Digital Coast Weekly Circa 2001

Silicon Alley 2001 Conference
February 28 - March 2 - New York City - Metropolitan Pavilion
Sponsorship Available! 10 Major Sponsorships and 15 Exhibiting Tables left...
join Arthur Andersen, Xceed, Brobeck, IBM, Sun Microsystems,
General Atlantic Partners, Redwood Partners, Alertwire, Compete,Inc.,
e21, L90, Julien J Studley,Inc., Vividence, Advertising.com, AKA Entreprise Solutions,
LSI Logic, MediaServ, The Pythian Group and Leading Web Advertisers. If targeted sales,
new business opportunities, networking, recruitment and increased profits are a
part of your marketing strategy, make the SA 2001 part of your marketing plan today!
Contact Keith Long - VP, Director of Sales & Marketing keith@siliconalleyreporter.com

Dear Digital Coast Daily Readers,
 
At the start of this, our third year publishing the Digital Coast Reporter and the second year of our newsletter coverage of the Southern California Technology Center, we've made some notable changes and enhancements to our newsletter.

Over the past few months, our editorial team has embarked on a project of evolving the Digital Coast Daily from targeting primarily the Internet industry to incorporate more of media, finance and technology firms that are leveraging the Net. As a result, we've targeted a number of new areas in which we will be focusing our coverage and, as you may have noticed over the past couple of weeks, coverage of the dot-com deathwatch has been brief. Of course, we still cover the layoffs, but we don't focus our editorial resources there.

Instead, we've added a number of new features including Anna Dorfman's column, "Digital Coast Real Estate." We've built on our financial reporting with the Stock Report feature on Fridays; Ben Fritz is writing earnings reports on every company we cover in our Digital Coast Index. We're running at least one extended profile per week of companies that are succeeding in a rough market. We've looked at wireless technology firms, ISPs, supply chain management and digital rights management businesses recently, to find out how they are building sustainable businesses based on genuine technological innovation.

You may also have noticed that we are increasing our coverage of traditional companies, which is a result of two factors: first, as you know, many dot-coms have been absorbed by more established firms; and secondly, traditional firms are generally no longer behind their dot-com equivalents in terms of their Internet endeavors.

Of additional note, starting next week the Digital Coast Daily will ask each subscriber to accept one dedicated e-mail message from our sponsors to help subsidize all this great content. These messages will be clearly marked (see example) and will be sent (by us of course, we will never give your e-mail to anyone for any reason) no more than one a week to everyone subscribed to the Digital Coast Daily list. 

Simply put, these dedicated e-mails will give us the resources to continue to give you the deepest, most insightful and up-to-the-minute news from Southern California's media, finance and technology industries. Of course, we will never sell, rent, give, or share your e-mail or personal information with any third party under any circumstances. These promotional e-mail messages will be clearly labeled from us and will contain messages from our sponsors.  At no point will a sponsor have access to our list or your personal information. They will simply give us their advertisement and we will send it through our servers.If you do not wish to receive this once weekly promotional e-mail, you can simply unsubscribe from the Digital Coast Daily e-mail list and read the Daily on our website. This is an exciting time, and we look forward to bringing you the finest coverage of the Digital Coast as it changes and grows.
 
Best Regards,
 
Jason McCabe Calacanis
Editor, Digital Coast Reporter and Digital Coast Daily

Digital Coast Showcase at Spring Internet World 
March 14-16, 2001 Los Angeles Convention Center
Spring Internet World is the largest Internet event for E-business
and Internet Technology on the West Coast! Join the Digital Coast
Reporter Showcase and have the opportunity to reserve prime exhibit
space at a significantly reduced rate. We've put together an exhibiting
package that makes exhibiting as easy as possible in our premium
location in the middle of the South Hall! Sponsorship  Inquiries
Shannon Flammer, shannon@siliconalleyreporter.com    (310) 899-0603
Maggie Chun, maggie@siliconalleyreporter.com   (310) 576-0983

by Ben Fritz

Ending months of speculation since its withdrawal from the consumer market in November, digital video recorder manufacturer ReplayTV entered a letter of intent to be bought by SONICblue (Nasdaq: SBLU), the makers of Rio MP3 players as well as networking and Internet access products.

SONICblue will issue 16 million shares of stock, as well as warrants and options, in exchange for all of ReplayTV's outstanding equity--making it a wholly owned subsidiary of the Santa Clara-based company. At SONICblue stock's most recent trading price, the deal is worth approximately $120 million.

