The last picture show

What went wrong at AtomFilms, and what does its departure mean to Seattle?

AND THE WINNER IS . . . Sitting somewhere in the hall at this Sunday's Academy Awards ceremonies—although probably not in the celebrity-packed front rows—will be AtomFilms founder Mika Salmi, crossing his fingers for The Periwig-Maker, nominated in the animated short film category. Since Atom shows shorts on the Web, then sells their distribution rights to other outlets, Salmi naturally also attended the Y2K Oscars, back when his Seattle company was flush with private capital and glowing publicity.

What a difference a year makes. His tux may still fit, but high-tech and dot-com businesses have been on a starvation diet since the April 2000 Nasdaq crash. Last week's big drop provides a harsh note of punctuation to Atom's changed circumstances. As a result, after the last envelope is opened and the last high-school drama teacher is tearfully thanked, Salmi will fly home—to San Francisco, his new home.

We read plenty about virtual companies during the period between Atom's August '98 founding as on online source of short films and its January stock-swap merger with Dot-coms can be located anywhere, we were told; money and information will move with frictionless speed. Maybe so, but when the moving trucks empty out Atom's Western Avenue offices next month, we'll regret such enthusiastic claims.

Atom probably has a few regrets, too, after spending an estimated $27 million in initial private financing. Sure, it built its site and brand into industry leadership, but those marketing costs ironically forced the merger. (Atom gets 30 percent of the new concern.) Today, Atom's publicists now eagerly proclaim: "It's never been a Web company."

Funny how no one was saying that a year ago.

Meanwhile, Salmi advances upward to head the much larger, just officially named AtomShockwave Corp., which announced $22.9 million in new capital investment on Tuesday—a pretty strong endorsement of its new CEO.

What about those left behind? Beyond the pink slips, has our city lost its last, best hope to become a center for the elusive digital entertainment industry? What went wrong?

SPEAKING BY PHONE from San Francisco in his first local interview since his move (a Seattle Weekly exclusive), Salmi says, "It wasn't like our revenues didn't hit where we wanted or our business wasn't going well. We didn't fail in our business; we failed to raise money."

But wasn't the merger caused by Atom's emptying its pockets on marketing? "That was the one area where we probably spent too much money," Salmi admits. "We had plenty of revenue coming in from business clients. Our Web site had pretty good traffic that was growing and growing. But we really wanted to blow it through the roof. That was the environment when everyone was saying, 'You gotta get an audience.' But the return from that wasn't nearly as great as expected.

"We did have two sides to our business model," he continues. "In the beginning we said we were a business-to-business. We were going to sell film and animation to alternative distribution channels. We were going to use the Internet to help people see them. Then, after about nine months, we said, 'Let's actually have a consumer Web site.' That was the only shift we really did. Whether that was dumb or not . . ." Salmi lets the thought trail off unfinished.

Nobody contacted by SW says Mika Salmi is dumb. In fact, everyone sings his praises—even his ex-employees, many of whom were axed shortly before Christmas. (Total layoffs may exceed 50 of some 90 Seattle employees.)

Says one former employee, "The grim reality of the dot-com world is that, on a certain level, we were treated pretty well. There isn't a huge amount of resentment." Most of those laid off actually continued to work through a transition period (lasting months in some cases), then received an exit bonus. This ex-employee estimates some Atomites were thus able to squirrel away $6,000-$12,000 for their employment hiatus.

But how did anyone actually expect to make any money showing short flicks on the Internet?

THE ORIGINAL PLAN was to sell and syndicate short film rights both online and off-line. The latter markets include cable, broadcast TV, airplane seat-back displays, and now even cell phone and other handheld devices. That's the business-to-business side.

