Ambition. Youth. Energy. Family money. The hip and the wired at Georgetown's Magnet Interactive have a lot of what it takes to play the multimedia game. But can they find the Next Big Thing before it's shakeout time?
The first thing you notice about Magnet Interactive is that it hums. Literally. A whir of sound envelops its headquarters, a beautiful old brick building along the canal in Georgetown, muffling phones' warbles and employees' voices.
A first-time visitor looks fruitlessly for the hum's source -- a particularly noisy heating vent? that refrigerator-sized Silicon Graphics unit? -- before the realization sinks in: This is a multimedia company, at which computers and related electronic stuff are more common than pencils or legal pads. Every employee has a monitor, many have two or three, and every one of those machines is cooled by a purring internal fan. Hence the hum, which never really ceases. When Magnet's workers leave the building, they are sometimes startled by the quiet outside.
The second thing you notice is that people here have a peculiar sense of time. It's not just that they're apt to be at their terminals half the night, though many are; it's that in the volatile multimedia world, months and years seem to have acquired different meanings. Here's marketing guy John Gamba, who's 25 and could star in a Gap ad, talking about the potential longevity of Icebreaker, a CD-ROM game that Magnet unveiled last fall. "It has evergreen qualities," he boasts. Meaning? "We're hoping it'll be around for 12 to 18 months." Oh.
And here's the CEO, who's 33, talking about job turnover, endemic in these sorts of high tech firms. "A lot of people have been here a long, long time," says Basel Dalloul. Really? But until Magnet began its hiring binge, it had only a couple of dozen people; of its current 180 employees, nearly all have joined the company within the past two years. "That is a long time," Dalloul insists, "in this business." Oh.
This Business. The multimedia business -- built on software, hope and hype -- concocts interactive products that integrate text, graphics, sound, and sometimes animation and video. Said products can be created for CD-ROMs, as with Magnet's games and educational titles, or for that zone of the Internet known as the World Wide Web, as with Magnet's Web sites designed for corporate clients. Multimedia is, among the hip and the wired, one of the coolest businesses you can be in.
It is so much the domain of the young that Magnet's chief operating officer, who's 40, is jokingly called "Dad" by his troops. And even he doesn't wear a tie. It is so intense that as deadlines approach, those troops tend to practically move in, spending 70- and 80-hour weeks, red-eyed, at their terminals. It is so volatile, currently in the midst of a wave of mergers and closings, that even some well-established companies with hit consumer products are in trouble -- and six-year-old Magnet is still in the red and still waiting for its first hit. The most basic questions about the future of This Business -- Will anyone still use CD-ROMs in five years? Can anyone figure out how to make money on the Web? How big is the audience for this stuff, anyway? -- are in doubt.
So perhaps it is not so strange that at the same time Magnet's executives are talking about taking the company public and creating a lot of rich 30-year-olds with its stock-option plan ("Everyone's going to make out like a bandit," co-founder Greg Johnson gleefully predicts), executives at other Washington multimedia companies suspect that Magnet may soon explode and fade like a supernova. Everyone in the industry says a shakeout is coming.
John Gamba tries not to dwell too much on the risks. "You have to stay focused," he says. Above his desk, he's posted a sign that says "NBT"; it stands for Next Big Thing. IN A DARKENED CUBICLE, Bryan Brossart, art director for games, is showing off his demon. Glowing on Brossart's Trinitron Multiscan monitor, it's got menacing red eyes and pterodactyl-like wings, and it's one of the first things players will encounter in Magnet's forthcoming CD-ROM game Hellraiser, based on the popular horror movies.
"Hey, John, which Hellraiser' was this demon from?" Brossart asks the game designer in the next cubicle. " Hellraiser II?' "
No, John Whitmore says. "It was One, end of One. He rises out of the fire. Demons'll do that." Whitmore is simultaneously jawing with Mat Weathers, an artist in a porkpie hat who wears a stud just above his chin. He is known among the games guys (Magnet's work force is 75 percent male) as "the bolt-lipped miscreant."
Like a lot of multimedia people, Brossart is young (27), apt to hopscotch from one company to another (he was at Bethesda Softworks for two years before joining Magnet), a lover of games (when he goes home at night he plays more games, like Duke Nuke 'Em, for fun and research). Also typically, he lets his imagination race.
