What Burst Pop.Com's Bubble?

The star-crossed Web site was tripped up by Hollywood egos and a Wall Street cooldown

It was billed as the hottest film festival of the new media era. Gathering at Hollywood's Chateau Marmont Hotel, a favorite hangout for rockers and actors, dot-com executives chatted up celebrities-turned-Netrepreneurs Melanie Griffith and Ben Affleck. The highlight of the Yahoo! Internet Life Online film festival last March was supposed to be Leaving Las Vegas director Mike Figgis' new all-digital film Time Code. But the biggest crowds jostled near where five-month-old POP.com was serving up mixed drinks and the chance to slip a business card to the site's backers, among them Dreamworks SKG partner Jeffrey Katzenberg and director Ron Howard.

When it was announced last October, POP.com was supposed to be a blockbuster in the making. Bankrolled by billionaire Paul G. Allen, its partners included two of Hollywood's hottest film companies--Howard's Imagine Entertainment and Dreamworks, which brought with it not only Katzenberg but also legendary director Steven Spielberg and record mogul David Geffen. Almost immediately, word went out that Spielberg and Howard were hitting the keyboards and that A-list talent like Eddie Murphy and Steve Martin would follow. But POP.com was a show that never opened, quietly acknowledging on Sept. 4 that it was delaying its launch "indefinitely" and that it would lay off most of its 70-odd staffers.

TOO WIRED. POP.com's implosion, rumored for months, only validated the latest industry buzz that Hollywood-style sites were fighting an uphill battle. At its simplest, the problem boiled down to infrastructure: Too few folks are sufficiently wired to get superfast broadband connections to watch Hollywood's Internet fare, and therefore too few people are willing to pay anything for it. It could take five years before that changes, and even then only a few Net startups are likely to survive against entrenched TV and film companies. Just days after POP.com began its downsizing, San Francisco-based Shockwave.com, which had spent heavily to sign up the likes of director Tim Burton, was laying off 20 of its 170 employees and saying it would focus more on interactive games. "The issue is whether there is a market there for one site, much less two or three," says Frank Biondi, former Universal Studio Inc. chairman whose Waterview Partners venture capital firm has invested in several entertainment sites.

When POP.com started up, its backers figured if anyone could make it online, they could. Quickly taking the company public was the Holy Grail from the beginning, according to those close to the backers. The site, they say, started with Howard's partner, Brian Grazer. A spikey-haired 49-year-old onetime talent agent and today a hot dealmaker and film producer, Grazer found a receptive audience for his Internet plans at Dreamworks, which last year was looking to merge its six-year-old studio with Ron Howard's Imagine. Katzenberg quickly bought in after Grazer pitched him several ideas about how short films could be linked on the Internet with e-commerce, games, and chat rooms. In one scenario, recalls Katzenberg, users of the site would see their futures played out for them in different clips, based on what they asked a gypsy fortune teller.

ONLY THE BEST. If the medium was new, POP's execution looked decidedly old school. While other sites found cheap or even free shorts to run, Dreamworks hired a dozen production executives, including some from Dreamworks and Imagine, to work from a converted warehouse not far from Dreamworks' sprawling campus in Glendale. To run the site, Katzenberg brought in Kenneth Wong, who headed theme park development for Walt Disney Co.'s Imagineering unit. Dan Sullivan, a Grazer assistant, was given a key role in working with the production folks.

At the outset, POP promised shorts from none other than Spielberg and Howard. But neither happened quickly, much less on Internet time. Spielberg was in the planning stages of two films. Howard, who envisioned a series of shorts based on the dreams of actors and directors, was putting the final touches on How the Grinch Stole Christmas, a Jim Carrey film Universal will release this November. That meant neither could spend much time on POP.com. Production teams would be assigned to Spielberg, who often met with them during breaks at the Dreamworks office. Insiders say ideas from the two directors often went through many rewrites, and that Spielberg's first project was two weeks from filming when the site was pulled. Howard got five "dream" shorts from Hollywood pals, including one from Drew Barrymore.

Meanwhile, POP.com wasn't getting many of its other Tinseltown friends to submit ideas, say insiders. Steve Martin offered up two shorts, but Eddie Murphy balked at several ideas given to him by Grazer. Others wanted to start their own sites. By early this year, Dreamworks was putting out the word to Hollywood talent agents that it would be accepting outside material. In March, it also started a joint venture with New York attorney John Sloss to find short films from aspiring filmmakers.

By then, POP.com's economics had worsened. Wall Street's aversion to dot-coms dashed any hopes for an IPO. POP.com had aimed to use the promise of a public offering to buy up other players. Late last year, it made overtures to several content sites, including AtomFilms, hoping to build a library with the company's collection of 1,400 shorts. Now, with its promised launch approaching, POP.com's Wong projected it would burn through $2.25 million a month once it was up and running. After having already spent $7.2 million of Paul Allen's, Katzenberg was loathe to spend more money from the billionaire, also a major Dreamworks investor. "There was just no market out there, and Paul Allen has just been too good to us," says Katzenberg. "Who knows, with IPO currency, it might have been different."

PLOT TWIST. As September approached, POP.com was no longer aiming for shareholders--just a buyer. In mid-July, they again approached AtomFilms, says AtomFilm CEO Mika Salmi. He says assets included 60 shorts that were either prepared or planned, many still on storyboards, the old-fashioned method by which Hollywood studios first plot out story lines for animated films. "There was some great content there," says Salmi, "but there is a lot of great content out there that you can buy for a lot cheaper." Moreover, says Salmi, there were few distribution deals in place, a key demand by AtomFilms, which has agreements to show its shorts on everything from airlines to shopping malls, as well as online.

POP thought it had found a way out in late August, when it looked as if the site would be merged with IFILM, a Hollywood business-to-business site that had been buying up smaller sites that provide such services as tracking development of scripts and TV shows. IFILM Chairman Skip Paul, who had headed the Sega Gameworks video arcade chain in which Dreamworks had a stake, first broached the deal. It seemed a sure thing, especially since Paul Allen was an investor in both sites. But the deal fell apart when POP insisted on a large minority stake in the company, and IFILM wanted a five-year agreement for the exclusive services of Spielberg, Howard, and other POP creative executives. Allen declined to comment.

POP backers are still unsure what they will do with the 60 shorts but defend their decision to pull out. "I don't see anyone in this space declaring victory," says Wong. "Just having a launch party doesn't mean you have a market." As for parties, the only one POP.com is having these days is the teary Sept. 8 farewell gathering at which Wong showed the site's oeuvre to those departing. It was a long way from the bash at the chateau.

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