·Seek out consumer advocacy groups and other third-parties who have in the past supported digital rights for consumers to start an outcry against Hollywood’s move to control the living room

At the conclusion of our research, we decided to respond aggressively. By vigorously and publicly fighting the claims of the suit, we felt we could rally consumers around the features of the product. Our hope was that national visibility would stimulate consumer sales so strongly that investors would sustain and even heighten their interest in the company, positively influencing stock price by first quarter, when SONICblue needed to execute an ADR on an earlier outside investment. This was viewed by the CEO as critical because the company would need the cash to remain viable and then expand in 2002.

PLANNING: Another key first step was gathering the team. We held several meetings with SONICblue’s lawyers, who agreed to let us follow our aggressive strategy. SONICblue’s internal VP, IR/PR would handle Street contact, delivering any good news we could drum up, while we rallied business and financial editors to report on SONICblue’s response to the claims of the suit. It was important to move fast, because an injunction against SONICblue’s flagship product would have the potential of putting the company out of business.

EXECUTION/TACTICS:

Key Messages: We wanted everyone communicating with SONICblue’s audiences delivering the same talking points and sound bites. We developed the statement, “This is the product the networks don’t want you to own,” and several sub messages.

Releases: We did at least one release and/or new one-on-one pitch a week for writers at the major business/financial publications.

One-on-one Pitches: We developed story angles for the business writers that promoted SONICblue’s long-range strategy and potential for a return to financial health.

TV Interviews: We went after CNBC, CNN, CNNfn and Fox News to arrange interviews for SONICblue’s CEO to rebut the claims of the lawsuit. We targeted network affiliates of ABC, NBC, CBS and Fox for product segments on the ReplayTV.

EVALUATION: Over a 12-week period, all the major national business publications did multiple stories containing SONICblue’s key messages. Six positive news stories ran in The Wall Street Journal alone. The CEO appeared on all the top financial news channels (CNBC, CNN, CNNfn and Fox). Product coverage supported our effort, with over 60 TV news segments running on stations around the world. BusinessWeek and Fortune named the ReplayTV 4000 “Product of the Year.”

All our objectives were achieved:

·Faced with a barrage of stories supporting digital rights, as well as lawyer threats, the plaintiffs ultimately did not file for an injunction, allowing the company to go forward selling the product. This single accomplishment literally saved the company

·Due in part to better than expected sales of ReplayTV 4000, Q4 revenues blew out Street expectations and investor guidance

·SONICblue’s stock price soared from $.76 on Oct. 8, 2001 to $5.12 on Jan. 8, 2002

·One year later, the company continues to sell the ReplayTV system and is approaching profitability