Microcast Files for Chapter 11

It's been a long, hard road for streaming services company, Microcast (www.microcast.net). Last week, Microcast let go of most of its employees and filed for Chapter 11 bankruptcy in a Delaware court.

According to CEO, Paul Nash, the company had been having problems getting funding since the summer. Then, about two months ago, a company stepped in and said it was going to acquire Microcast. But the company backed out last Monday, said Nash, citing bad market conditions. When the deal fell through, Nash trimmed his staff -- which peaked at 150 people -- to just 17.

When the acquisition broke down, it was shocking, said Nash. The two companies had been working for almost two months to integrate operations and finalize technical details. Apparently, Microcast even received interim funding from the acquirer.

Although Nash refused to identify the company, inside sources revealed that it was satellite provider, Loral Cyberstar. When reached by phone, a Loral spokesperson wouldn't confirm. "We can't make a comment," she said, "that's not our policy."

Satellite provider Loral CyberStar announced earlier this year that it was providing streaming services, by offering content delivery services to ISPs and corporations.

One Million Streams

Danbury, CT-based Microcast, streamed live events for free, in return for ad-share revenue. It made some headlines and gained notoriety in the industry early this year when it claimed it could handle 1 million users on its network. One early event, a live webcast of PGATour.com's Live@17, drew a reported 155,000 simultaneous users. Microcast says it used its own streaming video ad-insertion technology, playing ads from golf ball manufacturer Titelist, during breaks in the action.

But according to one ex-employee who wanted to remain anonymous, live events just didn't generate enough revenue. "We quickly found out that that not many advertisers were interested in spending money in this," said the source. "Not enough people were watching."

Nash admits that he overestimated the "big event" webcasts. "The media side was large but sporadic," said Nash. "[So] we thought it would be best to fill in the blanks with other services." In early spring, Microcast shied away from doing free media events, and launched a B2B initiative, providing streaming services to corporate clients.

Microcast was hit with a lot of criticism when it claimed it could handle over 1 million users. Nash explained that this was a big mistake in marketing. "We took our lumps from a PR point of view," said Nash. But he still says that the company could have done a million streams. "The bandwidth we took was ludicrous. The market didn't come as fast as we projected," he said. Microcast's network was designed to handle 42 POPs but the company stopped at 30 once it realized it had purchased too much bandwidth.

"We had a lot of bandwidth [but] it was real fun to surf the net at our office," joked Nash.

Liquidation Sale

Although companies contacted for this story didn't want to be identified, many admitted that Microcast owed them money. According to one unidentified source, Microcast stopped returning phone calls last week.

According to Nash, the company currently owes about $50 million. "It's quite a large number but the truth is we have lots of assets based on the network we built, it's still out there and operating." He said the company can sell some intellectual property to pay off creditors. "We're still trying to figure out what our options are; it's now five business days since the acquisition was called off."

In total, Microcast raised almost $100 million since it was founded in 1998. "Early [this year] it was easy to raise capital, but was impossible later on," he said. Even the company's original VC investors, chose not to re-invest. Nash said that they had "other fires to put out" due to the changed market.

According to one ex-employee, the first round of layoffs came in the middle of October. When asked to comment on what went wrong at the company, the source laughed. "I know what they did wrong. I want nothing to do with that company."

Nash said he was trying to get new funding and was "very close" on a number of occasions. After the Loral deal fell though, the company had limited options. "We hit a brick wall," said Nash.

What's Next?

With Microcast's Los Angeles office now closed, the remaining staff at Danbury is now busy with the grim task of keeping technical operations going.

Microcast's Web site is still active and Nash says the company is still producing and hosting streams for (what used to be) 120 clients. But he's worried that his bandwidth providers might pull the plug on him and his customers. "We've been providing our clients with alternatives, in case our bandwidth gets pulled," he said. Among the sites that could be affected are MGM.com, King World and CindyMargolis.com.

"We did some great work," said Nash, "it's heartbreaking to watch it go away. The market is tough. If it would have worked, we would have made more money than God."