Now on the screen -- click -- are the Death Orbs, flying gun-turreted spaceships Brossart dreamed up and drew. And then -- click -- his Demon Grenades, half metal and half bloody-tongued grotesques. And the Gut Cannon, which shoots chunks of flesh and drips blood. "Very Hellraiser-ish," Brossart says with satisfaction, "combining the organic with the mechanical. Rapid-fire, too."
It will take $1 million to $2 million, a substantial production budget, and a total of 18 to 24 months to make Hellraiser, Magnet says. It was supposed to have shipped by now but instead has been delayed till summer, which is also common. All launch dates announced for multimedia projects probably should be considered tentative as products get endlessly de-bugged and revamped. If Hellraiser and Bluestar, the other high-end game that Magnet is producing, aren't in stores in time for Christmas purchases, the odds of their making money, already low, will slide further.
Meanwhile, some of the artists', um, visions have been modified so that Hellraiser can get an M (Mature audiences) rating from the Entertainment Software Rating Board. Too much gore would mean no rating, which is unacceptable to some retail outlets and to 20th Century Fox Home Entertainment, Magnet's distributor and its hope for wresting store shelf space from better-known game producers. Muscling the game onto shelves is critical in an industry that unveils thousands of CD-ROM titles each year while many mainstream retailers can only display a couple of hundred. If Hellraiser isn't among them, it won't matter how cool Brossart's Gut Cannon is.
"Our first draft for one character was a guy on a stake, and his genitals were visible," says Whitmore. "Too visible." The team is considering several solutions, including simply pulling the guy's spilled intestines down low enough to cover his crotch. "Strange that violence is more accepted than nudity," the bolt-lipped miscreant says with a shrug. "But whatever . . ." BY RIGHTS, MAGNET probably shouldn't be on the banks of the C&O at all. Greater Washington is home to a number of small multimedia companies, many of them gamemakers, to Internet service providers like UUNet Technologies and to America Online, but it is not a new-media nerve center. The major action is in New York, Los Angeles and San Francisco, with a smaller node in Seattle. Besides, Washington's business community is not generally characterized by the sort of flash and fast growth that Magnet's become known for.
But D.C. is Where Basel Met Greg.
They're both 33. Dalloul, the American-born son of a wealthy and mobile Lebanese family (he speaks five languages from having lived on three continents), came here for college: He has a finance degree from American University and a joint law degree/MBA from Georgetown. He looks slightly more like a businessman (the hip, under-35 division), in his black turtleneck and jacket, than Johnson, who presides over meetings in a T-shirt and could still blend in well at the Parsons School of Design or the Corcoran, where he took art classes.
A designer who'd helped fashion several local clubs and restaurants (Cities, for instance), Johnson was hired to design invitations and decorations for Dalloul's 1986 graduation party from AU. Three years later, Dalloul joined the fledgling company that Johnson had founded in his dining room and that became Magnet. At first it was largely a corporate communications firm, designing marketing brochures and convention displays for businesses.
As it happened, both Johnson and Dalloul were technofreaks ("early adopters," the wired would call them). Each had loved Apple's bold new Macintosh computers; in fact, Dalloul had actually opened up his Mac to see where its designers had embossed their names on the plastic inside. And Johnson had been a high school hacker with his trusty little Commodore 64. It seemed natural for the duo to start selling their business clients on fancier, "interactive" presentations -- computerized training programs, for instance, or a bond offering via CD-ROM.
Thus they'd already edged into the new world when what Dalloul calls "multimedia mania" struck. "We read all about what people thought they were going to do, how they were setting up publishing groups, this big excitement," he says. "What we weren't seeing was, who's going to make all this stuff? That's where we saw the opportunity."
After several reorganizations, Magnet now consists of three subsidiaries under the parent Magnet Interactive Group. One serves corporate clients, including Kellogg, Mercedes-Benz and Black Entertainment Television, and is increasingly involved with Web site design and management. Another develops technologies, both for in-house use and to license to other businesses. The third subsidiary, Magnet Interactive Studios, produces consumer titles, some for other companies to market under their own names but some, in the last few months, that Magnet publishes itself. Therein lies the greatest potential to either strike it rich or lose millions.
