Pixelon's Broken Promises

SAN FRANCISCO (01/04/2000) - Pixelon's $12 million launch party two months ago certainly made a splash. Its high-wattage roster of entertainers at Las Vegas' MGM Grand Garden Arena included Kiss, the Dixie Chicks, LeAnn Rimes, Tony Bennett and the Who.

But a lot can happen in two months. The San Juan Capistrano, Calif., company is scaling back its ambitious plans to become an Internet network with thousands of content channels, and says it will now focus on helping other content players distribute television-quality video on the Net. It has also ousted its founder and chairman, Michael Fenne, who had been at Pixelon's helm since its start in 1996.

Fenne, the 31-year-old former roadie turned computer programmer, could not be reached for comment, but people familiar with his departure say investors were particularly critical of his decision to spend nearly a third of Pixelon's resources on a glitzy launch party, dubbed iBash. These sources also say it was a mistake for Fenne to take on much-better-financed companies like Viacom/CBS and Disney, which are better positioned to roll out original content online.

Those criticisms appear to be well-founded. Thousands of people who tried to view Pixelon's launch party online received error messages. And most of those who were able to log on viewed the concert with streaming software made by Microsoft. Pixelon admits that its software is not up to the job of providing live broadcasts for the average Net connection because it can't squeeze data into small enough files. What's more, Pixelon was forced to remove archived footage of iBash from its Web site - where the video was to be one of Pixelon's first big content offerings - after some of the musicians complained.

The episode demonstrates the predicament Internet upstarts face in getting their companies off the ground: To launch with a modest coming-out party and sober promises is to risk going unnoticed amid the unprecedented number of fledgling dot-coms. On the other hand, there's a danger in promising more than a company can deliver, or in appearing to be too lavish when spending investors' money.

For its part, Pixelon is trying to put the matter behind it. It has hired Robert Carsia - an executive with scant Internet experience - as its chief executive. Carsia acknowledges the company erred in throwing the over-the-top iBash and in proclaiming itself an Internet content provider. "I've stopped everything until the senior management figures out what they want to be when they grow up," Carsia says. Until then, he adds, "they have a short leash."

But Pixelon's plan to help content players deliver high-quality video is easier said than done. Net broadcasts have been plagued by long downloads and poor quality, even when delivered by RealNetworks and Microsoft, the two best-financed players in the industry. Pixelon's technology delivers television-quality video, but requires enormous amounts of data to be transmitted. The company doesn't expect to be able to lower the data rates to reasonable levels until the third quarter.

It also remains to be seen whether Carsia has what it takes to move Pixelon forward. Most recently, he was acting CEO at A2Z USA, which owns an obscure online-shopping site called A2ZShopping.com. Besides a brief stint at Network Event Theater, Carsia ran Time Warner's Six Flags division for 10 years starting in the mid-1970s.

But Carsia dismisses any doubts. "I know how businesses work," he says, "and I have a template for how that should be executed."

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