Digital Pioneers

Pop Rocket Inc. founders Joe Sparks, his wife, Maura, and friend Kent Carmical have been holed up in a San Francisco Victorian for two years. They quit good jobs, drained their bank accounts, and borrowed money--all to make Pop Rocket a big name in a new category of entertainment software. They're about to unleash on the world their brainchild: a CD-ROM called Total Distortion that is an altogether different breed of software cat--part video game, part Hollywood movie, part music video. Says Carmical: "We're going to be big and famous."

Forty miles south, in Silicon Valley, Strauss Zelnick, the former head of Twentieth Century Fox Film Corp., is making his bid for the same fame. He quit Hollywood to lead a band of computer jocks at startup Crystal Dynamics Inc. The company's goal: to become the first "interactive studio of the future." One of its first programs is The Horde, a medieval adventure starring actor Kirk Cameron of the TV sitcom Growing Pains. Says the 36-year-old Zelnick: "We're on the cusp of doing something extraordinary here."

Back East, on a quiet street in the Riverdale section of the Bronx, a dozen programmers, artists, and writers have taken over a three-family house. They're finishing up Millennium Auction, the first product from three-year-old Eidolon Inc. Founded by an American physicist, funded by an Armenian contractor, and staffed by ambitious twentysomethings from all over, Eidolon sees its future in "intelli-tainment"--games for grown-ups that combine adventure, high finance, and a dose of social satire. Says President Vatche Kalaidjian, a 25-year-old Jordanian engineer: "We are one of the leaders of the pack."

Meet the digital pioneers--apparently sane people doing insane things such as risking everything they have ever owned to stake a claim in the next frontier of the digital revolution--the land of "interactive content." This is the gold rush of the Information Age, a mad dash to come up with a new genre of software that's compelling enough to keep consumers glued to their new 500-channel cable systems and exploring the Information Superhighway. Never mind that interactive TV won't even be tested until this summer and that the Information Superhighway itself may be years away from completion. Hundreds of entrepreneurs from all walks of life and from across the globe are heading into the new, uncharted territory where computers, telecommunications, and television converge.

HOT TICKET? And every one of them figures he or she has as good a chance as the next person to hit paydirt: Nobody really knows what kind of programming will click in this new and untamed medium. It's a telling sign that industry folk refer to their efforts simply as "content." Even they have no idea what combination of Hollywood pizzazz blended with new computer capabilities will make the Spud Family want to interact with their TV shows.

Will the hot ticket be dramas in which you guide the plot? Will it be game shows where all viewers can compete for prizes? Maybe it's extracting additional information from a news program, sports show, or documentary with the click of a button. Or will it be just shopping electronically in the virtual mall. "We are still in the era where we are struggling," explains Stan Cornyn, who founded Warner New Media and is now executive vice-president of Media Vision Technology Inc. in Silicon Valley. "This is like the early days of movies."

Indeed it is. Experts say interactivity could explode just as the movie industry did in the 1920s. There are no firm dollar figures yet, but market researchers say that interactive TV will gobble up huge chunks of businesses that in 1993 generated more than $300 billion in revenues in the U.S., according to Decision Resources Inc., a Waltham (Mass.) consulting firm. The list includes video games, a $6 billion market; videotape rentals, $12 billion; premium cable channels, $5 billion; catalog shopping, $150 billion; TV shopping, $2.5 billion; and books and periodicals, $16 billion. Advertising--a $130 billion business--is likely to be transformed, too, as media go digital.

Just how much of the treasure trove will be tapped by interactive TV depends largely on how good the "new content" is. If the most action-packed video games are available across the network, for instance, why buy game cartridges? Observes Michael Braun, president of Kaleida Labs Inc., the multimedia joint venture of IBM and Apple Computer Inc.: "Nothing will happen without great content."

"WE'RE TROLLING." And great content will not happen without great talent. Just as the "digitalization" is forcing a convergence of industries--computers, telecommunications, entertainment, and publishing--the quest for content is triggering a massive cross-pollination of talent. The roster of those involved in the "new media" companies reads like a United Nations of Convergence: video-game veterans from the go-go Pong days of Atari Inc., big-name Hollywood script writers, top rock musicians such as Peter Gabriel, former Saturday Night Live comedian Dennis Miller, master of horror movies Clive Barker, special-effects folks from Star Wars and Jurassic Park, and a stable of Silicon Valley's brightest programmers.

