Haven't seen any mention here of the news that Sonic Blue
has filed for Chapter 11 (insolvency). Will the Rio unit
be spun-off/sold as part of the reorganization, and what
impact will that have on future product plans (and
software updates)?
Thanks,
Ed


March 21, 2003
SONICblue Seeks Chapter 11 Protection
By Clint Boulton
In its latest bid for survival, SONICblue (Quote, Company Info) Friday filed for Chapter 11 bankruptcy and moved to sell three of its subsidiaries for $52.5 million.

The embattled Santa Clara, Calif. maker of consumer electronics, which has been bleeding cash for more than a year and trying to get in the black, also agreed to sell its ReplayTV and Rio business units to D&M Holdings for $40 million in a non-binding agreement. D&M Holdings is the parent firm of audio equipment makers Denon and Marantz Japan.

But the firm didn't stop there in its effort to get leaner, as it definitively agreed to sell its GoVideo unit to consumer products concern Opta Systems for approximately $12.5 million. The terms of the sale of these business units will require the approval of the U.S. Bankruptcy Court of the Northern District of California, San Jose Division.

"We have great confidence in our business units, and worked to develop a plan that would permit SONICblue to continue operating within the significant constraints imposed by our debt and legacy liabilities," said Gregory Ballard, Chief Executive Officer, SONICblue. "We believe the proposed sale transactions will offer SONICblue's current product lines a stable and financially strong base that will enable product development and current services to carry on."

To facilitate cash liquidity, SONICblue's senior lender has also granted it $4 million in additional financing. The company intends to file motions with the court to support its employees, vendors and customers and to retain Houlihan Lokey Howard & Zukin Capital as financial advisors and Pillsbury Winthrop LLP as legal counsel. As dictated by bankruptcy code, SONICblue will also file a motion to open itself up to be bought vis-á-vis auction by other interested businesses.

SONICblue said the sale of its business units should be completed by the end of April.

Best known for its first-of-its-kind Rio MP3 players, SONICblue's brands include ProGear information appliances, ReplayTV digital recorders and software and Go-Video DVD+VCRs combos, dual-deck VCRs and digital home theater systems. Digital video recorders let users customize television viewing and record shows on a computer hard drive in a set-top box, allowing viewers to skip commercials. ReplayTV's customer service center said their service would continue unimpeded -- just provided by the acquiring firm.

Once a darling to Wall Street and consumer device fanatics, SONICblue's safety measure marks another sour spot in the long decline of the firm, which admitted last January that it was considering putting itself on the auction block.

With bad elements seemingly at every turn in the latter half of 2002, that concession followed a November 2002 filing with the Securities and Exchange Commission, in which the firm said it had a debt of $335.5 million. In September, the firm slashed 25 percent of its work force a month after President and CEO Kenneth Potasher was canned over a loan dispute with the company's board of directors.

That problem and the layoffs sandwiched positive news in the form of a patent suit settlement with digital recorder rival TiVo, but SONCIblue has spent the better part of two years fending off lawsuits, most notably perhaps for its ReplayTV brand, which manufactured a dual deck VCR that media giants CBS, NBC, Viacom and Disney said infringed on their copyrights. That suit was also settled.

There's a thread on it over on the empeg BBS.

There's a thread on it over on the empeg BBS.

True, but so far (well, at least up until I checked it yesterday) we hadn't discussed the implications of the Ch11 filing as it relates to the Rio Receiver and Rio Central. We've just been talking about the car player over there.

Maybe Rob or someone will chime in here and give us an idea of what this means for the RR/RC ?

True. I misread the initial post as asking how Rio itself would fare instead of the products.

You'd hope that being bought by a Hi-Fi manufacturer would be good news for the RR/RC. Now they should have the distribution channels that they need to sell expensive bits of home Hi-Fi kit, as opposed to the cheap portables SB were used to selling.

Assuming the proposed sale goes though of course.

Convincing builders of hi-fi to buy an MP3 server/players might be another problem

Given that the nearest current equivalent to the Rio Receiver is the Onkyo NC-500 , and that Denon are pitched pretty much head to head against Onkyo, I would have thought there may be some hope of a born-again Rio Receiver if the Onkyo unit starts to sell well. Not sure that's happening though, as there's very little visibility of the NC-500.

In hope

Phil

I have no idea, but I know D&M already have some bits and pieces in the connected home space. You would have to assume that purchasing Replay and Rio together implies some interest in expanding on that.

All subjecture - let's wait and see who acually gets to buy us first. I believe it will take a couple of weeks or so for the court to hold an auction.

I would think that the SLIMP3 is the closest equivalent of the Rio Receiver. Now that I've seen it this morning, it looks nicer that the Rio Receiver. It has a much bigger and brighter screen. The software (all of it) is fully open source, is written in Perl (server side), and runs under Windows, Mac OS X, Linux, *BSD, and even Solaris.

But the slimp3 is using a hardware chip (micronas) to decode mp3 - so no hope of Ogg, FLAC or anything else, ever...

The latest I've seen on SB and Chapter 11 is that the deal with Denon fell through, and it's going on the auction block.

What're the chances that the engineers who've created such cool stuff in the first place (the Receiver and the empeg car player) might be able to buy back the rights and, maybe, just maybe, open-source it?

I'd LOVE to see an open-source successor to these. I've been looking for a car player (and lusting after navigation systems), but they're just too damned expensive with interfaces that are about 10 years outdated. We've obviously got a thriving community willing to write client and server software for it -- we just need a start on the hardware, at this point.

Or is this just unrealistic? (or are the engineers ready to move on to something completely different?)

Well, for one thing, they were an independent company before they were part of SonicBlue, and their applications were not open source then, so I'd say that's unlikely to happen.

I also seem to remember an asking price in the tens of millions of dollars, and while it's possible that it will go for less, I can't imagine it would be that much less.

The source base is certainly valued in the millions of dollars range, even just to license it. If anyone wants to bid for it (and the empeg team as well!) at auction on the 15th then go for it. You'd have to have pretty deep pockets to do so and then open source it all

In practice we still expect to be bought as a going concern, and D&M are as much in the running as any other potential purchaser.

In reply to:

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In practice we still expect to be bought as a going concern, and D&M are as much in the running as any other potential purchaser.

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That's good. I wasn't sure how it was going to be done (the whole thing at once, individual products, etc., and especially could legacy products like empeg be sold separately, as they've never been in production at SB).

As for pricing, I was recently (a couple of years ago) involved in a dot-bomb that ran through like 15 million dollars in two years, and sold for less than my house. So, from that experience, rights to one or another individual product might have been cheap.

At any rate, I've got my fingers crossed for all of you!!