Every week, another Hollywood exec bails to a startup. Is anyone going to stick around to build the future of the movie business?
Six years ago, when Nick Rothenberg started trying to sell the Internet to Hollywood, he was on the outside looking in. That was then. Now he's piloting a black BMW through the West LA sprawl, headed to the Fox lot for another meeting with CIO Justin Yaros, one of many senior entertainment execs who tap him for insights into a medium they've grown desperate to harness. Suddenly, he lets out a whoop.
"There it is!"
Looming over a storefront at Pico and Overland is a larger-than-life judge, gavel in hand. DIVORCE COURT, the billboard reads. SEE IT WITH SOMEONE YOU LOVED.
Nice. Fox's promising revival of the courtroom slugfest, Divorce Court is one of several Hollywood properties Rothenberg has helped translate for the Web. As head of the LA office of the new media consulting firm marchFirst, his job is to show the studios and the networks the power of the Internet - its potential for building communities, for example. Of course, the community you create around Divorce Court might be a trifle contentious. But that doesn't mean the chat rooms and bulletin boards marchFirst is making for the show will go empty.
Fifteen minutes later, Rothenberg is at Yaros' office in a little stucco building next to an enormous soundstage. There are palm trees outside, red and yellow bromeliads in the window. Yaros, trim and fit in a khaki suit and chocolate brown shirt, is ruminating over the possibilities for interactive TV shows. Rothenberg mentions Divorce Court.
"Divorce Court is perfect!" Yaros cries. Then his excitement fades. "But where do we cross the line between entertainment and trying to provide a public service? Should we be in the business of - of offering advice?"
"On that of all subjects," Rothenberg sighs.
"Right."
"But at a certain point," Rothenberg continues, "the consumer demands it. Studios - it's almost like you have to become reactive to consumer demand. Suddenly there's this reverse channel that says, 'This is what we're hungry for.'"
"Exactly," Yaros says. "We have to be willing to change the way we make our product."
Change the way we make our product? Yaros has just uttered some of the scariest words in show business. For decades, the insular club that is Hollywood has flourished by producing movies and TV shows, then pumping them out through an ever-proliferating series of distribution channels. Each technological advance - cable TV, satellite TV, multiplex theaters, VCRs, DVDs - has brought in more revenue from bigger audiences in expanding markets worldwide. Until now. Now the spectacular growth of the Internet and the looming wild card that is broadband are challenging Hollywood as nothing has since the advent of television. It's not just that households with Internet access watch less TV than those without (an hour and a half less per week, according to Forrester Research). What's really galling is the way this new medium has sprayed wealth and power across the dweeb lands of San Francisco and Silicon Valley, even as the studios have slashed production and thrown people out of work all over Hollywood.
Rothenberg asks how closely Fox has been following startups like AtomFilms, the Seattle indie-film site that was the talk of Sundance this year, and Ifilm, which hopes to become a nexus for the independent film community on the Web. (See "MyHollywood!" Wired 7.10, page 214.)
"Of course we've been studying them," says Yaros. "Along with all the companies that are either developing original content for the Web - pretty crappy stuff, but they're trying - or taking films and putting them online. These things are good research projects for us. You kind of wonder, if the content were any better, would they be trying to do a television deal? I have some concerns, because the right company with the right funding behind it can all of a sudden create a brand and a niche. Hopefully, we won't let that happen."
"The studios don't want to be Amazoned any more than Barnes & Noble did," Rothenberg offers.
Yaros seems not to hear him. "But it's tempting," he says, drifting into his own private struggle with the demons of entrepreneurship. "When you spend your time trying to make things happen and you see these startups all around that are actually doing it, you kind of go, 'Gee, it would be easy to walk out the door and all of a sudden have a bunch of stock options and do it.' But hopefully, people will see the rewards of trying to enable it here."
Sure. But already the guy who headed Paramount's online effort has bailed to launch one of those "research projects." The head of Walt Disney Imagineering left to run a Web site started by DreamWorks and Ron Howard's Imagine Entertainment. Joe Roth, the chief of Walt Disney Studios, has left to start an independent production company that plans to launch six to ten Web sites. Other major players with big-time Rolodexes - people like Michael Ovitz, ex-president of Disney, and Frank Biondi, ex-chair of Universal - have gone into the venture game. (See "I'm Ready for My Startup, Mr. De Mille," Wired 8.04, page 150.) People aren't just wondering how the studios will cope with the demands of a digital, high-bandwidth, interactive future - a future where anybody can make a film and distribute it on the Net, where every film and television show ever made will be available for the asking, where interactive television will bring expectations you can only guess at today. People are starting to wonder who'll be left at the studios to try. Yes, the studios have deep pockets, global reach, and most of the world's top entertainment brands. And yet ...
