In Silicon Alley, Content Is King

Seattle and San Fransisco may rule the software roost, and Washington controls access, but the Big Apple is still tops in content

NEW YORK -- A band of mouse-slinging entrepreneurs has ridden into town, setting up a string of new multimedia companies to create content for the emerging World Wide Web.

They call their slice of Manhattan "Silicon Alley," a deft play on California's Silicon Valley where chip makers replaced apricot, cherry and prune trees in the Santa Clara Valley south of San Francisco.

The growing concentration of new multimedia companies here marches up Broadway from Wall Street, through trendy Tri-BeCa, past the galleries in SoHo, the students and brokers in Greenwich Village to the edge of the smoked glass and Art Deco towers of Midtown.

No one knows what the Internet will look like, how it will be used or who will use it, but the division of labor in building what many will see as the communication network for the 21st century is becoming clear: Washington provides the access, Seattle and San Francisco write the software while New York develops the content.

"New York is the media capital of the world," said Michael Collins, founder of Reach Media, whose main product is Transon, an online service. "The big companies are already here -- the networks, book publishers, There's also an incredible mix of individual talent -- writers, directors, designers, artists -- and if you're in the media business, it's a big plus to be close to the center of the media world."

Prodigy Services Co. has announced that it will relocate its headquarters from suburban White Plains, N.Y. to Manhattan to take advantage of the increasing number of graphic artists, writers, software designers and filmmakers in lower Manhattan's Silicon Alley.

Lori Schwab, executive director of the 1,200-member New York New Media Association, said the city's concentration of multimedia, online, CD-ROM, video production and virtual reality companies mixed with ad agencies and venture capitalists creates a critical mass found no where else. About once a month, people in the new media gather at a SoHo or Greenwich Village bar for a bash known as "cybersuds" to talk shop. Business cards fly between gulps of beer.

"People are jockeying for position and making alliances daily," said Michael Rinzel, an analyst at Jupiter Communications, a New York-based market research firm. "New York is one of the best places to do that -- there's a lot of positive feedback." Ideas bubble. Deals are cut. There's always something and someone new. But talent is not enough to explain the emergence of Silicon Alley.

Paradoxically, a hostile business climate has created a key condition -- vacant buildings with eager landlords -- enabling the next generation of start-ups to flourish.

Ask any taxi driver -- this town is mental.

High taxes and poor city services have driven many companies across the Hudson River to New Jersey or Connecticut.

Midtown Manhattan has about 221 million square feet of office space, making it the largest market in the nation. An office on Park Avenue rents for about $43 a square foot and an office nearby at Madison and Fifth avenues goes for about $40 a square foot. Some of the nation's largest and most prestigious companies are based here -- and it isn't fertile territory for new companies.

Many Silicon Alley start-ups have found homes in cheaper areas south of Midtown in Union Square, the West Village or Chelsea.

"Why did Silicon Valley grow the way it did?" asked David Gialanella, senior managing director for Cushman & Wakefield Inc., an international real estate services firm here. "Because companies like to go where others needing the same type of creative people and high-end labor go. New York offers creative contacts -- price isn't the only factor."

But it's certainly a key consideration when launching a new company. And, of coarse, the cost of the equipment needed to produce the special effects has tumbled. The multimillion dollar editing rooms of the mid-1980s are now candidates for the Smithsonian. The hardware and software needed to produce sizzling special effects seen in popular movies, rock videos or commercials isn't cheap, but it's cheap enough to open the field.

Many multimedia start-ups are moving into lofts at attractive prices, however, the old cry of "Location! Location! Location!" has become "Bandwidth! Bandwidth! Bandwidth!" Mayor Rudolph W. Giuliani recently announced the creation of the 200,000-square-foot New York Information Technology Center at 55 Broad St.

But David Simons, managing director of Digital Video Investments, warned that multimedia will remain a "game for the big guys" in the foreseeable future.

In theory, the Internet gives major corporations and the kid operating his garage the same distribution capabilities. However, most software and CDs are sold in stores where shelf space is the name of the game and only the big boys get to play.

The question isn't who has the bright ideas or talent to make eye-popping products, but who is making a living at it.

"The press rhapsodically portrays multimedia enclaves in San Francisco and New York as digital equivalents of the 19th-century Paris Latin quarter, or 1920s literary salons," he says. "Perhaps that's true to the extent that most of their denizens make no money -- at least while alive."

Simons said the current atmosphere is much like the rock and roll boom of the 1950s when everybody wanted to cut a record.

"Multimedia is even tougher -- much tougher," he said. "For openers, there aren't vehicles for exposure like radio stations or nightclubs -- not even Star Search. The biggest obstacle is that technology is the star. The artisans who wield it are anonymous. It was much the same with movies until celebrity producers and actors came to the fore." He theorized that some clever talent agent will someday make a star of a multimedia designer, who will make the talk show circuit promoting "signature-emblazoned" CD-ROMs.

"For now, I feel more comfortable handicapping ponies," Simons said. "Investing in multimedia merely by diversification among a bevy of ventures or stocks makes even less sense than betting on the odds [that] a long shot has to win. Except with multimedia, neither the field nor the odds are clearly defined."

But Jupiter Communications' Rinzel believes new media will flourish in Manhattan. "The cost of doing business in Manhattan is less a concern than talent," he said. "Talent is a premium now and the heavy hitters are in large urban areas, especially New York."

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