Failing Web Firms Send Ripples Through L.A. Economy

Working at the epicenter of the Los Angeles Internet slowdown, Brenda Arechiga watched friends lose their jobs as Hollywood dot-coms went dot-bomb.

But when she was called into the Venice offices of her entertainment information Web site and let go in a round of layoffs a few weeks ago, “I was just astounded,” Arechiga said.

“I was in a daze. I thought I was one of my CEO’s key people. When he got rid of another editor, he used me as an example of how I was right-brain-left-brain and could market.”

Forget the one-time euphoria for what one stock analyst dubbed “anything.com.”

In Los Angeles County’s “Nerdistan,” the little Silicon Valley clustered around Santa Monica, Venice and Marina del Rey, the dot-com shakeout has left thousands jobless, cooled one of the hottest office markets, and triggered a wave of economic and cultural ripples.

This is the place where “pink slip parties” are replacing launch parties, where venture capitalists cross paths with “vulture capitalists” who pick off valuable marketing information from moribund dot-coms at bargain-basement prices.

Here, laid-off dot-commies have become the latest Angelenos to get agents.

At the Rodeo Drive holiday party of the Virtual International Community, a professional organization, these Internet orphans crowded around the [cash] bar and traded gossip on layoffs and closings they picked up on Web sites that track the carnage with the help of confidential company information provided by disgruntled insiders.

Cyber culture has become permeated with the darkly satirical running commentaries on dot-com meltdowns.

One favorite, dotcomgraveyard.com--”Here is where we learn from the mistakes of others”--announced that an e-tailer just tanked with $10 million in debt. “Woohoo that’s some good spending, cowboy!” the site crowed mockingly.

Another ridicules the multimillion-dollar perks of Silicon Valley culture: in-house gourmet cooks, lavish Vegas parties, an in-house rock concert pairing Jakob and Bob Dylan. It said rumor has it that 20% of the workers of one ill-starred firm “will be greeted not by roaming puppies and the smell of free bagels today--rather, they’ll be met by armed guards and the sight of pink slips.”

In Los Angeles, members of a Web community called DMZ, for digital media zone, used to joke that their name stood for “digital militarized zone.” Now they’re dubbing it “deceased media zone.”

Researchers estimate that between 2,000 and 3,000 jobs have been recently lost in the Westside downturn, said Jack Kyser, the chief economist of the Los Angeles County Economic Development Corp.

“There was such a rush to get these things started, and now the air is going out of the balloon,” Kyser said. “This is going to have some ripple impact.”

For headhunters, it’s a buyer’s market. Nationwide, dot-com layoffs have reached 31,056 in the past year, with 8,789 last month alone, according to Challenger, Gray & Christmas, an international outplacement firm that tracks job cuts in all sectors daily.

“Art directors are hot!” pronounced professional recruiter Jessica Cabo, sporting a lime green shirt and a spiky blond punk cut as she held court at the VIC Christmas bash.

But content providers are not, she said.

“They’re great, and they’re creative. They’re the cool people,” said Cabo, who works for Creative Assets, a “digital talent source” in Santa Monica. “But no one’s going to want to hire them, because content sites don’t generate money. That’s the bottom line.”

Bummer.

Because lots of the people laid off in Los Angeles--including hundreds from entertainment Internet sites--were content providers.

One of the party guests who did draw Cabo’s interest was cyber-refugee Daniel De Fabio, an unemployed Internet creative director with distinctive leopard-spotted hair that lent him an aura of uniqueness even in a crowd where leather and ponytails seemed to have eclipsed the pinstriped suit as the male business attire of choice.

De Fabio worried that any Christmas e-shopping disappointments will lead to more downsizing in January, making his job search that much harder.

Industry analysts share his concern. The Santa Monica-based eToys just warned that holiday profits would be less than had been anticipated. A rival, Toysmart, fell by the wayside in May.

For now, De Fabio is cutting back on restaurants and nightclubs. Or at least, nightclubs with cover charges.