Driving back from Fox, Rothenberg stops at a light beneath another Divorce Court billboard. This time, he notices something wrong. You can't miss the Fox logo, but the Web site address? The ad agency didn't make it big enough to read. He groans, laughs, and drives on. No time to sweat it: He's doing lunch on the Sony lot in half an hour.
Rothenberg can afford to laugh now. Six years ago, he couldn't - and he had worse problems than a microscopic URL. Take his car. He'd just quit the University of Southern California to start W3-design, an Internet consulting business, on a bankroll of $500, and all he had to drive was an 11-year-old Honda that had been red before it turned pink. He'd take it to fancy industry watering holes and valet it while he went inside to pitch studio execs on grandiose Web schemes that would cost a quarter of a million dollars to implement. Then he'd hang back until his lunch dates drove off in their shiny new Benzes. His clothes were bad enough; if the execs saw that Honda, they'd write him off before his butt hit the seat.
The alternative was to schedule meetings at his office. Unfortunately, his office was a back room at his business partner's apartment, in a once-grand Victorian near the USC campus in South Central LA. Crime was light by South Central standards, but you'd still wake up in the morning to find fresh bullet holes in the cars out front. Business calls would be drowned out by the ferocious wap-wap-wap of police copters overhead, sometimes punctuated by barked commands: "Put down the gun! Put down the gun!" Just another cop show being filmed outside, Rothenberg would explain with a nervous laugh. One ad agency exec actually agreed to take a meeting there, but she called from the street on her cell phone: No way was she going to leave her Mercedes unattended. Finally they talked her into the living room, where she could keep an eye on her car.
But Rothenberg's biggest problem was what he was trying to peddle: the Internet. As a grad student in anthropology, he'd made a prize-winning documentary about Vietnamese youth gangs. He went into the Web business after creating a site for his film and working on the Mercury Project (www.usc.edu/dept/raiders), an experiment in group collaboration on the Internet: Participants got five minutes apiece to uncover buried artifacts with a robotic arm and figure out what they had in common. Rothenberg saw the Net as an opportunity to build communities, not just study them. But he also had to eat. So he set out to bring showbiz to cyberspace.
That he got even one meeting was a miracle. But he rarely got another, so he started targeting second-tier outfits - places like Shapiro Glickenhaus Entertainment, which had an upcoming flick about an orphan who comes across a time machine and gets the chance to save his parents. Rothenberg carted his desktop out to the Shapiro Glickenhaus offices in the San Fernando Valley (his laptop was in the shop, he claimed) and gave an elaborate boardroom presentation - Web-based promo campaign, chat with the stars, vibrant online community, the works. When he was finished, Leonard Shapiro raised his hand politely. "You know, guys, this is all great," he said. "But can you tell me what this Web thing is?"
That was in 1995. Today, having sold W3-design to Internet consultants USWeb, Rothenberg runs an office of more than 250 people - corporate strategists, brand specialists, media planners, software engineers, information architects, site designers - who consult for companies ranging from Sony to Toyota. With this spring's $6 billion merger of USWeb and computer consultants Whittman-Hart to form marchFirst, he's had to move everybody from a glitzy black-glass office complex near Santa Monica Airport to an even glitzier office complex a mile or so away. It's much the same with his two top competitors - Razorfish, a smaller, trendier, New York-based company, and iXL, an Atlanta-based firm whose founder has roots in broadcasting. The LA offices of these three companies get only about half their billings from entertainment accounts, in part because all three are too big to bother building the usual $30,000 movie-promo sites. Even so, they've got all the entertainment work they can handle.
"People whose computers were plant stands two years ago are now hip to the Internet," says Matt Jacobson, a former Fox executive who heads Broadband Interactive Group, a new media company with an extreme-sports focus. "Everybody wants to touch the baby."
