"We're Where Television Was At Its Beginning"

The Net is Tinseltown's test pad for unproven entertainment concepts

Even veteran Hollywood dealmakers are taken aback by the way aggressive new dot-coms are wooing stars, writers, and directors to their startups in hopes of being to the studio business what Amazon.com is to books. A case in point: Late last year, Rob Burgess, the co-founder of Shockwave.com, a San Francisco-based animation site, signed South Park creators Matt Stone and Trey Parker to provide 39 "webisodes" of the show in return for $1.5 million in cash and an equity stake in the site. Riding in a limo with the duo's agent and lawyer right after sealing the deal, Burgess turned to them and said "So, who else do you have?"

That led to yet another deal to pay Sleepy Hollow director Tim Burton $2 million and some Shockwave stock to produce an odd animated series called Stain Boy. Says P. Kevin Morris, the lawyer who rode with Burgess that day: "The sky seems to be the limit."

Of course, it was only a matter of time before the Web craze reached the town where candy-floss dreams are made. Being recruited to a hot Web startup is Tinseltown's newest status symbol, like having a prime table at The Ivy. Even with the Web's present limitations of speed and picture quality, some of these dot-com upstarts are positioning themselves not just as Webcasters but as a new farm league to test and refine film and TV concepts before selling them to the big guys.

The thinking goes that even if their business models are as murky as the smog on the 405 freeway, by the time most consumers have broadband connections to their home--say, by 2004--these sites will be rewarded for getting in early. "We're where television was at its beginning," says Frank J. Biondi, the former head of Universal Studios and Viacom Inc., who is now backing several of these ventures. "And a lot of us are betting that this will be a lot bigger than television."

Problem is, the entertainment concepts the Web players are pushing--mostly shorts by wannabe directors and three-minute cartoons--are unproven. And a point-and-click tour through Digital Hollywood isn't always pretty. One of the Web's biggest hits, a cartoon from Seattle-based AtomFilms, featured a frog in a blender. A tale of organ transplants from apes to humans is told in Ifilm Corp.'s three-minute documentary. On sci-fi site Galaxyonline.com, a Star Trek spoof featuring aging stars from the show is a big draw.

PICKLED PREZ. But the heavy artillery isn't far behind. POP.com, a site backed by Paul G. Allen, DreamWorks SKG, and the team of director Ron Howard and producer Brian Grazer, will soon feature shorts by Howard, Steven Spielberg, and stars like Eddie Murphy. Sightsound.com--Biondi and Artisan Entertainment among its backers--plans to spend $3 million to make a live-action flick called Quantum Project, starring John Cleese, to be released for download via its site. And Icebox.com, an animation site formed in late January by incubator eCompanies LLC, has signed on more than 45 Hollywood production executives from shows like Seinfeld, The Simpsons, and Dawson's Creek. "We're a network and a studio," says Icebox CEO Steve Stanford. Icebox views its three-minute weekly shows, such as Hard Drinkin' Lincoln (featuring the assassinated President as a Dean Martin-esque figure traveling through time), as fodder for online sponsors and, if they work, franchises for TV and film. "Everything we do is something we want to do on television," says Stanford.

The question is: Can the new medium offer anything different enough from existing--and proliferating--cable and satellite fare? "I just don't see many of them making it," says Lee Masters, president of Liberty Digital Inc., the Internet holding company controlled by John C. Malone. "It costs so much to make good entertainment that you can't just hope to sell it on the Internet and make money on it."

That means creating businesses where none existed before. Ifilm Corp., which is backed by Liberty Digital and Microsoft co-founder Allen, plans to make money not just through advertising but by acting as a virtual agent--putting together scripts and directors through its site. And Mike Simpson, co-head of worldwide motion pictures for talent shop William Morris Agency, foresees a business in which people pay 75 cents or $1 for a 10- or 15-minute short they can enjoy while performing other tasks on the Web, like buying stocks. "A real market is developing for shorter, but cooler, material," maintains Simpson, who represents Tim Burton.

In the near term, Digital Hollywood's best hope may be animation like Stain Boy. Not only are most PCs already equipped to handle a three-minute cartoon, but animation is usually a lot cheaper to produce than live action. Plus, there's no predicting whether one of the dozens of new online cartoons could be the next South Park.

Certainly, big bets are also being made on live-action short films, overlooking the fact that most people go for a soda when that Academy Award is handed out on Oscar night. AtomFilms, for instance, has been buying up short films and recently obtained the rights to 100 student films from the University of Southern California, including the fledgling efforts of superstar directors George Lucas and Robert Zemeckis. With more than 800 short films in its library, AtomFilms hopes to turn consumers on to the format, and it's distributing them to airlines, malls, and elsewhere, in addition to showing them on the Web. Once again, the old-line giants are skeptical. "The biggest concern I have with a lot of these companies is their focus on short," says Jon Richmond, president of News Corp.'s online subsidiary.

OVERSHADOWED. As flush as these upstarts are with venture-capital cash, the opinion of Richmond and his rivals counts. Newcomers with names like Wirebreak and Mediatrip face an uphill battle getting noticed compared with giants like News Corp., Time Warner, and Walt Disney, which are trying to extend their massive entertainment franchises onto the Web. Time Warner is luring 5.6 million unique users a month to its Entertaindom site featuring such fare as The God and Devil Show and newly made Superman and Looney Tunes cartoons. "How can they compete with our ability to promote in Entertainment Weekly, People magazine, on the Turner channels, and, soon, on AOL?" wonders Jim Moloshok, president of Entertaindom.

The answer is that these new players may soon by trying to link up to old-media giants, exchanging equity for much-needed promotion as they sort out business models and try to go public. "None of us knows exactly where this business is going next," says Brad Foxhoven, president of Eruptor Entertainment, a site catering to young males who like video games and comics. "We're making it up as we go, and being nimble is the key talent in this business right now." That, and convincing Hollywood's best that online is where it's at.

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