Blame Hollywood

It's a rough time for content providers lately. Witness yesterday's DEN (http://www.den.net) disaster and last week's staff cuts at On2.com and LOADtv. What's going on? What's behind DEN's demise? According to more net-centric broadband competitors like Psuedo and TheSync, the answer is simple: Blame Hollywood.

Thomas Edwards, President of TheSync (http://www.thesync.com) says that DEN was spending too much money on content and executive salaries. "DEN was coming from a Hollywood-centric perspective," says Edwards. "They simply didn't understand the Internet market."

It was well known in the streaming world that DEN was using traditional TV production instead of more "dot com" tools. Play Streaming Media Group (http://www.psmg.net) (whose parent Play.com makes the streaming-in-a-box tool, Globecaster) said in a statement by Stephan Bouchard, VP of business development: "DEN realized that the economic realities of Internet broadcasting were not compatible with this high-cost approach to production". They then sought PSMG for help but it was too late. "The economics of Internet broadcasting simply do not support the adoption of traditional television production models,"he said. "It is important for Internet broadcasters to understand that."

Jeanne Meyer, Senior VP of Marketing at Pseudo Programs (http://www.pseudo.com) agrees saying that it tried to create a "Hollywood scale business" right off the bat. She points out that Pseudo is different because it started out years ago as a new economy business and has evolved into a rather large (by Internet standards) entertainment network. "[DEN's] approach was like squeezing an elephant in a keyhole," she said.

DEN had been trying valiantly to get back on course. In February, DEN cancelled a planned IPO because of internal problems and bad overall market conditions. Many believe that DEN backed out because they simply had no revenues. Many of their sponsor deals (like Ford or Pepsi) were product placement or ad exchange deals. While they got brand-name backing and sponsors, that didn't put money in the bank. For DEN, revenues were a distant dream.

"A Cancer in the Industry"

Things haven't come easy for DEN. Ever since they arrived on the scene many in the streaming and broadband industry derided them. "They became a punching bag for making a lot of mistakes," says Meyer. For one, she says, DEN was too "Gen-Y" focused instead of being topic focused like Psuedo. That really hurt their bottom-line.

Nigel Olympia, a former DEN employee, said simply: "They were a cancer in the industry." Olympia, who worked as a Flash animator until a year ago says that they did a lot of things wrong. "A lot of people looked at them as the flagship of digital entertainment, but they also looked to them to see what not to do." He says DEN let costs go out of control with "overinflated" salaries and that they didn't outsource their production.

Edwards attributes the bitterness to the cultural gap between Hollywood and the Internet. "That's why I don't produce movies and some people shouldn't be producing Internet video," he said. Ouch.

Is This a Trend?

So what's going on in the broadband content space? Last week content sites On2.com (http://www.on2.com) and LoadTV (http://www.loadtv.com) announced they were stopping their in-house production and making deep staff cuts. New York-based On2.com stopped original content production, letting go most of its production staff to concentrate on technology instead. On2.com President Doug MacIntyre pointed out that costs weren't the core issue; it was just a matter of changing focus.

Hollywood-based LOADtv meanwhile says they're not in trouble either and are now in the process of reorganizing. "It's a matter of making the tough business decisions now that will take us from this point to the next level," the company said in a statement. LOAD simply said there wasn't a need to produce its own content and had to let its production staff go. Everyone was taken care of, said a spokesperson, and given "accelerated stock options for their hard work". As part of its restructuring, LOAD recently hired a new CEO. Said the spokesperson: "We're not going anywhere."

So is this a trend? Meyer says this isn't an indictment of the entire broadband streaming category. "There's still a huge potential," she says, "for original content created in a new medium for players that can do it right." Double ouch.

Edwards at TheSync says he's afraid that DEN's downfall will leave a bad taste in venture capitalist's mouths. "Anyone trying to raise money will have to differentiate their model from the DEN model," he says. Even the big Hollywood upstarts like POP.com and NBCx.com should be concerned. "They all better take a look at DEN and see what they did to get to this position today," says Edwards. "They're also coming from a very Hollywood perspective and need to take notice and see what's popular on the net and why. Take a lesson away from this."

What's Next?

What's next for DEN? Edwards said that an unnamed source at DEN wrote him saying that aren't dead yet. He points out that DEN has an excellent production facility that may get picked up by another company. Rumors abound that another Hollywood-centric site like POP.com might buy DEN.

In the end, perhaps the DEN saga is a cautionary tale. Said Bouchard, "Ultimately, however, many other companies will benefit from the lessons learned here, and DEN's highly talented employees will help many other companies achieve new heights. Pioneers tend to run into hurdles first, and nobody can fault DEN for charging down the path first."

Meanwhile Edwards offers these tips: keep costs under control, understand your audience and show real revenue faster than DEN did.

"We're sorry to see our colleagues at DEN go out this way," says Meyer, "but that's what happens when you're overhyped and under deliver." Whatever happens with DEN, Edwards says the failure of DEN would be a "black eye in the streaming media content world. We're all hoping that they're able to keep going."