Managing Consumer and Investor Perception Amidst a Nasty Lawsuit
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Holmes Report

Managing Consumer and Investor Perception Amidst a Nasty Lawsuit

During 2001, consumer electronics products company SONICblue had offloaded unprofitable 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’s viability was in question.

Paul Holmes

During 2001, consumer electronics products company SONICblue had offloaded unprofitable 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’s viability was in question. Investors were starting to sell off their holdings. On the plus side, a major new product was about to be launched, an event heralded by management as the “turnaround point.”
Then came the big blow. SONICblue was hit with a lawsuit by all the major television networks and most of the large studios: ABC, NBC, SONY/Columbia Pictures, AOL-Time Warner, Disney and Paramount, charging that the new product line violated copyrights. If the Court was successfully lobbied, the lawsuit could stop sale of the company’s new ReplayTV 4000, the flagship product on which SONICblue had been positioning its recovery, and reflect negatively on the company for violating the law.
With an imperiled stock, uncertain future and investors on the phone asking for a response, not to mention press who wanted reactions to the challenges of the lawsuit, SONICblue and The Bohle Company needed to move fast and manage and mitigate the potentially disastrous impact the lawsuit could have on the company.
The PR objectives were to help SONICblue convince the world that its product did NOT violate existing law; to stave off an injunction against the ReplayTV 4000; to convince investors that the company and its potential for revenue still remained strong; to drive retail sales of the product, keeping the company afloat
The PR Strategies were to stimulate doubt about the viability of the suit by saturating the media with information on past court decisions supporting consumers’ fair use rights; promote the claims as an attempt by the “Goliath” networks to keep an exciting product away from the consumer; 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
The target audience included consumers, early adopters of technology, consumer electronics retailers, court judges, legislators being lobbied by the opposition, other potential strategic partners, current shareholders, and the Wall Street investment community
The implementation consisted of first gathering information to help the lawyers convince the judges we were being wrongly sued. Secondly to convince the target audiences that SONICblue could win the lawsuit and survive. The 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; coverage of previous consumer rights lawsuits, to determine plaintiff and defendant strategy; trade and consumer advocacy groups whose spokespeople could be used for speeches, press references and letters to congressmen, as well as to issue press releases; third-party supporters/industry influencers who would comment to reporters
 By vigorously and publicly fighting the claims of the suit and driving discussion of consumers’ digital rights, consumers could be rallyed around the features of the product, putting pressure on the networks to back off and getting the court to allow SONICblue to ship its product on schedule. The hope was that national visibility in the form of public outcry would clear the company of wrong-doing and 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. The CEO viewed this as critical because the company would need the cash to remain viable and fund new product development in 2002.
During the planning, several meetings were held with SONICblue’s lawyers, who agreed to follow an aggressive strategy. SONICblue’s internal VP, IR/PR would handle street contact, delivering any good news that could be drumed up, week-by-week, while the business rallied and financial editors reported 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.
There was at least one release and/or new one-on-one pitch each week for writers at the major business/financial publications as well as the enthusiast press.
The consumer advocacy outreach consisted of face-to-face meetings with all the key CE and privacy advocacy groups, including the Consumer Electronics Association, Consumers’ Union, Electronic Frontier Foundation and DiMA, all of which supported us with releases, lobbying and filings.
Television interviews were sought with CNBC, CNN, CNNfn and Fox News to allow SONICblue’s CEO to rebut the claims of the lawsuit. The PR team targeted network affiliates of ABC, NBC, CBS and Fox for product segments on the ReplayTV.
The results were over a 12-week period, and all the major national business/financial publications did multiple stories, all containing SONICblue’s key messages on the issue. In the next six months, a total of nine Wall Street Journal articles were generated, all containing positive SONICblue messages. The CEO appeared on all the top financial news channels (CNBC, CNN, CNNfn and Fox). Product coverage supported the effort, with over 60 TV news segments running on stations around the world. BusinessWeek and Fortune named the ReplayTV 4000 “Product of the Year.”
Additionally, all the objectives were achieved with editorials in The Wall Street Journal, BusinessWeek, C/net, USA Today and the San Jose Mercury News supported SONICblue on the issue of consumers’ digital rights. Faced with these editorials, a barrage of supporting product and news stories and lawyer threats, the plaintiffs ultimately did not file for an injunction, allowing the company to go forward selling the product.
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 ReplayTV 4000 and is approaching profitability.
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