After finding itself unable to compete with TIVO for the home market, ReplayTV laid off 40 percent of its staff in November and re-positioned itself as a B2B licenser of its software and servers to set-top box manufacturers. The company admitted at the time it was in talks with a number of potential buyers.

In a statement, SONICblue CEO and Chairman Ken Potashner said he expects there will be a number of synergies between his company's digital audio products and ReplayTV's digital video capabilities. "With the addition of ReplayTV," he added,  "we are well positioned to take the lead in networked home entertainment. We also plan to partner with the leading content distributors to provide consumers with the best overall digital experience."

Potashner's comments hint that SONICblue may take ReplayTV, which is phasing out sales of its home digital video recorder, back into the consumer market. Neither company's representatives returned calls by press time, leaving the question of how their technologies might be integrated up in the air, although digital video and audio and Internet access seem like a natural fit in the coming convergent world.

Digital Coast Daily will continue to cover the story as more information becomes available.

From: Silicon Alley Daily

by Mike Batistick

In what has turned out to be a jam-packed two days for the application service provider, rightscenter.com announced today that it is set to launch its much-anticipated film-rights directory as early as Monday morning.

After declaring on Jan. 18 a deal with publishing behemoth HarperCollins to catalog international rights and permissions--the first Big Publishing firm to do so with the Palo Alto-based company--rightscenter.com followed up with another coup, signing up Robert Gottlieb's 5-month-old Trident Media Group. Rightscenter.com has been busier this past fortnight than it has for most of its year-and-three-month existence.

According to rightscenter.com Executive VP and co-founder Jim McHugh, the flim-rights directory is designed to target film studios, movie producers, and Hollywood agents on the make for fast-breaking rights information on books. The development challenges the dominion traditionally controlled by Hollywood scouts, who fight fiercely for up-to-the-second book-release information.

"The directory can be used by proprietors of literary works who are looking to sell film rights, like agents and publishers who hold the film rights, and also by those looking to purchase them, such as studios, producers, and film scouts," McHugh said. "It will contain title and author information, a short description of the work, as well as information on who controls the rights already."

Buyers will also be able to search under general criteria categories--such as romantic comedy or action--while agents and publishers will be allowed to list their literary-rights offerings for free, a development designed to build the database quickly. The service will charge subscription rates to studios and movie producers based on the size of the company. Currently, publishers and agents can place any title on the service for a one-time fee of $250.

With offices in Los Angeles, New York, and London, rightscenter.com, which currently maintains an online subscription-based database of 30,000 titles and 8,000 users, now has its foot placed firmly within a Tinsel Town stronghold, while previously its focus remained mostly in international rights markets.

When the film-rights directory does finally launch next week, it will undoubtedly cause a stir within the status quo. With Gottlieb making significant waves since he left William Morris in September, the agent, and others throughout Silicon Alley, who may see the directory as a way to bypass the middle man that is the independent film scout.

Just 22 days before Trident and rightscenter.com came to terms yesterday on their separate deal, Gottlieb struck a blow to traditional publishing by announcing that Dean Koontz, now arguably his most powerful client, would release his novella, The Book of Counted Sorrows, strictly in e-book form and exclusively through Barnes & Noble.com. Trident currently employs six agents, several of them defectors from William Morris, and represents 200 clients, including such literary heavy hitters as Deepak Chopra and the estate of Frank Hebert, which controls the interests of much the late writer's popular Dune series.
 
"From Trident's point of view, the rigthscenter.com agreement with us creates enormous opportunity, significantly more than before, for our clients," said Gottlieb. "It gets our clients' materials to the hands of buyers safely and quickly, and it also allows our agents who are working with those clients, where rightscenter.com is involved, to be more efficient on the clients' behalf."

Rightscenter.com's directory will be overseen by several former development executives, including Tad Floridis, a one-time VP of production at Longfellow Pictures, and Matthew Spector, formerly a VP at Fox Pictures. Spector will work out of the company's L.A. office, while Floridis is stationed in New York.

Beleaguered online toy retailer eToys (Nasdaq: ETYS) received some good news from its creditors today, as they extended a Jan.31 deadline prohibiting them from taking any action to collect on their debts, confirmed a company spokesperson. The new deadline is set for Feb. 15.

This group of creditors includes Mattel, Hasbro, Lego Systems, R.R. Donnelley & Sons, Staffmark, Fir Tree Partners and Pacific Asset Management. On Jan. 10, they formed an informal committee to evaluate the company's assets and marketing strategy, and determine the best course for securing the investment of creditors. This deadline extension is, no doubt, a last ditch effort to help eToys attract the buyer or investor it seeks. New York law firm Traub, Bonacquist & Fox is representing the interests of the committee's membership.

