Intel's excellent media adventure
The executive, Ron Whittier, listened intently to the pitch. At last, he leaned forward with his verdict: "I think this is great," he said, an opinion that soon triggered a multimillion-dollar investment in a small music company called Launch Media.
Over the last three years, Whittier, general manager of
Intel's 300-person content group, has sat through hundreds
of pitches like this one. He rarely reacts quite so
enthusiastically. Still, for a certain segment of the
entertainment industry, Whittier has become the man to see,
and his treasured endorsement has become golden in
Hollywood and new-media circles.
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I've seen Ron leave some rooms with people just waving business plans at him ... people saying, 'Ron, can I just have three minutes of your time,'" says analyst Richard Doherty, director of research for Envisioneering, of Seaford, N.Y.
Since 1995, under Whittier's supervision, the computer-chip colossus has quietly invested in or provided technology to a surprisingly vast array of media companies, both well-known and obscure. The list reads like an attendance sheet for an entertainment-technology conference: Cnet, Avid, Ticketmaster, CBS Sportsline, Creative Artists Agency, Liquid Audio and scores of others. For multimedia music publisher Launch Media, as for most of its chosen partners, Intel has contributed a mix of expertise, equipment and money.
The price tag for Intel's investment spree: about $750 million. That figure includes plenty of spending on technology ventures that don't fall under Whittier's content group. But roughly one-third has been devoted to the media and entertainment domain that Whittier oversees, Doherty estimates.
As a result, in Silicon Valley, Intel now ranks with the likes of Kleiner Perkins Caufield and Byers, and Hummer Winblad Venture Partners among highly sought-after sources of venture capital. And Hollywood, meanwhile, "now sees Intel as a real force in their industry," says Gary Arlen, longtime media analyst and president of Arlen Communications in Bethesda, Md.
The emergence of engineer Whittier as one of digital Hollywood's most respected power brokers reflects the strange crosscurrents roiling the entertainment industry today. While the long-anticipated marriage of Hollywood and Silicon Valley has been much rockier than once forecast, Intel's growing influence in the "content" arena reveals that the oil and water of technology and entertainment can mix after all, and sometimes quite profitably.
For Intel, however, the mission isn't primarily financial, at least in the short run. Yes, the company would rather make money than lose money on its venture investments. But Intel is chiefly interested in aiding its core business of selling microprocessors.
Power-hungry content
Historically, the company has juiced demand for its
products by making ever-more-powerful chips that run
ever-more-powerful programs. The constant escalation of
computing power has forced businesses and consumers to
upgrade frequently. So by investing in content that pushes
the boundaries of what computers can do, Intel figures it's
helping to beef up long-term demand for sophisticated
computing products.
In recent months, the urgency of Intel's content mission has increased markedly. That's because the sustainability of the technology industry's upgrade cycle has been called into question by softening demand for high-end computing tools. So now, more than ever, Intel believes it's important to expand the use of computers into entirely new fields.
"It's not a place at the table we're looking for," Whittier explains. "We're trying to make something happen in the marketplace."
Perhaps no other company approaches new media in just the same fashion. America Online, for instance, formerly invested in a wide range of online start-ups, but ultimately chose to keep most of its promising content development in-house. Microsoft and Disney, meanwhile, have either built new-media properties from within, or acquired them in pieces, generally intending to own any operations that prove significant. (Microsoft is a partner with NBC in the joint venture that operates MSNBC.)
Always on the move
When he was tapped for the position in 1995 by
then-CEO Andrew Grove, Whittier hardly seemed a logical
fit. After gaining his doctorate from Stanford University in
1965, the tall, rangy Whittier had spent the first two
decades of his career in hard-core engineering positions,
managing, for instance, Intel's Memory Products Division
from 1977 through 1983. He later headed corporate
marketing and a research-and-development group called
the Intel Architecture Labs.
"I'm not a content person," he says bluntly.
Indeed, the youthful-looking Whittier -- a sailing enthusiast and father of three grown children -- is regarded by co-workers at Intel as somewhat shy and intensely analytical. People who have worked with him say he is the type who studiously reads proposals and systematically questions assumptions one-by-one.
"He never misses a detail," says one associate.
Whittier makes no apologies for his engineering background. He says he simply tries to draw from other parts of his life -- as a father and grandfather, for instance -- to make sensible decisions about media and entertainment.
"I have to ask, what's a certain demographic looking for," he explains. For instance, "All of a sudden, I'm really interested in what a 2-year-old is really interested in. ... I ask, 'If I were a consumer, would I want to go there?' It's no more sophisticated than that."