Meanwhile, the Web site brings in eyeballs. It's a marketing engine, a way to show the product—which we watch for free. And clearly we like to watch. Atom averages around one million unique users per month, while in February some 70,000 viewers saw The Periwig-Maker, narrated by Kenneth Branagh, an affectingly somber treatment of London's 1665 plague year based on Daniel Defoe's account. (Atom doesn't actually produce such titles, but syndicates the right to show them—not unlike a movie studio acquiring indie product at a film festival.)

On the consumer-oriented side, Atom earns advertising and sponsorship dollars from corporate clients like Coke, Ford, Altoids, Volkswagen, and Skyy vodka—all eager to link their brand to Atom and to reach its young, tech-savvy users. The site, which launched in March '99, also briefly sold VHS and DVD compilations of its movies, but found few buyers.

The problem, as with every other site outside the porn market, is that clicks don't readily translate to bucks. Moreover, to keep us, the home viewers, satisfied, Atom continually and expensively upgraded its slick, award-winning Web site. It also spent steadily to acquire a library now counting about 1,500 titles. In a typical deal, an artist might earn $500 to a few thousand dollars as an advance against royalties.

Meanwhile, rivals like iFilm,, DEN, and Hypnotic (formerly swarmed onto the Net. Although Atom claims this didn't cause bidding wars for product, one high-placed source claims the company paid $10,000 for one picture to outbid

In this go-go environment, local billionaire Paul Allen reached for his wallet to join Hollywood backers of, which embarrassingly failed to even launch its site. On Wall Street, bullish new economy stock analysts made encouraging sounds about brand building and shelf position, while Atom—like other companies—entertained visions of an IPO.

The press ate it up. Young (35), friendly, and quotable, Salmi began getting what cynics might dub the Bezos treatment—as Time magazine, The Wall Street Journal, and others used our now-beleaguered Amazon founder as the Web's poster child. (Last month, in fact, Atom threw a Sundance party featuring a mechanical bull—which Salmi gamely rode to a front-page article in the Journal.)

Among Atom's early local financial backers, Cedar Grove Investment partner Tom Hughes says admiringly of Salmi, "He is the king of PR." But, Hughes adds, "He had probably a more pragmatic strategy behind all of the press and the hoopla."

In other words, Atom knew it had to market its movies. Yet the undeniably fun but expensive site ate up those revenues. In the view of one ex-employee who preferred not to be named, "There would be a big spotlight and a splash and nobody would care. It wouldn't add traffic, and we'd have sunk a lot of time and energy in something [unprofitable]. So it's the initial marketing splash—it's trying to be cool, it's trying to do a lot of things—it is the New Economy. And everyone got swept up in that, but you still gotta sell the films."

Atom's former Senior Manager of Development and Acquisitions Cory Wynne sees the sales/marketing tension differently: "Mika moved faster than he really wanted to because of market conditions, to grow, to get market share. Although I do think that the pace of the growth was pressured from above—be it the board or investor concerns." Also, Wynne adds, the press willingly abetted in the costly fanfare: "It was a really good story because we were one of the first on the scene. You can bust out with PR."

The fourth person hired at Atom in '98, then sacked in the second surprise mid-February round of layoffs, Wynne still defends the company's past strategy, avowing, "We didn't do extravagant things." Executives traveled regularly to New York, L.A., and Europe—but in coach class. "I really think that fundamentally Atom had the most solvent business model out there."

Where does, also a money-losing company, now fit into the model? Majority-owned by Macromedia (a publicly held company that sells the popular Flash animation software), that site boasts some 37 million registered users (as compared to Atom's 1.9 million). They come for the 'toons—like Tim Burton's wonderful Stainboy—but mainly for the games. Hence, there's little content overlap with Atom, which has more of an emphasis on film.

Can AtomShockwave's ads, sponsorship deals, distribution rights sales, and software business add up to profitability? Investors are answering "yes," to judge from Tuesday's sudden windfall, which ought to further the company's goal of becoming a diversified entertainment provider.

