For Sony, a Pain in the Image


David Snider's dismay with Sony (SNE) has been a long time coming. It started when his Sony-branded CD/MP3 player broke down after less than a year of use, and worsened when the company took four months to send a replacement. Snider, 28, says his dissatisfaction escalated recently after the new player began skipping tracks. And then it came to light that Sony BMG Music Entertainment -- in the name of protecting copyrighted material -- embedded CDs with software that installed spyware on users' computers. That was "the proverbial straw that broke the camel's back," says Snider.

So Snider, who works as a machine operator for a pharmaceutical company, recently joined with some 5,000 people who contacted Sony through a Web site, PetitionOnline.com. Their message? We won't buy Sony products until "the company ends its new 'copy-protected CD' policy that prevents me from playing my legally purchased CDs on legally purchased equipment."

"WORM-SCALE INFECTION." Some consumers are taking their outrage further, vowing never to buy products from Sony -- not just CDs from Sony BMG, a joint venture of Sony and Germany's Bertelsmann, but also MP3 players and other digital entertainment devices made by the multinational and its various divisions. They're airing their views on the Net, signing petitions, and urging friends and family to join the boycott. Some are filing lawsuits and complaining to government agencies.

It's too early to assess the impact of the boycott on Sony's bottom line, but it's surely taking a toll on its brand image, and some artists' online sales are taking a hit (see BW Online, 11/22/05, "Sony's Escalating Spyware Fiasco"). Attorneys general in at least two states, including New York, are scrutinizing the matter (see BW Online, 11/29/05, "Spitzer Gets on Sony BMG's Case"), and the U.S. Justice Dept. says it has yet to decide whether to take action.

What's all the fuss about? Sony BMG loaded the so-called XCP rootkit onto 52 album titles, or more than 2.1 million CDs sold in the U.S. The program self-installs onto a PC playing the CDs and makes it susceptible to viruses. By now, the rootkit has likely already made its way into "hundreds of thousands, to millions" of computers, figures Dan Kaminsky, a security consultant. "This is a worm-scale infection."

"TAINTED." A patch issued by Sony BMG to rectify the problem only made it worse (see BW Online, 11/29/05, "Rooting Out Sony BMG's Rootkit"). And some computer security experts say the company was slow to respond to early warnings (see BW Online, 11/29/05, "Sony BMG's Costly Silence").

Sony BMG maintains that XCP and its other copyright protection software "is not intended to cause any harm to your computer and is not a monitoring technology," according to its Web site. It has suspended its use of XCP and has asked retailers to pull the affected CDs off shelves. On Nov. 15, the outfit announced an exchange program for the affected CDs. "The company shares concerns of consumers and is committed to making things right," a Sony BMG spokesperson says.

Koji Kurata, spokesman for the Japanese parent company, says "Sony BMG headquarters in New York...has been addressing customers' concerns. It is acting on behalf of Sony Corp. as a whole."

Snider says "this is not enough." And his views are shared widely. A host of blogs have cropped up, offering everything from links to petitions to badges that read "No X'mas for Sony." BoycottSony.us offers regular updates and calls for buyers to avoid Sony's products. The site has been getting up to 4,000 unique visitors a day, says Tim Jarrett, the 33-year-old software marketer who created the site. Not only will Jarrett not buy any Sony or Sony BMG products, he's also planning to get rid of his recently purchased Sony Ericsson cell phone. "It just feels tainted at this point," he says.

Jeff Hellman, a 59-year-old building security system technician, says he will opt for a Nikon digital still camera this holiday season instead of the Sony one he has been eyeing. "I will not buy any more Sony," he says. "It's a done deal. I wouldn't trust them again."

LITTLE EFFECT. And the discontent is spreading by word of mouth. Jill Wilkins-O'Neill, who lives in a Philadelphia suburb, says she shared an article about the rootkit to her 17-year-old son, TJ. "We were at Borders recently, in the music section," she says. He "picked out a CD, looked up the vendor and put it back on the shelf." Wilkins-O'Neill says she also shared her dismay over the rootkit with her book club.

Some computing and security consultants have sent e-mails encouraging clients to stop buying and using all Sony's products, including DVDs, CDs, and even laptops. Christian Oldham, whose company, Compufix, manages 500 PCs for some 20 Arizona small businesses and home offices, says he's already discovered the rootkit on 40 of the computers. The program's removal takes up to six hours and can cost clients $200 to $300, he says.

So will the boycott have any effect on Sony's bottom line? Probably not, says Mark Stahlman, an analyst at investment bank Caris & Co. The Japanese giant had $63 billion in revenue in 2004. And while some artists have seen a drop-off in album sales, the impact on Sony BMG may be limited, says Russ Crupnick, an analyst at market consultancy NPD Group. "For a vast majority of consumers, the loyalty is to the artist, not the record company," he notes.

DELICATE REPUTATIONS. Still, the debacle is likely to add to pressure on Sony to become more responsive to customers, says Stahlman. "I suspect that the end result of this will be: This rootkit event will accelerate internal company changes," says Stahlman. In September, Sony announced it will implement major cost reductions, dispose of non-core assets, and try to modernize its corporate culture.

Indeed, the boycott is bringing into focus the various gripes consumers have voiced about Sony for years -- over a range of issues, from the quality of the company's electronics to poor customer service to its insistence on using proprietary technology. Although the company will be more open with its upcoming PlayStation 3 gaming console, the old wounds might take longer to heal now that the rootkit issue has spawned the Boycott Sony movement.

And Sony's reputation might have been tarnished. "We're living in a world where corporate reputations are ever more delicate," says Nick Shore, CEO of New York-based branding consultancy The Way Group, whose clients have included tech giants Motorola (MOT) and Intel (INTC). "The public, in a post-Enron era, is more cynical and critical. It's possible that little things can trigger firestorms."

DISTRUST BEFORE THE HOLIDAYS. According to information site SonySuit.com, six class-action lawsuits have been filed against Sony in the U.S. so far, and one has been filed internationally. One of the class-action suits, filed by advocacy group Electronic Frontier Foundation, protests not only against the rootkit, but also another digital rights management (DRM) program, used in as many as 20 million Sony CDs, says Cindy Cohn, EFF's legal director. "It's potentially a much bigger problem [than the rootkit alone]," she says, adding that the EFF will be making more announcements relating to Sony in the coming weeks.

And the complaints are being heard at the Justice Dept. "It's fair to say that we're aware of consumer concerns on the installation of this software on Sony products," says Justice spokesman Paul Bresson, though he declined comment on the number of Sony-related complaints the agency has received. "For now we're going to wait for more facts to become available and then evaluate what, if any, action is appropriate."

Whatever official steps are taken, for many individuals, the damage has already been done. Oldham of Compufix has been encouraging his clients to not buy anything Sony. "I can't trust Sony right now," he says. And with the holidays at hand -- that's anything but music to Sony's ears.

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