Whittier appears to have endeared himself to entertainment executives by bringing that grass-roots, common-sense approach to the endless process of evaluating potential media investments.
Seeing potential
Consider, for example, Whittier's handling of the
Launch Media pitch in that company's conference room in
Santa Monica, Calif. It was January 1996, and at the time,
Launch Media's prime property was a multimedia
magazine, published quarterly on CD-ROM and containing
music concerts, interviews, videos and more. About 10,000
subscribers had paid the $19.95-a-year subscription price.
But not far into the presentation (demonstrated on an Apple MacIntosh computer), Whittier clearly saw how the CD-ROM might appeal to a certain audience, even if that audience didn't include him. " He said, 'This is fun. I think this is great. I can really imagine my daughter loving this,' " recalls Dave Goldberg, chairman and chief executive of Launch Media.
And just as importantly, Whittier recognized that the material Goldberg was producing wouldn't be confined forever to CD-ROMs and delivered only through the postal system. "He said, 'Hey, you guys are doing this on CD-ROM today, but someday this will be perfect on broadband.' "
Indeed, Launch Media is currently working on a music product to be delivered via satellite.
Neither Whittier nor Goldberg will say how much Intel has invested in Launch Media to date. But Intel featured the company in a $9 million advertising campaign touting the entertainment capability of personal computers, Goldberg says. And in a recent $22 million financing round for Launch Media, Intel helped attract contributions from both GE Capital and NBC.
Since Intel came on board, Launch has increased its CD-ROM subscription list to 280,000 people and expanded its staff to about 60 from 25. Revenue has more than doubled each year, Goldberg says.
Intel's deep involvement with Launch Media reflects its growing faith that music enjoyment, and music sales, will migrate extraordinarily quickly to the Internet and, more generally, to the world of PCs.
Among the music services Intel has backed with money or technology or both: AudioNet (now Broadcast.com), the online broadcaster of concerts, sports events and more; the Intel New York Music Festival, a sprawling annual event coming up next month; Liquid Audio, a pioneer in developing secure digital distribution of music over the Internet; and ArtistDirect, a talent agency, record label and online purveyor of music clips, concerts, merchandise and more.
"We believe there's going to be a handful of full-service music sites that dominate the Web," says Wendy Hafner, who heads Intel's music efforts. And the company is happily placing bets on seemingly every contender for those top spots.
'Nerds and technologists'
Music is only one area where Intel is concentrating its
efforts. Other categories in Whittier's content group include
interactive games, arcades, toys, films, production tools,
children's products and more.
But in recent months, the group has veered sharply toward three key areas: digital broadcast, broadband services and online services.
"That's where we see the most innovation and opportunity," says Claude Leglise, vice president of the content group. (For more insight from Leglise, an original member of the content group, click here for an audio clip detailing his view of the PC's role in the future of entertainment.)
One example on the broadband front is Intertainer, a service that offers video and music on demand and debuts this summer in Philadelphia and Phoenix.
Not every prediction, and not every investment, works out well, of course. In fact, the very first content deal Whittier can recall flopped badly. Intel was an early backer of American Cybercast, an online production company responsible for "Webisodic" soap operas like The Spot. A decided hit at first, The Spot fizzled after its novelty wore off and the costs of producing a rich drama sank in.
"The timing was bad," Whittier admits. "The people who got there loved it. But it takes a long time to develop those audiences, and that was at a time when the advertising community hadn't decided" to commit to the Internet.
American Cybercast later filed for bankruptcy protection.
Other moves haven't worked out as planned either. The much-hyped construction of a multimedia lab within the high-powered CAA talent agency's Beverly Hills offices hasn't produced quite the flood of relationships with star entertainers that some had hoped. And Intel's commitment to so-called push technology a couple years back proved to be as ephemeral as the trend itself.
But Intel content partners insist that one of the grand benefits of linking up with the company is its lack of interest in micromanaging.
"They're not upset if we decide not to do something," says Goldberg, the Launch Media executive. "They really wanted us to incorporate push content a while ago, and we just looked at it and decided it didn't make sense for us at the time ... some people would have said you must do this." But Intel didn't.
And just as importantly, the company clearly has no intention of actually entering these new businesses that it's backing. In that sense, Intel is regarded much differently than its Wintel mate, Microsoft.
"Microsoft tends to buy things," says Goldberg, "and people are very nervous to take a minority investment from Microsoft. Microsoft wants to be in my business. I've never had that feeling with Intel."
Could that ever change? Despite the fact that Intel executives expect to accelerate the company's outside investments in coming months, Whittier says no. It's a matter of knowing one's limitations, he insists.
"I know what I don't know," he says. "We're all just nerds and technologists, and we recognize that."