These people are founding or joining a rash of startups, all with dreams of becoming the Microsoft Corp. of interactive media. The big guys want a piece of the action, too. Microsoft has 20 to 30 projects under way. Time Warner Inc. and Viacom Inc. have stables of creative types working on interactivity. And when the big shots of media, entertainment, and software aren't building, they're buying--or dealing. Says Edward D. Horowitz, CEO of Viacom's New Media & Interactive Television group: "We're trolling in Marin County. We're trolling the nooks and crannies of San Francisco. We're trolling L.A., and we're trolling Manhattan. We're being bombarded by ideas. That's good because no one has the one right answer. This is still a cottage industry."

That's causing a land-rush mentality on the wide-open content front. Startup Rocket Science Games, for example, raised $4 million in venture capital in one day--without a business plan. Now, it's seeking an additional $15 million from media companies. Content maker Fathom Pictures, based in Sausalito, Calif., says it was approached by 81 companies, from entertainment conglomerates to venture capitalists, before forming a venture with the Griffin Group, Merv Griffin's investment company.

Meanwhile, King World Productions Inc., the TV distributor for Wheel of Fortune and Jeopardy, has joined with Home Box Office Inc. in backing Zelnick's Crystal Dynamics. And Sanctuary Woods Multimedia Corp. has hooked up with the Comedy Central television channel. AT&T has invested in P.F. Magic Inc., a new San Francisco-based media company. The mix of talents is essential, says John Scull, P.F. Magic's managing director. "If you're going to get into a covered wagon, you want people with different skills."

Even then, many pioneers won't survive the arduous trip across the frontier. Already there are warning signs. The first big opportunity to test "content" on a large number of consumers using a real, live, interactive-TV network has been postponed. In April, Time Warner Cable was to begin testing its "full-service network" in Orlando, Fla. But that has been delayed until yearend because of technical snafus. Meanwhile, the rise in interest rates, the Federal Communications Commission's rollback of cable-TV rates, and a falling stock market have deflated the Information Superhighway euphoria. Gone with it are such megadeals as the Bell Atlantic Corp.-Tele-Communications Inc. merger and the cable-TV joint venture between Southwestern Bell Corp. and Cox Enterprises Inc.

Now, the first big interactive-TV pilot is slated for August when US West cranks up a 2,500-home trial in Omaha. The Baby Bell will offer movies on demand, games, shopping, and information services. Soon thereafter, Viacom plans to launch a 1,000-home look-see in Castro Valley, Calif. By the time all the technical kinks are worked out, however, widespread deployment of interactive TV could be pushed back to 1998, instead of 1996, pundits now predict.

"STARVING ARTISTS' MARKET." The result: Until interactive-TV programming is ready for prime time, content companies are paying the rent and honing their skills in computer games or CD-ROMs for multimedia PCs. They call CD-ROM the "training wheels" for the interactive-TV programming of tomorrow. But it's a tough market. The popularity of edutainment programs is pumping up growth, but CD-ROMS are only a $450 million business, tiny compared with video games. And it's a tough way to earn a buck: Dataquest Inc. says that one-third of all CD content companies have revenues of less than $50,000 a year, half of them pull in less than $125,000, and only 5% make $1 million or more. Observes Dataquest analyst Bruce Ryon: "This is still a starving artists' market."

It could get worse. The cost of developing the more novel interactive content is rising along with the quality. Creating traditional video games with cartoon-like characters costs $50,000 to $150,000. But developing the new genre of programs--with movie-like production values--can run $250,000 to $2 million.

Still, a hit can produce a fortune. The game 7th Guest, by Virgin Interactive Entertainment, cost more than $1 million to produce. More than 450,000 copies of the electronic novel-cum-adventure game, based on the tale of a homicidal toymaker by horror writer Matthew Costello, have been sold. That, say analysts, means gross revenues of $15 million to $18 million for Virgin. "The economics can be spectacular," says Mike Backes, screenwriter of Rising Sun and a co-founder of Rocket Science Games. "Working in Silicon Valley is not unlike working in the Klondike, except fewer people have guns. I like that gold-rush frontier mentality."

Another big seller is Medio Multimedia Inc.'s JFK Assassination: A Visual Investigation. A likely model for interactive TV documentaries, the disk lets you explore the events of Nov. 22, 1963. You can roam through a digitized version of the Zapruder film, examine computer animations on bullet angles, and peruse the text of the Warren Commission or the book Crossfire by Jim Marrs. Medio sells more than 3,000 copies a month, and the Redmond (Wash.) company hopes to follow with a CD on Dr. Martin Luther King Jr.

FLYING FLIPS. If there's a pattern to the early hits, it may be the way they blend reality and fantasy. They use digitized footage of real actors and settings woven into stories rich in character development and complex plots, all accompanied by original music. Then, they add computerized animation, special effects, and simulation.

