Dotcom Darwinism


The competition among online entertainment companies increasingly begins to resemble an episode of Survivor: some are gone, some of the remaining players are overcoming adversity and those not involved are glad they aren't.

"The majority of the content players won't survive," predicts Nitsan Hargil, senior Internet analyst for Kaufman Bros. "They all try to say that content is king and to look at the success of Time Warner or AOL. But, while it's true that the Time Warners of the world will succeed, it doesn't mean that every company that has a bit of content is going to become a Time Warner."

The most recent casualty,, is still hoping to find a buyer. President Tim Winter says he is discussing the sale of the company with new potential partners.

"Entertainment on the Internet is tough," says David Card, senior analyst at Jupiter Communications. "There's not a lot of demand for video content online, and companies need to have a realistic view of what the audience will be and how much money you might be able to make off that audience."

One company that undertook some reshaping was The New York City-based online entertainment company recently completed a round of financing for $14 million and also was picked as one of two Internet companies to have skyboxes at the Democratic and Republican national conventions (the other being AOLTV). But the company also eliminated about 58 positions and moved another 30 staffers into new, central production positions.

"It's really an indication of our becoming a business, which has been a progression," says Senior Vice President Jeanne Meyer. "We were organized into 10 autonomous channels, and, organizationally, that was unsustainable. We had reached the limitation on what we could produce because of the way we were set up."

Meyer says Pseudo was working with physical sets that had to be designed, put up and taken down for each program. Now the company will use virtual-set technology and move toward a continuous, 12-hour live-production environment. The staff changes have resulted in the creation of two production teams, with one supporting the live studio and the other doing nine daily live shows that will be able to be watched either live or on demand.

"There is no textbook on how to run a successful streaming entertainment area," Meyer says. "In order for us to succeed and compete, we had to change internally. The layoffs happened because there was a lot of duplication of production areas."

The use of virtual-set technology, she adds, will both cut costs and lengthen Pseudo's burn rate of capital. "The real bottom line is, we'll increase our programming output at a significantly reduced cost."

Rob Shambro, president and CEO of StreamSearch, a streaming search-engine/portal, still believes the streaming-media industry is going to be hot, despite recent bad reports. His company, he says, has been through three rounds of financing, the most recent completed in February for $20 million. He adds that he hopes to complete another round of funding before going public early next year. And, which President and CEO Jeff Morris describes as the equivalent of an Internet electronic program guide, is completing a round of financing that Morris believes will be able to match or surpass the company's last round of $18.2 million.

"There was a day not too long ago that investors could throw money at any company coming out of the box because it was good for a 50% to 75% return in the first week," Morris says. "Those days are still around, but companies are being looked at a lot harder."

Streaming21, a broadband streaming-technology company, has successfully completed its second round of financing. Last week, it received $11 million in Series B financing from a group of investors led by iGlobe Partners Fund LP.

But, for all the influx of additional capital, there still has yet to emerge a model that results in making money.