Ifilm's Struggle Is a Real-World Survivor Story

By MEG JAMES

March 12, 2001 12 AM PT

TIMES STAFF WRITER

Ifilm, a heavily hyped online Hollywood venture, is hanging on by its fingernails these days.

A survivor amid the dot-com wreckage, the one-stop shop for aspiring filmmakers and film connoisseurs has thin revenue, wary investors and a sketchy business model.

But rather than give up and follow Pop.com and Icebox into the digital dustbin, the 2-year-old company has a dogged determination that maintaining a Hollywood address on the Internet will eventually pay huge dividends.

“We’ve got to be scrappy, frugal, and we’ve just got to be here,” said Chief Executive Kevin Wendle, who has a chunk of his personal fortune riding on that theory. More important, he and Ifilm Chairman Skip Paul have convinced an A-list clutch of Hollywood insiders, from Sony Pictures to Eastman Kodak and Microsoft co-founder Paul Allen to also invest in their plan for a cyber concierge to cater to the production, location and back-room needs of industry professionals.

In January, when wringing money from investors for a dot-com was nearly impossible, Ifilm closed a $10-million deal with repeat contributions from Sony, Kodak, Allen’s Vulcan Ventures, Axiom Ventures, GeoCities Founder David Bohnett’s Baroda Ventures and a new partnership with Yahoo.

“The main thing Ifilm has going for it right now is Yahoo,” said Robert Hertzberg, an analyst for Jupiter Media Metrix. “It’s a very big deal to have Yahoo’s backing because Yahoo is an ideal outlet for the distribution of short films.”

But Yahoo has its own revenue crisis, and for Ifilm, the clock is ticking. It’s not clear how long Wendle can keep the lights on.

“We’ve got enough money now to work for a long time--certainly through the end of the year,” Paul said.

After an overall investment of $52 million, Ifilm realized a $2-million revenue trickle last year, according to a November report to shareholders obtained by The Times. The report states that Ifilm lost $17.5 million for the fiscal year that ended Sept. 30. Last summer, Ifilm had 145 employees. By last week, it was down to 96 and the company was advertising for college interns to bulk up its work force.

“They can do this for a while, but I don’t think they can do it indefinitely. Maybe another year or two,” said Craig Enenstein, senior vice president for business development for Liberty Digital Inc., which contributed $1.5 million to Ifilm 14 months ago but took a pass in January when Ifilm asked for more.

Ifilm has “potential” and lasted this long, Enenstein said, because it hasn’t spent “umpteen millions” buying film rights or creating content as did other short-film Web sites that quickly crashed and burned.

“We did not want to be out there creating content or paying for content because at the end of the day, you are just competing with your checkbook and the other guy who has a bigger checkbook,” Wendle said.

Instead of paying filmmakers, Ifilm is charging to post films on the Internet. Wendle said the fees, which start at $200, simply cover Ifilm’s costs. But investors say that as Ifilm gains prominence it could rake in substantially more money through those fees.

A year ago, Ifilm bought the Hollywood Creative Directory, which lists names and numbers for agents, managers, studio and production executives as well as Lone Eagle Publishing, which publishes how-to manuals.

In July, Ifilm rolled out an online product-testing service, offering companies quick turn-around information gleaned from consumers who previewed advertisements on the Internet or sampled products.

“They have more experienced management, they raised more capital and they had a somewhat more conservative business models,” said Yair Landau, executive vice president of Sony Pictures Entertainment. It has invested more than $5 million in Ifilm--the only short-film site Sony has invested in.

“Their traffic continues to grow and their film postings continue to grow,” said Landau, a member of Ifilm’s board of directors.

In the beginning, Ifilm was going to be a hip online community for budding filmmakers and the source for Hollywood insiders. The financial plan was to eke out enough revenue by providing services for the industry to support the short-film side of the business.

So far, that hasn’t happened.

