Sorry Evan,"7th Level A Complete Waste of Time"
7th Street.com, Following Deals,
Excites Investors Once Again
By EVAN RAMSTAD
Staff Reporter of THE WALL STREET JOURNAL
The company formerly known as 7th Level Inc., a fallen star in the
much-hyped convergence of show business and high technology, is again
exciting investors.
After merging with another company last month and changing its name to
7th Street.com, the firm announced deals this past week with America
Online Inc. and GeoCities to boost its new main business: online-training
courses.
The announcements sent 7th Street.com's stock from $2.75 last Thursday
to above $5 on Friday and to $8.84 on Monday. The shares fell Tuesday
and finished Wednesday at $6.875, down $1.0968, on the Nasdaq Stock
Market.
The stock-price pop is the first since one that lasted for two weeks last
spring when 7th Level said it was changing the software tools it used to
make popular CD-ROM games like "Monty Python's Complete Waste of
Time," for use in creating Web sites.
Five years ago, the Richardson, Texas, company embodied the dream of
marrying PC software and entertainment. It had production facilities in
Texas and Hollywood, Calif., founders that included a Pink Floyd musician
and a sizable investment from financier Michael Milken.
But 7th Level never made money, and its hits stopped in 1996, just when
the Internet became the driving force in home computing. As outside
auditors openly questioned 7th Level's ability to survive, executives shrank
the payroll to 15 people, from 250.
The $36.5 million merger last month with Street Technologies Inc., a
closely held White Plains, N.Y., company that offers training programs
over the Web, provides revenue and cash flow for development of 7th
Level's quirkier ideas. They include new animation technology for Web
pages that allows a character's lips to automatically move with a person's
dictation. The company also has more than 100 cartoon characters to
license and will create new ones for a fee.
New Alliances Forged
Street's executives took charge in the deal and forged the alliances with
AOL and GeoCities to boost 7th Street's new consumer site, called
Tutorials.com. The relationships are nonexclusive, and 7th Street aims for
similar deals with other Web portals, communities and even PC makers,
says Stephen Gott, chief executive officer. "We're not looking to use
Tutorials.com as simply a destination like Excite or Amazon.com," he says.
"We're saying 'Go to all these other places and we'll be there.' "
He said the stock-price jump is a sign that investors believe the strategy.
"It's not one of these 'I wonder if this is going to work' ideas," Mr. Gott
said. "It's a real thing and I think we're seeing a reaction to that."
The online-training market is large, diffuse and growing, says analyst
William Scovin of Ladenburg Thalmann in New York, who followed 7th
Level several years ago and recently renewed coverage. But the 7th
Street.com's financial prospects are difficult to precisely gauge because it is
"essentially a start-up company again," Mr. Scovin says. "You're talking
about showing people something completely new and watching how they
react," he adds.
The 7th Level loyalists hope things go better this time. Formed in 1993
and a public company the next year, 7th Level soared on the popularity of
educational games like "Tuneland" and zany Monty Python and Disney
products. Its revenue tripled to $12 million in 1995, and its stock price
doubled to around $20 that year.
At computer conventions, 7th Level hosted lavish parties with music
provided by friends of co-founders Robert Ezrin, a former rock-music
producer and associate of Mr. Milken's, and W. Scott Page, a former
musician for Pink Floyd.
Games Market Saturated
But the market for PC computer games saturated, and 7th Level got
squeezed by high production costs. Its stock plummeted to below $5 by
the end of 1996 and, with the exception of the brief run above $10 last
year, had been mired there until this week.
Co-founder George Grayson resigned as CEO in March 1997, and
directors hired Donald Schupak, a New York attorney and investor, as
chairman. Later that year, he decided to exit the computer-game business
and sell titles that were in development, which led to layoffs and the closing
of outposts in Hollywood, Tokyo and Munich, Germany.
Mr. Schupak and Mr. Ezrin, who remained as vice chairman, scoured 7th
Level's technology assets for anything that seemed valuable for the
Internet. Revenue for last year plunged to $1 million.
Early last year, 7th Level's remaining programmers achieved the
breakthrough in simple programming of animated characters. Mr. Ezrin
contacted Street's Mr. Gott last fall to demonstrate the technology and
discuss how it could be applied to Street's online courses, which generate
about $4 million a year in revenue. As 7th Level executives realized that
online-training software was a large market, the companies began to talk
about a merger. |