In some ways Magnet is reflective of the multimedia industry in general -- the high turnover rate (roughly a quarter of Magnet's work force leaves each year) as it poaches talent from competitors and gets raided in return, the delays in getting products to market, the jackpot lure of an IPO (initial public offering of stock) that could create a flurry of millionaires-on-paper. But in some ways it is very different.
What it reflects most of all is the impatient personality of Dalloul. "He doesn't like to fool around; he likes to move fast and hard," says Johnson of the CEO. "We bit off a huge chunk -- Let's not make three CDs at once, never having made a consumer CD. Let's make eight or 10 all at once.' We just wanted to do it."
Most multimedia companies start small, grow slowly because their products are expensive to create, and focus on one segment of the business. Locally, Simutronics, in Gaithersburg, makes on-line games; Enteractive, in the District, specializes in children's educational titles. But Magnet tries to market games, "edutainment," business products and more. "Hardly anybody covers all those bases," says Lawrence Schick, a former Magnet manager now at America Online, "except Microsoft."
Accordingly, Magnet is populous: From about 30 people in late 1993 it inflated to 220 as it prepared to enter the consumer market. Then management found the inevitable "redundancies" and laid off about 40 people last summer, sapping morale; others, including a number of managers, resigned. Even so, it remains a big shop. Some multimedia companies rely on peripatetic freelancers; Magnet prefers to hire.
It spends freely, on its elegantly funky Georgetown quarters hung with Dalloul's contemporary art collection, on employee benefits, on technology. "People were in awe of the equipment we had to work with," says Peyton Ray, a product manager whom Magnet let go in September, now a producer for Disney. "Any new artist who came aboard pretty much got a Silicon Graphics machine of his own. Any software we wanted was provided immediately."
The Silicon Graphics Challenge 12-processor unit humming in the center of Magnet's headquarters, which animators are using to create the complex Bluestar, probably cost $600,000 to $750,000 fully loaded, industry sources say. "It's something everyone would die to have," Johnson crows. "Most game companies can't buy that. We can. Too bad."
That's the the biggest difference, probably: Magnet is one start-up that was never undercapitalized. Dalloul and Johnson didn't have to go, hats in hand, to bankers who didn't know that CD means something besides certificate of deposit. Nor did they strike deals with venture capitalists, who, Dalloul says, are constantly offering cash in exchange for chunks of equity. They built Magnet the old-fashioned way -- with family money.
Their backer is the Millennium Group, a London-based investment company owned by Dalloul's family, with interests in communications, pharmaceuticals and other industries. To date, Dalloul says, the equity investment in Magnet (meaning, the money provided by Millennium to cover the difference between what Magnet has earned and what it has spent) is about $10 million. Industry skeptics and former employees think the total runs considerably higher, two or three times that sum or more; Dalloul dismisses such estimates as "pure speculation." As with any privately held company, such figures are impossible to confirm.
Magnet's executives get huffy at suggestions that Millennium's backing insulates the company from the perils of the multimedia business. "Are we fortunate to have a good financial source? Of course. Is it an endless, bottomless pit? What company has that?" says Bill Schick, the chief operating officer. "We have the same commercial pressures as any other company in this business. We have to win."
Which means entering the dicey consumer market. Magnet's work for corporations and its technical subsidiary are already profitable, management says, and it's doing well with the CD-ROMs it produces for other software marketers. It's the attempt to publish its own consumer titles that helps to keep the red ink flowing. But it's a gamble worth taking, Schick says. "In consumer products, you gotta own what you do to come up with the big bang." JOE FEFFER, SENIOR PRODUCER, is showing off one of Magnet's first titles, Beyond the Wall, a CD-ROM that tells the story of the Vietnam Veterans Memorial and the soldiers whose names are inscribed on it. "You could sort of see it as an interactive version of a Ken Burns documentary," he says. Feffer is 28, goateed, very thin, a fledgling TV producer and documentary filmmaker who's caught the multimedia bug. You can tell by his rapt attention to his own work, as he clicks the imagery onto the monitor -- Maya Lin's early architectural drawings, soldiers' snapshots and snatches of newsreels, Jan Scruggs's recollections of the campaign to build the monument. "A lot like wandering through someone's attic and seeing what you find," Feffer says.
