It’s easy to throw down the newspaper, shake your head and grumble about the commercialization of sports. When you complain about the salaries of an Alex Rodriguez or a Kevin Brown, you probably don’t find too many people looking to disagree. And tell me you know somebody who thinks the money TV networks are willing to pay for the Olympics or an NFL season makes sense. This is all easy stuff to complain about and so very far away. But now Time Warner and Fox have really done it. They’ve gone and created a money-taints-sports story that includes you: They’ve taken your Dodgers away! All right, maybe they’re not your Dodgers. Maybe you’re not a Time Warner Cable subscriber who lives in the West Valley and has been shut out of a fair number of baseball games on Fox Sports Net 2. But the rest of you, you know who you are. And if you live or work in the Valley, you’ve suddenly in these last few hot, mind-numbing days of summer got a business-slash-sports controversy that hits close to home. Face it, the big business stories designed to hit the nerve of the general public rarely manage to do so. Despite the best intentions of the newsmagazines and the Sunday morning talk shows, not that many people have a good idea of what’s involved with, for instance, the Microsoft breakup case. And of those who can figure out what’s going on, even fewer have the energy to conjure up an opinion. I’d bet most of you couldn’t tell me you really understand the issues surrounding land use in Ahmanson Ranch. And at least until this hot spell breaks, I defy most of you to really be able to work that hard to defend one position or the other too strongly. At least not with the intensity some of us can bring to the latest version of the big league strike zone or Barry Bonds’ home run count or, yes, the question of whether or not the Dodgers can make the playoffs. Never mind Microsoft or stem cell research or your daughter’s choice of spouses, Chan Ho Park’s choice of catchers is something to get riled up about. And so is this latest imbroglio involving Time Warner, Fox and the Dodgers. It’s got it all: the desecration of a national pastime, business executives talking out of both sides of their mouths, a new technology seeking to take advantage, and frustrated baseball fans who, summer after summer, win or lose, have counted on an evening under the air conditioner zoning out to the sound of Vin Scully’s voice. It started out so casually it seemed like a routine. Systematically, one high-priced Dodger pitcher after another succumbed to injury. Eric Karros struggled at the plate and Shawn Green hid his gifts under a basket. We kept watching. Then somewhere in June, the message scrolled across the bottom of the Fox Sports Net 2 TV screen: “You’re about to lose your Dodgers.” Using all the advertising dollars they could prudently employ, Time Warner and Fox competed to tell baseball fans and TV viewers to call the other guy and complain. As you can read elsewhere in this issue, it all has to do with how much cable companies should have to pay Fox for sports programming. Depending on who you talk to, it’s either a matter of a few cents a month or tens of millions of dollars. None of the principals are willing to be too specific about the details, which puts it into the realm of the Microsofts and Ahmanson Ranches of the world when it comes to stirring business conflicts. Nevertheless, the July 31 trading deadline arrives. The Dodgers get James Baldwin from the White Sox, he strikes some guys out in his first game; the Arizona Diamondbacks have Curt Shilling, who does not keep them from a losing streak; the Dodgers, for the first time in years this late in the season, are slipping in and out of first place; and night after night after night, West Valley fans affected by the blackout can’t see the games even when they’re played in Pittsburgh or Cincinnati, towns viewers swore they’d never return to in person. Next, Time Warner cable households are strung with doorknob hangers announcing the great deal DirecTV has for anybody who wants to see a pennant race with the help of their very own satellite TV dish. Time Warner is running commercials with “testimonials” of everyday people taken in by the so-called “free” offers of satellite TV. The Dodgers lose five games in a row and go into the past weekend trailing the Diamondbacks by three and a half games. Will Time Warner collapse under the pressure of angry fans hungry for one single chance to see Shawn Green hit a home run and pay the either one-cent or multi-million-dollar surcharge (depending on who you talk to)? Will Fox realize nobody really cares about the baseball team they own and give Time Warner back its remaining games, hoping to cut its losses? Can Paul LoDuca get enough at bats to save the season? Can Kevin Brown return to the mound for the last all-important set of games against the Giants and the Diamondbacks? Will pennant fever drive DirecTV to the top of the TV viewing heap? Is Jim Tracy the reincarnation of Opie Taylor? It ain’t over ’til it’s over. Michael Hart is editor of the San Fernando Valley Business Journal He can be reached at [email protected].

