Web Pioneer DEN Lacks Cash, Is Closing Down

Digital Entertainment Network, the pioneering Internet video company that attracted top investors and national attention to its bid to revolutionize entertainment on the World Wide Web, is closing down.

The Santa Monica-based company, known as DEN, failed in recent days to get a new round of financing and ran out of cash three months after withdrawing its initial public stock sale.

DEN executives told the remaining 150 staffers last night that there was no more money left to pay them, employees said. Company officials couldn’t be reached for comment.

DEN intends to file for bankruptcy reorganization or liquidation shortly, according to people familiar with the company’s plans.

Not long ago it was leading the convergence of Hollywood and Silicon Valley, as it worked to create a new TV-style entertainment medium delivered on the Internet.

But the company became notorious in the Internet world for adopting Hollywood excesses and making a series of bad business decisions at time when it had no revenue, using its venture capital to pay huge salaries and for programming. Then the company’s planned stock offering was tabled after news of a sex scandal involving company founder Marc Collins-Rector.

Since February DEN had been scrambling for new financing after it pulled its IPO and promoted a new management team led by chairman Gary Gersh, a former Capitol Records president, and Greg Carpenter, a former Microsoft executive. The executives laid off more than one-third of its staff, cut production costs and other expenses. Yet the company soon ran dry of funds.

“DEN was slated to be big, to be huge, to take over,” Gersh said in an earlier interview. “We were going to change the world and we were going to get rich quick.”

Gersh told the remaining employees Wednesday that they could continue to work without pay in hopes DEN could get new funding.

The abandoned $75 million IPO would have been the first by a pure entertainment site, but it collapsed after then-DEN chairman and founder Collins-Rector, 40, and two other DEN executives resigned.

The three left in October after Collins-Rector settled a New Jersey lawsuit accusing him of sexually molesting a boy for three years beginning when the boy was 14. Collins-Rector denied wrongdoing, and the terms of the settlement were not disclosed.

The FBI is continuing to investigate the case.

After launching its Web site last year, DEN drew positive attention for combining an offbeat Internet sensibility with professional acting and direction. Aimed at 14- to 24-year-olds, the site developed brief episodic shows aimed at groups including gays, Christians, Hispanics and Asians.

DEN hired Randal Kleiser, who had directed such films as “Grease” and “The Blue Lagoon,” to create a science fiction series called “The Royal Standard.” Actress and author Carrie Fisher was hired to write an online advice column called “Denmother.”

DEN investors, including Chase Capital Partners and technology powerhouses Microsoft and Dell Computer, put in more than $33 million by June 1999. And later DEN investors included Intel, NBC and Enron. Ford and Pepsi were among the company’s early advertisers. By the fall, DEN was in production on 13 shows.

At its peak, DEN employed more than 300 technical and creative staffers led by executives from Disney, Channel One and elsewhere.

But DEN’s audience remained limited, in part because of the lack of high-speed Internet connections outside of college campuses and workplaces needed to stream entertainment videos. Only about 2% of U.S. homes have high-speed Internet access.

Although DEN was at the forefront of developing entertainment for the Internet, its more efficient competitors were soon drawing greater Web traffic while paying little or nothing for video content.

DEN spent lavishly on its productions, facilities, and had salaries that exceeded $1 million, unusually high figures for an Internet start-up. In June 1999, DEN was burning up $3 million a month when it had no revenue.

Six-figure salaries also went to Collins-Rector’s two housemates and DEN co-founders, Chad Shackley and Brock Pierce. Pierce is a former child actor who produced DEN’s first show, “Chad’s World,” at age 17. Their multimillion-dollar home in Encino was the site of lavish parties, and some DEN shows, including “Chad’s World,” were filmed there.

Collins-Rector, who changed his name from Mark Rector, became professional and personal partners with Shackley after they met online and then co-founded Concentric Research in 1991, the year Shackley turned 16.