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The Tech Report: Silicon Survivors

Darwinists, take note: The city’s new-media industry has entered the Age of Accountability, wherein balance sheets and business plans suddenly matter.

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"The song I’m going to play is called ‘You Can’t Put Your Arms Around a Memory,’ and it’s dedicated to Web publishing,” announced Tom Watson, the founder of the Silicon Alley newsletter @NY, as he stood on the stage of Webster Hall. About 150 people had gathered on a Saturday evening earlier this month for the first Silicon Alley Talent Show. Most of the crowd had spent the past several years toiling away in assorted Silicon Alley start-ups, building their Internet dreams and hoping the masses would come, but Watson didn’t have a very inspiring message. “It doesn’t pay to try, all the smart boys know why,” Watson sang into the mike as he strummed his guitar. “You can’t put your arms around a memory.”

All the “content” carnage piling up -- much of it in New York City’s so-called Silicon Alley, which runs roughly down lower Broadway -- has recently become too obvious to ignore. Earlier this year, Microsoft’s Sidewalk New York and the America Online-funded Digital Cities both laid off staff. In March, the network service provider Icon CMT announced it was pulling the plug on its New York-based Word.com, one of the Web’s oldest online magazines. Three weeks ago, Lara Stein, the woman Bill Gates had sent to New York in 1996 to fund projects for the Microsoft Network, went to work for a company that does online promos for First Union Bank.

And if those recent events weren’t a clear enough sign of which way the wind was blowing, along came the Silicon Alley Talent Show, in which the Alley’s best and brightest performed (actual song and dance, not product demos) to raise money for “independent” Web projects -- i.e., the types of Websites that had literally become charity cases.

“Silicon Alley was founded on this idea that new media would blow old media out of the water,” says Watson. Three years ago, the idea was that content -- created by New York’s unparalleled collection of designers, writers, and assorted creative types -- was going to rule the new-media industry. California would create the “printing presses,” so to speak, of the Web -- the physical side of the Internet, the computers and networks that serve as its infrastructure -- but New York would be its “publisher.”

“But now,” says Watson, “it’s not about publishing; it’s more about direct marketing.”

In other words, old-media-slaying Alleyites, finding few sponsors willing to ride out several years of unprofitability, are scrambling to find alternative revenue streams, while the healthiest pure-content sites, like Nerve.com (the self-described “literate smut” site), have gone offline to secure old-media deals (watch for a paper-and-ink Nerve book, coming soon to a bookstore near you). “It’s still interesting,” says Watson. “It’s just not as exciting.”

In the meantime, Alley start-ups of every stripe are suffering through their growing pains. Capital infusions are desperately needed, and the cash isn’t easy to find. “This is a problem of evolution, and it’s only going to get worse,” says Anna Copeland Wheatley, editor of the finance-oriented Alley Cat News, which recently sponsored a conference for Silicon Alley companies looking for venture capital -- in San Francisco. “That birthing canal is not cozy.”

Still, within the past year, a handful of companies and individuals have emerged as key Alley players. With the right partnering arrangements, business models, brands, or niches, these genotypes are now on strong enough footing that they should continue to fare well in the increasingly perilous landscape.

THE ENTERTAINER

At a time when many a cash-strapped content site is desperate to be bought out, SonicNet is happily nestled in the corporate bosom of cable giant TCI, its fourth owner in as many years, while traffic on its newly redesigned site has doubled in the past month. How has it managed to fare so well? SonicNet president Nicholas Butterworth sums it up: “By being a music site, being in New York, not fucking up too badly, staying really focused on the users, and not getting ahead of ourselves.”

Let’s start with the first point: Music does make for an intrinsically good fit on the Web. “There’s so much you can do with it, and there’s so much that people want to know about it,” says Butterworth, “and we have the ability to deliver the music itself.” Not only in audio and video form right now, but over cable modems and digital interactive TV-set-top boxes in the future. “TCI gives us access to the next-generation high-bandwidth platform,” he notes.

SonicNet has attracted a large following of music groupies (the site logged 3 million page views in March) who check in several times a week (content is updated continually) for news on their favorite bands. It helps, too, that SonicNet targets a demographic that’s highly attractive to advertisers: teenagers, college students, and other young adults who are frequent Web surfers and are poised to buy product.


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