In its heyday, sportswear maker Cherokee Inc. had revenues of more than $250 million and 700 employees. Today the manufacturing facilities are gone, Cherokee’s employees number all of 16 and the company’s revenues last year were $28.2 million. So why is Robert Margolis, chairman and CEO of the Van Nuys-based company, smiling? “We’re changing the way people do business,” Margolis said. “It’s not such a big deal to us that there’s, quote, less people. It’s just a different approach to doing business and reaching the consumer with more value, and this is the beginning.” Cherokee several years ago re-engineered its business, scrapping its manufacturing operation in 1995 and setting up a licensing business in its place. Using brands it has acquired outright or brokering deals on behalf of other makers, Cherokee contracts with large retail chains that then manufacture their own exclusive lines under the brand names. The company began with its own brand and has since added a number of others Sideout activewear, Mossimo Inc. junior sportswear and low-fat diet program Pritikin among them. Most recently, Cherokee inked a deal to represent Mrs. Fields’ Original Cookies Inc. in its effort to take the brand into new product categories. “They have a very good track record and they can bring some major players to the party very quickly,” said Gary Talley, vice president of branded retail sales at Mrs. Fields’. “We are pretty much exclusively licensed with food products and they would be taking us a little further out of that arena into things such as bakeware, which are things we don’t have any expertise in.” Such an approach can free a company like Cherokee from the whims of the market, where one season’s popular styles can be the next season’s markdowns, but it carries its own risks as well. If a retailer doesn’t manage the brand well, it can lose its value. “You’re putting your future in someone else’s hands,” said Marty Brochstein, executive editor of The Licensing Letter in New York. Cherokee made the transition because, like a number of mid-sized makers, it found itself squeezed by a changing retail climate in which large chains are increasingly bypassing the middleman in favor of manufacturing their own goods. That way, stores can sell merchandise at lower prices without sacrificing their profit margins. “There’s a lot of good companies (who are manufacturing successfully) but, as retailers like Gap continue to develop their own product, billions of dollars are leaving the open market,” Margolis said. Retail consolidations and the growth of chains like Target Corp., Kmart Corp. and Wal-Mart Stores Inc. have flip-flopped the traditional distribution chain for everything from apparel to food. These mega-chains have so much buying power, they can command prices far lower than the typical wholesaler. And thanks to computerization, they also have far more data about consumer preferences than many of the wholesalers that once supplied them. As these retail chains have flexed their own buying power, they have left a number of manufacturers in their wake. Companies like Carole Little and Bugle Boy have in recent years shuttered their operations. Even giants like Levi Strauss & Co. and Tommy Hilfiger Corp. have seen sales and earnings decline. At the same time, licensing has grown into a multi-billion dollar business, accounting for $73.7 billion in sales last year, according to The Licensing Letter. Other estimates peg the business larger still. Officials at Cherokee, which found itself mired in Chapter 11 proceedings twice before shifting its business, believe that, as retail chains become even more powerful, mid-level makers will increasingly find they’ve been elbowed out of the distribution chain for consumer goods. “When Mr. Margolis saw the environment changing and retailers becoming manufacturers and manufacturers becoming retailers, it didn’t take a rocket scientist to figure that maybe our life as a wholesaler is going to be short-lived,” said Carol Gratzke, chief financial officer. What Cherokee can bring to the table for retailers is an expertise in branding, packaging and marketing. For other manufacturers interested in expanding their brands, the company brings a worldwide network of retail chains hungry for well-established monikers to help raise awareness and interest in their merchandise. Since first signing on with Target in 1995, the Cherokee line has been expanded to include a variety of women’s, kids’ and men’s goods. In fiscal 2001, Target sold $1.7 billion worth of Cherokee merchandise, yielding royalty fees of $19.3 million to Cherokee. Cherokee followed up its first deal with a number of others. The company purchased the Sideout activewear brand outright and licensed it to stores such as Mervyn’s. And last year, the company reached an agreement to license the Mossimo brand, which is also being sold in Target. At the same time, Cherokee has taken these and other brands, including teen apparel and accessories lines B.U.M. Equipment, Candie’s and Rampage, which are still doing their own wholesaling in the U.S., into international markets. Each deal is structured differently. With Mossimo, for example, Cherokee receives a finder’s fee, 15 percent of the royalties Target pays to Mossimo; other arrangements are devised as exclusive consulting agreements. Either way, the growing stable of properties has contributed to a steady increase in revenues and earnings for Cherokee. Royalty revenues have jumped from $19.3 million in fiscal 1999 to $24.7 million in 2000 and $28.2 million in 2001. Over that same period, net income has grown from $6.0 million to $8.0 million to $10.7 million in the most recent fiscal year. Cherokee officials say they have been approached by numerous companies interested in working with them, but a well-known brand does not necessarily make for a good licensing candidate. For instance, the company was approached by a manufacturer in the extreme sports arena, but concluded