Digital Entertainment Network pulls plug

Summary:One of the most closely watched experiments in online entertainment is shutting down and weighing bankruptcy.

Digital Entertainment Network, one of the most closely watched experiments in online entertainment, is shutting down its operations and weighing a bankruptcy filing, according to people familiar with the matter.

The company, known as DEN, beams television-like programming over the Web and touted itself as the vanguard of the converging entertainment and technology worlds. Once one of the hottest start-ups in Los Angeles, DEN has in recent months stumbled badly amid heavy management turnover, controversy over high executive salaries and sexual-misconduct allegations against the company's co-founder. A planned public offering that company officials said would raise $75 million was canceled in February.

People familiar with the matter said DEN simply ran out of money, having gone through about $65 million since its inception about two years ago. The company has little debt but recently found itself unable to raise any more money -- in part because of the seemingly endless stream of bad publicity about the company.

Efforts to sell the company were too premature to be concluded when the company ran out of funds this week, people familiar with the matter said. It is possible that someone may yet attempt to purchase the company. A last straw of sorts came recently when one of the company's largest investors, Chase Manhattan Corp.'s Chase Capital Partners, told DEN that it wouldn't put any more money into the venture. Chase Capital declined to comment. At the time the IPO was canceled, DEN announced that it had raised an additional $24 million from Chase Capital and a number of other investors.

As of Wednesday night the company was considering a bankruptcy filing, though it wasn't certain whether it would file for Chapter 11 bankruptcy protection, people familiar with the matter said. Company officials Wednesday night informed the staff of about 150 workers that they were out of work effective immediately. Earlier this year DEN had about 300 employees, but layoffs had already pared the staff to its current size. There are no plans to produce any more original programming.

DEN's idea was to create a Web environment that was like an online TV network, which would create original, "edgy" episodic entertainment aimed at people in their teens and 20s. Its business model called for keeping the cost of production very cheap, so it could aim the show at narrow audience niches. Investors included an array of big names, including Microsoft Corp. (msft) and Dell Computer Corp. (dell).

DEN's problems began last fall, shortly after the company filed for the planned offering. Company co-founder and Chairman Marc Collins-Rector resigned in the wake of a lawsuit that alleged sexual misconduct and which has since been settled.

A short time later, DEN began attracting criticism for paying its top executives lavish cash salaries on top of big options packages -- a practice out of step with many Internet start-ups.

Then in February, when the IPO was shelved, DEN's management team again turned over. Chairman and Chief Executive Jim Ritts resigned and was succeeded as chairman by Gary Gersh, the former chief of Capital Records. DEN at the same time named Greg Carpenter, its chief technology officer, as chief executive and chief operating officer. Gersh continues to operate Gas Entertainment, a music-management company that isn't connected to DEN.

Topics: Start-Ups, Dell, Microsoft

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