"Hollywood is obsessed for good reason," observes EarthLink founder Sky Dayton, who recently joined with ex-Disney Internet Group chief Jake Winebaum to found eCompanies, a startup that incubates other startups. "If AOL can buy Time Warner, the Internet is going to conquer all media." But January's AOL-Time Warner announcement didn't come in a vacuum; Hollywood was already reeling from the out-of-left-field box-office success of The Blair Witch Project, last summer's no-budget megahit. It wasn't just that Blair Witch was made by a couple of nobodies from Florida who landed a deal at Sundance. What really spooked Hollywood was that the movie seemed to owe its success to the clever Web site they built to go with it. Never mind that in a year of trying, no one has been able to replicate that success: "Blair Witch lent itself to the scavenger-hunt phenomenon of the Web, where you get closer and closer to the eerie thing," says Hollywood marketing consultant Peter Graves. "But they didn't create a way to build any movie into a hit on the Web - they managed to build one movie into a hit." For most in the industry, the truly eerie thing about Blair Witch was that an Internet site had somehow catapulted these strangers into their club.
In a town perennially motivated by fear, Blair Witch and AOL were a one-two punch. Sure, Hollywood just had another record year: nearly $7.5 billion in domestic ticket sales, up from $7 billion in 1998. Movie attendance went up nearly 25 percent during the '90s. Video rentals are up, DVD sales have skyrocketed, and the average household (as opposed to the average online household) is even watching more TV - 3 hours and 16 minutes more per week than it did 10 years ago, according to the Motion Picture Association (MPA) and Neilsen. "The entertainment industry has never been more successful, and yet there's a palpable sense of being left behind," says Charlie Fink, who put together AOL's Entertainment Asylum, an early attempt to develop online entertainment, and now heads the startup eAgents.com. "For 75 years, Hollywood has been at the center of popular culture. And now the imagination of consumers has been captured by the Internet."
"Hollywood is like a terrier," says one of Rothenberg's competitors. "It has no idea of its real size. The idea that it's not the most important industry in the world is unfathomable here."
Behind Hollywood's fear is the realization that if it falls behind, it might never catch up. Like Silicon Valley or Wall Street, Hollywood is a historical accident. It happened because motion-picture pioneers needed the abundant sunshine and varied scenery of Southern California. It's survived because it has more entertainment-production resources - talent, financing, distribution, agents, lawyers - than any other place in the world. At the moment, it's a magnet for online entertainment: Ifilm recently moved to the heart of Hollywood from San Francisco; Fox.com is moving to West LA from a New York City loft. But there are no guarantees. "If we don't build it into our core competency to understand where these media are going," says Kevin Tsujihara, head of new media at Warner Bros., "in five or six years this is going to be a ghost town."
Warnings like that are believable because, despite appearances, the movie business is imploding. Look beyond the box-office tallies: 1999 was also a year when A-list directors (Sydney Pollack, Martin Scorsese, Barry Sonnenfeld) lost their touch, established stars (Harrison Ford, Nicholas Cage, Brad Pitt) couldn't open a movie, and hits came from people Hollywood had never heard of. Big-ticket flops and surprise hits are nothing new, of course, but the cumulative effect was unnerving. "It's a strange time out there," says one well-connected agent. "All the old rules are breaking down daily. Being in business with big talent ensures nothing except that it's expensive."
But the real problem was that 1999 was the year the town finally paid the price for its folly in the early '90s, when Disney and other studios started making more and more pictures in hopes of capturing a bigger share of the box office. Instead, they drove up the cost of talent and released more pictures than theaters could possibly handle. After watching their double-digit profit margins shrink to the 3 percent range, the studios finally retrenched. Last year, the majors released 218 films, down from 253 in 1997; this year's tally is expected to be even lower. Production costs have dropped slightly, but the MPA reports that those costs are still up almost 120 percent for the decade. So the studios are changing the rules. It used to be that producers - and stars who wanted to make like producers - were given lavish housekeeping deals, complete with extravagant development budgets and rent-free bungalows on the studio lot. Now they're expected to find investment partners and bring their own financing to the table. "If you're not putting deals like that together," says one young exec who's leaving for the Internet, "it's a frightening time to be a producer."
Or, at best, a real grind. "The Internet is fresh and young," says Steve Tisch, the veteran producer who helped make Forrest Gump - and who recently invested in Ifilm. "It's an adventure, the way Hollywood was in the early '70s. It's much more exciting than the business we've been in."
Last August, Variety editor Peter Bart raised a red flag when he wondered in his weekly column why Hollywood is so stuck in the old economy. The week before, Blair Witch had opened nationwide against Julia Roberts' Runaway Bride and pulled in nearly as big a gross - in just one-third as many theaters. Hollywood was having to confront the fact that, beneath the makeup and the special effects, it's a smokestack industry.