that the market was too narrow to build a licensed brand. And a deal with Metro Goldwyn Mayer fell through because the company’s sales revenue expectations limited the number of retailers who might pick up the brand, Margolis said. “We look for equities that have a high, unaided awareness and consumer-friendly brands like Mrs. Fields’,” said Margolis. A brand must also be relatively clear of licensing agreements that would restrict new deals, and it must be the kind of name that could be applied to a wide variety of product lines. Titleist, for example, a well-known name in golf equipment, would not carry much weight in other product categories. Still, officials say, there are plenty of names that offer good expansion potential, particularly those like Mrs. Fields’ and Pritikin, for which Cherokee is working on a vitamin and supplement line. “We really want to be talking to a lot of food companies because we feel that industry has consolidated so much, and their private label store brands are not as powerful,” Margolis said. “We also want to continue to focus on apparel brands and product for the drug industry. Those are the three industries where we feel there’s enough volume.”

In 1999, after 11 years with Xerox Corp., Woodland Hills resident Dan Strull decided it was time to strike out on his own. So he set up Copier Headquarters, becoming an authorized dealer for the entire line of Xerox products. After just 10 months in business, Xerox executives made him an offer he simply couldn’t refuse: Drop some portions of the San Fernando Valley region from his territory and, in exchange, pick up all of Ventura and Santa Barbara counties. Strull welcomed the opportunity, and along with it, additional challenges. Today, those include the smaller, non-authorized (and sometimes non-ethical) dealers who misrepresent themselves as authorized Xerox dealers, cutting into his slice of the market and staining the Xerox brand. Strull, who has offices in Westlake Village and Carpenteria, spoke with Business Journal reporter Jacqueline Fox recently about those challenges and his strategy for overcoming them. “I started the company with only two employees and today I have 17, so that gives you an idea of how fast we grew. I wanted to take a chance and see if running my own business would be fun, and it is. “One of the biggest struggles today is trying to get people to look for us. Everyone knows that Xerox is out there, it sells itself pretty well. But just trying to get in the door is difficult because we are competing with many people who represent themselves as authorized Xerox agents. They don’t really care about selling Xerox once they get in the door and that gives the name a bad rap. “So, you are out there trying to promote your name and there’s others out there pretending to do the same, but have no right to. “(As an example) I was in Westlake Village recently where I talked to a guy about renewing his lease on his machine. He said he already got one. We walked back to look at his machine; it wasn’t a Xerox. The company that brought him his machine just put their sticker over the brand name so he never knew it wasn’t a Xerox machine. “He’s now looking to sue the company. There’s nothing we can do for him. I just move on to the next one. It’s frustrating. “Our strategy for dealing with that is such that we try to be the good guy. We are trying not to bad-mouth our competitors. We just try to be pleasant about it and prove ourselves through our loyalty and our service. We are trying to build a reputation up by our actions.”

Because of a dispute over licensing fees with Fox TV, Time Warner Cable has discontinued the telecast of Los Angeles Dodger games on Fox Sports Net 2 to its subscribers in the West Valley. So, the San Fernando Valley Business Journal asks: Should Time Warner increase the cost to cable subscribers in order to provide Dodger games on Fox Sports Net 2? Robert Pearlman Partner Grant Thornton LLP Woodland Hills Any action that reduces the number of Dodger games available for fans is a negative issue. My current views of the Dodger management has made it less favorable for fans to attend games as opposed to prior years, due to an increase in cost and low value-added services. Viewers are better off watching the games on television. Carl Schatz Chairman of the Board Encino State Bank Encino It’s a typical example of some large corporations who are more interested in the bottom line instead of the community. The important issue is that they disregard the needs and wants of consumers to satisfy their pocketbook. Robert L. Rodine Principal Consultant The Polaris Group Sherman Oaks The intrusion of cable broadcasters into a national pastime like baseball is criminal. It deprives millions of young Americans of exposure to what has been a national institution. Dodger road games should be broadcast for all to see on a regular basis. This is one institution for which the broadcast industry should not be permitted to demand ransom. But I am 62 years old and saw my first major league ballgame when the Dodgers played in the L.A. Coliseum. That was after having listened to baseball on the radio for free for years as a child. Barbara Oberman Account Executive Poms & Associates Calabasas If I were a big sports fan, I would be very unhappy. Both companies shouldn’t be so controlling. I feel viewers should be given an option to make a decision. It’s all about choice. Time Warner should have communicated and disclosed the issue before making the drastic pronouncement. Ian Thomas Partner Thomas Consulting Group Sherman Oaks I think the situation is truly sad given that, once again, the cable subscriber is getting the shaft while these two mega-corporations act like children. Mind you, this is occurring, ironically, during a season in which the Dodgers are National League pennant contenders. In time, Fox and Time Warner’s actions will force throngs of irate Dodger fans to ditch cable and switch to satellite TV.