Last month, eToys brought aboard Goldman, Sachs as a financial advisor to help it investigate strategic alternatives for the company, including a merger, asset sale, outside investment or financial restructuring. As a cost-cutting measure, eToys also laid off 700 of its 1,000 employees, shut down two U.S. warehouses and ceased its European operations.

According to eToys' most recent earnings report, the company's liabilities exceed $200 million, and the aforementioned creditor committee represents approximately 44 percent of eToys' unsecured debt.

Trading of eToys stock closed at 31 cents per share today.

by Ben Fritz

Online music company MP3.com (Nasdaq: MPPP) posted significantly smaller than expected losses for the fourth quarter of 2001 as revenues rose and costs fell from the previous quarter.

Pro forma net loss for the San Diego-based company was $3.5 million (five cents per share), well below the First Call consensus estimate of a 13 cents per share loss, and down 43 percent from the previous quarter. Total revenue was $22 million, up seven percent from Q3 2000.

Including all expenses, though, the picture doesn't look nearly as pretty for MP3.com. That's primarily due to its settlement with the major record labels, for which it had to issue $18.1 million in stock warrants. The total quarterly net loss for the company was $35.6 million (54 cents per share).

For the year, MP3.com's pro forma net loss was $23 million (34 cents per share) on revenues of $80.1 million. That's a decrease of almost 37 percent from 1999's $36.3 million pro forma net loss.

The company did not provide any information on its fiscal 2001 estimates, nor when it expects to reach profitability. In a statement, though, CEO Michael Robertson said he expected "fiscally conservative" investments in technology infrastructure should accelerate MP3.com's drive towards black ink.

Wall Street seemed impressed, but not overwhelmed at the better than expected results, with MP3.com stock up 38 cents to $5.34 today.

by Ben Fritz

In its last quarter as a separate entity from Ticketmaster proper, Ticketmaster Online-Citysearch (Nasdaq: TMCS) beat the consensus earnings estimate for the fourth quarter of 2000, but failed to meet its revenue goals.

TMCS's earnings per share were nine cents, well below the First Call consensus of 12 cents, and down from 11 cents per share in the previous quarter. But revenues of $55.7 million were below the $59.5 million the company previously predicted and down about two percent from the previous quarter.

The company did not report its pro forma net loss, but EBIDTA loss for the quarter was $4.7 million, down 38 percent from the previous quarter's $7.6 million loss.

For the fiscal 2000 year, TMCS had an EBIDTA loss of $29.7 million on revenues of $220.6 million, versus a $38.3 million EBIDTA loss on $105.3 million of revenue in 1999.

The company also completed its $653 million acquisition of former parent Ticketmaster in a deal many analysts viewed as a move to put TMCS, which has never been profitable, immediately into the black. That view gained credence today as Ticketmaster (the name of the combined company) revealed that the two companies combined would have had $36.9 million in EBIDTA earnings for fiscal 2000.

Disappointed with fourth quarter revenues and still uncertain about the long term prospects for the Ticketmaster-TMCS merger, investors drove down the company's shares 69 cents to $12.19 by the market's close today.

Looking for new revenue streams both from its artists and Hollywood, MP3.com (Nasdaq: MPPP) debuted a music licensing program designed to provide music from its artists to music supervisors on film, TV and other productions.

The program allows music supervisors and producers to either search through MP3.com's database or post requests for specific types of music, and allows MP3.com artists to submit their work. Artists wishing to take part in the program must pay MP3.com $25 per year, although that fee is being waived for those who sign up before March 1.

As part of the program, MP3.com signed a deal with enableyourmusic.com to assist artists in logistics, including fee and contract negotiations and the collection of licensing fees.

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Internet advertising and marketing company L90 (Nasdaq: LNTY) entered into a strategic sales partnership agreement with pan-Asian broadband advertising company AdSociety. The partnership allows both companies to sell ads through the other's network of sites, giving Los Angeles-based L90 increased access to the Asia-Pacific region.

AdSociety, a majority owned joint venture of Pacific Century CyberWorks (NYSE: PCW), has already signed deals with a number of U.S. websites, but said the alliance with L90 will significantly increase its rollout into North America.

