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Tinseltown Turns More Techie, Gets Digital Media Starring Role
June 15, 2005 - By Brian Deagon, Investor's Business Daily
Yahoo's (YHOO) going Hollywood in a big way. So is video game leader Electronic Arts. Google is, too, though perhaps in a small way.
Several other of the large Internet and new-media companies based in Northern California's Silicon Valley also have been finding their way 380 miles south to Tinseltown.
While Silicon Valley safely retains its status as the world's tech capital, about 20 square miles in and near Los Angeles is quickly evolving into the digital media capital.
"I see Silicon Valley as being the creator of technology, but down here it's the application of it," said Robert Dowling, editor and publisher of The Hollywood Reporter and chairman of the Digital Coast Roundtable, a Los Angeles-based group that fosters leadership in Southern California.
"Yahoo sees itself as a media company, and AOL is very active out here as well. It makes sense for such companies to set up shop here," Dowling said.
Content Is King
This evolution could take some luster off Silicon Valley. But it also could ensure that the U.S. maintains its dominance in the fast-converging technology and media worlds, with many billions of dollars at stake.
In the Internet and wireless worlds, content is king. And Hollywood knows content. All these devices out there with plenty of access to the unlimited world of the Internet need content — video games, movies, music, video clips, short subjects, special effects and more.
Computer makers, handheld makers, cell phone makers, even car makers, crave content. And Yahoo, Google, (GOOG) Time Warner's (TWX) AOL and Microsoft's (MSFT) MSN all peg their futures on it.
The opportunities for digital media content are everywhere. U.S. video game sales hit $7.3 billion in 2004 and are close to eclipsing music sales, according to PricewaterhouseCoopers.
U.S. consumers spent $1.8 billion for online content in 2004, up 14% from a year ago, says the Online Publishers Association. That includes $413.5 million for entertainment, up 90%, by far the fastest-growing category. The latter was fueled by rapid growth in music downloading.
Separately, U.S. online games revenue rose 22% to $88.8 million, says the publishers group.
And then consider another category, sales of ring tones. U.S. ring tone sales are expected to reach $417 million this year and top $700 million in 2009, said Jupiter Research.
1 Billion Users, And Counting
There are 182 million U.S. wireless subscribers. Service providers are eager to get more media content to them. And worldwide, there are 1 billion Internet users, says the Computer Industry Almanac.
To be sure, digital media creation is a global market, with pockets of strength in many parts of the world. But money flows where the talent goes, and no area can claim to have as many artisans as Los Angeles.
"Los Angeles as a region has a lot of basic strengths and a confluence of digital media, but it has an odd history," said Joel Kotkin, author of "The City: A Global History."
As observers state it, the ebb-and-flow of Los Angeles as a dominant tech center has been up, down, up, down and up in the last 20 years — though there's a good chance the current "up" will stay up.
"Much of the very early work on the Internet actually was done in Los Angeles, under government contracts," Kotkin said. "But then during the late 1980s and '90s, the focus shifted heavily to the Bay Area. L.A. didn't focus on its successes."
And then during the dot-boom, "a lot of nascent streaming media companies were built out in west L.A. in the late '90s and they spent a lot of time creating cutting-edge facilities," said Gigi Johnson, executive director of the Entertainment and Media Management Institute at UCLA.
With the dot-com collapse in 2000 and 2001, many of those companies failed, she says, but others now are emerging.
As the Internet got its second wind, Internet and media companies moved into the old facilities of the dot-bomb casualties, space equipped and ready to handle digital content creation.
And they've also moved into new facilities.
Electronics Arts, (ERTS) the No. 1 independent video game publisher, remains based in Silicon Valley. On the other hand, last year it located a large division into a plush new business park overlooking a refurbished wetland in the Playa Vista area of Los Angeles. The site employs 425 people, and can hold another 600 or so. That's a good chunk of a work force that now numbers 6,100, including 2,700 U.S. employees.
Electronic Arts is embracing Los Angeles. The University of Southern California established a master's degree program in interactive media last year, mostly thanks to an $8 million donation from the game company. That money also is being used to establish the Electronic Arts Innovation Lab.
Early this year, Yahoo leased 65,000 feet of space in a business complex in Santa Monica to be renamed Yahoo Center. Yahoo has options to expand that to 230,000, enough for 1,000 employees. That's nearly one-fourth of the 1 million square feet of office and retail space in the center, which has six buildings on 15 acres.
"The Yahoo Center is unique. It's beyond real estate," said Bert Dezzutti, director of Equity Office Properties Trust, (EOP) which owns the center. "It's more about synergy and location. Once a company moves in there, they're likely to stay because the environment is so creative. In the middle of the day you'll see people using common areas outside for huge meetings."
The Santa Monica and west Los Angeles area appeals to the 20- and 30-something creative types attracted to a company such as Yahoo, says Kotkin. Santa Monica maintains a small-town feel, with lots of diverse stores and restaurants along Main Street. Hollywood is nearby.
Yahoo dipped into Hollywood to recruit its chief executive. CEO Terry Semel spent 24 years at Warner Bros., and left as its chairman. Seven months ago, Semel hired Lloyd Braun, who ran ABC Entertainment Television Group, to head the Santa Monica-based Yahoo Media Group, in the new Yahoo Center.
During a visit by Semel to the Yahoo Center, Dezzutti recalled, "He stood on the sidewalk and pointed out where many of his competitors and future collaborators were located. They were all within 200 yards."
Other firms with offices nearby include Sony, (SNE) MGM, HBO, MTV and a Microsoft digital media group. Geffen Records is down the street, as is Universal Music Group and Oracle. (ORCL) There are several big legal firms that specialize in the media field in the center as well.
Activision Moved Years Ago
Google, meanwhile, is advertising some job openings at its Santa Monica engineering center. Two company representatives declined to provide any more information about the facility. The Google Web site is advertising for openings within 15 job descriptions, which is about 300 fewer than it's advertising to fill at its Mountain View, Calif., headquarters.
Some other digital media companies are near the Google and Yahoo Santa Monica sites. Video game software firm Activision (ATVI) relocated to Santa Monica 11 years ago from Silicon Valley because Hollywood gave it a bigger talent pool from which to draw.
JamDat Mobile, (JMDT) a leader in video games and other content for cell phones, is based nearby as well.
Then there's the longtime Los Angeles residents. Walt Disney Feature Animation, (DIS) the newly formed video game division of Warner Bros., DreamWorks Animation (DWA) and other studios call the area home.
It's tough to get a handle on the revenue and employment generated through digital media in Los Angeles, because the field crosses so many boundaries. Total technology employment in Los Angeles County is projected to be 201,000 this year, an increase of 6,500 jobs from 2004. The motion picture and TV production industry is expected to add 12,000 jobs, to 144,200, says the Los Angeles County Economic Development Corp.
"A lot of video game producers are aligning more closely with the film studios looking for ideas for games," said Jack Kyser, chief economist with the economic development group.
In any case, many observers say there's no question that digital media is hot in Los Angeles, though it might have a somewhat tenuous hold.
"You can see it and taste it," said Digital Coast Roundtable's Dowling, "but if the people here don't work to put it all together it will be another thing that got away."
Copyright Investor's Business Daily, Inc. 2000-2005.
For more information about Digital Coast Roundtable visit
www.digitalcoast.org.
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