Zany Brainy Is Right Stuff The Right Start Inc. has reached an agreement to acquire Zany Brainy in a cash and stock deal worth over $100 million. Right Start, a Calabasas-based retailer of infants and children’s products, will pay $11.5 million in cash for the toy chain along with stock shares worth more than $3.5 million. In addition, Right Start will assume $85 million in liabilities in the deal. Waterton Management in Los Angeles had previously announced plans to acquire Zany Brainy but, with the current management, will invest $20 million to help finance the acquisition. Zany Brainy, with 187 stores, filed for Chapter 11 bankruptcy protection in May after an aggressive expansion program resulted in $9.3 million in losses. Once the acquisition is completed, the companies are expected to begin cross-marketing their products. Tech Assn., 101 Align The Business Technology Association (BTA) has formed an alliance with 101 communications LLP, Chatsworth, parent company of Recharger Magazine and World Expo. 101communications will assume the management of the association’s magazine and annual conference. BTA Solutions magazine and the Copier Marketplace, 101’s entry into the field, will be merged into a new publication entitled Office Technology. The first issue will be published in September. BTA’s annual conference will become part of the arrangement in 2002. The first 101-produced BTA conference is scheduled for June 2002 in Las Vegas. BTA will develop and produce the educational seminars for the conference. 101communications is an integrated media company in the business-to-business market aimed at the information technology community. New Valley DWP Plant OKed The Los Angeles City Council has approved a $228 million plan to build a power plant that would replace the San Fernando Valley Generating Station. When finished in 2004, the plant should produce 500 megawatts, enough to power 450,000 homes, with a savings of $50 million each year from enhanced fuel efficiency. Conceived before California’s energy crisis, the project is part of a plan by Los Angeles to upgrade its power plants, a system that has allowed the city to avoid the blackouts that have hit much of the rest of the state. Countrywide Expands in Lancaster Countrywide Home Loans plans to build a $10 million loan service center that will employ 500 people in Lancaster. Calabasas-based Countrywide Home Loans, the largest subsidiary of Countrywide Credit Industries, will establish a 102,000-square-foot office building in the Lancaster Business Park on 12.7 acres it is buying from the city. With 500 jobs starting up the moment the office opens, the project is the largest to ever come to the city. The Rite Aid distribution center in the Fox Field Corridor has more than 600 workers, but that work force was built up gradually. The plans for the Countrywide complex includes provisions to add a 50,000-square-foot building in the future. Countrywide has more than 13,000 employees and 550 offices nationwide. The company services the mortgages of 3 million homeowners. The city plans to offer $1.5 million in assistance for the project, including relocating a street to the southern end of the office complex, building a wall along the western edge of the office campus and helping finance the purchase. The city will sell the land for almost $1 million. The office building, scheduled to open in the spring, will be built at Business Center Parkway and Federal Drive. The office complex will be developed by Frank Visco, a Lancaster businessman and former chairman of the California Republican Party. Visco owns and develops several buildings in the business park, including those occupied by Los Angeles County.