Ifilm bought, then abandoned several companies during the last year. With StudioXchange, it discovered that building and managing a database of location photos would cost too much money. Ifilm has severed ties with the Development Source and TVtrackers, which track studio production schedules. Then, two weeks ago, the company ended its union with Film Finders, a firm it acquired in August to research film rights. Even an industry online job posting board tanked.

Ifilm has had to keep reinventing itself. By the time the site debuted on the Internet in May, it was on its third logo and third CEO: Wendle, a multimillionaire former Fox producer and founder of CNet, a San Francisco-based Internet technology and services company.

“There was this real gold rush mentality, and my first inclination was to stay away from it,” Wendle said of the frenzy in late 1999 and early 2000.

Instead of trusting his gut, Wendle, 42, became Ifilm’s initial investor. Soon he was its biggest investor, pouring in between $10 million and $12 million of his own money.

Paul, 51, also invested a “significant” amount of his own money, although he declined to say how much. Wendle and Paul raised nearly $30 million within about six months beginning in mid-1999. The pitch was simple: “We’re not kids. We’ve done this before. We have a business plan.”

There was so much money being waved around that “we turned more money down,” Wendle said. “We were at the top of the market, it was great timing for us.”

Then, in April 2000, the market collapsed--soon after Ifilm moved from San Francisco to a 25,000-square-foot warehouse in Hollywood with a five-year lease.

Other entertainment Web sites and portals failed, including Disney’s Go.com and short-film rivals Icebox and Z.com. Pop.com, the over-hyped $15-million Hollywood site created by Jeffrey Katzenberg, Steven Spielberg and Ron Howard folded last fall without launching.

In the wake, Ifilm has become the third-most-popular digital film and cartoon Web site with 755,000 visitors in January, the most recent statistics available, according to Jupiter Media Metrix, which tracks online businesses.

The leader was Shockwave.com with 4.2 million visitors in January.

“This is the new season of ‘Survivor,’ ” said Matt Hulett, president of AtomShockwave, the merged Shockwave animation site and AtomFilms. “And the question is who is Richard Hatch? We think we’re going to be Richard Hatch, and Ifilm thinks they’re going to be.”

To do that, Ifilm joined forces with Yahoo. Neither party would reveal financial details of the partnership, but Yahoo bought an equity stake in Ifilm. And Ifilm gained more prominence on Yahoo, which also touted the short-film site in a newsletter to subscribers last month, generating an additional 50,000 hits a week for Ifilm.

David Mandelbrot, Yahoo’s entertainment general manager, said Yahoo is teaming up with Ifilm because of its library of 3,500 films and because Yahoo wants to expand its entertainment offerings.

“They’ve also built a very successful brand on the Web,” Mandelbrot said. “We’re really pushing to provide not only information on Yahoo but the entertainment itself.”

Another investor, Kodak, is gambling that Ifilm will help advance its digital film business, said Robert Gibbons, spokesman for Kodak’s Entertainment Imaging division. It’s a window on a new medium.

“This is one of our small bets; it’s a little like a research project for us,” Gibbons said. “How many people want to see movies on the Internet?”

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Ifilm on Short List of Short-Film Sites

One of the few surviving Internet short-film sites, Ifilm launched in May, logging 137,000 users. The portal, which had 755,000 users in January, is the third-most popular short-film and cartoon site. It gained traction in August, in part because of the popularity of “405,” a three-minute computer-generated clip of a DC-10 landing on the San Diego Freeway.

Ifilm Investors

Paul Allen (Vulcan Ventures)

Eastman Kodak Digital

Axiom Venture Partners

Carole Bayer Sager (composer)

Jeff Berg (chairman, ICM)

Jim Berkus (chairman, United Talent Agency)

David Bohnett (founder and CEO, GeoCities)

Shelby Bonnie (CEO and co-founder, CNet)

John Bult (PaineWebber International)

Bill Gerber (former co-president, Warner Bros.)

Shamrock Capital Advisors