WAS IT INEVITABLE, Atom's farewell to Seattle? "Sure," replies investor Hughes, "I think the fact that it stayed here as long as it did—my hat's off to Mika. The technology/ software center of the universe is somewhere between Microsoft and Silicon Valley, and certainly wasn't in Pioneer Square." Yet, of the company's merger and southward move, he says, "We're happy with it as investors."

Over at RealNetworks (where Salmi once labored and which has commercial ties to Atom), programming director Lucy Mohl says, "They were a virtual company. When you're talking about the Web, you're really supposed to be talking about the capacity to be virtual, global, wherever you are. They still are successful, and they're still standing."

Problem is, they're standing someplace else, representing a brain drain in addition to the diminished local concentration of entertainment-tech companies. "Places don't matter," goes the conventional wisdom about Information Age capitalism, but clearly they do. The whole point here is that Atom is moving to San Francisco—a place that matters.

For Cory Wynne, Seattle is definitely the lesser for Atom's departure. "It seemed like the beginning of something," he says. "It was brilliant for the town. It didn't necessarily bring the filmmaking industry itself any further here—I mean, this was a distribution company. But it had a lot of excitement, a lot of attention surrounding it. That can only spin off and help in some areas."

Of Atom and other kindred local companies, he maintains, "We had some fantastic, creative things going on up here." Regarding that elusive goal of digital convergence, its members "really wanted to see it happen in Seattle, not San Francisco. The industry's gonna survive, [but] it's going away from Seattle for now." [See "Local ties?" p. 31.]

That's an industry built by people, living in condos, laboring in buildings made of bricks and mortar (even if shaken by recent earthquakes). For all the nonsense written about virtual companies, borderless commerce, and digital yadda-yadda-yadda, the real estate beneath the wires and servers also creates the culture of a company— as Salmi himself recognizes.

"I'm not happy about leaving," he says. "I thought it would be cool to have this kind of company in Seattle." He cites the presence of "a good dozen, half-dozen companies" in digital entertainment fields (most of which have also suffered recent setbacks and layoffs). "I was enjoying very much being part of the community there. I can't say we hung out or tried to foster it along. Maybe you need a special force—Paul Allen or Microsoft or someone who could've brought everything together. Probably we were just too early in Seattle. We needed a little more time to get things going."

In fact, even as the clock was ticking on the merger, Salmi lobbied hard to move the San Francisco company up here—which speaks to the importance of place to company, and company to place. "I worked very hard at it. We were pretty close. That was the intention."

But it's also impossible to miss the young CEO's enthusiasm in describing his new environs: "San Francisco is home to Francis Ford Coppola, George Lucas, and Pixar. All the companies that are there doing entertainment-type stuff—they tend to be outsiders." Just like Seattle, in other words, only better.

Now that metropolis gets to build a digital entertainment industry that—had things aligned differently—we could've had here. Don't think there weren't conversations between Atom and Paul Allen, between Atom and It could've happened. We were close.

Admittedly, there's a regional tendency to get our hopes too high. Corporations follow the Web's siren song at their own risk, and so do the cities where their sites are launched. Salmi certainly can't be accused of inventing the dot-com hype machine, but he did profit from it, as did his former adopted home (where his parents still live). Along with Go2Net, RealNetworks, the Walt Disney Internet Group, and others, Atom has lent a certain hip, youthful, high-tech cachet to our sodden burg. Instead of merely churning out code or selling books, here were companies with a foot in the door of the entertainment economy—one step closer to Hollywood!

In other words, we got to ride the coattails of Atom's marketing. According to Microcinema Inc. founder Joel S. Bachar (who worked as an independent contractor at Atom during '99), the company usefully introduced our civic name into film festival parties and conversations. Did that help Seattle's reputation in the entertainment and tech communities? "I definitely think it did," he answers.

And Seattle's remove from Hollywood and New York was beneficial to Atom as well, says Salmi: "I think there were advantages. I love Seattle, so for me it was where I wanted to be. But I also think that we wanted to be kind of seen as coming from the outside, that we wanted to think differently." He contrasts Atom's approach to "the groupthink of the way entertainment companies are."

