Oh, how the anatomy of a Web deal changes when the buyers have run out of cash and the stock options in a dot-com are no longer attractive.
Where a stake in a company was once the bargaining chip for a piece of original online content, A-list talent (whether director, actor or writer) is now demanding cold, hard cash as payment.
“The model that once existed for dot-com deals has been turned on its ear,” says Russell Weiss, an associate in Morrison & Foerster’s entertainment and technology practice in Los Angeles, which represents clients such as Icebox and Urban Entertainment, among others. “There’s no guarantee that any of these companies will be around a year from now. What was so important a year ago is totally different.”
But even the lucrative million-dollar deals that destination sites like Shockwave.com or Hookt.com once signed are history. Companies are running out of cash — and fast.
“You don’t see these deals anymore,” Weiss says. “They just aren’t happening. The Internet has been somewhat of a bust lately.”
Weiss says that companies are trying to find Web projects that cost less to produce and that don’t require a lot of cash flow. They’re also considering what exactly they’re getting out of a deal for the dollar amount and how much revenue a site will generate from a particular deal.
“It’s hard to get funds from outside firms such as VCs and angels,” Weiss says. “No one’s going public right now. Entertainment content companies on the Web are having a difficult time attracting partners to create content for them because they don’t have any proven revenue streams.”
The demand for the exclusivity of content has also disappeared, Weiss says, because companies not only have lost their leverage but are looking to generate as much revenue as possible to stay alive.
“Companies are looking to stick it out for six more months and ink a deal with a Showtime or some other company,” he says. “If they can stay alive long enough and the technology catches up, people may be more interested in watching these shows on the Web.”