It is no accident that movie studios - gated compounds where 10 to 15 thousand people labor in vast, hangarlike buildings in the mass production of entertainment - used to be called dream factories. ("Factory-Studios Are Great Industrial Plants," cried a bond prospectus touting the movie business in 1927.) You might as well be in Detroit, on the assembly line in Henry Ford's River Rouge plant: Raw talent walks in, finished film rolls out. And even though much of Hollywood's work is done off the lot by small development and production companies, there's nothing nimble or networked about them - they're cogs in the machine.
"In the studios, where you have a ton of history and a ton of lawyers and a ton of people whose job it is to say no, you end up doing things that are slow and incredibly safe," says David Wertheimer, who headed Paramount Digital Entertainment until he left a year and a half ago to start WireBreak.com, a Web entertainment play. "In order to move quickly enough, you have to think like a startup and run like a startup - and that means you have to be a startup. The studios are always going to be followers rather than leaders."
Hollywood hasn't had to reinvent itself since television came in a half-century ago - just as the federal government, in a landmark antitrust action, forced the motion-picture studios to divorce themselves from the nationwide theater chains that guaranteed their profits. Until then, the "big five" companies in New York owned studios and theaters alike. Laborers in the "movie colony," as Hollywood was called, crafted the bait for what was essentially an enormous real estate operation that rented seats by the hour. By the late '50s that system was dead, but Hollywood rebounded as its studio chiefs realized they could provide entertainment for all sorts of outlets - movie theaters, broadcast networks, and, eventually, cable and satellite networks as well. That they made the transition was largely due to the example of one man: Lew Wasserman, the monarch of MCA/Universal.
Skip Paul, a former Universal exec who's now chair of Ifilm, was having lunch last year at the studio commissary with Wasserman and one of Ifilm's cofounders. They told Wasserman about the plans for Ifilm and asked what he thought. He told them about the '40s, when television was a flickering black-and-white image on a tiny screen. At first, he recalled, people dismissed it as a fad. But the screens got bigger, and performers like Milton Berle signed on to do shows, and more and more people bought sets so they could watch. As fears about movie attendance grew, Jack Warner, the Warner Bros. boss, banned TV sets from the lot. But where Warner saw a threat, Wasserman saw an opportunity. He moved MCA, which was then a talent agency, into television production, hiring clients like Ronald Reagan to star in shows and Alfred Hitchcock to make them. Within a few years, MCA wasn't just buying more talent than anyone else in Hollywood; it was buying Universal Studios. The Internet? Do it, Wasserman advised. His grandson Casey, owner of the LA Avengers football team, now sits on Ifilm's board of advisers.
"I've been there for many of those conversations," says Casey Wasserman, "and now they take on new meaning. What the press was saying 50 years ago, what people in Hollywood were saying - you literally could take out the word television and put in Internet. The studios should have owned the Internet from the beginning. That these people are now trying to play catch-up is unbelievable."
But studio chiefs had other things to worry about - last weekend's grosses, holding down expenses, holding onto their jobs. They weren't thinking long term, because most of them weren't in it long term; they knew they'd be out in a few years with a juicy production deal. They didn't even hold real power: The corporate megamergers of the '90s have transformed Hollywood into a content colony, an outpost where a half-dozen global conglomerates - News Corporation, Viacom, Sony, Time Warner, Seagram, and Disney - produce entertainment programming for their film and TV outlets around the world. For the real moguls, the Internet seemed too small and iffy to worry about until it was too late; how were they to know their industry's future was hanging in the balance?
It just didn't seem possible that Hollywood could be on the wane. After all, Hollywood was still driven by a fierce appetite for risk: The town's dominant metaphor has always been the crapshoot, because with each new production, you're betting tens if not hundreds of millions of dollars on a roll of the box-office dice. But the industry's cultural idiosyncrasies - the glitz, the obsession with clothes and cars and other status symbols, the rigid stratification that's encoded in terms like A-list - have always been about the fetishization of control. Moviemaking is about trying to make it perfect, because you only get one shot: When you roll it onto the marketplace on opening weekend, you'll know your fate by Monday morning.
The Internet, however, is about sharing control. For example, fan sites give the audience a voice it's never had before. Instead of lapping up studio puffery from fanzines, addicts can now post their own star photos, spread news and gossip from the set, even influence a movie in production. The studios' first reaction was to go into a copyright panic, firing off cease-and-desist letters to anyone posting unauthorized pictures. Then it dawned on executives - the smarter ones, anyway - that they were threatening their core audience with legal action. Last year, Warner Bros. Online set up a fan site community called AcmeCity that functions as a virtual reservation: By hosting fan sites and making special goodies - photos, interviews, exclusive promo clips - available to them, the studio hopes to keep restive fans in line. New Line Cinema has gone even further with The Lord of the Rings, its much-anticipated three-part film adaptation of the J.R.R. Tolkien trilogy; it put director Peter Jackson online to field questions from Tolkien fans worried about his faithfulness to the story.
