Firm Takes a Bath With Soap Opera on Web

One year ago, Russell Collins was a darling of the burgeoning Internet scene.

“The Spot,” a World Wide Web soap opera that he and a few advertising agency colleagues created as a spare-time diversion, was being touted as the prototype for a whole new genre of entertainment, one that might ultimately rival television.

Collins launched American Cybercast Inc. to further develop “The Spot” and create even more Internet shows. Intel Corp., Creative Artists Agency and other blue-chip investors were eager to get in on the ground floor.

But 12 months and $6 million later, Collins is back in the spotlight, this time as an example of what not to do in the highly speculative business of Internet entertainment. American Cybercast is nearly out of money and will have to shut down by the end of the month if new investors are not found.

Poor management appears to have a lot to do with the company’s impending implosion. But the Marina del Rey firm’s troubles also reflect the increasingly difficult business climate for all firms that are trying to create original content for the World Wide Web--and especially those counting on advertising to support their efforts.

American Cybercast’s experience also raises questions about whether “episodic” Web shows like “The Spot” (https://www.thespot.com)--which follows the lives of five twentysomethings (and one dog) sharing a house in Los Angeles and allows fans to read the characters’ diaries and debate the plot twists with fellow Spotniks--are anything more than novelties with little chance of drawing a mass audience.

“There was a real buzz created when ‘The Spot’ came out, but I think a lot of that was just predicated on Internet industry hype,” said Patrick Keane, an online analyst with Jupiter Communications in New York. “Over time, the episodics really lose their color” because current technology can’t support the video, graphics and interactivity that consumers demand. “Even if you have the patience for it, you’d probably rather just turn on the TV,” he said.

Observers both inside and outside the company blame American Cybercast’s management for expanding too fast in its quest to mimic a television network on the Internet. Within a few months of getting its financing, American Cybercast had 60 employees producing four labor-intensive Web shows--a risky approach considering that the Internet audience remains small and advertising revenues are meager.

“They went for a TV model way too soon, before the infrastructure was there for them to realize their costs,” said Charles S. Platkin, co-president of New York-based Marinex Multimedia Corp., which produces a rival soap called “The East Village” (https://www.eastvillage.com).

Even in the face of financial ruin, Collins continues to insist that the large staff and ambitious production schedule were necessary to create the high profile needed to impress the financial community. He prefers to blame the problems on bad timing and allegedly irrational investors.

In Collins’ view, companies that went public in the first part of 1996 benefited from Wall Street’s unjustified enthusiasm for all things Internet-related; then, in the second half of the year, investors became overly pessimistic. American Cybercast simply wasn’t able to launch its planned IPO soon enough to catch the boom, Collins says, and therefore didn’t have the cash to stay afloat until the Web audience got big enough to support the company.

But others in the Internet industry say American Cybercast was at best naive in counting on a Netscape-style public offering. It wasn’t the only company to harbor such delusions of grandeur--San Francisco-based Wired Ventures, for example, postponed its plans for a public offering twice last year before scuttling them altogether--but most agree it was the Internet IPO fever of early 1996 that was irrational, not the subsequent caution.

Undaunted, Collins claims he is in discussions with 20 potential investors and that “American Cybercast--or some version of it--is going to survive.” Still, the company made a public plea for financial help on the Internet last week, and any surviving entity is likely to be drastically smaller.

Indeed, with the exception of deep-pocketed companies like Microsoft or Disney, firms that hope to stick it out in online entertainment will have to keep their loftier ambitions in check while the world catches up to their vision of a wired future in which Internet connections are as common as television sets.

At Marinex, Platkin follows the rules of “Webonomics,” which hold that profits in Web-based entertainment are at least three years away. Consequently, the firm has budgeted a mere $5,000 to $6,000 per week to produce “The East Village” and two other ventures. (Marinex sued American Cybercast in November after AmCy allegedly backed out of a deal for a joint project.)

Relying exclusively on advertising, moreover, looks like an increasingly dubious strategy.

“Fifteen percent of the American public was online at the end of 1996,” said Keane of Jupiter. “That isn’t comparable to any other media generating real advertising dollars.” Total sales of Web advertisements amounted to only $343 million for all of 1996, according to a Jupiter study.

Steven Koltai, founder of CyberStudios, a Culver City company that acts as a co-developer and distributor of Internet programming, puts more stock in revenue from transactions that occur on the Web sites his company helps produce.

“On TV, you watch the ad because you want to see what’s on after the commercial,” he said. “On the Internet, there is very little compulsion to watch the ad.”

Collins denies that AmCy’s advertisers--including Toyota, Visa and Apple Computer--were dissatisfied with the response from their ads. But he acknowledges that there just aren’t enough people on the Internet to justify charging ad rates high enough to cover production costs.

He was prepared to wait it out until the Internet’s explosive growth solved that problem, but his investors were not.

It remains unclear whether Web soap operas have enough intrinsic appeal to ever become moneymakers. Fans of “The Spot” who commiserated online worried that the failure of the flagship show might sound the death knell for the entire fledgling genre.

“It has that potential because the company that was perceived as the leader is having problems,” said Jeff Gouda, a former “Spot” project manager who is credited by fans with making the show highly interactive. “But it’s not due to a bad product, it’s just due to poor management.”

Koltai is less bullish on the prospects for episodic Web shows. At CyberStudios, the focus is on content that can’t be done better on television or other media. He and others believe that only shows that offer distinctly interactive elements like chats or multi-player games will ultimately survive.

Collins, despite the harsh evidence to the contrary, still thinks his formula will eventually be a winner.

“I think episodic Web entertainment is going to blow people away in 1998,” he says. “I guarantee you this is going to be a major industry before the end of this century.”

Times correspondent Karen Kaplan covers technology and telecommunications. She can be reached via e-mail at Karen.Kaplan@latimes.com