A number of Magnet's creative types have similar characteristics: They're enamored of the possibilities of multimedia, excited to be in on the revolution, fascinated all over again by the very creations they've just spent months slaving over. "We constantly think to ourselves, We're reinventing this medium,' " says Feffer, clicking away.
Monica Gesue has the bug, too. She came aboard as a photographer soon after her friend Theresa Duncan was hired as a production assistant, but in the fluid atmosphere that characterizes multimedia, they both soon turned into something else: co-creators of a lovely little CD-ROM called Chop Suey. A rarity in a field where action games predominate, Chop Suey is a sort of interactive storybook for girls, a lazy summer afternoon spent in an artfully drawn small town. Duncan wrote it; Gesue and freelancer Ian Svenonius illustrated it; Brendan Canty, esteemed musician and Gesue's buddy, came up with a quirky, melodic soundtrack that includes singing cupcakes.
In the aforementioned fluid atmosphere, Duncan has since decamped for New York; she clashed with management over the next project she wanted to undertake and was, she says, invited to leave. Gesue, though, is still here, clicking around the town she helped draw, a faux naive rendering of her own home town of Cortland, Ohio. "You can get lost in it, there's so much to do and explore," she says dreamily, happy to revisit the musical dog named Mudpup and Aunt Vera, the faded ex-Rockette.
Then there's Andy Looney, who's demonstrating Icebreaker, the game he created and the first that Magnet has published under its own logo. One of three former NASA software engineers working here, Looney used to design telemetry systems and was involved in the effort to repair the Hubble telescope. "I have written software that's flying in space," says Looney, a balding longhair in a "Twilight Zone" T-shirt, "but I always really wanted to do games." When he left his government job, he says, some colleagues thought he was nuts, but "some of them were jealous. Wow, games! That's so cool!' "
So here's Level 139 of Icebreaker, a geometric game in which your white pyramid (known in-house as the "dudemeyer") has to evade or destroy other pyramids. Icebreaker has 150 levels, several of which no one at Magnet has beaten, and can be played in four modes: easy, medium, hard, insane. Number 139 is "one of our favorite levels," Looney says. "See those gurgling pools of green stuff? Slime pools. They can kill me."
In minutes, a little cluster of gamemakers gathers around, watching Looney play, offering suggestions. Haven't these people seen enough of Icebreaker, which took them almost eight months to produce? Apparently not. Looney says he doesn't mind the hours or the lack of time off -- in fact, he needed time off more when he worked at NASA . Though these folks cannot talk to the press very openly (there's a PR woman continually clamped to a visitor's elbow; this reporter has visited correctional facilities that afford greater freedom of speech), they do seem to like spending time here. Magnetians play on a softball team, hang out at Chadwicks or the Eighteenth Street Lounge, go hear one another's bands play.
"Often these places turn into frat houses," says a former employee. "These are former geeks and geekettes, and they've found all these like-minded people." He used to tell his staff, " Go home at 6. Have a life. You'll be better engineers and programmers.' But they loved being there for 16 hours at a time." WHAT'S GOING TO HAPPEN to these people?
"Hopefully, they become rich," their CEO says. Dalloul's scenario: Magnet, its business communications group's revenues more than doubling and its consumer division finally in the black, turns profitable by year end and goes public in early 1997. Employees who exercise their stock options wisely -- every full-time employee from receptionists on up gets them -- are compensated for all their crazy hours. Some are suddenly worth hundreds of thousands of dollars more than they were the day before. (It happened at Netscape! Not to mention Microsoft!) And Dalloul gets to pay back his family.
He is all optimism, even though he is the first to describe the multimedia business as "a moving target" and can recite the risks as well as anyone. "You could spend a million on a game and end up making $30 or $40 million on it, or you could lose your million," he says. And how many games win that sweepstakes? "Very few."
The thing is, Magnet's first self-published ventures apparently aren't among the few. They've gotten awards, strong reviews, recognition from peers and rivals . . . but they're not selling. At least, they're not selling enough.
