IQ News: Analysis - It's Show Time

Throughout much of the world, the first of May traditionally means a holiday, parades and festivals. This year in the entertainment dot-com space, however, the first day of spring brought a series of big hits that had nothing to do with celebration. On that day, New York-based CBS.com laid off 24 employees in a cost-cutting move. Two weeks later, LoadTV, a Los Angeles-based broadband provider of video and audio content on the Internet, axed 42 employees, including founder and CEO Morgan Warstler, and vowed to switch from a B2C to B2B platform. Tinseltown's online version of Planet Hollywood, the much-hyped, celebrity theme restaurant chain whose fortunes flamed south, occurred May 15 when Los Angeles-based Digital Entertainment Network, a well-funded early adopter of original content on the Internet, announced that it was closing shop and letting 200 employees go. The resulting mood within digital Hollywood was a mixture of disappointment and apprehension. No one doubted that the space was extremely competitive and the slope slippery, but when an assumed leader stumbled, the reality check for competitors hit hard, according to Brad Foxhoven, president and CEO of Eruptor.com, a Los Angeles-based animation site. "I think collectively all of us were hoping that [DEN] would succeed in several parameters to allow the public to gain confidence in the medium as an entertainment format," Foxhoven told CNNfn. "When they went out of business, it pretty much surprised a lot of us." The fallout continued on June 1, when Sony Online Entertainment, Culver City, Calif., laid off a combined 110 people and moved its operations to San Diego. Eleven days later, Hollywood Entertainment Corp., parent company of Reel.com, an Emeryville, Calif.-based entertainment e-commerce site with 200 employees, announced it was shutting down the URL's commerce operations. Clearly, market realities, speculative business plans and Wall Street's bottom-line mentality had collided, resulting in lost investor confidence, shrinking venture funding and shelved IPOs within real and imagined entertainment stocks. In addition, January's announced merger between Dulles, Va.-based America Online and New York-based Time Warner (parent of Glendale, Calif.-based Warner Bros.) caused more than a flutter on Wall Street. The proposed marriage of the offline and online giants signaled a convergence of old world media with new world distribution that could help validate the online space, according to Peter Clemente, vice president and director of online entertainment practice at Internet customer relationship management firm Cyber Dialogue, New York. "While the seamless marriage of distribution and content has never been better [through the merger], it remains to be seen how quickly this develops," says Clemente. "We've seen before that when two disparate [companies] come together, they don't necessarily meld easily. We saw that with AOL's acquisition of Netscape. Netscape has become virtually anonymous." For Entertaindom.com, an original entertainment content site owned by Warner Bros., losing three top executives--Jim Moloshok, Jim Bannister and Jeff Weiner--in April after the studio declined to spin the site off into a separate company, seemed like a blow to good intentions. "Some observers assumed Entertaindom was in trouble," says one insider. "They assumed it would fold." In fact, the the opposite is true. Entertaindom, like many Internet companies, is scrutinizing expenditures, analyzing competitors' misfortunes and the soundness of its own business model. It's also putting a renewed focus on generating--not spending--revenue through a variety of offline and online promotions. Fighting Back The Warner Bros. online presence, WBonline.com, which focuses primarily on WB properties, underwent a redesign, according to Cathy Dore, a company spokesperson. Earlier this month, the site launched a site for The Oblongs, an animated WB TV series slated to debut in 2001. "By bringing The Oblongs online now, we can cultivate and interact with an audience, capturing their interest and attention far in advance of traditional avenues," says Kevin Tsujihara, executive vice president of New Media at Warner Bros. "This furthers our goal to entertain fans on the Web with original content and also establish a brand, thereby utilizing the medium as a promotional vehicle as well." Through the Internet, WBonline is attempting to flip the traditional model that involved taking a TV brand and using its established audience to build a following on the Web. Instead of pre-screenings to select audiences in different TV markets, the Internet allows Warner Bros. to reach a greater number of people at a lower cost. "This is even better than a test screening, because the problem with [screenings] is that you have to be so careful who you show your movie to," says Tsujihara. "That guy in Texas could bag your movie based on a rough cut of the film that we spent millions to make and market." Taking advantage of the summer blockbuster MI:2, Entertaindom launched a national offline advertising campaign for Mission: Imp, an original 10-minute parody of the popular Tom Cruise film that broadcasts exclusively on the Internet and in WB Studio Stores. The Webcast, which is sponsored by Winchell's Donuts, stars Verne Troyer, who played "Mini-Me" in Austin Powers: The Spy Who Shagged Me. In addition, the site launched a national print advertising campaign for a live online concert series featuring the Deftones, Groove Armada, Me'Shell Ndegeocello, k.d. lang and Barenaked Ladies. Is the Sky Really Falling? With spotting the next dot-com failure becoming the sport du jour, conventional wisdom might suggest that in addition to faulty business plans, greed and limited content, entertainment dot-coms are also being penalized for putting the cart before the horse when it comes to delivery channels, such as high-speed access and broadband. While he agrees that the national adoption of broadband hasn't happened yet, Dan O'Brien, an analyst with Cambridge, Mass.