CMGI Exits Entertainment Business, Will Sell iCAST

CMGI said Monday that it will exit the "entertainment portal business" and try to sell iCAST (www.icast.com), by the end of January. If no buyer is found, iCAST will be shut down.

Stu Zakim, VP of public relations at iCast, said that offices in Los Angeles, San Francisco and New York will be closed by the end of business Tuesday. Approximately 70 people in those offices will be laid off. Zakim said that about 50 employees in the Woburn, Mass. headquarters will remain intact, however.

In the grand tradition of show business, the Web site will go on. It will be updated while management searches for a buyer. Zakim said that the upcoming webcast of magician David Blaine "Frozen in Time" special later this month, will go on as scheduled.

David Wetherell, CMGI chairman and CEO, said in a statement that this is part of the company's restructuring announced in September. He said that the move was about maximizing shareholder value and achieving profitability.

iCAST was reported to be in talks with Rupert Murdoch's News Corp. media empire last week. However, CNET reported that talks between the two companies have produced nothing more than a potential marketing alliance.

iCAST in Trouble

iCAST has courted trouble since its inception in early 1999. Then president Neil Braun, a former NBC exec, was slated to form the company but left before iCAST's launch over a dispute with CMGI's Wetherell. Margaret Heffernan, previously head of another CMGI property, was appointed president and CEO.

In February 2000, iCAST opened its doors featuring movie previews, music and other user-generated content. It also unveiled its iCASTER media player, which was built using Windows Media technologies. The player was unique because it integrated MP3 playback, streaming, chat and instant messaging features, into one application.

In mid-September, iCAST laid off about 30 people, and announced that it was streamlining its operations for future profitability. Nonetheless, iCAST's future relationship with CMGI was already in jeopardy as CMGI announced at the beginning of September, that it intended to reduce its number of operating companies down from 17 to between 5 and 10.

A spokesperson for iCAST said that it "didn't help" to have problems early on with the departure of Braun. His departure delayed the site's launch by many months. When reached at VastVideo, where he is president, Braun would not comment. A VastVideo spokesperson said that Braun is still in litigation with CMGI and "would rather not talk."

New York-based VastVideo, in stark contrast to iCAST, isn't in the entertainment space. Rather it acts as a supplier of private label videos for just about any Web site looking to add streaming media. In a July interview with Streamingmedia.com, Braun said building a Web entertainment portal wasn't the right move. "I think it's going to be very, very hard to build a broadband destination site based on content," he said at the time. "It doesn't mean nobody will do it, but a lot like the movie business; more people will fail trying, rather than making profitable movies."

What's the Outlook for Vorbis?

With the closing of the San Francisco office, the open source team has been left without a financial backer. In early January, iCAST acquired Green Witch, a tiny company that was developing an open source server called Icecast. Since then, the Green Witch team released its open source audio codec, called Vorbis, which it hopes will allow music developers access to a royalty-free codec.

Zakim called the open source team "free agents" saying that they had been receiving money for developing open source software. Without the backing of CMGI or iCAST, the team must now do their programming for free or look for another backer.

The very nature of open source, however, means that programmers from around the world can contribute and develop software. Odds are that Vorbis development will continue but it may be slowed.

Future Looks Dim

Officials at iCAST wouldn't say if offers have been made or what the company might be worth. What are the odds of selling the company? "I don't know," admitted Zakim. "It's another high profile failure like DEN and Pseudo, so odds are we'll get a lukewarm response."

If sold, everything at iCAST will go, including iCASTER software, the Green Witch Internet radio stations and all the user generated content. If forced to close without a buyer, all those assets will be shut down.

One piece of iCAST to be spared from the CMGI axe, is Signature Networks, a music and celebrity licensing and event merchandising company, and it will become an independent, fully-owned subsidiary of CMGI. When Sony Signatures was acquired from Sony in September 1999, the company originally became a fully-owned subsidiary of iCAST, under the name Signature Networks.

Other CMGI properties like Activate and Navisite, seemed to squeak through this latest restructuring untouched. Navisite even received a commitment for $80 million in additional funding to fuel further expansion.

So what went wrong? iCAST spokesperson Bill Golden said the market climate has changed dramatically. Companies are no longer willing to wait years to reach profitability. "It was no secret that [iCAST] wasn't going to be profitable for a few years," said Golden. "Advertising sales are just not enough. The path to profitability was too long."