Rich Media’s Time Is Still Not Here

It’s getting crowded in the deep end of the dot-com dead pool, particularly with companies that only a year ago were the rich media darlings of Silicon Alley and Silicon Valley.

In the past month, two more consumer-oriented rich media heavyweights, iCast and BroadcastAmerica, stumbled. Both cited what has become a mantra in the dot-com world: a downturn in the market, insufficient cash and reluctant investors.

ICast hosts video and music clips, animation and short films targeted at consumers age 14 to 24. Parent company CMGI’s plan to sell or shut down iCast is particularly telling, since it has already suffered through the failure of Magnitude Network, an iCast subsidiary forced to sell its technology assets in August. As part of the most recent announcement, CMGI chief executive David Wetherell said the company would take a $90 million restructuring charge. CMGI’s stock has also nose-dived to about $15 from a high of $163.50 in January.

BroadcastAmerica, which transmits 750 radio stations and 70 television stations over the Internet, filed for bankruptcy recently as it simultaneously merged with online marketing and radio distributor and continued to hunt for about $7 million to continue operations.

The pace of failure of consumer-oriented rich media entertainment sites has increased as the year has progressed.

While the tanking of seven consumer-oriented rich media companies is not necessarily a death knell for the industry, there are enough other players —, MTVi, NBCi and Oxygen Media — that are restructuring, consolidating or otherwise rewriting their business plans to demonstrate a serious rethinking of rich media distribution to consumers.

And while these companies blame the downturn in the stock market for their problems, they usually leave it to the business reporters to add another possible reason: Too few consumers have the broadband access that these Web sites demand.

Since it is bad karma to judge the actions of others, let’s take a look at some of the lessons to be learned from all this. Let’s start with a look at some of the myths of Internet business.

• First-mover advantage. First movers make all the mistakes. First movers have to educate the market. First movers spend a lot of money building brand identity, only to have second and third movers ride their coattails to positions of prominence. The Japanese electronics industry dominated the VCR and TV market by producing products invented by others because they could do it more cheaply and more efficiently. Amazon has not made a penny of profit and faces stiff competition from Barnes & Noble. The day will come when venture capitalists fund companies based on their “third-mover” advantage.

• Build brand identity at any cost. Just ask the sock puppet, the most recognizable brand in the unemployment line. Who out there believes that consumer-oriented rich media sites have millions of users? Or even hundreds of thousands of users? True, they might have millions of visitors, but how many people take the time to download three- to 10-megabyte files over 56K modem connections?

One well-known, free e-mail provider claimed to have millions of users, thanks in part to its policy of keeping accounts active for months after users requested that they be cancelled. When the user logged in to make sure no e-mail was in the account, the waiting period started anew. Until the industry establishes a standard for measuring usership — which will not happen anytime soon — no one will take user figures seriously.

• Consumers are scrambling to watch video over the Internet. Household access to broadband technology still hovers around 7 percent. Corporate access to broadband is higher, but it’s not cool to be watching video in your cubicle unless you work someplace with a very liberal Internet policy. When consumers want to watch video, they turn on the TV or drive to Blockbuster. When they want to watch video on their computers, they stick in a DVD. Until broadband reaches a broader audience, rich media content providers are offering a service that few people can enjoy.

• The downturn in the stock market is causing rich media start-ups to fail. Please. The inability to show a profit is causing rich media start-ups to fail. Advertising alone cannot generate the profits that venture capitalists want to recoup. Independently produced films are barely keeping independent movie houses afloat. How on earth do entrepreneurs think they can make it in a medium that even fewer people have access to?

In contrast to these myths are several realities about the future of rich media.

Common sense will take the rich media industry by storm. People will still watch video over the Internet — movie trailers, scintillating election updates, CNN (when there’s a hurricane wrecking a tropical resort). But people will not build business plans around it. Or if they do, they will not get funded.

Big, slow-moving, old-economy rich media companies will become big, slow-moving, new-economy rich media companies. Time Warner buys companies for more money than DEN, Pseudo, Pixelon and FasTV combined. Big media companies have the content, deep pockets and marketing clout required to pull this off. The Internet is merely another delivery system for them.

The days of developing a technology, building a company and selling out to a larger company are largely over. Prior to the early 1990s, big companies touted their research and development departments — Xerox PARC, Bell Labs, Rand Corp. When the last market downturn hit, companies jettisoned inhouse research in favor of buying companies that developed specific technologies. With tech company valuations in the stratosphere, the future will rest on technology partnerships, rather than on corporate buyouts.

People still want to watch video on their computers. That is why all new computers come with DVD players as standard equipment. Until broadband access becomes pervasive, and no one expects that anytime soon, the Internet will remain the domain of text, still images and Flash.

All this doom and gloom does not mean the end of consumer-oriented rich media. A few players — Atom Films, iFilm and Icebox — are still showcasing some of the most creative video and animation on the Web. The art is out there. It is merely a question of getting technology to catch up.

• Jim Graham is co-founder and director of communications at KickFire, Saratoga, CA, a developer of Web-based software for enterprise marketing departments. Reach him at [email protected]

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