The Internet also introduces a new kind of risk by making it impossible to maintain the Hollywood club. "Take digital cameras and desktop postproduction facilities in the dorm room," says Skip Paul of Ifilm, "and - oh my God! - the exclusion of people who aren't part of the Hollywood process is no longer possible. It's really a big, big new talent search online. It's like Schwab's Drugstore in the '40s - except that people don't have to be in the right place at the right time to be discovered."
"I think you're going to see a massive crop of emerging digital filmmakers," says Yair Landau, the president of Sony Pictures Digital Entertainment, sitting in a vast corner office in the art deco splendor of the Thalberg Building (named for Irving Thalberg, the executive who invented the studio system in the '30s). In the lobby outside, Oscars stand in rows against the walls: Kramer vs. Kramer, Lawrence of Arabia, It Happened One Night ... "Making movies is going to become as commonplace as forming a garage band," Landau is saying. "They're not all going to be Spielberg, but not every garage band is Nirvana, right?"
Last winter, Sony joined Paul Allen, Roy Disney, Kodak, and John Malone's Liberty Digital in putting $35 million into Ifilm. A few months earlier, Landau had thought about investing in AtomFilms but decided that showing independent films on the Web was too far from Sony's core businesses. Now he sees differently, though he still has reservations. "We're in the process of figuring out what our content play will be," he explains. "You see a lot of models, some of which are already collapsing. I'm not saying our relationship with traditional talent is rational, but at least it's a business."
That's what stopped Hollywood: Entertainment on the Internet isn't a business. Hollywood exists to feed the proven bottom line, not to invent the next one. No one knows how to make money in online entertainment; no one even knows what online entertainment ought to be. Interactivity means letting the audience have its say, but how? Seven years ago, Sony partnered with a startup called Interfilm to release interactive movies in theaters that were wired to let the audience vote on the direction of the plot. The result was chaos in the theaters and a bad end for Interfilm. Lesson number one: Interactive entertainment is not a group experience. But what is it?
Nick Rothenberg has been looking for answers for a long time. He thinks he has one. "Entertainment as a passive group experience is a thing of the past," he announces one afternoon in his office, which sports a lava lamp along with such relics as a 1990 Macintosh SE and a 1984 Commodore luggable. Rothenberg is a low-key guy, and his innocuous, corporate-casual appearance - charcoal slacks, navy blazer, no tie - makes it hard to register anything he says as startling. When he tells you the meteor is coming, he's calm, reassuring. "I hope you'll always be able to go to a movie theater," he continues reassuringly. "But storytelling as a primary form of entertainment just isn't enough for tens of millions of people who have become acclimated to a different kind of experience. And in a few years it won't be enough for hundreds of millions. I think consumers will demand the ability to probe deeper at their discretion. That means taking a flat entertainment experience and dimensionalizing it, if you do it well. You could also be muddling it, as plenty of people have."
The first picture Rothenberg managed to "dimensionalize" on the Web - and the one that put his fledgling firm, W3-design, on Hollywood's radar - was Mission: Impossible, Brian De Palma's 1996 hit for Paramount. The Mission: Impossible site was designed to be not just a promo tool but an integral part of the Mission: Impossible experience. At a time when most movie sites were nothing more than repurposed press kits, this one had the same edgy feel as the movie, starting with an opening screen that claimed to give you a "retinal scan" before allowing you to enter the site. Subsequent screens let you think you were breaking into secret files. You could register as a cybersleuth, dig for clues, and get a chance to win the same PowerBook Tom Cruise used in the movie. At the time, it was the most highly trafficked film site on the Web.
Paramount was pioneering the development of online entertainment, thanks to David Wertheimer, who'd been hired away from Oracle to run its new digital entertainment division. But Wertheimer's enthusiasm wasn't shared by others. "I don't give a shit about a Web site," a senior marketing executive announced in a Mission: Impossible meeting, "but Tom Cruise wants it, so we'll have one." And while Rothenberg had hoped to keep developing the site until the sequel could be released, Paramount simply archived it as soon as the movie finished its run. Viacom, the parent company in New York, was struggling under the multibillion-dollar debt load it had taken on to wrest Paramount from Barry Diller, and studio boss Jon Dolgen was in no mood for experiments. "My mandate was to build a business, to figure out how to monetize our brands online," says Wertheimer. "I think we could have done much bigger things than the other studios have done. But you couldn't expect Jon to be a great evangelist for spending money. They're still trying to get sign-off on stuff we proposed years ago."
