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Media Companies Plunge Into the VC Fray

Entertainment firms big and small are eager to get an edge in the emerging media areas.

Media companies are rushing to get an edge in the emerging media industry, judging by their eagerness to become venture capital players.

Closely held

Bertelsmann

of Germany last week formed a $1 billion venture capital fund, joining a number of big media firms looking to put spare cash to work in an evolving media marketplace. And the big players aren't the only ones staking a claim on the business of financing new programming and technologies: Film studio

Artisan Entertainment

, which hopes to go public this fall, last week formed a $50 million venture capital fund.

Media outfits will compete with traditional venture capital firms and independent media investors in the rush to identify investments in the "new," or online-related, media sector. Independent investors include

Liberty Digital

(LDIG)

and Frank Biondi's

WaterView Advisors

. (Biondi is the ex-chairman and chief executive of

HBO

, ex-president and chief executive of

Viacom

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and ex-head of

Universal Studios

.)

The VC Project

In fact, Santa Monica-based Artisan, which produced and distributed the hugely profitable

Blair Witch Project

, raised the majority of the money for its fund, dubbed

iArtisan

, from more traditional venture capital firms. About $35 million came from

Audax Ventures

, which is a unit of Artisan's largest shareholder,

Audax Group

, and private equity shop

Grove Street Advisors

, with the rest contributed by undisclosed investors. Artisan will act as the fund's general partner, managing and directing the investments, and will be able to work with start-up companies in exchange for equity stakes.

Investments likely will run from $2 million to $5 million for the first three rounds of funding, according to Nicolas van Dyk, president of

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Artisan Digital Media

, which oversees the fund. Artisan is seeking out companies with technologies that allow films and other types of programming to be created and delivered over the Internet, such as infrastructure, digital rights management, content creation tools, hosting, streaming and compression.

Van Dyk said Artisan is capitalizing the fund with money from venture capital firms because the company takes "a pretty rigorous approach to the business" and "lacks the resources for such an investment on its own."

That makes sense, because Artisan certainly rakes in considerably less revenue -- $383 million for the year ended Dec. 31, 1999 -- than the media titans it will compete with in emerging media.

Big Hitters

Aside from Bertelsmann, which recorded $13.7 billion in revenue in the same period, those titans include

Time Warner

(TWX)

, which recorded $27.3 billion in revenue last year, and

News Corp.

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, which posted $14.2 billion in revenue for the year ended June 30, 2000. These conglomerates have reaped the rewards of an advertising boom that's lasted for the better part of a decade and earned them a pile of cash.

Last year, News Corp. set up

e-partners

, a $300 million equity fund, and Time Warner started a $500 million digital-media investment fund.

eBertelsmann

aims to become the largest fund in Europe investing in media and the Internet. At the same time, it will either replace or work with the company's existing venture activities: G+J Ventures, Random House Ventures, BMG Ventures and RTL New Media.

But not every big media company has gotten into the act. Despite the trend,

Seagram

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,

Walt Disney

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and Viacom say they don't have venture capital arms.

Van Dyk said Artisan's first deals will be announced soon, before

Blair Witch 2: Book of Shadows

opens just before Halloween. He's betting that new media start-ups will want to participate in the movie's marketing, which will be largely online. Artisan successfully harnessed the Internet-to-market

Blair Witch Project

last year, making $140 million on a film that cost all of $30,000 to make.

The movie also drove iArtisan's launch date, partly accounting for the fund's smaller size. "This was built first for speed, then size," van Dyk said. "There's lots of opportunity around

Blair Witch 2

, and we did not want to be bogged down in the administration of $200 million."