How to profit?

Netcos leap to mixed model

Critics have unfairly called them lemmings, or even sheep, following one Web trend after another. But a more accurate analogy for those still working in the online entertainment industry would be wolves — doing anything they can to survive.

That’s because many have not survived, with 41,515 dot-com jobs disappearing last year, according to Chicago-based outplacement firm Challenger, Gray and Christmas.

Since the Web world went haywire almost a year ago, Netcos have adjusted business strategies on the fly to stay afloat, shifting between consumer- and business-based models.

When the online ad market went south, many companies reinvented themselves as business-to-business ventures to tap into money of traditional brick-and-mortar companies.

These sites joined the legions of already existing online businesses offering a number of worthwhile services: procurement and production packages, intellectual property tracking, digital rights management, market research, casting opportunities, content syndication and more.

But as the old adage goes: Hollywood is slow to adopt new technology.

While leaders in the space are emerging, no one has established an infallible business model that makes the path to profitability less of a slippery slope.

Buckling down

And while Tinseltown wakes up to a bustling online marketplace, Netcos have shifted business paradigms yet again to endure the current climate — this time undamming multiple revenue streams that exploit both consumers and businesses.

Consider the Hollywood Stock Exchange. Bowing in 1996, HSX had operated as an ad-based business, a strategy that barely kept the lights on last year. The Netco now has four separate revenue streams: ads sales, its subscription-based Virtual Producer program, its HSX market research program and licenses for its proprietary virtual stock market platform technology.

“I don’t think you need a B-to-B play to survive this market,” says Brian Dearth, a former veep of research who was recently tapped CEO of HSX. “That’s too easy of an answer. What you need is multiple revenue sources that complement one another.”

To this end, HSX recently created two revenue streams leveraging the 700,000 registered users of its free virtual stock-trading game.

Testing a new pay-to-play model, Hollywood Stock Exchange bowed its Virtual Producer program in October, giving Netizens an insider perspective on film production for Lions Gate pic “Shadow of the Vampire,” the first movie from Nicolas Cage’s Saturn Films. Participants in the 16-week program paid a subscription fee of either $10 or $50.

Depending on the program, users will receive a credit on the DVD, a copy of the DVD or incentives to play on the HSX. Users also will share in real profits, depending on the film’s domestic performance.

As a B-to-B play, Virtual Producer provides studios with a predistribution revenue model, a pretheatrical debut marketing vehicle and generates prepacked content for the DVD.

According to Dearth, HSX was able to convert 25% of those people who held “Shadow of the Vampire” in their stock portfolio into paying Virtual Producer subs.

While Virtual Producer only had a few thousand takers and subscription revs were shared with the studio, HSX plans to tap into the $280 million online research market with HSX Research, skedded to bow Feb. 20.

HSX Research forecasts future entertainment trends by tapping into HSX’s registered users, offering demographic breakdowns of awareness, interest and appeal of specific film, TV and music properties. HSX will compile data by following the trading of subscribers’ virtual stocks and through direct surveys. HSX plans to supply companies with data on product placement and promotional potential within these properties as well.

“Selling to consumer or businesses really isn’t any different,” says Dearth. “It always boils down to delivering a valuable proposition to them.”

Multiple prospects

And Netcos are seeing the benefits of offering more than one proposition. Perhaps best known for innovative but not hugely popular direct-to-Net sci-fi film “Quantum Project,” shifted gears late last year, upping its technology offerings and taking on a new handle.

SightSound Technologies now divides its businesses into three distinct units: SightSound Innovations, SightSound Systems and

The innovations division supports new content delivery technologies and licensing to entertainment companies that want to put their content online. SightSound Systems designs and builds back-end infrastructure for film and music companies. operates the company’s online entertainment portal, which offers music and video content for download including full episodes of Comedy Central’s “South Park.”

The company also has inked a deal with Miramax to offer 12 full-length features on the Web, beginning with the 1999 release “Guinevere,” available for download for $3.49.

“We consider ourselves a B-to-B-to-C,” says Scott Sander, SightSound’s prexy and CEO. “We don’t get paid unless a consumer buys a product, but we aren’t creating a consumer brand.”

Even with all of its hybrid business branches, SightSound continues to pursue strategies that target consumers, disagreeing with the notion that Netizens are difficult to monetize.

“Consumers are willing to pay for the top tier of products,” says Sander. “The only conclusion you can draw from the past two years is that they won’t want pay for crap. We’ve sold movies in 81 different countries. People pay for movies, but people wouldn’t pay to blow up a gerbil in a microwave.”

Digital entertainment company MCY also hopes to find success in diversifying its offerings.

The company is battling back from hard times. MCY stock, which traded for $17 in spring 2000, now goes for around 65¢ a share, up from a 52-week low in December when it sold for 25¢.

According to Bernhard Fritsch, CEO, chairman and founder of MCY, businesses still spend more readily online than consumers. But that’s no reason not to be in bed with both.

Besides owning a library of digital music files, MCY also hosts pay-per-view Webcasts of events featuring music acts including the Backstreet Boys, Puff Daddy, Michael Jackson, Paul McCartney, ‘N Sync and Pete Townshend, among others.

“As a destination site, we weren’t generating enough revenue from advertising and unit sales to consumers,” says Fritsch.

Early this year, MCY decided to develop alternative B-to-B offerings. The company licenses its proprietary encryption technology to entertainment and nonentertainment -related sites.

“This decision had to do with the upcoming issues of piracy and consumer nonsatisfaction with downloading time,” says Fritsch.

Currently, 85% of MCY’s revenues come from business transactions, with 15% coming from consumers.

The company is focusing on distributing its content to other platforms, selling entertainment packages to cable, broadcast and the rapidly expanding wireless market.

“I definitely believe that broadband will be the determining factor when people really start paying for online content,” says Fritsch. “But the Internet isn’t the end to all means. Even online businesses need to think beyond it.”

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