The Mission: Impossible site, for all its sophistication, was still a promotional tool for a Hollywood movie. But around the time De Palma's picture came out, LA's tiny Web community was transfixed by The Spot, the medium's first original entertainment property. The Spot was a serial drama that allowed viewers to delve into its characters' lives, even read their diaries. It spawned an ambitious Web-based entertainment startup, American Cybercast, that was backed by Intel and Creative Artists Agency, two firms that were trying to broker a partnership between show business and Silicon Valley. As American Cybercast launched more shows on the Web, AOL hired The Spot's creator, Scott Zakarin, and paired him with former NBC programming whiz Brandon Tartikoff to start Entertainment Asylum. Microsoft set up a team on the corporate campus in Redmond to develop programming for MSN, the online service that was supposed to trump AOL. Unfortunately, there weren't yet enough people online to generate an audience for all these sites; with no audience, there were no advertisers. By the end of 1996, American Cybercast had run through $6 million and was headed for collapse. AOL and Microsoft abandoned their efforts not long after. And Tartikoff, at the time the only major Hollywood player to show an interest in the Internet, died of lymphoma.
In retrospect, those early years were the good old days. "It was a special time," says Joshua Greer, who had a company called Digital Planet that not only hyped the studios on the Internet, as Rothenberg's W3-design did, but created an original online entertainment property - a sci-fi comic called Madeleine's Mind that nearly bankrupted him. "LA was like the bastard stepchild of the interactive world," Greer recalls. He's having a drink with Rothenberg at Shutters on the Beach, a 1990s luxury hotel in Santa Monica that's meant to look like a 1920s luxury hotel. "I'd have to fly to San Francisco if I wanted an article in the Los Angeles Times, because that's where they had their tech reporters," Greer says. "Now it's kind of a joke, being an elder statesman at 30 years old."
Bad enough for Greer that he's already a geezer; even worse is that the technology has advanced so quickly that memories are all he has left. "Madeleine's Mind - I have it on a CD, but I literally can't play it!" he cries. "That was a $500,000 investment. We gave Intel a huge chunk of equity, and the horrifying truth was that Intel and companies like that had no interest in stabilizing the technology. Planned obsolescence is built into their DNA. I can look at TV programs from 40 years ago, films from 70 years ago, but I can't look at an Internet program from 18 months ago."
"It's painful sometimes," says Rothenberg, sipping his martini. "I think that's why the Siliwood idea ..." He grimaces at the thought: Silicon Valley + Hollywood = Siliwood? Please. "The name alone should have killed it instantly. But that's why that bridge between north and south was never successful, because up north it was about pushing and pushing and constantly upgrading, and here it was like, 'OK, you want me to sacrifice my library?'"
In Hollywood, a library of past hits - hits that can be sold to TV and recycled on video and DVD - is what cushions the risk. But the Web is moving too fast to provide a stable platform for such things. At the same time, ironically, issues Rothenberg and Greer brought up with studio execs years ago are the very ones they face today: the idea of building online communities; the tools, like chat rooms and bulletin boards and games; the "philosophical issues," as Greer calls them, that you always end up chewing over with smokestack-industry executives - like what business they're in.
"We were talking about digital audio five years ago," Greer says. "Are you selling music, or are you selling little plastic containers? They wanted to say it was music, but every time we brought them an idea that would potentially erode their sale of little plastic containers, it was killed immediately. 'You're telling me I'm no longer going to sell CDs, that I'm going to put it over a medium where people can digitally copy it?' Our response was, 'Let us work on it now, because I guarantee that some guy ...' I mean, we knew there was going to be a killer app. None of us knew what it would be, but we knew that something was going to destroy that industry."
"It's still hard to get anyone who comes from a traditional mind-set to equate bits and bytes with something tangible," Rothenberg observes.
Greer nods. "But the final epiphany I had - and this really was like the boy-to-man thing - we were looking at being acquired by Universal, and it was very clear that the studio would rather spend $100 million for an established model than $1 million for a potential model. Once I had that realization, I understood that the studios were never going to be the innovators."