“If you can distance yourself objectively, this is the shakeout of the market we knew was going to come,” De Fabio said. “But it doesn’t make it any more pleasant.”

Hollywood money came late to the Internet scene--but it kicked up its heels plenty once it got beyond the velvet ropes.

Tony Greenberg was at the dregs of that party, when he was among the 337 people laid off from Santa Monica-based Digital Entertainment Network (DEN), a teen-oriented entertainment Web site.

The company’s dreams of being a visionary forerunner in the merging of the Internet and Hollywood came to a rather ignominious end recently with the sell-off of its office furniture and its hardwood paneling.

The company was conspicuously consuming millions in costs last spring when it was suddenly pushed into an unwelcome spotlight by accusations that one of its executives had sexually molested a 14-year-old boy. It shut its doors in May after a $75-million public offering failed.

“It’s been a wild ride,” said Greenberg, who now runs a marketing and management firm. “It was a high-flying flameout. It was ugly. It’s the stuff that Hollywood legends are made of.”

Greenberg was senior vice president of marketing and business development at DEN, which he said raised $68 million from “huge, huge players.” His colleagues, he said, “didn’t go into these start-ups thinking the next day they would be millionaires. Ultimately, I think that anyone chasing down this particular rainbow knew there were some vulnerabilities in the marketplace.”

And there was no pot of gold at the end of the rainbow.

DreamWorks SKG was among the partners that floated Pop.com. When the entertainment site closed in September before its formal launch, 75 people were laid off.

“One thing that upsets me is that a lot of people are saying, ‘If Steven Spielberg and Jeffrey Katzenberg--big Hollywood heavy-hitters with a lot of money--can’t make digital entertainment work, then who can?’ ” De Fabio said. “To me that’s failed logic. If Henry Ford couldn’t make ice-cream parlors work, would you assume no one could? Maybe they’re not the people to figure this out.”

Maybe not. But those were the names that drew Robert Smith to Pop.com in March, at the height of the manic Internet high. As director of digital production, he was to take scripts and develop them into digital Web entertainment.

“What drew me there was the potential power and influence of the names of the founders, knowing they didn’t have a clue what the Internet was about. That’s not their business,” Smith said. “I was very happy with the potential that their names could open up doors for online entertainment.”

When the doors abruptly closed in September, Smith decided to go back to his roots. Now, he’s developing his own Internet service at home in Culver City, though he refuses to divulge details to protect himself from potential competitors.

“I look back to the days we started,” he said. “It was just the Wild Wild West. I want to go back to that and create things that are useful.”

The dot-com gold rush drew a stampede of professionals , from lawyers and accountants to journalists and artists. Those who are returning to their professional origins find that their newly honed computer skills can give them a competitive edge.

Arechiga, 30, who was a production executive in Hollywood for six years before her Internet misadventure, just got hired by a New York commercial director. She’s going to help him use the Internet so his company can pitch clients a comprehensive advertising campaign that offers product placement on television and the Web.

“It’s ambitious. It’s new territory for a lot of people,” Arechiga said. “Even though this is a blood bath, I’ve learned a lot. I can take that knowledge, incorporate it into film and move ahead.”

But she’s still getting over the depressing hangover from watching her dream come apart at her Web site, which covers Los Angeles entertainment and provides tickers and information on upcoming events. The low point came when a manager, nervous over a decline in visits to the URL, proposed rewarding frequent visitors with a special access code for cheesecake photos of bodacious, barely clad women.

“It was just so pathetic. It wasn’t even good cheesecake,” she said. “We thought, this is Los Angeles. If you want porn or titillation, you don’t have to go very far. Go to Santa Monica Boulevard. Go to the Hustler cafe, and they’ll even give you a milkshake. You don’t have to go to a Web site.”

Like many Internet alumni, Arechiga got a new job quickly--in her case, after just two weeks.

“I really think mine’s a happy ending, ultimately,” she said. “I don’t think anybody who wants stability goes into a brand-new medium.”