Last Tuesday (Feb. 6), one L.A. Web entertainment company Ifilm Corp. announced it had received a $10 million infusion of venture capital. A day later, another local Web entertainment company Icebox.com announced it had failed to raise the $10 million it was seeking and would shut down.
At the center of this tale of two Web sites are a pair of solid, visionary businesses that have been feeling their way through what is still a very dark Web entertainment space. Do their successes and failures shed any light?
No one knows the answer to that question better than Icebox CEO Steve Stanford.
"Rerun the numbers on the business model a thousand times," he said. "If Web entertainment companies are looking to achieve profitability, they all need to cut their 'burn' (rate at which they spend cash) while they're well-capitalized and focus on running their businesses in an efficient way."
It seems obvious, but Stanford, like others before him, once believed that an exuberant market would continue to throw money at Web content businesses like Icebox.
"We assumed we could access the capital to grow the business according to the business plan, and we spent accordingly," Stanford said.
It was a fair assumption, given the mania of the Internet economy and the stellar roster of writers, producers and animators that Stanford could tap for Icebox's original content. Among the talent were some of Hollywood's creative elite, including Larry David, co-creator of "Seinfeld;" Mike Reiss, executive producer of "The Simpsons;" and Kevin Smith, writer and director of the films "Dogma" and "Clerks."
The site was co-founded by entertainment industry heavy hitters Stanford, who had founded the new-media division at International Creative Management; John Collier, co-executive producer of "King of the Hill;" Howard Gordon, former executive producer of "The X-Files;" and Rob LaZebnik, co-executive producer of "The Simpsons."
Their idea for Icebox was to create a censor-free Net community, where any topic that any writer wanted to tackle, no matter how offensive, could be presented, unedited.
Online since June 2000, Icebox and its creative team spawned such characters as a gay Jewish duck, a foul-mouthed Asian houseboy, an alcoholic Abraham Lincoln and the long-lost brothers of Jesus: Marty, Vinnie and Chuck.Stanford's vision was to offer Icebox as an alternative to the TV pilot process, a place where creative types could test their material out on low budgets. Icebox paid writers and producers no money and just offered stock in the company.
"We saw it as a great place for creators to have freedom and for the television networks and studios to see if the properties would work before they invested," Stanford said.
But the anticipated number of licensing and syndication deals didn't materialize and advertising revenues only trickled in.
"You have to be willing and able to sustain the losses necessary to build a business," Stanford said. "Web entertainment companies aren't going to be profitable in the near term. It's going to take three to four years to make them successful."
"We created a lot of value," he continued. "We've got a business model that's as good as anybody else's in the space."
Maybe so, but investors evidently didn't see it that way.
While Icebox came up short, another local site in the space last week got a new pledge of support from the business community. Ifilm, the film portal launched in 1998, received $10 million from a group of VCs that includes Paul Allen's Vulcan Ventures, as well as a promotional deal with the hugely popular information portal Yahoo.
What sets Ifilm apart?
"We don't produce content, we don't acquire content and we don't pay for licenses," said Ifilm CEO and co-founder Kevin Wendle. "There are a lot of products out there masquerading as companies. We tried to create a company with multiple revenue streams and products."
While best known as a site for independent filmmakers to showcase their work, Ifilm also publishes the Hollywood Creative Directory and offers various B2B services to Hollywood studios. The site has also enticed national advertisers like Sony Corp. and Coca Cola Co. with rich media advertising offerings.
Ifilm is not, however, profitable.
"It's hard to make money producing TV shows that reach 100 million people, so imagine how hard it is for Net programming to make money when it reaches a fraction of those numbers," Wendle said.
If anyone has a resume built for the media convergence space, it's Wendle. He was co-founder of CNET, Fox Broadcasting Co. and E Online, as well as a senior programmer at NBC and ABC.
What are the lessons that Wendle has gleaned from last week's meltdown at Icebox?
"Sometimes the pioneers get the arrows in the back," he said. "It's more evidence that, in spite of a great entertainment and great content creators, there's not enough of a market. It's simply too early."
Too early and too pessimistic, according to Allen DeBevoise, CEO of Creative Planet Inc., an L.A. company that provides information and technology resources to the entertainment industry.
"There was an irrational exuberance about Web entertainment before, but now it's overly pessimistic," he said. "If you go back to the last big content play cable programming its investors had a lot of patience and were in it for the long haul. It took cable a while to become profitable and valuable."
"With the Net, everyone thought they were going to get rich quick," he added. "Investors didn't have the patience you need to build a brand over time."
Indeed, to some in the venture community, it's not about brand-building, it's about "the dollar-based opportunity."
"The formula for Web entertainment companies is not all that different from other tech companies," said Brad Jones, managing partner with Redpoint Ventures. "What they're offering must address a large market in terms of dollars, not just viewers. They must be paying."
Jones and his colleagues at Redpoint are, however, watching the online entertainment space closely.
"There's no lack of talent or energy going into this area," Jones said. "The reality is that only a fraction of new businesses succeed in the end."
Nonetheless, Redpoint is optimistic about online entertainment and the firm is invested in several convergence startups, like LivePlanet Inc. and Fandom Inc.
"Only the Internet can offer the one-to-one relationship, the personalization and the experience that's unique to you," said Geoff Yang, founding partner of Redpoint. "But TV is much better at building an audience that can be monetized."
Icebox may have a last laugh. Stanford said that several online and offline entertainment companies are currently bidding on material in the Icebox library. Marty, Vinnie, Chuck could yet appear on a television set near you.
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