BedFellows

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By SARA FISHER

Staff Reporter

Silicon Valley is the latest object of affection for Hollywood, and the infatuation appears to be mutual.

In a single week this month, deals were announced by Apple Computer Inc. and Disney Online, Microsoft Corp. alumnus Paul Allen and DreamWorks SKG, and Netscape Communications Inc. and half the studios in town. The impetus driving the latest bout of deals is simple: Both industries want to push their brand names into the other’s territory.

“It’s a marriage of convenience, and it’s all about money, money, money,” said Mark Hardie, senior analyst at Forrester Research Inc. “Both Hollywood and Silicon Valley want to get their brand name into the broadest possible audiences. Their respective deep pockets don’t hurt, either.”

This marriage of convenience also is pushed by Hollywood’s need to catch up when it comes to harnessing the Internet’s rapidly growing power.

“The entertainment industry would be ill advised not to take advantage of what’s going on in the (Silicon) Valley,” said Jeff Berg, chairman and chief executive of International Creative Management, as well as board member of tech companies Oracle Corp. and Excite Inc. “Studios are notoriously slow in adapting to new technology, but the media have to be more fluent as the industry evolves.”

Disney has been especially nimble. On July 8, North Hollywood-based Disney Online announced it had joined forces with Apple, based in Cupertino, to bring its popular online service for kids to the Macintosh. Since debuting over a year ago, Disney’s subscription-based daily magazine site Blast Online has only been available to PC users.

“We believe that Disney is a major presence and brand in all media, and it is very important to us to work with them,” said Russell Brady, a spokesman for Apple.

Brady went on to quote a timeworn adage: “A computer is only as good as its software.” And with Apple pinning its long-term viability on its new iMac home computer, for which the ‘i’ stands for Internet, the company is going to do everything in its power to line up compelling content.

“The timing of Apple’s announcement with Disney was obviously influenced by the debut of the iMac,” said Patrick Keane, an analyst for Jupiter Communications, a technology-industry research firm. “For Disney’s part, this is the latest step it has taken to establish itself as a major Internet figure while expanding its audience.”

Disney and Apple have had a longstanding relationship. Disney has a 50 percent stake in Apple CEO Steve Jobs’ computer animation company Pixar Animation Studio. Also, Richard Wolpert, former president of Disney Online, previously worked at Apple. (Wolpert resigned suddenly from Disney Online last week “to pursue other opportunities,” the company reported, declining to give further details.)

Because of the Pixar relationship, as well as Disney’s recent concerted effort to build an online empire, Disney Online approached Apple for help. Together, they developed the new system needed to deliver Disney Blast to Macintosh users.

The day after Disney’s announcement, Netscape trumpeted a $10 million marketing deal with Sony Pictures Entertainment, Warner Bros., Paramount Studios and Hollywood Online. Netscape, a Mountain View-based Internet software company, launched a major multimedia ad campaign to attract new users to a beefed-up “Netcenter,” its online directory equivalent to Yahoo! Inc.

“Netscape is in an odd position: They started as a software company but are emerging as a primary Internet portal,” Hardie said. “It has similar traffic to Yahoo, but a much lower market cap because of their image as a software company. This marketing deal is a powerful push to reposition itself.”

Netscape executives acknowledged that their latest announcement is just the first of many steps to change the company’s image and clientele, with more media partnerships to come. However, they also emphasized that these deals are a two-way street, and Hollywood is just as eager to work with them.

“We honed into Hollywood because they have the clout, consumer appeal and a breadth of content we need to make ours a premier site,” said Lynne Carpenter, director of Web-site marketing for Netscape. “But also, Hollywood is savvy and they know that we have certain assets that are very valuable. The studios are late to the Internet game and they need to catch up fast.”

For their part, studio executives agree that Hollywood benefits from these alliances, but that Silicon Valley needs the studios as well.

“It is a fantastic advantage for us to be linked to Netscape, get that kind of exposure and reach that kind of audience,” said Jim Moloshok, vice president at Warner Bros. Online. “We, however, have certain assets that are very valuable to them. Netscape and other online companies need to develop a ‘must-see PC’ with unique branded content to set them apart from their competition. After all, there is only one Bugs Bunny out there. If kids can only see him on Netscape, that’s where they’ll want to go.”

Moloshok said Warner Bros. Online products also are pre-installed on Windows 98 software and on computer manufacturer Gateway 2000’s Web site to maximize Warner Bros.’ audience.

Audrey Marco, director of marketing alliances for Sony’s Columbia Tristar Interactive, agreed with Moloshok.

“The online world is becoming so mainstream that it made a lot of sense for us to tap into Netscape’s portal site and benefit from their traffic,” Marco said. “And for them, they need the entertainment angle to make their marketing sizzle.”

Marco added that other possible alliances with Netscape are already in the works.

Perhaps the biggest announcement in early July was also the most secretive. Venture capitalist Paul Allen increased his stake in DreamWorks SKG as of July 8. Spokeswomen at both Allen’s Vulcan Ventures Inc. and at DreamWorks declined to disclose the size of the stake or Allen’s previous holdings.

The Wall Street Journal reported that Allen agreed to buy more than half of the stake held by Cheil Jedang, a South Korean food company that was one of DreamWorks’ original shareholders, estimated to be worth more than $160 million.

If that’s true, Allen’s present stake in DreamWorks would be about 24 percent, putting him ahead of studio founders Steven Spielberg, David Geffen and Jeffrey Katzenberg, who each own stakes of about 22 percent. A spokeswoman for the Korean company told the Wall Street Journal that those estimates were unfounded.

Regardless of the exact size of Allen’s DreamWorks stake, his investment strategy has markedly changed over the decade. In the early 1990s, most of Allen’s investments targeted technology companies working on advancing Internet infrastructure issues. Lately, his focus has shifted to creative content. Allen has often told the press that he believes strong content ultimately will drive the demand for new technology.

These deals intertwining the premier industries of Northern and Southern California are expected to accelerate in the coming months.

“We’re seeing a hybrid media emerge on the Internet that doesn’t play by the same rules as traditional entertainment,” Hardie said. “Technology companies are going to be lining up with content providers, and entertainment companies are gong to be standing close to the technologies that drive the Internet. It may not be that strange when you think about it, but they will certainly be bedfellows.”

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