|
|
Get Four
|  | OCTOBER 19, 2004
WebMD's Founder Goes Hollywood Forget health care, says Jeff Arnold. He thinks the future is branded content on erasable DVDs and disks that are tucked on top of fountain-drink lids Jeff Arnold's noncompete agreement with WebMD (HLTH ), the online medical-services giant he founded in 1998 and left in 2000, is over. "Been there, done that," Arnold says of his foray into health care, a field he once predicted would be revolutionized by the Internet boom. His new goal: to be a big gun in media. Over the last two years, the 34-year-old Internet wunderkind's venture, Convex Group, has amassed a hodgepodge of assets. They include popular encyclopedia Web site HowStuffWorks.com and LidRock, a system that snaps a CD of a song or videogame on top of the plastic lid of a fountain-drink cup. On Oct. 18, Arnold completed his acquisition of Flexplay -- which creates DVDs that erase 48 hours after being taken out of the package. Arnold sees his ambitions as more in line with Sumner Redstone than Barry Diller, however. "I think [we're] more like a Viacom (VIA ) than an IAC/InterActiveCorp (IACI )," he says. "We're trying to create distribution, we're procuring content, we're working with advertisers." Arnold hopes to eventually incorporate Flexplay disks into LidRock soda cups. Combining the two would be "ambush marketing," he says. QUICK LOOK. Erasable DVD technology has been touted by some as the future of movie and music rentals, but it has its skeptics. "Consumers want packaged media to be permanent," says Ross Rubin, director of industry analysis at NPD Techworld. Owning DVDs has become a relatively inexpensive proposition and video-on-demand is also gaining in popularity. Rubin doubts consumers will pay for movies that don't last, but he thinks there is potential. "Promotions are an ideal use for the technology," he says. Arnold is a believer. He spoke with BusinessWeek's Heather Green, Arlene Weintraub, and Amy Tsao at BusinessWeek's New York offices on Oct. 14 about his ambitions in media and the lessons learned from the dot-com roller coaster. Edited excerpts of the conversation follow: Q: You started LidRock about a year ago. How's it doing? A: Each program is profitable. So far we've done LidRock programs with music by Elvis, Ashanti, Britney Spears, Mary J. Blige, Janet Jackson, Avril Lavigne, and others. And McDonald's (MCD ), Burger King, Taco Bell (YUM ), KFC, Sbarro, Regal Theaters, Loews Theaters, Disney (DIS ) theme parks, and Universal theme parks have worked with us. What's great about it is nobody else can do it. It's got a really strong patent portfolio. We recently did a LidRock program with Avril Lavigne's new songs, 30 days before the CD hit retailers. If you called up Sbarro and you asked, "how did that work for you?" they would say we got a 16% increase in overall sales, a 32% increase in beverages, and it drove the demographic we wanted, which are teenagers. Q: How did Flexplay come about? A: We said there's got to be a way to make movie content evaporate so we can price this like a rental. So if I can make the content go away, then I can sell it for $5, not $20. So we started researching and found a company called Flexplay and it has 70-plus patents in the evaporation of content on DVDs. It pretty much owns the space. Q: Why is your effort different from what others have tried with this type of technology? A: We've got two strategies. One is working with traditional home video retailers and having them secure the content, which is what normally happens. But we realized there are a lot of content providers that need alternatives to studio distribution and studio financing. For instance, we have bought the script to a girl's soccer movie, and a big brand has agreed to put up a bunch of money for it. So imagine, it goes in the theater, and then when you buy your sneakers, you can get the movie on Flexplay right after it has been released in the theater. These things can be given as a gift with purchase. And it doesn't cannibalize the $20 the studio can charge for those who want to own it. Q: The movie theaters don't have a problem with the movie being out on Flexplay? A: Well, you know, it has taken an education process. What's nice is, over the last two years we've announced relationships with Regal and with Loews where we distribute LidRocks in those theaters all the time. And so we've built good relationships at the top and now we'll get them on board with this strategy. Q: Which retailers have agreed to sell Flexplays? A: Amazon.com (AMZN ) is making Noel (a movie Arnold is releasing shortly) a featured product. We've got a couple of really big deals that we're working on with retailers. We've made our rounds now to Blockbuster (BBI ), Best Buy (BBY ), Target (TGT ). You can imagine the various ways this could be used. With a company like Netflix (NFLX ), customers can throw it away when they're done. No scratches, no returns. For Blockbuster, it could increase customer satisfaction in a similar way. Wal-Mart (WMT ) says they wouldn't have to track the inventory [the way they do with rentals]. Q: What are some of the most important things you've learned from the WebMD experience that you're applying to Convex? A: Everything was so fast with WebMD because there was so much competition. If you were my neighbor you could have gotten funded for a health-care idea. Those were crazy times. And I think with Convex we wanted to be aggressive and move fast, because that's kind of our nature though at the same time, we don't feel the competitive threat as much. We've spent hundreds of thousands of dollars saying if Flexplay works, it'll create an industry. And, at the same time, let's do it at a pace that manageable. Q: Are there other types of media properties that you're interested in adding to the mix? A: We're open. We're learning and figuring out what complements these assets. But I think a digital backend, at some point, would be logical. You already have a $7 billion video-rental business that's out there. Flexplay is just a way to extend it. We think there's a business model here. We want to think really big and leverage these unique entertainment assets -- LidRocks and Flexplay -- to create branded entertainment.  Edited by Patricia O'Connell
BW MALL
SPONSORED LINKS
Get BusinessWeek directly on your desktop with our RSS feeds.
Buy a link now! Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
 Copyright 2004, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Notice |
Printer-Friendly Version
