MCA, Bertelsmann and Putnam Berkley back interactive publisher

Putnam New Media appears to be a rather modest interactive publishing startup — unlikely to garner or generate big news in the emerging new media marketplace. It is a small operation run by one person out of her home in Great Falls, VA — not exactly a publishing or technology mecca. Its first title, Big Anthony’s Mixed Up Magic, which is expected to hit the CD-ROM retail channels next month, is sound but not seminal.

On the surface, it seems to be a company that can be easily dismissed when counting off which of the new media players will dominate the emerging interactive entertainment landscape. When you dig below the surface, however, the odds begin to change. Putnam New Media is rich in potential.

A child of privilege. The Putnam New Media group, which was launched a year ago this month, is backed — in terms of capital, media and creative resources, and distribution and marketing muscle — by some of the largest entertainment media companies in the world. It is a division of The Putnam Berkley Group, one of the most profitable commercial publishers in New York. Its real roots, however, are much more closely entwined with its parent company: MCA/Universal, a subsidiary of Matsushita Electric Corp. of America.

It was MCA president Sid Sheinberg, in fact, who encouraged Phyllis Grann, CEO of The Putnam Berkley Group, and president David Shanks to explore electronic publishing — a fairly revolutionary concept for a publisher that to date has resisted even developing a line of “books on tape.”

Based on the meeting with Sheinberg, Shanks began formulating a business plan for a modest electronic publishing division, which would basically convert the company’s existing line of commercial print media onto CD-ROMs. He then went in search of someone to run the group, and through a mutual friend, met Cris Popenoe, a 20-year veteran of the video, record and book industries, who was looking to combine her skills in the interactive publishing arena.

An evolutionary step vs. a giant leap. While Shanks presented Putnam New Media as an evolutionary step toward interactive media publishing, Popenoe pitched her idea for a company that would “create a whole new paradigm for how you tell a narrative.” They mutually agreed to a trial period, during which time Popenoe worked as a consultant, analyzing the market and looking for the best way for Putnam to proceed in this emerging field.

After three months on contract, Popenoe received the blessings of both Putnam and MCA management and became president and publisher of the startup. To date, she has run the entire operation out of her home office, keeping overhead low, so that she could pour money into title development. On average, her development costs, including outside production, are about $400,000 per title.

NOTHING LIKE A LITTLE SUPPORT FROM ‘FAMILY AND FRIENDS’

The Putnam Berkley Group funds 50 percent of Putnam New Media’s title development and operations costs. Oddly enough, the other half of Putnam’s money comes from the Bertelsmann Manufacturing Group, a division of Bertelsmann (the German media conglomerate), which has a long-standing relationship with The Putnam Berkley Group through its printing operations.

The Manufacturing Group has signed a two-year agreement — renegotiable in 1995 — to help fund title development and cover operating costs of Putnam New Media. In return Bertelsmann shares the profits and losses on each of the titles it helps fund. It does not have equity in The Putnam Berkley Group.

A chance to experiment. “Bertelsmann wanted to dip their toe into the new media market and felt good about the direction we were going in,” says Popenoe, who added that the group has also opted to fund several additional CD-ROM projects that were not in the original 1994 business plan.

In addition to financial support, Bertelsmann is providing Putnam New Media with technical support.

Rich in resources. At this point, MCA and Matsushita do not contribute financially to Putnam New Media, which is actually MCA’s first official foray into interactive media publishing. (The company has, of course, invested in 3DO under the guidance of MCA executive vice president Charles “Skip” Paul — a lightning rod for MCA’s new media ventures. Paul, who is a maverick within the industry and within MCA, continues to investigate interactive media development projects for MCA — both external and internal to the company.)

What MCA and Matsushita are offering Putnam may ultimately be of greater value than capital. “I am taking advantage of their resources,” says Popenoe, who was planning to meet with MCA’s director of rights and merchandising as Digital Media went to press. “There isn’t a specific title [at Universal Studios] in mind. Our goal is to look at everything and see what makes sense.”

In addition to access to MCA’s media libraries, which include content from Universal Studios and Geffen Records, Popenoe also has access to MCA’s formidable talent pool. “What seems to be happening is a lot of the creative people at Universal are beginning to think of me when they think of interactive media, and they are coming to me with ideas,” says Popenoe, who would not name names, but said deals are in negotiations with several well-known musicians and animators. “More than anything else — since we really want to focus on original titles in 1995 — MCA has become a good source for creative talent.”

DAY-TO-DAY OPERATIONS INDEPENDENT OF THE PARENTS

While Bertelsmann, MCA and The Putnam Berkley Group support Putnam New Media, they do so from a distance. Day-to-day operations, including the acquisition and development of titles, contracts, the development of distribution channels and marketing campaigns, and packaging design, fall under Popenoe’s jurisdiction.

“Unlike other [interactive publishing] companies out there, I am having to create everything from scratch,” says Popenoe. “Ultimately, though, I believe a new operation like ours must be independent from its parents. It is essential that someone within the group be responsible for profit and loss, be responsible for a business plan. ”

KEEP OVERHEAD LOW, INVEST IN TITLE DEVELOPMENT

Popenoe’s business plan to date has been to keep staffing and operations costs low and invest in title development. As of October 1, that will begin to change. Putnam New Media will move to office space in downtown Great Falls, and Popenoe will bring on her first two full-time staff — a director of marketing, Stacy Mosely, formerly in charge of new business development at a New York design agency; and a creative technical director, Will Nicklin, who Popenoe has worked with for years.