Take Virgin's next project, code-named Greed. To make this action/adventure CD-ROM more realistic than conventional animation, Virgin has hired the six-person stunt team from the movie Batman Returns and is filming them against a blue screen, doing extraordinary feats and flying flips. The company has budgeted $2 million and is in talks with Hollywood action stars for the project, described as a science-fiction tale with comedic elements a la Indiana Jones. Says President Martin S. Alper: "We are in the movie business. People just don't recognize that yet."

Some of these pseudomovies are whimsical, including The Horde, in which Cameron carries out a Monty Pythonesque struggle to defend his medieval realm against monster-like "hordelings." Others are dangerous adventures such as Critical Path, the tale of Kat, a gutsy, female helicopter pilot trapped in a post-apocalyptic prison factory. Others simulate real-life adventures--like batting in the big leagues in Fathom Pictures' ABC Sports Presents Power Hitter. And some are simply funny, as in Electronic Arts' Twisted, an MTV-ish spoof of a game show, hosted by Twink Fizzdale.

The ideas are as surprising as the pioneers themselves. Take Pop Rocket. In the early 1980s, Joe Sparks and Carmical played together in the Agents, a rock band. In 1987, Sparks got a job creating 3-D graphics at Paracomp, an early multimedia company, and later co-designed the CD game Spaceship Warlock. Carmical worked as a recording engineer and at Atari wrote "bloopy, farty music" for a couple of video games.

Then in 1991, they both saw the coming opportunity in "new media" and pooled their talent, their money, and dreams. The result is Total Distortion, a surreal game in which the player becomes a music-video producer. Traveling to the Distortion Dimension to create or collect "media treasure"--video clips, stills, song snippets, lost recordings--the player tries to make a hot music video. Says Pop Rocket President Joe Sparks: "This is rock music and capitalism and adventure all wrapped together."

It also is expensive. Total Distortion, due out this summer, has cost the tiny startup $250,000. After emptying their bank accounts and tapping relatives, the founders obtained cash advances from business partners, such as Electronic Arts, which will distribute the title. What if Total Distortion doesn't hit the top of the CD-ROM charts when it's released in August? Not to worry, says Sparks. "Our skills in CD-ROM are going to transfer to interactive TV. One day, there will be a Pop Rocket TV channel."

Such bravado is the cultural norm in San Francisco's so-called multimedia gulch, where dozens of content startups have clustered. Just look at Mechadeus. Husband-and-wife team John Evershed, 34, and Deirdre O'Malley, 30, spent three years building their business, Mondo Media, around multimedia presentations for corporate clients. In 1991, they decided to go into entertainment and launched Cyberdog Studio, which they later renamed Mechadeus.

FIRST, THE LAWYERS. To get movie-quality stunts on the cheap for its first opus, Critical Path, Mechadeus created a computer-generated helicopter using a toy replica of an Apache. Eileen Weisinger, who had a bit part in Basic Instinct, took the role of Kat, the helicopter-pilot heroine. Friends and associates of Evershed and O'Malley filled other roles. The first two men killed are Mechadeus lawyers. Kat's nemesis, an evil general, is played by a former executive at Media Vision, which is distributing the disk. Says Evershed: "We're not making $30 million pictures here--yet."

Rocket Science Games is spinning equally ambitious dreams. From its base in Palo Alto, Calif., it has blended Silicon Valley and Hollywood skills. Rocket's president, Steven Gary Blank, was a vice-president at MIPS Computer Systems and SuperMac Technology. Executive Vice-President Peter Barrett, previously of SuperMac, wrote Cinepak, a CD-ROM compression standard. Programmers include a bunch of Apple Computer whizzes who created QuickTime, a program for using video on personal computers. The remaining co-founders hail from Tinseltown: Backes, who was the technical adviser on Jurassic Park, and Ron Cobb, who worked as the conceptual designer on Alien.

Rocket Science's goal: becoming "big players" in interactive TV by creating compelling stories that emphasize characters and "give you a kinetic, hang-on-to-your-socks ride," Blank says. The first, due in September, is Loadstar, the tale of Tully Bodine, a grizzled but endearing "space trucker" played by actor Will Patton. Actor Ned Beatty also has a role in the story of Bodine's last run--with a cargo of genetically engineered camels--involving crooks, black holes, alien attackers, and space cops. The production cost: $750,000.

But isn't this just a fancy video game? Absolutely not, says Backes: "What we're doing is creating a rich environment and peppering it with rich and cunning discoveries. We want to invoke a lot of the same emotions movies do, like fear and hope."

