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Tuesday, Oct 7, 2008
Yet another victory for the entertainment industry in its showdown with Silicon Valley: The firing of Sonicblue CEO Ken Potashner.
Sep 9, 2002 | In August, the board of directors of Sonicblue fired CEO Ken Potashner after he publicly accused three board members of taking improper loans from company coffers. Sonicblue is best known for the controversial ReplayTV personal video recorder, and Potashner's exit was a fittingly contentious and melodramatic end to his tenure.
Since assuming leadership in 1998, Potashner had managed to embroil his company in noisy legal battles with investors, employees, competitors, the government of Taiwan, the recording industry, and 29 film and broadcasting companies. "Antagonistic lawsuits are a head rush," Potashner said only weeks before he was sacked. "People think that if Hollywood is coming out this aggressively against us, we must have products they want to buy."
After his ouster Sonicblue promptly issued a statement denying Potashner's claim of accounting improprieties and moved on, replacing him with L. Greg Ballard, Sonicblue's executive vice president of marketing and a far more conciliatory kind of guy. "The difference between Ken and me is that I would prefer not to have 29 media companies suing us right now," Ballard says. "Ken thrived on it. My judgment is that we're better off without it."
In the Enronesque microdrama surrounding Potashner's departure, it's been easy to overlook what this abrupt change in leadership means, not only to Sonicblue but also to the future of the digital electronics industry. In the increasingly rancorous dispute between Silicon Valley and Hollywood over how digital media should evolve, Potashner believed in making products first and asking permission from Hollywood later. That perspective is increasingly rare in any startup that makes digital entertainment products, where companies fail not because their products are shoddy, but because they can't afford to defend their right to make them. Now one more Silicon Valley executive who didn't believe in kowtowing to the entertainment industry is gone.
For a small and struggling company (Nasdaq has warned Sonicblue that it will be de-listed in November if the stock price doesn't climb above a dollar, and the company has announced that it is going to lay off 100 employees), Sonicblue has had an outsized impact on the evolution of digital media devices. It was the first company to bring MP3 players to the U.S. market (through its subsidiary Diamond), after weathering a long and costly lawsuit with the recording industry. It was the first to market a portable device that played both store-bought and self-burned CDs. And it was the first, significantly, to allow customers of its ReplayTV personal video recorders to skip commercials instead of fast-forwarding through them, and to send recorded television programs over the Internet to others. Hollywood sued over those last two innovations, fearing a loss of advertising revenue and the widespread piracy of its copyright-protected programming. The suit is winding its way through the discovery phase and, unless it is settled, will come to trial late this year or early next.
Sonicblue managed to innovate so freely in large part because of its former leader's talent for ignoring legal risk. "I'd much rather be offering the right product with the risk of litigation than the wrong product with no risk," Potashner said last July. "We're wearing the hat of the consumer advocate. We're taking on the establishment. We're spending millions on lawsuits on behalf of the consumer. You should expect great products from us, you should expect growth, and you should expect us to be a company that's going to change the world."
Alas, changing the world gets harder in a down economy. While Sonicblue will not disclose how much it has spent to defend the simple right to sell a box that lets customers skip commercials without pushing a button, legal experts following the case estimate it's six figures a month and climbing. The costs are certainly far more than the revenues Sonicblue derives from selling ReplayTV boxes. It's a battle Sonicblue can ill afford: The company is faced with depressed forecasts for personal video recorders and investors who are increasingly impatient to see the company turn a profit.
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