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Pacific Palisades-based Busybox (Nasdaq: BUSY; BUSYW), a provider of royalty-free video footage, entered into a distribution agreement with Digital Juice to include its footage in the new release of Digital Juice's CD-ROM graphic library for PowerPoint. Financially troubled Busybox has cited distribution agreements as a key to its chances for long-term survival.

by Anna Dorfman

New York-based Eureka GGN, an ASP and broadband communications company, took advantage of one of L.A.'s biggest dot-com flameouts when establishing its presence in Southern California. The firm picked up the remaining two years of DEN's five-year lease--an arrangement that was worked out in a bankruptcy court rather than at a negotiating table.

Eureka GGN's Corporate Architect John Rees said finding the 17,400 square-foot space, located at 2230 Broadway in Santa Monica, was a "coup." His company paid approximately $3 per square foot for the lease, as well as a three months deposit. And because DEN had already invested a lot of resources into beautifying the 1930's style Bow Truss warehouse, Eureka GGN only had to foot a bill of $68,000, about $4 per square foot, for further build-out.

Rees said the firm, which began its search for a new office in August 2000, initially looked at pricey locales like the Westwood Center, and was prepared to spend $70 to $80 per square foot--and upwards of $900,000--for improvements. Finding DEN's former digs made the decision easy. Rees noted that the whole bankruptcy court process took only two months. The court was anxious to appease creditors and landlord Stuart Weinstein, so Eureka GGN was able to move into a turnkey space by October.

The Westside was also appealing as a hotbed of tech firm activity. Rees thinks the area, including Santa Monica, Venice, Marina del Rey and Culver City, "has become the hub of the Digital Coast." It's also a central location, allowing easy reach for clients and employees from Orange County, the Valley and other parts of Los Angeles. Rees said recruiting in the area is great as well, and the company "can get the best people--smart, young, imaginative" here, especially given the availability of 24/7 amenities.

Although the space was essentially complete when Eureka GGN moved in, Rees added a few finishing touches to customize the building. He and BBT Architects had already created a 50-page "corporate standard" manual presenting a few key layout and design features for all Eureka GGN offices nationwide. In this case, compliance only required adding a "Eureka Blue" carpet, and painting the space's many walls and partitions with a particular color scheme--namely orange, yellow and blue. Contractor Lee Stucker executed the two-week process.

Rees related that half of the mostly maple furniture was brought in from the company's former L.A. abode, while the other half was purchased at an auction of DEN's belongings. He boasted that Eureka GGN was able to acquire furnishings, including refurbished Herman Miller and Technion pieces, for 30 employees, and a fully equipped data center--easily worth about $40,000 alone--for a total of $17,000. Rees added that a DS3, equivalent to four T3 connections, was already installed as well--so, the infrastructure was all in place.

The brick building has an open, one-story center, with the tech and support staff working on one end and the sales staff at the other. At the two sides of the structure, the building becomes two floors, or "mezzanines," with a number of enclosed offices--about 25 total. There are also four conference rooms, a reception area, lounge and training room space.

Rees wanted the office to have an atmosphere that was both "soothing and calm" and "happy and fun." The first impression should be that Eureka GGN "thinks outside the box, and that we're frugal, but open; cost-conscious, but fun," he elaborated. Fortunately, the building already had the "warm textures" of wooden ceilings and a brick exterior, along with the design elements and exposed beams typical of a tech hot spot. Rees added some "high-tech colors" and black and steel furniture to give it more of an edge.

He explained his philosophy is to create a "throwaway office space." The company grows so quickly, he said, it needs to have the flexibility of leaving a space within three years or fewer at minimal cost. With this in mind, Rees aims to design a functional and relaxed area conducive to inspiring employees to work hard.

Currently, the company is setting aside approximately 7,000 square-feet for a fractional office business. These spaces range in size and price, but a fully equipped 250-square-foot office will rent for about $1,200 per month, said Rees, adding that there are already takers. The company is also planning to offer up a high-tech training/classroom space and a video conferencing center for rent.

Eureka had 35 employees when it first settled into its Santa Monica office, and now has 45 staffers--both as a result of new hires and from its merger with Gillette Global Network, or GGN, last month.

Rees said the office can hold a maximum of 90 people, and the company expects to have about 75 staffers by the end of this year. He explained that once Eureka GGN reaches capacity, it would expand into other areas of Southern California, and keep this building as its headquarters in the region.

Because the company was assigned a lease in bankruptcy court, few negotiations actually took place. Tenzer Commercial's broker Randy Starr represented Eureka GGN. His counterpart was a court-appointed broker.