Creating such compelling content will be key to attracting a broad audience of adults. Eidolon's Millennium Auction has no time warps or space critters. The player, on the trail of famous artwork and cultural artifacts such as Bill Clinton's saxophone, wanders through a sleekly realistic world of auction houses and galleries designed by Yoni Koenig, a 26-year-old Israeli sculptor. Picking up clues and snippets of gallery talk, the player tries to corner the market.

Making that all look smooth and easy icking up clues and snippets of gallery talk, the player tries to corner the market.

Making that all look smooth and easy is incredibly difficult. Interactive content crafters are striving to create cinema-like experiences, while giving the viewer a role in what's happening. But there's a risk that when the viewer participates, the action slows. Should Tully Bodine jettison the cargo and head to Mars or try to expose a theft ring? Should you bid on the Picasso in Millennium Auction? Each decision takes the plot in a new direction. If the "branching" is seamless and the story remains fast-paced, the experience is engrossing. If not, the player quickly locates the eject button. "I want the story to come right through the glass--whether that glass is a TV or a computer monitor--and involve the audience," explains Media Vision's Cornyn, a 20-year veteran of Hollywood.

ADRENALINE RUSH. It's a big challenge. "There are all these big editing possibilities in the sky," says Jeff Cretcher, a 38-year-old former filmmaker and founder of gamemaker Luminaria. "What's behind door No.1? Or 10 different doors?" Luminaria's Wrath of the Gods CD employs 60 actors and 300 different backgrounds in order to come up with 40 hours of playing time. But when it all clicks--when the plot and the graphics and the action and the sound all come together to form a new kind of multimedia experience--digital pioneers see a bright future.

It's that glimmer of a fresh medium capable of grabbing the audience by the adrenal glands that keeps attracting new talent. It's why Clive Barker, who wrote and directed Hellraiser, is now writing original horror CD-ROMs for Virgin Interactive. The first, Ectosphere, which is budgeted at $1.5 million, takes players to a virtual spirit world. The material is so unusual, says Alper, that the CD script is being optioned as a movie.

By now, it's downright hip to go digital. Rocker Peter Gabriel has put out a CD-ROM with San Francisco-based Brilliant Media. In Xplora I: Peter Gabriel's Secret World, Gabriel gives an interactive tour of his music, videos, even his own life. You can mix your own version of a Gabriel single or arrange with producer Brian Eno to call a jam session. Says Gabriel: "It's exciting to change the experience between the artist and the person on the other end."

Former Saturday Night Live comedian Dennis Miller says that computers are a "pain in the ass," but he doesn't want to be left behind. He has arranged with Sanctuary Woods Multimedia, based in Victoria, B.C., to do two CDs: Dennis Miller That's News to Me and Dennis Miller That's Geek to Me. In the latter CD, Miller gives offbeat definitions of 180 computer terms. "I bought real estate at the wrong time. I was going to buy Snapple stock and didn't," he says. "This time, I want to be in the game."

The content game is sure to be a wild one. As they seek riches, Miller and other digital pioneers may find it's a little too much like their electronic fantasies--full of unexpected turns, twists, and surprising outcomes. For every pioneer that hits paydirt, there will be dozens left in the dust.


CRYSTAL DYNAMICS (Palo Alto, Calif.) Creating interactive entertainment for CDs. Has big-name investors, including HBO and King World Productions. Headed by Strauss Zelnick, former president and chief mperating officer of Twentieth Century Fox.

INTERACTIVE NETWORK (Sunnyvale, Calif.) Pioneering a TV setup that allows viewers to interact with sports, games, and news shows. Backers include NBC, Tele-Communications Inc., Gannett, and A.C. Nielsen. Has a deal to supply programs for Sony Pictures Entertainment Group and for the Game Show Channel, owned by Sony, United Video Cable Ventures, and Mark Goodson Productions.

PARAMOUNT INTERACTIVE (Palo Alto, Calif.) Paramount Communications unit has an agreement with AT&T to create interactive-TV programs. Also has a deal with Tachyon, an Oakhurst (Calif.) software company, to adapt Star Trek: Deep Space Nine.

SANCTUARY WOODS MULTIMEDIA (Victoria, B.C.) Produces CD-ROMs . Working with Miller-Pickering Syndications on interactive comedy, includ-ing titles with former Saturday Night Live star Dennis Miller.

SPECTRUM HOLOBYTE (Alameda, Calif.) Has license from Paramount Pictures for games based on Star Trek: The Next Generation and a deal with Edison Bros. of St. Louis to develop virtual-reality games.

Before it's here, it's on the Bloomberg Terminal.