Company Town : Paul Who ? Dream Team's New Benefactor

When Paul Allen made an appearance at the Interactive Media Festival awards party at the annual Digital World trade show in Los Angeles last summer, hanging out with rock star Peter Gabriel, no one noticed.

Crowds didn't exactly form around the remarkably unprepossessing 42-year-old billionaire when he flew down from Seattle for the star-studded AIDS Project Los Angeles benefit last month. And he's not likely to be accosted for autographs next week at the Oscars, which he is planning to attend.

Then again, it will kind of depend on whom he shows up with. Steven Spielberg, Jeffrey Katzenberg and David Geffen draw crowds even when they turn up, out of their element, at computer shows--as they have been doing lately in between starting their own studio.

People know who they are and, thanks to his $500-million investment in DreamWorks SKG, Allen, too, may soon become recognized in Hollywood.

That newfound burst of celebrity is the basis of one theory circulating as the entertainment and technology industries buzz with news of the biggest investment yet by a high-tech type in a glamorous Tinseltown business: Allen was star-struck, and the Dream Team needed his cash.

Some wondered whether it makes any financial sense to spend $500 million for a less-than-20% share of an unproven new entertainment firm, no matter how famous its founders.

"It's an interesting number," says new-media venture capitalist Ann Winblad, who knows Allen from the days when she used to date Bill Gates, with whom Allen co-founded Microsoft Corp. and made his fortune. "Paul must have a real strong desire to participate in the creation of a studio. When you're independently wealthy you can make all sorts of decisions that those of us who are mere venture capitalists can only dream of."

"There was a lot of buzz about this going around town for the last couple of weeks," says Jonathan Seybold, a Malibu-based new-media analyst. "This gives him instant entree and cachet into this community. He's a player now."

Allen's purchase last year of 80% of Ticketmaster first brought him into the entertainment scene in a major way. He flies down to Los Angeles nearly every other week on his private jet, and his multimedia development company, Starwave, is producing CD-ROMs with Clint Eastwood and Peter Gabriel.

Friends, business associates and even some competitors dismiss as typical Hollywood conceit and jealous griping the suggestion that Allen is star-struck. To the contrary, they say, the marriage of Allen--his money and his knowledge of technology--with an innovative studio could bring about the birth of the much-vaunted new world of digital-age entertainment.

"This is not about being infatuated with Hollywood," says David Liddle, president of Interval Research, one of several of Allen's technology firms. "This is entirely about strategy. So much very unoriginal stuff has been done by slamming together Silicon Valley and Hollywood types. We're trying to step back and start with a clean slate."

Some analysts think it's a good idea. "I think it's a great match," says Larry Grembrandt, film industry analyst for Paul Kagan & Associates. "We're intrigued by the notion of a studio being designed for the 1990s from scratch, especially one that takes into account interactive multimedia."

Most of the nascent studio's competitors in the interactive entertainment field welcomed the investment as a vote of confidence for the emerging multimedia industry.

"He's putting his money where everyone else's mouth is," says Steve Koltai, senior vice president of interactive entertainment at Warner Bros. "This infusion of capital into the business is above all a good sign that somebody who is a very savvy investor thinks that multimedia is a business of sufficient size and potential to actually plunge in."

Whether Allen is particularly well-suited to guide such efforts is an open question. His investments in the multimedia future, which include Asymmetrix, a software tools firm; Interval, a think tank, and Starwave--whose first CD-ROM products are due out this fall--have been criticized as disorganized and ill-managed.

"He doesn't bring content, and he doesn't bring distribution, and he doesn't bring (production) technology, and those are the three core elements of this business," says Ted Hoff, president of Twentieth Century Fox's interactive division. "What he brings is $500 million and a financial base that allows them time, freedom, and flexibility to explore."

To judge from prior experience, they may need it.

"We've seen a lot of money get dumped into this industry, and, at the end of the day, it's still dominated by the companies that grew up in it," says Kelly Flock, president of Sony's electronic publishing arm, Sony Imagesoft. "It's taken us 30 to 40 titles to get to where we understand the process and have built up a critical mass of technology and talent. You take a company at a standing start, it's going to be hard for them to catch up."

But that may also be what DreamWorks has going for it--starting from scratch.

Says Seybold: "The simple reality is when Paul and Bill founded Microsoft they were building tools for people like them, for computer nerds. From now on out, the people who will drive technology are going to be the people that make content. The converse of that is the content people need to understand the technology in order to know what's possible. And Paul will really help them in that respect."

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