Whatever his reservations about moving, does he also view Seattle as a place where his site's marketing expenses eventually grew out of control? "I don't regret that at all because that kept our brand to the forefront," Salmi replies. "If we hadn't spent so much, we would've been forgotten about. We would've had our business revenue, but no one would've known who we were anymore. When we started this thing, we were the leader, so we better make sure everyone knows we're there."

Meanwhile, Salmi will hang on to one tangible link to the Northwest. "I'm keeping my house in Seattle," he adds. "I'm hoping to come back."

ATOM SPENT A LOT of money here, but what do we have to show for it? Atom's adieu emphasizes an unsettling paradox in our hothouse dot-com economy. Even if founded here, no virtual company need maintain its ties to the town. They can be anyplace their senior management wants to go, just as Amazon could pack up tomorrow for the low-wage South. There's no loyalty—nor should there be, perhaps, in the age of e-capitalism—for all our civic boosterism and local pride. But that doesn't change the feeling of the lost opportunity, and hurt, caused by Atom's exodus.

And who else will follow the company out of town? Some already have. "It always surprised me that they were in Seattle," says one Atom filmmaker, Evan Mather, speaking by phone from L.A., his new home. Others interviewed for this story voiced the same feeling, weighing their continued loyalty to the region. What's the point in staying? As with past schemes for fostering traditional filmmaking in the Northwest—ShadowCatcher Entertainment being only the latest in a long line—there's a certain despairing sense of d骠 vu.

Among those pondering what's next is former Atom exec Wynne. "It's a huge loss," he says. "I don't know what will fill the void."


WHAT WAS SO GREAT about moviemakers' having their work shown on the Web? For those talented or lucky enough to have their flick acquired by Atom, various filmmakers explain, more people could see it online than on the entire festival circuit. Atom brought exposure, legitimacy, prestige; it looked good on a director's r鳵m鮠As the company sold the distribution rights (generally favoring more mainstream efforts), an artist might receive 500 bucks to a few thousand dollars in return. Since most shorts are made without the expectation of any financial return, to serve as a sort of Hollywood calling card, simply recouping one's costs is a godsend for a filmmaker.

While living in Seattle, Evan Mather co-created two movies for the site, Vert: Remixed and Episode One: The Qui-Gon Show (a Star Wars parody). Although he describes the money he made as "embarrassingly small," Mather was aware that not all artists would benefit from the full Atom marketing push. "I wasn't going to get on a DVD unless I was lowest common denominator. They never promised me anything they couldn't deliver."

Yet another director, who asked not to use his name, says that many artists began harboring unrealistic expectations for their creations—particularly when Atom's rivals began waving even larger fistfuls of cash at film festivals. "Suddenly there was fierce competition. The downside is that it's created a lot of greed among filmmakers who expect to get rich off Internet films, which won't happen."

In our local filmmaking community, Atom's value has been limited but noticeable. Underwriting last year's SIFF Fly Filmmaking program was nice, and the company also helped sponsor Bumbershoot's 1 Reel festival, but did it acquire the works of any Seattle directors? Yes—about 10, including CheckMating by William Azaroff, the WTO documentary Not Without a Fight by Andy Schocken, Pain by Marc van S, Living Will by Election and Citizen Ruth co-writer Jim Taylor, and Girl Sketch #1 by Under Heaven director Meg Richman (the latter two were made during SIFF 2000).

Says RealNetworks' Lucy Mohl, a knowledgeable long-time observer of the local movie scene, "It's not like [Atom's] filmmakers were going to start moving here. The one thing they did offer was Seattle-based employment for people who worked for the company."

Mather agrees. "I always thought it was kind of cool that they were away from everything," i.e., far from Hollywood. Still, he adds, "They really didn't have any influence on Seattle filmmakers. We never got any preferential treatment or anything like that."


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