Pulling the plug on Tele-TV, telcos Nynex, Bell Atlantic and Pacific Telesis have joined a general retreat on both sides from the much-ballyhooed convergence of Hollywood and the high-tech industry.

Convergence was the watchword of the early 1990s in Hollywood. Uttered religiously at the annual Digital Hollywood Conference and a slew of other new media confabs, convergence described the fevered rush into each other’s arms by the technology companies of the Silicon Valley and the entertainment companies of Hollywood.

The idea was that a marriage of Hollywood and the Silicon Valley would expand – and transform – business on both sides. That proposal was blessed by venture capitalists, cheered by Wall Street and heralded by grand pronouncements.

“Before the century turns,” promised Silicon Graphics chairman Ed McCracken in 1984, “the ways people access information and experience entertainment will change dramatically.”

Today, the bloom is off that mad affair. While some major innovations such as the Internet and direct-broadcast satellites have created new businesses, major technology companies such as Silicon Graphics appear to be pulling back from the Hollywood spotlight just as Hollywood is retreating to its usual box office-driven scenario.

“The truth is, we were in a gold rush,” says attorney Stan Coleman, who specializes in high-tech Hollywood deals. “Now we’re in a shakeout.”

Welcome to the era of divergence.

Gone is Silicon Studio, SGI’s outpost in Santa Monica, which was “created to drive the convergence of computing and consumer technologies.” Today the site is an SGI training center and hardware sales outlet.

Gone are interactive movie companies such as Digital Pictures and Interfilm.

Gone too is the Digital Hollywood Conference. Not only has the four-year-old seminar failed to book the Beverly Hills Hilton Hotel this year, but its organizer’s Gotham phone number has been disconnected. Gone also are many independent CD-ROM companies.

And with the notable exception of Disney (bolstered by its brand name), the interactive divisions at each of the Hollywood studios have been decimated by restructurings. Time Warner Interactive, a games unit turning out non-TW-branded vidgames for Nintendo, Sony and Sega platforms, was sold off earlier this year.

DVD alliance endangered

Hanging by a thread is the digital videodisc alliance that would have delivered the hotly-hyped next-generation homevideo medium this Christmas. Hollywood’s insistence on antipiracy encoding conflicts with the computer industry’s desire for maximum flexibility.

Gone is CAA’s poster boy for convergence, Robert Kavner, the AT&T exec hired by Michael Ovitz in 1994 to be the agency’s high-tech guru overseeing the Tele-TV venture. No longer at CAA, Kavner today runs an in-room TV service for hotels .

“If convergence was a theme, it wasn’t fully thought out,” Kavner says now.

Kavner attributes much of the overhyping of the convergence era to “glamorous ventures such as interactive TV.”

The Time Warner Full Service Network is the Titanic of interactive TV ventures. Launched in Orlando two years ago with partner US West before a full complement of international media, the biggest, most expensive interactive experiment ($5 billion committed to cable upgrades, hardware and software over five years) has hit two icebergs: the Internet and Ted Turner.

While FSN offers news and video-on-demand, games, banking and a few other services to 4,000 homes, the Internet is reaching a global audience of millions with an infinite variety of offerings. Internet access will be offered on FSN next year.

Meanwhile Turner, Time Warner’s biggest shareholder, is seeking ways to boost the long-depressed stock. Recent layoffs at FSN may be a hint, insiders say, of more drastic measures to come.

Americast, the other telco venture owned by the Walt Disney Co. and five Baby Bells, professes to be staying the course abandoned by Tele-TV. But telcos are concentrating mainly on the recently deregulated long-distance telephone business.

Some people blame the failure to converge on the fundamentally different ways in which Hollywood and high-tech companies achieve wealth. In the Silicon Valley, entrepreneurs put sweat equity into startups in hopes that a successful innovation will lead to instant millions through a public stock offering. “In Hollywood,” says attorney Coleman, “you make as much as you can now.”

SGI-DreamWorks flap

In many cases, the technology has not delivered on its promises. After a circus-like unveiling of SGI’s technology partnership with DreamWorks, the computer company failed to deliver a crucial asset management component for the fledgling studio’s digital animation division, much to the consternation of DreamWorks honchos, according to sources.

Others see an unbridgeable cultural divide between Silicon Valley and the entertainment industry. Hollywood sees techies as geeks; techies see Hollywood denizens as spendthrift technophobes.

Some companies appear to have bridged that gap. At LucasFilm, George Lucas’ multifaceted operation located in the hills north of San Francisco, interplay appears seamless between the interactive game division (LucasArts), the visual effects arm (Industrial Light & Magic), the post-production facility and the filmmaker himself. The true test is coming, however, with the heavy production demands of the upcoming “Star Wars” movie prequels.

Pixar, the 10-year-old computer graphics company responsible for Disney’s box office smash “Toy Story,” attributes its success to the company’s merging of creative-minded techies with storytellers who know technology. Pixar topper Steven Jobs (a founder of Apple computers) says, “We’re an entertainment company. We’re not a technology company.”

Now at work on the second animated feature in a three-pic deal with Disney, Pixar will have to back up that statement at the box office, just like every other entertainment company.

But while both Pixar and LucasFilm proclaim themselves entertainment companies, they keep their physical distance from Hollywood.

Loyal partisans

Convergence still has plenty of believers. Avram Miller, VP of business development at Intel, believes convergence is continuing, but that the focus is now online. The microchip company has invested in “tens of companies,” mostly online content providers, but won’t go into the content business itself. “We don’t intend to be a media company,” says Miller. “We want to see that exciting media exists.”

CAA high-tech specialist Hassan Miah hopes the agency’s new 2,000-square-foot Media Lab in its Beverly Hills headquarters – opening on Dec. 12 – will spur more interaction between showbiz and the Silicon Valley. “Clearly, entertainment is expanding by the opportunities created by technology,” Miah said.

And SGI’s director of entertainment marketing, Harry Phorzheimer, insists, “The convergence from both sides has never been happening faster than today.”

The Gates of convergence

One of the most devout believers in convergence is Microsoft billionaire Bill Gates, who has committed to spending $400 million a year to develop entertainment content.

A slate of original programming is being assembled by development execs based in Hollywood for the newly relaunched Microsoft Network, opening officially for business this week.

“Our goal,” says Microsoft Prods. exec Jamie Fragen, ” is to get the next 10 million users online. To do that, the content is going to have to take advantage of what the computer does best.”

Tom Zito, the founder of Digital Pictures, was one of the interactive industry’s innovators. His CD-ROMs featured multiplot live-action adventures with real actors, shot on location with Hollywood movie production quality. Times Mirror Co. was one of his investors.

Today, with his company virtually shut down, Zito says, “I used to think the movie business was a bad business, but now I think it’s a terrific business compared to the videogame business.” says Zito.

“It’s still about asses in seats,” concludes Zito, recalling a bit of classic Hollywood legend concerning the method used by Columbia Pictures mogul Harry Cohn to predict a picture’s box office performance. “The whole world is still wired to Harry Cohn’s ass.”

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