Digital Entertainment Network told its 150 staff members late yesterday that it has run out of funding and can no longer pay employees.
The Gen-Y Netcaster--backed by high-profile investors including Chase Capital Partners, Microsoft, Dell Computer, NBC and former Warner Bros. co-chairman Terry Semel--said it plans to file for Chapter 11 bankruptcy protection as soon as possible. DEN already laid off more than 100 people earlier this year.
Just last Friday, executives at the company including president David Neuman confidently renounced what they called false rumors of insufficient funding to operate into next month.
Since its launch in 1998, the Santa Monica, Calif.-based site has been fiercely criticized for lavish spending on its two facilities and its top executives, management shuffles, and a sexual harassment lawsuit against co-founder Marc Collins-Rector by a 20-year-old, which industry insiders said tainted the company's brand identity. Problems were said to have hurt its fund-raising capabilities.
"The people who really know this space are watching with interest," Neuman told Daily Variety Friday. "Anyone in this space has taken their slings and arrows. We've definitely taken ours. We just have to keep fighting."
Trying for a comeback, DEN made a second attempt to appeal to its young audience, industry naysayers and investors with a flashy new site and original content, but financiers declined to pump more money into the start-up.
DEN has raised $60 million to date. Last month the company said it would halt production on its original slate of shows and acquire content from outside production houses to cut rising costs. Shows, targeting niche audiences such as Christian teens and extreme-sports fanatics, were said to have cost as much as $100,000 for six-minute episodes.
An IPO filing, which would have sought to raise $75 million, was canceled in February.
A new management shuffle, which made former Capitol Records president Gary Gersh DEN's chairman and Greg Carpenter its CEO and chief information officer, was seen as a last-ditch effort to turn things around.
Inside sources say the company isn't plagued by a lot of debt and it is likely to begin searching for a buyer, even another Netcaster. Credit Suisse First Boston has been retained to handle a sale.
DEN executives declined to comment, but sources said Gersh and partner and music executive John Silva will move back to Gas Entertainment, their music management outfit that handles such artists as the Foo Fighters, Rage Against the Machine, Beck and the Beastie Boys.
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