Icebreaker has to sell 75,000 to 100,000 units to be profitable, says games marketer Gamba. That's very hard to do: PC Data, the Reston firm that tracks the computer industry, says that of more than 1,500 CD-ROM game titles it followed last year, fewer than 60 (less than 4 percent) sold more than 75,000 units.
Magnet's first four titles, including Icebreaker and Chop Suey, shipped in November. The highest sales were recorded for Beyond the Wall, which, PC Data says, sold fewer than 900 copies in 1995. Dalloul argues that upcoming spring and summer promotions will bolster those totals. But the first 90 days are considered critical for games and other entertainment products. "A hot title will do well in the first couple of months," says Bob Bogin, president of Capitol Multimedia in Bethesda. "Or it won't do well."
It's not surprising that Magnet's first forays seem to be floundering. CD-ROM buyers look for brand names -- Broderbund, LucasArts, Electronic Arts -- and Magnet is not a brand name yet. Therefore, merely getting its products onto the shelves is a tooth-and-claw struggle. Magnet is relying on 20th Century Fox -- the two companies signed a distribution deal last year, to much fanfare -- to help it win that struggle. But Fox, a fabled name in other areas of entertainment, is not a major power in multimedia distribution. In the end-of-year rankings by MultiMedia Merchandising, a trade magazine, Fox was not among 1995's top 10 publisher/distributors in any CD-ROM category.
"There are good people in the industry: They're serious, they've built something substantial and they're due respect," says Chris Weaver, president of Bethesda Softworks, another game company. "Everybody has to earn his wings. In my opinion, Magnet simply hasn't earned its wings yet."
Dalloul says that Magnet is projecting major revenues from Hellraiser and Bluestar, not its current titles, and that in any event the rest of the company is prospering. It's possible, of course, that income from Magnet's other endeavors can keep the company going even if its expensive consumer products fail. It's also possible that the Millennium Group will keep Magnet afloat indefinitely.
But mere survival is not what Magnet's mission statement (drafted by Dalloul, Johnson and Bill Schick over Domino's pizza one night last spring) calls for. It talks about "setting the standards for our industry" and "becoming the acknowledged leader." For a time, a group of talented and creative people were lured to Magnet believing that that could happen.
"They were assembling this phenomenal group," says onetime director of visual effects Matt Elson, describing the Great Staff-Up in the fall of 1994. "They had the ability to go out and woo people to Washington, not what you thought of as a hotbed of entertainment creativity . . . By winter it was disintegrating. We all knew what we wanted to do: harness this group of kids, most of them just out of school, and make some great products. But we were continually hamstrung because people at the top had paper-thin knowledge of how to make things happen."
"The potential of what it could have been was enthralling," agrees Veronica Leonard, who was a producer. "But it was very frustrating; it was so hard to get things done." Among Magnet's projects was a children's CD-ROM, a mountain-climbing game meant to teach planning and organizational skills. Magnet was producing it for Microsoft, not a company one wants to disappoint. It was, according to former employees, never completed. Microsoft says the game's status is "currently under negotiation" and that "we're determining the best way to complete this project." Dalloul says a confidentiality agreement prevents him from discussing it.
Frustration is a common theme among former Magnet staffers, who describe great hopes, gifted people, thwarted and squandered opportunities. A constant lunging after new business when existing clients needed attention. Spending out of proportion to revenue. An intense, hothouse environment in which people had "vision" but not much experience. One former Magnet worker, Crystal Ettridge, has filed a lawsuit ("a frivolous complaint across the board," Dalloul says) that alleges breach of contract, defamation and sexual harassment, and seeks $2 million in compensatory and punitive damages.
Dalloul retorts that some of the same managers complaining were those charged with getting products made on time, that Magnet spends money "judiciously" while giving employees the tools they need, that it has retained several clients "for a long time" (i.e. two years). He also acknowledges some mistakes. "It's a nascent industry; we literally have to make the rules up every day," he says. "Experience is relative here . . . We've gone through quite a bit of weeding out."