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Founder returns to his old company with Shrek in tow, but hold the Applause for now Since Robert Solomon’s return in March to what he affectionately refers to as “the love business,” he’s beefed up staff at his Woodland Hills-based plush toy and gift company, Applause LLC. And, just a month into the first full quarter since his return, he said sales have doubled over the same month in the previous quarter. Good news for Solomon, considering just months ago the company was on its deathbed nearly $100 million in debt and, as its founder, had come out of “retirement” to buy the company back. Solomon will tell you the turnaround is due to his take-no-prisoners restructuring plan that sent eight of a 10-member executive team packing. But at the same time, it’s awfully hard to ignore the little green ogre in the corner: Solomon’s first significant partnership following his return was to market the character product line for DreamWorks’ highly successful film, “Shrek.” Just a few weeks before his return, DreamWorks SKG released “Shrek,” a full-length animated feature about an ogre who makes candles from his own ear wax. And, since the film was taking the box office (and Disney) by storm, it looked like there might, just might, be a hot toy market for the little guy and other Shrek characters. It turns out there was. “I hit the marketplace telling the world that Applause got Shreked,” said Solomon. Within 30 days of Solomon’s return, Applause had landed the licensing contract for “Shrek” and had a lineup of incarnations ready to hit store shelves in cities stretching from Tarzana to Taipei. Solomon won’t release sales figures just yet, but it’s clear that, with the success of the film (As of Aug. 6, the film had grossed nearly $260 million/ update), renewed contacts with old licensing partners like DreamWorks, The Walt Disney Co. and Warner Bros., and a top-to-bottom company makeover, he has hit the ground running. “Sales doubled (in the beginning of the third quarter) because I’ve nearly doubled the sales force in the last 45 days,” he said. “And, I’ve set a tempo for the company that I’m measuring sales every day, so there is a new accountability here that had not been a part of the landscape during my absence.” Solomon declined to give revenues for the company since his takeover because, he said, “it would be like comparing apples to oranges.” “Honestly, I don’t even have my arms around it yet,” he said. Solomon also declined to give sales projections going into the next quarter and the holiday season, but conceded it would be unrealistic to think they would hit the previous year’s figure of roughly $125 million. “I think the interruption will make it difficult to reach that,” said Solomon. “But I don’t measure myself by revenue. This is a year that I’d rather make the wholesale changes I need to make and revamp the product lines, the people and the systems. And to say I turned the company upside down is an understatement. I would say I put it in a blender.” But it could have gone the other way. According to Diane Cardinal, public information manager for the New York-based Toy Industry Association, toy and gift product licensing is a risky, trend-driven industry. She said Applause’s possible revival is due in part to Solomon’s expertise and connections, but added that the revamped entity got a major shot in the arm from DreamWorks. “Their timing was excellent, but if Shrek hadn’t done so well at the box office, they would have had a ton of merchandise on their shelves to unload,” said Cardinal. “But he (Solomon) knows what he wants and he knows the market so well, it makes perfect sense that he’s come back and doing well.” Solomon had to read in the Los Angeles Times earlier this year that the company he launched more than two decades ago and sold in 1995 had been driven into foreclosure. He left Applause Holding Co. six years ago, bought San Francisco-based competitor Dakin, later sold Dakin to the new owners of Applause and “got out of the business for good.” Then he read the newspaper, and within weeks was back in the toy business his toy business. Solomon has also rehired three former Applause executives who left the company during the tenure of the previous ownership. But he insists this is a new company, not just the next chapter of the previous company. He said the previous owners acquired the company through a leveraged buyout and, before they were done, wound up owing banks roughly $85 million. In addition, they racked up another $25 million in vendor debt and had trouble pushing sales through. “When you’ve got that kind of debt service, you have to chase sales,” said Solomon. Since the previous company was in foreclosure, and he bought the company and changed it to Applause LLC, he did not inherit that $100 million in debt; that the banks took on. While he insists his goal is to keep a balanced portfolio of products, with film deals representing no more than 3 percent of the business, the Shrek deal launched a string of film-related ventures that clearly helped kick-start the new business. Earlier this month, Applause secured licensing agreements for the characters in an upcoming trilogy of films for New Line Cinema. The company will make products derived from the Middle-Earth characters in J.R.R. Tolkien’s The Lord of The Rings. “The Fellowship of the Ring” premiers in December, “The Two Towers” and “The Return of the King” in December 2002 and 2003, respectively. According to David Imhoff, executive vice president, worldwide licensing and merchandising, for New Line, his company had worked with Applause only briefly during Solomon’s first reign, then on and off with the previous management. Imhoff said that, although the financial troubles Applause got into did create some frustration, the company is still New Line’s top choice for licensing partnerships because of its broad market penetration. “There is no other company like an Applause that exists today,” said Imhoff. “When you look at the kind of licensing they have had, their contracts are usually long term and very profitable. Yes, the limbo period was very frustrating for us and our Applause contacts and there was a period of time where we did not know if we were going forward. “But we are pleased to be working with (Solomon) again because Applause has an ability to penetrate the smaller mom-and-pop shops, not just the big three (Kmart Corp., Wal-Mart Stores Inc. and Target Corp.) that most other companies focus on. And that’s the market reach that we were looking for exactly.” Applause is also working on products for DreamWorks’ 2002 release of “Spirit,” and has signed a licensing deal for Nickelodeon’s Bob the Builder character line which resulted in a new nickname for Solomon. “Around here, they call me ‘Bob the Re-builder,”‘ he said. Sales for Shrek products, said Solomon, will likely only account for 2 to 3 percent of the business this year. What’s more significant, he said, is the fact that this is the first partnership between DreamWorks and Applause since his departure six years ago. “So many of the relationships I’ve had for many years have all come back in and supported the new old Applause,” said Solomon. “The last thing on my mind six months ago was that I would be back at the helm of the company I’ve been associated with for 25 years, but I’m back home and deeply settled in the saddle.”

