2000 Shakeout Shook Up Online Entertainment

During the past year, online entertainment suffered setbacks--with the closing or trimming of several high-profile Web sites--and achieved some successes, leaving the future of this new medium uncertain.

The shakeout arguably started with the demise of the Digital Entertainment Network in June. The failure of the company, which reportedly blew through more than $60 million in two years and was plagued by a sex scandal involving one of its founders, was a major upset to the industry. A pioneer in creating original online content, including teen- and urban-oriented video programs, the much-touted site had offered the promise of the Internet as a viable visual entertainment medium that could compete with film and TV.

With the Digital Entertainment Network shutdown, scandal and subsequent bankruptcy came a loss of innocence, and hubris, for online entertainment start-ups--and a loss in confidence by investors wary of buying into Internet hype. It would also turn out to be a harbinger of a fall season full of “dot-com” failures and restructurings.

Most notably, in a case of Internet jitters, Pop.com, an online entertainment venture backed by DreamWorks’ Steven Spielberg, Imagine Entertainment’s Ron Howard and Microsoft Corp. co-founder Paul Allen, was scuttled in September before its launch. Scour.com, a search and file-sharing site acquired by former agent kingpin Michael Ovitz and hindered by lawsuits by the Motion Picture Assn. of America and Recording Industry Assn. of America, closed in November. And, despite an ambitious business plan involving wireless access, Thirsty.com, a teen lifestyle site headed by artist managers Jeff Pollack and Benny Medina, also shut down in November, after a scant five months online.

Other sites have survived the Internet blood bath only by cutting jobs. Entertainment news and show times site Hollywood.com, partially owned by Viacom Inc. and Tribune Co., parent company of the Los Angeles Times, eliminated 30 people from its 50-member staff in September. Animation site Icebox.com laid off half its staff in November. Earlier this month, film portal iFilm.com laid off 10% of its staff, and last week, online music label FarmClub.com, which is backed by Universal Music Group, let go 15% of its staff.

In a possibly more ominous sign, although the Internet remained an integral part of TV and film crossover strategies, it couldn’t be counted on to draw online audiences to offline entertainment. In particular, the box-office failure of “Book of Shadows: Blair Witch 2,” despite an aggressive Internet campaign, indicated that the online marketing success of 1999’s “The Blair Witch Project” was a case of lightning striking only once.

Interestingly, because turning a profit on the Net has eluded Web entertainment sites so far, online success has come to be measured by acceptance of the purveyors of traditional offline entertainment. So in that sense, there were a number of Internet entertainment success stories in 2000. Among them:

* Music file-swapping site Napster, despite a federal court injunction and lawsuits filed by the Recording Industry Assn. of America and music artists such as Metallica, attracted more than 30 million users and the attention of Bertelsmann Music Group, which announced a merger with the fledgling company in October.

* First-time filmmaker Joe Nussbaum, who directed the acclaimed Internet short “George Lucas in Love,” was signed to direct a feature film for Paramount Pictures.

* “Lil’ Pimp,” an animated Web series that originated on entertainment site MediaTrip.com, is being developed for the big screen by Joe Roth’s Revolution Studios.

* Music artists such as Fisher and At the Drive-In registered with Internet audiences at sites such as MP3.com and FarmClub.com, and have since garnered mainstream recognition and offline sales.

* And earlier this month, film site AtomFilms.com and gaming site Shockwave.com announced a potentially powerful merger, although it may result in a cutback of 100 jobs by the time the alliance is completed.

So what lessons can be gleaned from such mixed reports?

First, and perhaps most important: Hype doesn’t pay. Examples: Digital Entertainment Network, Thirsty.

Second: Even the biggest names in show business (and tons of money) can’t save sites from sinking. Examples: Pop, Scour.

Third: People like free stuff (and they will still buy stuff they can get for free). Example: Napster, MP3, FarmClub, AtomFilms, MediaTrip, Icebox.

Waiting for Broadband: Just as “wireless” was the overly hyped buzzword in 2000, so shall “broadband” be in 2001. Many of the ambitious plans by Internet executives to create content that can rival TV and film--including live-action and animated Web series and music videos--cannot be enjoyed at a high-quality level by mainstream audiences until broadband becomes widely available.

As one posting on a Web site that tracks Internet failures noted: “Not enough people in this country have a high-speed connection, and for this reason, FarmClub.com needs to realize how many people are actually viewing at good quality instead of the stop-play action. FarmClub.com might be good when the prices of DSL, cable and whatever other connection there is goes down so people can actually afford it!”

The observation was made specifically about FarmClub.com but can be applied to all online entertainment.

And as for Napster, the posting continued:

“Are they going to succeed, or are they going to be history?” Good question.

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Michele Botwin can be reached at michele.botwin@latimes.com.