-based Forrester Research, says forecasts for broadband were never overly optimistic. "People sort of knew how it would roll out," says O'Brien. "My sense is that many people felt that there was a new industry being created and they needed to play in that space in order to get experience so when it became a mass market medium, they would have the skills. If they waited too long there would be some upstart already in place." O'Brien feels it's as much an issue of egos and politics as financial miscalculations that help sink some entertainment dot-coms. "The amount of money invested in some of these entertainment sites is not great compared to studio budgets," he says. "You would have thought that some of these failed companies would have had a five-year game plan so they wouldn't be so vulnerable to the vagaries of the stock market." O'Brien says that often in the print space, properties can take years to generate a positive cash flow. He cited Sports Illustrated, which took 10 years to become profitable for Time Warner. "You would think that the major film studios would want to have a stake in some of these online ventures that are producing digital content that can be easily transmitted with today's technology," says O'Brien. "Seems sort of shortsighted." Retaining an Audience Until recently, entertainment sites thrived on a mix of curiosity and irreverent programming to fuel visitors and register members. Not surprisingly, in a space predicated on instant gratification and fresh material, losing patience for static content and technologically-limited delivery channels helped quell some of that euphoria, say experts. "There's a ton of stuff that people are giving a trial watch [on the Internet] and because it's so painful to view, they're tuning out and not coming back," says Tsujihara. Instead of trying to recycle offline content online, Tsujihara says Entertaindom will focus on generating selected original content that lures the greatest number of viewers. "That's what broadcast networks do," he says. "They choose content for people. And that's what we want to do with Internet short films. I would rather spend money and create a Mission:Imp that has high quality and recognizable talent, than promote 10 or 20 short films. People aren't going to invest two hours of time to watch them. But they will spend the time to look at one if it's good." While the shakeout within the dot-com industry is far from over, experts say entertainment has an established foothold on the Internet despite delivery shortcomings and saturation levels among high-income households, early adopters and college students. Cyber Dialogue's Clemente says it's the $40,000-a-year household interested in entertainment--not technology--that is going to fuel continued growth of the entertainment space. "Content developers are reticent in developing content for broadband prior to the pipes being developed, and the high-speed distributors aren't being as successful because they don't have content to go along with it," says Clemente. "You can't knock on someone's door who doesn't have Internet access and say, 'Hey, for $40 a month you can have high-speed access.' High-speed access to what?" Clemente says that for Warner Bros. sites, developing a customer relationship is key along with compelling content. He says they have to take advantage of the affinity consumers have with WB brands. But do enough affinity groups exist to keep entertainment sites such as Entertaindom in the black? Clemente thinks so. "Our data has been telling us that consumers are willing to pay for content if it is personalized and relevant to their particular interests," he says. "As long as [the sites] aren't relying on a single business model, such as just advertising, just e-commerce, just pay-per-view or pay-per-play, a hybrid of multiple revenue streams will succeed." Clemente says Entertaindom, with its numerous offerings, appears to be hitting all the right buttons. "Their God & Devil Show, in which you can interact with the plot lines, is a perfect example of next-generation entertainment. The notion that entertainment consumers are passive couch potatoes is changing. They also appear to be taking advantage of e-commerce, which means they're diversifying their portfolio." n The show must go on Despite some setbacks in the volatile dot-com biz, online entertainment companies aren't panicking (or so they say). Instead, they're focusing on streamlining costs, creating fresher content and cross-marketing with offline properties. A look at some entertaining contenders: Hollywood Stock Exchange (HSX.com) The Santa Monica, Calif.-based entertainment destination allows users armed with $2 million in HSX dollars to buy and sell virtual "stocks" in movies, celebrities, musical artists and other entertainment properties for free. Users can also chat with fellow entertainment buffs and enter to win prizes. A traditional advertising-supported site, HSX generates a percentage of its undisclosed revenue from the opt-in actions of its user database, according to Andy Kaplan, chairman and CEO of HSX. "Our show, Buy, Sell or Hold, which is a daily look at the activities in the market of the Hollywood Stock Exchange, is done very inexpensively," says Kaplan, who claims costs run about 5 percent of comparable TV shows. MediaTrip.com Touted as a next-generation online entertainment company providing on-demand film, music and original programming content, Los Angeles-based MediaTrip received a life insurance policy of sorts recently when it formed a partnership with Revolution Studios, a Culver City, Calif.-based production company founded by Joe Roth, former chairman of Walt Disney Studios. Roth tapped MediaTrip to create, market and develop exclusive online properties for approximately $200 million worth of future offline production and distribution, according to Austin Harrison, CEO of MediaTrip. "He knows movies and we know the Internet," says Harrison of the partnership. "It's my job to allocate the online resources effectively and time the allocation of those resources as per the market conditions." A current online Revolution promotion includes an open casting call for Tomcats, a new film starring Jerry O'Connell and Shannon Elizabeth. Users can register to select extras for the film as well as audition for two featured extra parts. Load Media Network Considered by some as a casualty of broadband acceptance, Load Media Network is a Los Angeles-based pre-cached video delivery network that uses a proprietary video delivery platform and provides advertising-embedded video on the Internet to consumers and corporate users, regardless of modem speed. Touted as a delivery channel for original video content on the Internet, Load experienced problems when the anticipated number of broadband entertainment customers didn't materialize. While the consumer video delivery service will remain in operation, Load plans to take a back-end role and act as a network and server bank for high-speed and DSL providers, according to Seth Bedell, executive vice president of sales and marketing. "We're just disappearing into the background," says Bedell. "We're creating a network through which content can be sent and received. We are an enabler."--E

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IQ News: Analysis - It's Show Time

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