Summary Business: Internet banking services Headquarters: Calabasas CEO: John Dorman Market Cap: $471 million Dividend Yield: N/A* Total Liabilities: $31.0 million P/E: No earnings Long-Term Debt: $3.9 million * Digital Insight does not pay dividends. If Deloitte & Touche’s Fast 50, most of the analysts covering the Internet banking sector and its own executives have it right, next year belongs to Digital Insight Corp. Naturally, you could expect the CFO of the Calabasas-based provider of Internet banking services to be optimistic (“We recently passed the 2-million end user mark,” said Kevin McDonnell, “and it can only grow.”), but with select kinds of Internet companies starting to show a profit and the niche market that Digital Insight is aiming at ripe for the taking, his optimism might make sense. Digital Insight offers outsourced Internet banking services to financial institutions for both retail and business customers. While the largest banks have done business on line for quite some time, there are still 22,000 banks, thrifts, savings and loans and credit unions with less than $10 billion in assets. Those are prime candidates for the outsourcing of Internet services. And it’s starting to make sense for larger banks who have tried to offer the services themselves. “They have started to realize it is more profitable to outsource these things,” said Jeffrey Baker, an analyst with WR Hambrecht & Co. “It’s just not a core competency for them.” Like any number of similar companies, Digital Insight has shown net losses in each of the last five years. However, revenues have grown from $1.6 million in 1996 to $54.4 million in 2000. And while net losses tripled from 1999 (when the company lost $19.5 million) to 2000 ($61.5 million), Digital Insight did acquire three companies last year, all of which are expected to help it record its first profitable quarter early in 2002. “Oh yes, they will be profitable by next year,” said Sutro & Company analyst Richard Eckert. “They have a relatively fixed cost structure, so, as they grow their revenue, more and more will go to the bottom line.” Net loss in the second quarter was $13.3 million on revenues of $22.7 million, compared to a net loss of $5.8 million on revenues of $11.1 million in the same quarter a year earlier. Digital Insight’s stock closed Aug. 17 at $17.16. While most Internet companies remain on life support, some are actually starting to make money, and analysts believe Digital Insight will soon be among them. “The competitive landscape has gotten better rather than worse,” Baker said, “and (Digital Insight) has a good product too, which always helps.” For instance, Priceline.com Inc. recently announced its first-ever profit. Others like Expedia Inc., Homestore.com Inc. and Ticketmaster are also close. One difference between Digital Insight and these companies and famous failures like eToys Inc. and Webvan Group Inc. is the former offer products or services that are information-intensive like online banking rather than something that has to be delivered to a home or office. “It’s more of a timing decision,” Eckert said. “It’s not whether people will adopt Internet banking, it’s more a question of when.” Obstacles still ahead for the sector as a whole involve Internet access to enough end-users. “You’ve got to get access to everyone’s house and it’s got to be reliable,” Eckert said. “Those are the big barriers, accessibility and reliability.” Digital Insight now has about 1,300 financial-institution clients with nearly 2 million customers. Besides a one-time setup fee that varies with client, Digital Insight collects $2 per end-user per month. At this point, a little over 80 percent of its revenue is derived from retail and business clients and the remainder from automated lending services. Digital Insight claims its existing clients have as many as 27 million customers who could become end-users. The only question is how quickly they will go on line to do their banking. “Eventually, there will widespread adoption,” Eckert said. “Will that move along fast enough to get all the revenue we expect as fast as we expect it? That’s the chicken and egg question. “It may be five years out instead of two years. That’s the only key issue.”