"Everybody had high hopes for Universal," Rothenberg recalls. After its 1995 acquisition by Seagram, the studio briefly toyed with the idea of buying up Digital Planet, W3-design, and all the other Internet shops in LA and merging them into a company that would pioneer entertainment on the Web. But it didn't happen, and when American Cybercast shut its doors and AOL folded Entertainment Asylum into its northern Virginia headquarters, the LA Web community went into a tailspin. Studio executives concluded that the Internet was a fad, just as they'd suspected all along. In the warehouse district of Culver City, where Entertainment Asylum, W3-design, and a half-dozen other online businesses were huddled, it was time for retrenchment. Rothenberg and his competitors turned their attention from Hollywood to the much more lucrative business of putting big corporations online. Then the national consulting firms - USWeb, Razorfish, iXL - came in and vacuumed up the local guys. Rothenberg sold out to USWeb. Greer sold to iXL and recently joined an online education startup.
Rothenberg saw Universal as a missed opportunity. "So many people hoped the Internet would be the glue that would unify the large entertainment companies. Books, music, movies - the cross-selling possibilities are enormous. But you run into situations where the studios aren't willing to share their consumer database from one division to another." At Fox last year, Rothenberg's office completed a $1 million data-mining project that lets film execs check a Web site and find at a glance what's worked where - critical information that's now being made available to home video and other divisions. That should help avoid situations like the one in which Fox's home-video division developed a site for The X-Files TV show without consulting either the television division, which already had an X-Files site, or the film division, which was developing its own site for The X-Files movie.
"My dream was to transcend all that," says Greer, sighing disconsolately as he sips his Coke. "This is a whole new medium, but you see all these companies remaking themselves according to whatever their old businesses were. It's oldbusiness.com."
So what do you do when the meteor is 30 miles overhead and burning through the stratosphere? You develop a business plan. Better yet, you develop a whole slew of business plans, all of them designed to monetize the Internet in the few seconds you have left. Monetize: It's the word of the moment. Monetize your content. Monetize your brands. Monetize your mind. Monetize everything in sight.
Some studios are scrambling more than others. Warner Bros., Sony, and Fox are working overtime. Paramount is still hamstrung. Universal gave up on Animal House, a college site it recently sold to partner Hyundai. And Disney is still cleaning up the mess from Go Network, its ambitious entry in the portal race, which not only failed to overtake AOL and Yahoo! but fell to sixth place behind Lycos.
"It's very satisfying now to see online entertainment validated," says Lynda Keeler, general manager of Columbia TriStar Interactive, Sony Pictures' online development unit. "But every studio is still struggling internally: Can we convince senior management? Are the other studios going to eat our lunch?" She gives a little laugh. "But I never worry about the other studios. If Yahoo! decides to create an entertainment section with original programming and brand it? That's what I worry about."
Part of Hollywood's problem is that one person's fail-safe business plan is the next person's recipe for disaster. Startups like AtomFilms and Ifilm, for example, are based on the proposition that, much as the sitcom evolved on TV in the '50s, short films will find an audience on the Web. Yet Kevin Wall of LA's Shelter Ventures dismisses shorts as "an early-adopter wow," and Jon Richmond, president of News Digital Media, the online arm of News Corp., agrees: "Short films are not interesting, period. They're not interesting in the theater, they're not interesting on television, they're not interesting at the Academy Awards. That's why everybody goes to the bathroom when they come on."
So Fox has focused on building online communities around its existing television properties - something Columbia TriStar began doing two years ago with Dawson's Desktop, the site it developed for Dawson's Creek (which it produces for the WB). Fox started with The Simpsons, whose site now offers free Internet access and email (with thesimpsons.com as your address). Next up will be Ally McBeal, which Richmond sees as competition for iVillage: "Women talking with each other about the workplace and relationships - that's what the show is about, not whether Calista Flockheart is anorexic."
By the end of the year, Fox and Sony both hope to launch original online entertainment as well - not short films, but certainly a lot of short cartoons - and start generating revenues the same way television does, by selling eyeballs to advertisers. But Time Warner got there first with Entertaindom, a Warner Bros. Online spin-off that launched last December as a broad-based entertainment site.
"I realized that as long as it was called Warner Bros., people were going to perceive it as a promotion," says Entertaindom cofounder Jim Moloshok. So while it was clearly designed to feature Time Warner properties - Looney Tunes cartoons, articles from Entertainment Weekly, a Madonna single - Entertaindom carries programming from other studios and from independent producers. All this was a repudiation of the strategy that yielded Pathfinder, the now-abandoned umbrella site for Time Inc.'s magazines. At the Time & Life Building in New York it might make sense to build a single Web site to serve up every title from Sports Illustrated for Kids to Fortune, but not on the Internet. The thinking with Entertaindom was to develop "vertical hubs" - portals, essentially, that focus on entertainment or other special interests, like news or sports. But by this spring, that strategy had been put on ice as well: Moloshok, Jim Banister, and Jeff Wiener, Entertaindom's founders, walked out after Time Warner scratched plans to take the site public. At Time Warner, the Internet is AOL's call now.
