As the economy contracts, the dreaded pink slip has been putting in more appearances around L.A.’s Web community.
Since mid-August, at least 250 people have been laid off at Internet companies in the L.A. area, according to a tally by the Business Journal. The majority of those have occurred at Spot Runner Inc., an advertising company that has let go of 165 employees since this summer.
Other companies laying off staff include Smashface, a Beverly Hills Internet video company; Mahalo.com, a Santa Monica-based general reference Web site; and Break.com, a Beverly Hills humor site.
The 250 number is conservative because some companies don’t publicly announce layoffs. In any case, the trend is likely to continue as more businesses feel the economic pinch.
Which raises the question: Is this the beginning of the end for the area’s Web 2.0 community? According to industry watchers, the answer is no. Instead, they describe the layoffs as a winnowing process that you would expect to see in a tough economic environment.
With credit markets tight and the stock market down, small companies will likely find it tough to raise funds from venture capitalists and angel investors. At the same time, the state of the economy has made it more difficult for companies to go public.
Absent investor money, executives are tightening their belts.
“The whole name of the game is to conserve cash,” said Bob Foster, a professor of technology management and entrepreneurship at the UCLA Anderson School of Management. “They’re going to say, ‘Wait a minute, I’d better slim down and make my operating cash flow as healthy as possible.'”
And on the flip side, the spate of layoffs could actually benefit small startups if they survive the downturn.
“It can be a plus for a small or startup company to have more folks looking for work,” said Al Schneider, president of the L.A. network of the Tech Coast Angels. “They’ll potentially be able to attract folks that they might not be able to otherwise.”
Start Your Engines
Buckle your seat belts. Video game maker Activision Publishing Inc. is getting into racing.
Chief Executive Michael Griffith told the Business Journal that one of the company’s major initiatives for 2009 was to break into the genre.
“We strategically determined it was an interesting and large genre in which we didn’t compete,” Griffith said.
He declined to reveal details of Activision’s plans for a racing game, citing competitive reasons. But he noted that last year Activision acquired Bizarre Creations, the U.K.-based game studio behind the “Project Gotham Racing” franchise, with the goal of competing in the genre.
Activision, the chief subsidiary of video game giant Activision Blizzard Inc., already owns titles that dominate several other genres. Its “Call of Duty” franchise is a revered first-person shooter series and “Guitar Hero” is a breakout hit in the music space.
Mike Hickey, an analyst at Janco Partners Inc., estimates the racing game market is worth about $1.4 billion, so it’s a move that makes sense for Activision.
“It helps fill out their portfolio,” said Hickey, who added the challenge will be for Activision to come up with a way to distinguish itself from a crowded field.
Brash Out of Cash
Brash Entertainment Inc., an independent video game publisher devoted exclusively to making games based on movie titles, failed because investors didn’t give it time to build an audience, an analyst said.
Brash made a big splash when it debuted last year with an announced $400 million in private equity funding. But the company’s titles “Space Chimps,” “Alvin and the Chipmunks” and “Jumper: Griffin’s Story” underperformed, selling a combined 481,000 units, about as much as one blockbuster game can sell in a week.
The company, which had about 60 employees, apparently shut down on Nov. 14. Messages left on a machine at Brash’s Hollywood offices were not returned.
It can take years for a video game publisher to build a successful slate of titles, and expecting Brash to do so in under a year was probably unrealistic, said David Riley, an analyst with NPD Group.
“It’s hard to develop a good game, to spend millions of dollars on a title, and it crushes you if you don’t see a return on that investment,” Riley said.
Instead of waiting, it appears Brash’s investors pulled the plug. Brash had access to only $150 million of the $400 million through a credit line, which locked up as the credit markets froze.
“The economy played a huge role in this,” said a source familiar with the company. “If the credit markets hadn’t frozen up and the company could have extended its credit line, we wouldn’t be having this conversation.”
Staff reporter Charles Proctor can be reached at [email protected] or at (323) 549-5225, ext. 230.