Eve Kurtin admits to a little jealousy when it comes to her partner, Annette M. Bianchi, another of the four managing directors at venture capital firm Pacific Venture Group. Bianchi is based in Northern California where a virtual horde of colleagues can be found clustered along places like Sand Hill Road in Menlo Park or parts of Palo Alto. Kurtin, based in Encino, has no such peer group close by. “I look at her and she’s got this incredible network,” said Kurtin. “I make efforts to get up to Northern California to bond with other VCs.” Kurtin may not have to make that trip too much longer. As more technology companies move into the so-called 101 Tech Corridor that stretches from Woodland Hills to Camarillo, VC firms are following. “It’s just a matter of greater and greater attention being drawn to the Tech Corridor,” said Brent A. Reinke, managing partner with the law firm Clark & Trevithick, who founded the Gold Coast Venture Forum, an educational and networking organization for the tech community. “You’re going to see more venture capitalists and other financing types locating themselves in the area because it does give them a greater presence and shows a greater level of commitment.” Until now, the few venture capitalists that hung out a shingle in the Valley did so for purely pragmatic reasons the principals live in the area. But lately, with Silicon Valley in freefall, the growing ranks of emerging growth companies that have settled in the West Valley are looking all the more attractive to venture capitalists. A recent report by Los Angeles research and consultancy Growthink identified 12 venture capital firms between Glendale and Westlake Village who were active in the Southern California market in the second quarter of the year. While the number pales in comparison to the community in Silicon Valley to the north, it is nevertheless higher than some say they would have expected. “That’s probably 10 more than I know about,” said Marty Albert, managing partner at AmerScan Ventures, a 10-year-old Westlake Village-based venture capital firm that is among the oldest in the area. Albert, who based his company here to avoid a daily commute to the office, second-guessed his decision a decade ago. He no longer has any doubts. “I was sorry I didn’t move to Silicon Valley, and now I think it’s a great area,” he said. “The area from Calabasas to Camarillo is a delicious area for small, emerging businesses.” Unlike the concentration of law firms in Century City or financial firms in downtown L.A., there is no center for venture capital firms within the city’s urban sprawl, and VCs have not followed any particular pattern in locating their offices. With e-mail and other technologies, most say they are in easy reach of their financial partners and investors, no matter what their address. But venture capitalists often collaborate with one another, partnering to finance a single company or loosely bonding when there are synergies to be gained from the respective companies they are backing. And, as in many industries, there are intangible benefits to be gained from being close to others with interests and goals in common. That makes the idea of a hub for these companies attractive. Until recently, the Westside of L.A. housed the most visible cluster of tech companies. But the meltdown in the dot-com sector has fractured that community and made the Tech Corridor the only game in town. Not only are the numbers of companies located along the Ventura Freeway growing, they have generally enjoyed more economic stability than some of the other technology sectors. As the area gains even more critical mass, it will attract greater numbers of venture capital firms as well as the law firms and accounting practices that support them, some say. “It’s chickens and eggs,” said Kurtin. “The more firms that set up here, the more companies sprout and the more companies that sprout, the more (support) people put in offices here.” Reinke next month will leave his current post to open a Westlake Village office for Northern California law firm Crosby Heafey Roach & May LLC. The firm, with a large practice in SEC work, intellectual property and life sciences law, saw an opportunity in the region because of the growing number of technology companies opening here, particularly in the biomedical sector. Venture capitalists don’t limit their projects to the immediate geographic area where they are based many of the companies in Pacific Venture Group’s $210-million fund, for example, are in Orange County. But proximity to a cluster of tech companies can help venture capitalists to identify promising businesses they might not otherwise hear about. AmerScan’s $80 million fund includes two storage companies in the area, Med & #233;a Corp. in Westlake Village and NovaStor Corp. in Simi Valley. A smaller fund, Chavando Group International with $20 million, has found its Sherman Oaks location advantageous for its proximity to potential investors. “Everything is convenient and there are a lot of investors in the Valley due to the entrepreneurial nature of the Valley and the entertainment industry,” said managing director Elias Chavando. “You have a lot of people with a lot of money that want to invest.” Chavando has seen a dramatic decline in the number of unsolicited pitches from firms seeking financing. “We used to get probably 20 e-mails a day (beginning) with ‘Dear Investor, here’s my executive summary,’ ” said Chavando. “You could tell this guy sent it to 200 people.” These days much of the correspondence is addressed personally to Chavando, with an attempt to outline what the company can bring to the firm’s portfolio. “The fakes and the 23-year-olds are dying off,” Chavando said. So too is the need to make split-second decisions risking multi-million dollar coffers. Venture capitalists say that two years ago, the competition was so fierce, they barely had time to check into a company’s references and consider its market potential for fear another VC firm would jump in and make the deal. Today, firms say they have the time for due diligence. All this may bode well for the Valley, with its concentration of technologically complex companies requiring more time and expertise to evaluate. The question is whether the area will grow large enough for a sizable financial presence. “Whether or not there’s a critical mass where it’s going to cause VCs to locate along the corridor is the issue,” said Reinke. “It may make more sense for them to locate along the Westside, but as the area grows, it’s going to make more and more sense for venture capitalists to locate themselves here to take advantage of those opportunities.”