Because seasoned multimedia pros are in enormous demand, it was simple for the restless or disillusioned (or the "weeded out") to move on. Last summer there were two managing directors for games, for instance: respected games exec Lawrence Schick and rising star Vijay Lakshman. Schick was lured to AOL in July; four months later, Lakshman, who says he encountered unspecified managerial conflicts, left for a better gig in Boston. Now Bill Schick (who's no relation) is in charge of games. People joked grimly about Magnet's being a graduate school, where people could learn a great deal about multimedia in a short while and then go out and get real jobs.
Magnet's local competitors, once nervous about the brash new company, have relaxed. "They were very aggressive in recruiting and we were worried about losing people," says a rival executive. "But as we hear more about what's going on, we're less concerned. A lot of sophisticated people avoid going there because they worry that it's just short-term."
"Rivals will always predict doom and gloom for their competitors," Dalloul says, unruffled. "They're not looking at our books."
To all of this, of course, must be added the instability that torments the whole industry. CD-ROMs may be a doomed technology, if multimedia can more easily be delivered by cable or downloaded from the Internet. The companies spending hundreds of thousands of dollars on Web sites may decide such investments provide no measurable return and save their money.
Those who left Magnet (or in some cases got fired) have generally done well -- Elson, for instance, is now in feature animation at DreamWorks SKG, the new Spielberg/Katzenberg/Geffen studio. They're sorrowful about Magnet: They liked working there, at least for a while, and they don't think it's going to survive. On the other hand, they're relieved to be gone. It was, says one who fled, "sort of like breathing ether. It felt so glamorous working there. A lot of fine parties, real cachet. But ultimately, if you value professionalism and making products instead of striking poses, it was a big empty box." YET 180 PEOPLE ARE still here in Georgetown. If some are stuck and others enrolled in "graduate school," Magnet still has believers, and not without reason. In some ways, multimedia now works a little like the film studios: Nine out of 10 projects may flop, but if the 10th is a big hit it can wipe out debt, send stock prices climbing and make everyone associated with it look like a genius. Myst, the best-selling CD-ROM game, has sold nearly 2 million copies since late 1993 and has racked up almost $100 million in sales. Who's to say what the Next Big Thing might be?
Maybe it's Bluestar, in which live actors will be combined with animated sequences. "The best-looking graphics I've seen in any game, comparable to Industrial Light & Magic," says producer Rich Vogel. "It'll sell just because people will want to look at it," Greg Johnson predicts. True, Bluestar's budget has risen past $2 million; it's months behind schedule and every month's delay costs $100,000 or so. But it's cool. Definitely cool.
Downstairs in the glassed-in work area called the Fishbowl, some of Bluestar's five animators are showing off their handiwork. Bluestar isn't a shoot-'em-up game; it's more of a mystery. "In the game you're a dolphin, and they bring you onto the Bluestar space station and use the dolphin to program the computer," Jay Reynolds tries to explain, as the dolphin twirls gracefully across the screen. "Except at this point, the computer's become neurotic . . ." Like Spanky (Matt Czapanskiy) and Ziggy (John Zdankiewicz) and several of the other animators, Reynolds is recently graduated from a digital arts program at the University of Maryland Baltimore County. This group seems hardly able to believe its good fortune.
They're having too much fun. Check out these high-horsepower machines, so much faster than anything they used at school. Look at this program that shows how every joint in the dolphin's skeleton is driven by a mathematical function. "We skip to work in the morning," says Dennis Recchia, who used to be an illustrator for Manhattan ad agencies. "I've never done anything like this."
You can drop into the Fishbowl at 2 a.m. and find people there, creating evil Cenobites and other fantasies, peering at the screen, faces illuminated by the monitors' glow. Shelf space? Shakeouts? Chances are they're not thinking about that stuff. Paula Span is a reporter for the Style section and a frequent contributor to the Magazine. CAPTION: Co-founders Greg Johnson, left, and Basel Dalloul, in Dalloul's office. CAPTION: Chop Suey co-creator Monica Gesue. CAPTION: Art director Bryan Brossart, right, creator of Hellraiser's fiendish look. Left, the Hellraiser team. CAPTION:magnet interactive is banking its future on self-published CD-ROMs like Chop Suey. Page 16