Firm’s Online Cartoons Go Interactive

On any given day, Superman has a lot of big decisions to make. He can sweep down and rescue Lois from the clutches of evil or fly around the world and turn back time. He can smash the bad guys’ hide-out to smithereens or shed his cape and hustle back to the Daily Planet.

But in a new form of interactive online cartoons, you tell Superman what to do--and he does it, at the click of a mouse. The cartoons are the latest product of Brilliant Digital Entertainment Inc., a Woodland Hills Internet start-up that some observers say is in an excellent position to cash in on the reinvigorated push for online entertainment.

Brilliant Digital has won acclaim for creating some of the most sophisticated animation technology--and some of the snazziest cartoons--on the Web. The company has evolved into a content provider, supplying popular Web sites with 3-D interactive movies and splitting ad revenue with hosts.

As is the case for many high-tech start-ups, profit isn’t anywhere in sight for Brilliant Digital. The company reported losses of $10 million for its last four quarters through Sept. 30 on paltry revenue of $857,000.

And Brilliant Entertainment faces competition from well-capitalized digital effects companies such as Pixar Animation Studios and Macromedia Inc., whose Flash software is a popular online animation program.

Brilliant Digital’s stock closed Friday at $4.81, down 6 cents, on the American Stock Exchange. The company went public at $5 a share in November 1996.

But demand for entertainment content is steadily rising, and some analysts think that is also true for Brilliant Digital’s prospects--which may extend beyond the cartoon world.

“Suddenly, it’s become hip to invest in Internet entertainment again,” said David Card, an analyst at Jupiter Communications Inc., an Internet research firm based in New York.

A few years ago, Microsoft Corp. and other Internet players developed online cartoon shows and comedies but scrapped them because of lack of interest. But now big companies have returned to “cybertainment.” They include Time Warner Inc., which in November launched Entertaindom.com, a Web site that features film clips, cartoons and rooms in which you can chat with the stars. Entertaindom runs Brilliant Digital’s Superman cartoon and has committed to airing several more of the company’s animated movies.

“A technology company that has emerged specifically to create Web-based entertainment content is a very viable concept at this point in time,” Card said.

Brilliant Digital both produces animation content and develops animation software and technology. What sets the company apart are its programs for transmitting information-rich animation files.

Moving images that are continuously fed into computers as “streaming data” typically requires fast connections that many computer users don’t have.

At a lab in Bondi Junction, Australia, Brilliant Digital programmers developed and patented data compression and delivery technology to bring three-dimensional animated movies to computer users with slower connections.

In the Superman cartoons, for example, the information for Clark, Lois and other regulars is stored locally on hard drives of individual home computers. The data to fly Superman around and other episode-specific instructions are piped in via modem and mixed with the hard-drive data to create scenes that have the depth and detail of a live-action video.

One way to grasp the concept is to think of the way orange juice is made: Concentrate, not juice, is shipped cross-country and mixed with water near local markets.

“Brilliant’s way of linking stored data with streaming data is pretty far ahead of everybody else,” said Christopher Harz, a contributing editor at Animation, a trade magazine. “As a result, their content is some of the most sophisticated on the market.”

Brilliant Digital didn’t start off as a purely content company. In July 1996, two cousins in the video game business, Mark Dyne, based in Los Angeles, and Kevin Bermeister, then living in Sydney, Australia, formed the company to create interactive animated movies to sell on CD-ROMs and through subscriptions on its Web site.

The idea was to put out new 6-minute “Webisodes” on the Internet every week. Its first multi-path narrative centered on an Australian comic book character who’s half-robot, half-pig.

The company soon struck deals to license better-known characters, such as Popeye, Ace Ventura, Superman and Xena the Warrior Princess, sometimes using stock warrants to pay for rights.

But CD-ROM sales never materialized. Stores weren’t sure where to shelve something that was part game, part movie, Bermeister said.

And in the summer of 1998, the company announced it was abandoning its retail ambitions. Brilliant Digital then shifted its focus to providing movies for other companies to market.

“The CDs were a bridge until we had the technology to deliver our movies over the Internet,” Bermeister said.

Today, Brilliant Digital has 100 employees, with administrative staff in Woodland Hills and programmers based near Sydney. The company has a half-dozen serialized movies playing on several servers and Web sites, including Road Runner, @Home Network and Fox Kids, and deals for dozens more.

Bermeister is president, Dyne the chief executive, and the pair are among the top investors, along with Sega Enterprises Ltd., which owns about 8% of the company.

Brilliant Digital hopes to build its skimpy revenue through online ad sales. When viewers log onto other Web sites and download a cartoon, Brilliant Digital makes 1 to 2 cents per impression from the host site.

So far, however, the company has generated scant revenue, which hasn’t impressed investors.

“I think it’s safe to say we went public too early,” said Lisa Eisenpresser, Brilliant Digital’s vice president of strategic development. “Our strategy to focus on providing content has evolved only recently.”

Its most successful project has been “Superman: The Menace of Metallo,” produced exclusively for Entertaindom, which will soon showcase a second Brilliant Digital movie, a cartoon based on the vintage rock band KISS.

“The multi-path movies are the closest thing to a TV experience that I’ve seen on the Web,” said Jim Moloshok, president of Warner Bros. Online, which helps oversee Entertaindom.

But Brilliant Digital isn’t satisfied to be just another animation company. Programmers are searching for ways to apply the compression and delivery technology to virtual shopping malls, education programming and even as tools for filmmakers to cut together an animated video pitch of a movie idea.

Encouraged by this wider potential, George Harros, a Smith Barney financial consultant in Sherman Oaks, has invested heavily in the company and now owns about 2% of it.

“People look at this as a company selling cartoons over the Internet, but that’s not what it is all about,” Harros said. “I’m confident there’s more applications for their delivery software than any of us can ever imagine.”