Recent legislation introduced in the U.S. Senate by Senator Joseph Lieberman (D-Conn.) and in the House of Representatives by Congressman Steve Israel (D-N.Y.) calls for the Federal Trade Commission to consider the marketing of adult-rated media to minors an unfair or deceptive practice. The media under consideration include motion pictures, music recording and electronic games. A recent study released by the Los Angeles-based Parents Television Council, a non-partisan, grassroots organization, painted a troubling picture of content on television during the 8-9 p.m. “Family Hour.” The study indicates, among other things, that, while quantity of sexual content has fallen, the explicit nature of that content that remains has intensified to include topics that weren’t on television at all a few years ago. Efforts to address decency in the media are both necessary and difficult. With the conflict between the need to adhere to community standards and the freedom of expression guaranteed by the First Amendment, the path is narrow and fraught with pitfalls. As a cable operator and a parent, I am imminently aware of the responsibility that is, and should be, placed on the media. While we try to keep our finger on the pulse of what our customers want to see, inevitably what one segment of our audience considers appropriate and acceptable viewing, others will find offensive. In most cases, we make every effort to scramble adult programming or make it available to our adult customers on a pay-per-view basis. Ironically, one of the channels over which your local cable provider has no content control is the city-mandated public access channel. Federal law allows local franchising authorities to require local cable companies to provide production facilities, technical assistance and air time to any member of the public who wishes to use these resources to produce and broadcast whatever they wish, on a first come-first served basis, with no editorial control. While federal law allows local municipalities to make this channel available, it does not require them to do so. Locally, public access programming is the largest source of complaints we receive relative to decency. We try to put the programming on at times when children are unlikely to see it, but we must be careful to avoid being labeled as censors. This is a case of government bureaucrats deciding for the public what is best for the public. The city of Los Angeles has recently hired a consultant to determine what could be done in the future to encourage potential users to produce more access programming. What can parents do? There are many technical options available to parents who want to protect their children from viewing programming that is inappropriate for younger age groups. Most modern televisions with remotes allow viewers a menu selection to delete channels they do not wish to view. The V-Chip, which can be used to block programming with violence or sexual content, is now required in all new televisions sold in the United States. Recent studies have shown that most parents do not utilize this option. Many parents do, however, use the voluntary ratings on television programs to evaluate the appropriateness of the show for their child. The single most important action parents can take to ensure their children are protected from offensive programming is to participate in active viewing with their child. Watch television with your child. Early on, help the child distinguish between fantasy and reality by discussing with your child what they may see in the media, not only in your home, but also in the homes of friends or in public places. Monitor the amount and type of programming your child watches. While there are many worthwhile educational and news programs on television, too much of anything detracts from child development as a well-rounded human being. Discuss with your child what is and is not appropriate for them. Just as there are books with subject matters you would not allow your child to read, there are programs you may not wish your child to view. Make your child aware of these limits and enforce them consistently. Finally, regarding the proposed federal legislation, express yourself. You have a right to your family standards and your belief system. Let your children know what they are, let your cable company know what they are, and let your elected officials know what they are. Decency in society and the media begins at home. Eric Brown is vice president and general manager of Time Warner Cable in Los Angeles.