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MillimeterOnline Empire Building
Nov 1, 2000 12:00 PM, Michael Goldman
The production of entertainment content of all descriptions for the Internet has become commonplace at a handful of media companies. How to make money from this content on the Web's slippery slopes, however, remains an open question. Indeed, the white flags waved by well-funded and highly publicized entertainment sites such as Digital Entertainment Network and Pop.com clearly demonstrate that much of the exuberance over digital-entertainment Web riches is still unsupported by results.
However, it's important to note that a hearty group of producers with impressive pedigrees in the "traditional" mediums of film and television are forging ahead with entertainment sites. Few have been more aggressive or committed to the notion of the Web as entertainment than producer Larry Kasanoff, chairman/CEO of Threshold Entertainment, Santa Monica, and founder of a dedicated network of over 31 entertainment Web sites aimed at teenagers and young men called TheThreshold (www.thethreshold.com).
Kasanoff's background is as former president of James Cameron's Lightstorm Entertainment, where he oversaw production of Terminator 2 and executive produced True Lies, and as architect of Threshold's successful Mortal Kombat film and TV franchise. In his opinion, Web-based entertainment is best created by people with production experience outside the Web. Indeed, Kasanoff considers it ironic that many people misconstrue his belief in Web-first entertainment as supporting the popular theory that the Internet is a whole new ball game when it comes to production.
"I had a guy in my office the other day explaining how he wants to reinvent basic narrative structure for the Web," says Kasanoff. "I think that's bull. For producers, the Web is not about reinventing entertainment for a new medium. The Web represents a historic, new distribution opportunity, not a production opportunity. Our team is made up of seasoned film and TV producers. Our focus is on making the best entertainment we possibly can for a very specific demographic: young men between 18 and 35. That demographic wants the same entertainment online that it wants offline: girls, cars, sci-fi, cartoons, games, and so on. That's what we produce, both with original properties and properties we have licensed. How we produce it, how much we spend, our limitations in terms of broadband are all secondary considerations, details. The goal creatively is exactly the same. What's different is how you create a business model that can support the long climb necessary to build a true online network. Our ultimate goal is to reach our audience directly, with no distribution entity in-between."
All of which does not mean that Kasanoff and his company have departed from film and TV production - Threshold is currently in production on a major, CG-animated feature film called Food Fight. What has changed is how and where Threshold launches what Kasanoff prefers to call "intellectual properties." The process is now Web-first - a healthy development for Threshold's film and TV endeavors, Kasanoff argues.
"Food Fight is a good example," he explains. "It will be a $50 million, digitally animated movie when it hits theaters, but in the meantime, we have already greenlit an online series called Food Fight: The Adventures of Dex Detective. That will premiere a year before the movie comes out and is a prequel to the movie. That will create familiarity with the characters and the property by the time the movie hits. I see this as an unprecedented opportunity to use the Web to launch intellectual properties that will end up in multiple media."
Kasanoff thus argues that his company's growing online, entertainment network can serve as "the center of our overall pie" as Threshold produces material for feature films, television, games, DVDs, and other venues.
But he has clearly seen recent shifts toward conservatism in the online landscape. Therefore, based on Threshold's model, Kasanoff believes there are four basic guidelines that online network producers should follow.
Decide on Goals
Kasanoff suggests that many recent industry failures are mainly the result of the Internet's IPO frenzy. He says producers need a better goal than simply "hoping to go public in a few months" if they are planning on being involved with the Web in any serious way.
"In our case, we are in the intellectual property business, targeting a specific demographic," he says. "We make entertainment, regardless of which media or format. That is far different than trying to build toward a quick IPO because you have seen other people do it. Producers need to decide what they want to accomplish, why they are in this business. Seriously producing entertainment over the long-term, rather than thinking about short-term gains, makes a lot more sense, in my opinion."
Pick a Demographic
Kasanoff emphasizes repeatedly that TheThreshold has been designed to appeal to a specific target audience. Its content creators, for the most part, are individuals experienced in producing such material for film and television.
"If you know your audience and stick with it and have people who know that audience, then you have an opportunity to offer online the same things that audience wants offline, plus a few other things, like interactivity," says Kasanoff. "A lot of sites are sort of all over the place, offering different things to different people. We do one thing: entertainment for guys. That's it."
Along those lines, Kasanoff says he went to great expense in recent years to license Web rights for numerous well-known properties within his chosen demographic: Mortal Kombat, Duke Nukem, Heavy Metal, Red Sonja, Hellraiser, and several other sites in the network all fall within this category.