Like Pathfinder, Go Network tried to promote a laundry list of corporate-owned sites, from Disney.com to ABCnews.com to ESPN.com. Worse, it was fatally late to the portal game. "People said, 'Once Disney slaps its name on that thing, Yahoo! is dead,'" says David Wertheimer of WireBreak.com. "You laugh now, but what Go has proven is that a major media brand doesn't buy success." A year after the launch, Disney announced it would gradually reposition Go.com as an entertainment and recreation site. "It's very hard to be all things to all people," says Go.com president Steve Wadsworth. "But we're not really walking away from anything, we're just focusing where we think we can win."
So Go will compete with WireBreak.com, Ifilm, Pop.com, and all the other entertainment startups that get announced every week. "Aren't these things just stealth cable channels?" asks Charlie Fink, the former AOL executive. "I think that's the sweepstakes everybody's trying to get into. There won't be ten of them at the end, there won't even be five - there'll be one or two. But there's so much money out there, why not try?"
Good question. The only way to find out what works is to experiment. Internet plans exist to be rewritten. On the other hand, the studios can't help wishing there were a better, surer way to go. "There are a lot of people in Hollywood who'll take all the money you give them," cautions Yair Landau of Sony, a company with all too much experience in these things. "It isn't going to build you a business."
Showbiz execs would prefer a soft landing as well. Those who bolt for the Internet gravy train expect big salaries and stock options, first-class air travel now and a Gulfstream V on the back end. Senior execs at Hollywood dot-coms routinely command salaries in the $250,000 to $350,000 range. That's a lot less than the $400,000 to $500,000 they might have been earning at a major entertainment firm, but it's well above the $150,000 that was typical at LA Internet startups a couple of years ago - and that still prevails at companies like eBay and Amazon. And naturally, they want in on the IPO. They want to monetize.
Is this really going to work?
"The Internet demands patience, but patience isn't a quality that's abundant in Hollywood," Rothenberg remarks over lunch at the Buffalo Club, a fashionably retro industry hangout on a deserted boulevard in Santa Monica. At the next table, a veteran agent is plying a wide-eyed young actor with tales of the business: It really could be 1927. "To create something truly magical in online entertainment is going to take passion, time, and commitment." Rothenberg looks down at his plate. "The further Hollywood encroaches on the online space, the more tinselly the whole enterprise becomes.
"Nobody knows what online entertainment is going to be like," he admits. "We're not even sure how the return on investment is going to be derived with such an incredibly fickle consumer base. If we could just see six months ahead, it would be so helpful. But we can't. You can't predict it, and we're discovering you can't even have that much influence over it. But it's going to happen, within the studio system or outside it - and I'm increasingly beginning to think it will happen outside it."
And Rothenberg himself? "My goal is to be able to fund my own exploration," he says. For years he's pitched variations on the Mercury Project, the robotic-arm site he helped develop at USC. He pitched Disney on a robotic car, solar-powered and controlled by a wireless Internet connection, that could scoot around Tomorrowland beaming live images back to its Web site. He pitched the Discovery Channel on a robotic submarine that could cruise the Bahamas, the Caribbean, anywhere the water is crystal-clear. Off the wall? Perhaps. But for the first few years, filmmaking was so experimental that people didn't even think of using it to tell stories. Two decades passed between the invention of moving pictures, in 1896, and D. W. Griffith's The Birth of a Nation, which showed what the medium could become. So even on Internet time, it might be, oh, 2002 or so before anybody shows up with a compelling vision for interactive entertainment. Where will the studios be then?
Los Angeles is a wondrous place. Look one way and you see snow-covered peaks; look the other and you see the broad sweep of the Pacific. A mountain range divides the city in half. And just off Wilshire Boulevard, in a district some real estate promoter once dubbed the Miracle Mile, are the La Brea Tar Pits: noxious sinkholes of smelly ooze. The bones of prehistoric animals have been unearthed from the muck. You wonder: Did Jack Warner ever come here to meditate? What about Michael Eisner, or Jeffrey Katzenberg, or any of their peers? Hollywood is full of famous cemeteries, but none as instructive as this. Because this is what happens when you get stuck: One millennium you're the alpha male, the next millennium you're the asphalt.
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