New blood, no politics. Neither Mosely nor Nicklin has experience in the world of interactive media publishing. But based on Popenoe’s own experience, she believes those skills can be learned. “I made choices on people who are not involved in the industry based on enthusiasm and guts,” says Popenoe. “People from the existing worlds are fettered: The book industry doesn’t market; the movie and video industries are too full of hype; and the computer industry gets too absorbed in the technology.

“What I want is really open people with vision who can experiment and find models that work in this new world. I am not trying to create the politics of the company but develop titles that users will respond to.”

To that end, Popenoe has inked five CD-ROM development deals with some of the most respected interactive content developers in the business, including Shannon Gilligan, creator of the award-winning title Virtual Murder; Dan Backus, creator and programmer of A.D.A.M., the highly regarded medical reference work; Chipp Walters, a well-known interface designer, who developed interactive projects for NASA, Shell Oil and the San Diego Spurs; Matthew Costello, author of the best-selling CD-ROM title, The Seventh Guest; and Laurie Bauman Arnold and Annie Fox, creators and authors of Putt Putt Joins the Parade, one of the best-selling kids’ titles of 1993.

Matching content with platform. Putnam originally plans to develop content for the Macintosh and MPC platforms, but Popenoe says she is platform-agnostic. The group will distribute its content on whatever the creators deem the most appropriate delivery system, including 3DO, Sega, Nintendo and interactive television systems.

BIG ANTHONY’S BIG LEARNING CURVE

The group’s first release, Big Anthony’s Mixed Up Magic, which we saw in beta, is good — as good as many of the children’s entertainment/education titles we have seen. But it is not a breakthrough title. It suffers from the same problem that many titles based on content developed for another medium suffer from: The linear narrative and the interactivity feel like separate entities when you are playing with the disc.

The work, which is based on longtime Putnam author Tomie dePaola’s book, Strega Nona Meets her Match, was created in conjunction with Berkeley Learning Systems (Laurie Bauman Arnold and Annie Fox, who are now working on their second title for Putnam New Media) and Magnum Design of San Francisco, the company that designed and programmed photojournalist Rick Smolan’s From Alice to Ocean.

Facing limitations. According to Popenoe, development on Big Anthony was a great experience because it made her aware of the challenges ahead of her. “Originally I envisioned a title that would include a world of exploration for kids — taking off from the story,” says Popenoe. “We created a very rich script; it was way too ambitious. We weren’t being as aware of the navigational problems as we needed to be.”

Eventually the title had to be modified but, according to Popenoe, it did not diminish the end product, which she says beta-tested really well with kids. Big Anthony will retail for $69.95.

LEARNING FROM PROTOTYPES AND MARKET RESEARCH

With future titles, Popenoe plans to increase the beta testing cycle to include peer reviews of highly developed prototypes, before a disc ever makes it to Golden Master.

“We are going to create prototypes that are actually a microcosm of the entire title,” says Popenoe, who then plans to show these prototypes to groups of people from various backgrounds. “The assets you create can be used even if the navigation or the narrative path doesn’t work, and at least that way, you have not invested a year developing something that doesn’t work.”

BROADENING THE DISTRIBUTION CHANNELS

Putnam’s primary distribution channels include mail order catalogs, such as the Child Craft Catalog, which prior to the arrival of Putnam New Media only distributed Disney’s and Broderbund’s discs, as well as the computer mail order channel. “Our major channel today remains the software channel,” says Popenoe.

The second channel places Putnam New Media titles into MCA’s consumer electronics channel, which includes record and video stores. Ultimately, Popenoe believes this is Putnam’s biggest market. To that end, she has copyrighted Putnam’s titles instead of licensing the content so that she can quickly offer the titles as rentals, when that channel becomes more established.

According to Popenoe, the least important channel for Putnam New Media includes the bookstores and mass merchandisers. Despite The Putnam Berkley Group’s established reputation in stores such as Toys R Us and Costco, Popenoe believes it will be difficult to build marketing momentum for this channel.

FUTURE PLANS AND THE REALITY OF TODAY

Like so many of the interactive media publishers we have talked with this past year, Putnam has asked those companies and individuals who would place its progress under critical scrutiny to take a wait-and-see approach. In short, Putnam New Media is promising breakthrough entertainment and educational CD-ROM titles beginning in 1994 — titles that will finally generate “the big ah hah” among consumers questing for new thrills.

Whether or not the group can actually deliver on its promise remains to be seen. Certainly, Big Anthony does not meet the criteria, nor is Putnam’s second title likely to be “the one.” After all, “creating a whole new paradigm for how a narrative is told — as Popenoe hopes to do through Putnam — is a tall order, and we imagine it’s going to take a lot of time and experimentation. More importantly, it is going to require original content created specifically for the emerging interactive medium.

According to Popenoe, she has been given the freedom from Putnam’s parents to try to fulfill that vision. MCA and Matsushita have given Putnam New Media a grace period of about a year and a half to show a profit. The parents are allowing for possible losses until the end 1995, but Popenoe expects to be in the black by the end of that year.

“The New Media Group isn’t something I am doing as a little hobby,” she says. “We are going to be a significant player. I have a vision of what we want to do and how to do it, and in the MCA environment there is a place for us.”

Janice Maloney