The Minnesota Company Rupert Murdoch Couldn't Kill

New Year, New Hope

What happened early this year, according to Drill, was nothing short of a miracle.

In February, Insignia renewed its contract with Kroger—a crucial retailer for providing the critical mass necessary to attract business from packaged-goods manufacturers. Kroger’s 2,200 stores represent 25 percent of Insignia’s footprint in the retail arena—and 30 percent of its annual revenue at the time of renewal. The Kroger contract was set to run out on December 31, 2005. (The renewal was retroactive to January 1, 2006.) During the negotiations, Drill says it “looked like it was going to blow up,” for reasons he won’t specify. It was “a flip of the coin during the darkest hours whether we would continue to have a relationship with Kroger,” he adds.

More good news came in the spring, when Insignia renewed its contract with Safeway, which has 1,775 stores in the United States and Canada.

“We’re rebuilding the fences,” Drill says of his company’s relationships with supermarket chains. “A big part of naming Albertsons in our suit was to give us leverage in negotiating contracts with other retailers. We were fighting for our life. We had no choice. If we had not gotten aggressive, we wouldn’t be sitting here talking today.”

News America and Albertsons had sought to dismiss Insignia’s suit, a motion the U.S. District Court in Minnesota denied this summer. The suit now awaits the discovery phase (the period where the two sides collect documents, file motions, take depositions, and so on). Drill says that other grocery chains may still be named as co-defendants, and that the case could drag out another five years.

On August 22, District Court Judge John Tunheim ruled that the Minnesota case be stayed for four months pending an appeal by News America to, in effect, combine the two suits—its own unresolved 2003 complaint against Insignia, which was filed in U.S. District Court in New York, and Insignia’s 2004 antitrust claim against News America Marketing. Insignia filed an appeal of its own—against the stay. ”We wanted to fight the battle on our own turf, and we see the two suits as distinctively different,” says Drill, who was waiting for a ruling as of this writing. On September 20, the Minnesota Attorney General’s office announced that it filed an action to intervene as a co-plaintiff in Insignia’s lawsuit against News America, which Drill believes will give Insignia “better standing with the court.”

But even with all the legal machinations, Insignia has been able to think about the future again. In its first two quarters of 2006, it reported record net income—$639,000 and $949,000, respectively. All told, it posted an 8.7 percent increase in sales in the first half of 2006—to $11.3 million—over the first half of 2005. In June, it began working with Valassis Communications, a Michigan-based supermarket-product promotions firm specializing in coupons, newspaper inserts, and product-sample mailings and drops. The two companies are bundling their services together, creating a multiple-platform promotions package for retailers that is similar to what News America offers. (Valassis, by the way, had filed its own antitrust lawsuit against News America.)

The partnership means that Valassis’s 80 salespeople will be promoting the POPSign system, a huge jump from Insignia’s sales staff of 10. On September 6, Insignia announced its first sale via Valassis, a $252,000 contract with what Insignia describes as a “major consumer packaged-goods company.” (The client doesn’t want the January 2007 launch publicized yet for competitive reasons.)

Minneapolis broker Feltl & Company currently has a “monitor” rating on Insignia, which means it’s offering no recommendation to buy, sell, or hold, but suggests that the company is worth keeping an eye on. “The [POPSign] product works,” says Dick Ryan, a research analyst with Feltl. “The ‘lift’ numbers have been very consistent ever since it’s been offered. But they need to get more brands to step up and commit to using it.”

Ryan says that it’s difficult to assess Insignia’s market value without factoring in the ongoing litigation—undoubtedly Insignia’s biggest challenge going forward. Another challenge, Ryan adds, is needing to “resell” Insignia and the POPSign program every time a packaged-goods manufacturer brings in a new brand manager.

But even as the legal battle drags on, Drill sounds more optimistic about meeting those challenges. “I feel like the worst is behind us,” he says. “Each day brings us closer to a favorable judgment. We’ve got the financial resources to see this through. I’m 100 percent confident that we’re going to prevail in some form or fashion.”