The Business of Entertainment : Unknown Moguls Who May Rule the Future

For months, press and investor attention has focused on a spate of mega-mergers involving communications and media giants, most notably the marriage of Time-Warner and Turner Broadcasting last week. Yet, in the long run, this hubbub may amount to little more than the last dance among dinosaurs, which, having exhausted their creative vision, lack partners except for each other. Largely ignored is a breed of smaller, warm-blooded mammals that inhabit the cutting edge of the communications and media revolutions. They are the digital moguls.

This new breed of entrepreneur concentrates on new-media opportunities in such diverse fields as interactive television, digital effects, CD-ROMS and the Internet. Mostly small and privately held, their companies seldom attract Wall Street or big-media attention. But they have the advantage of operating in markets that are now in their infancy.

In the emerging multimedia universe, it is precisely these smaller, more flexible, technically advanced firms that enjoy the greatest edge: the capability of producing a broad array of entertainment-related programming for everything from theme-park rides to commercials to television to movies and games.

Russell Collins, president of Fattal & Collins, an advertising firm in Marina Del Rey, is a prototypical digital mogul. Besides running his ad agency, he serves as executive producer of “The Spot,� a highly popular soap opera on the Internet. Conceived by producer Scott Zakarin, “the Spot� features a “Melrose Place� kind of 20-something cast.

Although, by all accounts, the Internet audience is growing--now estimated at about 30 million worldwide--it’s virtually impossible to determine the actual number of users accessing a given page. Generally speaking, “hits� refer to the number of times a page, or even a graphic on a page, has been accessed. The four-page daily “Spot� offering attracts 120,000 hits a day, a high number by Internet standards. In other words, at least 30,000 people access the page every day, though who they are is unknown.

But it may be method more than actual market size that is critical. By utilizing the interactivity inherent in the Net, says Zakarin, “The Spot� achieves a kind of intimacy with its audience that is impossible in traditional media. Characters on the show, who write their own parts, daily receive upward of 500 E-mails on subjects ranging from advice about future plot turns to personal inquiries.

In contrast to the traditional entertainment media, which are largely technophobic and look to Silicon Valley computer firms for their future inspirations, digital moguls like Zakarin and Collins combine their Southern California-honed creative skills with a keen knowledge of emerging technologies. In their plans to launch an L.A.-based Cybercast Network, they are banking on developing interactive advertising as the main means of raising revenues.

“It’s not the buttons and technology that’s gonna bring people to the table, to the computer; it’s the experience,� predicts Collins. “Like it or not, Los Angeles is the center for the creation of entertainment experience. It’s . . . what we know how to do.�

“The Spot� concept--winner of the first “webby� for “coolest� web site--epitomizes the largely ignored Internet proficiency being developed in Southern California. Indeed, two other finalists for this year’s webbys come from the Southland. In addition, another Marina-based company, Radio HK, developed the first full-time Internet radio station, while Culver City-based Digital Planet has made its mark with innovative web sites widely credited with boosting interest in such productions as last year’s “Stargate� and this year’s “Apollo 13� and “Casper.�

But the Net itself represents only one portion of the new entertainment universe being created by L.A.’s digital moguls. With the greater ease and increased power of computer technology, firms such as Digital Domain, Rythym and Hues and Metrolight Studios are combining creative and technical skills to carve out huge new media markets ranging from Internet to more conventional movies, television, interactive games and advertising.

Contrary to popular belief, widely held even within the region, Southern California, not the more hyped industries in the northern part of the state or in media-saturated New York, may well be best positioned for seizing leadership in the new communications venues. Already, the local multimedia industry, according to the most recent figures, encompasses as many firms as in North California and roughly three times as many as in New York. If television and film production firms, many of which are now active in multimedia, are added, the Southland’s industry may be the nation’s largest.

The region’s critical advantage, says Los Angeles Economic Development Corporation’s Rohit Shukla, lies in the parallel existence of the world’s dominant entertainment complex and a vast pool of technically oriented companies, including some formerly involved with defense. This technological base of software firms or computer-component makers is far smaller in the New York area, which represents the only other major competitive base for creative producers. On the other hand, Northern California--the most serious rival in the emerging multimedia industry--benefits from the nation’s largest software industry but lacks the depth of creative talent critical to developing a steady stream of programming content.

So, though cutting-edge techno-media companies like Pixar and George Lucas’ Industrial Light and Magic can survive in their Northern California isolation, the region is less friendly to the creation of content firms. These depend on closer interaction with the largely Southern California-based entertainment complex.

“I think Los Angeles is the only city in the world that can support the kind of digital revolution that’s going on, because we have not only the animation, but we’ve got feature films, we’ve got the theme parks, with Disney and Universal, and now we’ve got the video games,� says John Hughes of Rythym and Hughes, a 170-person company in the Marina.

Critical to the success of such firms as Rythym and Hughes--best known for the animation effects in the surprise hit movie “Babe�--are 20-somethings with both technological and artistic skills. “Everyone younger than I knows how to use computers, and it’s really scary. I just think that the computer is just a tool,� says Steve Ziolkowski, Rythym and Hughes’ 25-year-old technical director. “It’s like a paintbrush and a pad of water-color paper.�

Creators like Ziolkowski are drawn to Hollywood because of its critical assets of imagination, character and story development, which are equally important in the new digitized forms. They tend to be attracted to smaller organizations, like Rythym and Hughes, Digital Domain and Metrolight, that are run by hands-on entrepreneurs with creative streaks.

In the new configuration, says Digital Domain’s Scott Ross, the strategic advantage belongs to creativity-driven “independent production companies� capable of producing a broad range of programming. By contrast, media combines that largely serve as distributors and financiers may find themselves increasingly irrelevant as phone companies, utilities and other transmission-capable companies bring a vast array of original programming into people’s homes, shopping places and recreational experiences.

The emerging multimedia structure also provides opportunities for more traditional content providers like Film Roman, a North Hollywood animation firm renown for such famous cartoon characters as the Simpsons, Felix the Cat and Garfield. Scott Russo, a former game designer with Virgin Interactive in Irvine, sees Film Roman’s great trademark assets--and the prescience of veteran animator and company founder Phil Roman--as ideal for creating a new array of games and programs for now rather mechanistic fair offered on CD-ROMS and the Internet.

“There’s a huge amount of activity going on around town, a lot of creative film companies are getting involved,� says Russo, who expects to add upward of 50 new employees as the company takes its cartoon icons into the world of CD-ROM, games and the Internet. “There’s an enormous vacuum in the digital world. Right now, there’s the multimedia capacity but not much content.�

It is to the innovators like Film Roman’s Russo that the multimedia future belongs. As in earlier emergence of records, movies and television, the next wave in entertainment is likely to be shaped by those most suited to pioneering the entrepreneurial opportunities along the technological frontier.