Careful Financing
TheThreshold is a year-and-a-half old and is financed to run uninterrupted for at least another year before turning any profits, according to Kasanoff. However, he expects the online network to break even within that year and be profitable within two, at the most. He adds that, for most producers, there is no way around searching for outside financial help to launch online networks, but with a specific plan, he feels it is possible to offer funding entities a return on their money within a reasonable time frame.
"Our parent company, Threshold Entertainment, put up the initial funding for the network a couple of years ago, and since then, we've raised money from several venture capital groups and private investors, most notably, Fusient, which is backed by Red Point and the Allen Company," he explains. "A big reason I convinced them to invest in what we are doing is that I showed them how we could spend less than many of our competitors in producing entertainment material. We reduced more costs by having experienced film and TV producers already on staff and a fully networked, digital studio already up-and-running on film, TV, and commercial projects, plus specific technology partners. Those facts, combined with the fact that we had already acquired several licenses for major entertainment properties in our demographic, like Mortal Kombat, made it reasonable for them to see a good chance for a payback on their investment."
Kasanoff says that "payback" will come from online advertising, strong merchandise sales opportunities, and the ability to syndicate Threshold content to other providers. Ventures on all those fronts, he adds, are well under way.
Technology Partners
Also central to his strategy, says Kasanoff, are technology partnerships with major vendors. Such partnerships, he adds, allow him to keep overhead low through a "virtual" studio, working with artists around the world. The partnerships have also enabled a sophisticated digital infrastructure for TheThreshold's sister company - Threshold Digital Research Labs (TDRL) - that produces content for all media, including the company's online ventures. " We have a hardware deal with IBM and use their Intellistations on everything we do, and we have a great relationship with our Web hosting partner, NonStopNet [San Jose]," Kasanoff says. "IBM is also working with us to build a unique collaborative filtering system for our network, so that we can create personalized content for individual Web customers in the future. Such partnerships give us a powerful digital foundation, so that we have few, if any, limits to what kind of content we can produce. As broadband becomes more routine, we'll be able to produce material at higher resolution without significantly changing our technology base."
SIDEBAR
Ron Howard's Web Reflections
A few weeks before the recent demise of Pop.com - the proposed Internet entertainment venture founded by Steven Spielberg, Jeffrey Katzenberg, David Geffen, Ron Howard, Brian Grazer, and billionaire Paul Allen - Howard spoke with Millimeter about the Internet's lure for even the most successful "traditional" filmmakers. At the time, Howard was excited about the creative possibilities the new medium presents to film directors like himself, yet he found the Pop venture "frustrating" even then.
"I love the idea of being able to explore or develop new ideas on the Web - ideas that don't really make sense in terms of developing them as feature films or TV projects," said Howard. "[The Internet] offers guys like me a chance to play with pet ideas, without worrying about huge budgets and all kinds of complicated marketing issues. At the same time, producing content for the Web right now is very frustrating because of the limits of broadband. That's why most of the good stuff you are seeing right now is limited to Flash animation. There are frustrating technical limitations, and from a business point of view, we just can't afford to spend much money on them. It's a curious business situation for us right now."
A few weeks later, following failed attempts to sell or merge their online company with other industry players, Howard and his partners decided to lay off the majority of their Pop.com staff and put the venture into Web limbo, according to the Hollywood Reporter, Los Angeles Times, and other publications. At press-time, it was unclear what would become of the original content that was already produced, or in production, for the site. Some was likely to end up on www.countingdown.com, an Internet movie fan site owned by the Pop partners, while other issues remained to be resolved.
Howard and Spielberg themselves were among the filmmakers reportedly developing projects for Pop.com. From a creative POV, Howard certainly expressed his hope to explore the short form through the site.
"The short form has always interested me," he said. "For a long time, short-form filmmaking, except for sketch comedy, had no reason to exist - until the Internet came along. I really believe consumers are developing appetites for short films through the Internet, and I expect that appetite will continue, even after the streaming and downloading limitations of broadband are eliminated. I'm currently working on one short project for the Web - about people's dreams - and I hope to do several in the future."
Grazer, Howard's partner, told the L.A. Times in September that he and Howard were still interested in Web-related productions, but that the "shifting Internet market" required them to step aside for the time being. Whether Howard and his partners will return to the fray remains to be seen. Even before Pop's demise, the famed director's crystal ball was no clearer than any other in Hollywood.
"Someday, I guess, you will be able to apply a logical business plan for entertainment on the Internet, but right now, it is kind of difficult to figure out where it's all headed," he said. "[Prior to Pop's termination], I meet with Steven Spielberg and discuss this all the time. We love talking about the creative stuff, the conceptual stuff, but the business situation is challenging, to say the least."
Continue the discussion on “Crosstalk” the Millimeter Forum.