Zoom Culture, the media company that made industry waves by using college-aged students and cutting-edge technology to create and distribute video content, has called it a wrap.

Zoom ceased operations Tuesday after investors refused to pour more money into the company, according to Zoom founder and board member Nathan Wieler. Officials now will try to sell as many of the company’s assets – both physical and artistic – before officially closing the book on the three-year-old firm, he says.

“It takes a lot of capital to be a media company,” Wieler says. “Things have been coming along for us, but it’s a matter of how much money it was going to take to take things to the next level.”

The move comes one month after former Chief Executive Marty Lafferty was replaced by Kip Frey of Zoom investor Intersouth Partners.

At that time, insiders said Lafferty, a television industry veteran, was forced out over board concerns that the company was spending too much money in relation to its revenue stream. But Lafferty and company officials insisted that he had stepped down to pursue other interests, that the company was on sound financial footing and that Frey’s experience in running startups would help Zoom grow in the long run.

Frey is well known around the Research Triangle region for taking a hard line on burn rates and negotiating profitable sales of small companies. Yet, the financial situation at Zoom was apparently too perilous for him to salvage.

E-mail announces closure

Board members agreed Monday to shut down when Intersouth and other investors declined to commit to further funding. Frey sent an e-mail to the company’s 40 employees Tuesday morning, notifying them of the decision.

“I’m sorry to report that we will not be receiving additional venture capital funding from our current investors. Our cash position is such that the company will need to cease operations immediately,” Frey wrote in the e-mail before asking employees to return all company property and clear out their desks.

Wieler says many employees were upset that they weren’t given a chance to continue Zoom’s recent growth trend, but he says he understands the decision made by the company’s venture backers and is thankful for the support they had provided until now.

“People like the idea of the company. The Zoom directors, the customers, the investors, they all like it,” he says. “But it’s been difficult to execute as quickly and as broad a plan as we set out to, and we made various mistakes along the way.”

As its name suggests, Zoom experienced the same meteoric rise and fall of many companies created at the height of the Internet boom.
Wieler and a couple of friends formed Zoom in mid-1999 as an online venture that streamed videos shot by college-age students. After the company attracted its first venture capital a year later, Lafferty was brought in as CEO to build relationships with media firms to buy and distribute the content produced by Zoom cadre of “directors,” who paid the company a monthly fee for training and access to state-of-the-art digital video production equipment.

“We never set out to make a couple of TV shows and a web site,” Wieler says of the company’s outward transformation over the past two years. “From Day One, we wanted to build a media company that could exploit new production and distribution models.”

The company appeared to be making headway, striking a deal with NBC to air Hip Hop Nation, a show focusing on the rap and hip hop music scene, and another with FOX for extreme sports show Playground Earth. Hip Hop Nation now is seen in 100 markets nationwide, while Playground Earth programs have been syndicated overseas.
The PAX network aired a Zoom-produced special, “Women in Comedy,” nationally on this past Thanksgiving, marking the company’s first prime-time special.

Zoom officials said broadcasters were attracted to its offerings because of their low cost, their digital production and the much sought-after demographics that they bring, with shows targeting 18- to 34-year-olds.

Burning through $20 million

With its successes, more venture capital rolled in. Almost half of the $20 million the company raised during its lifetime came last year from firms like Intersouth, Kentucky-based Chrysalis Ventures, Cordova Ventures of Atlanta and angel investor groups. Officials said they had enough money to last through 2003, when the company was expected to start making a profit.

But Wieler says the company was continually plagued by lower-than-expected revenue and high costs. The company laid off a handful of employees last summer, then moved into swank new offices in Chapel Hill.

“When you don’t hit your plan and have to go back and ask for more money, that’s tough. You can do it once, maybe, but you can’t keep doing it,” he says. “Controlling expenses meant ceasing operations.”
Mark Hefflinger, editor of industry news service Digital Media Wire, says he’s surprised Zoom lasted as long as it did based on what it produced.

“They were a holdout. A lot of similar companies, including those with ties to major studios, have been out of business for some time,” Hefflinger says.

Frey and a skeleton crew will now try to get what they can for Zoom’s equipment and its rights to shows in production, Wieler says, and then everyone will move on.

“We really had a lot of talent here,” he says. “Zoom directors have been inspired by this experience to try other things, and I’m excited about the possibilities for them, whether it’s in Hollywood or at a local TV station or doing their own independent projects.”

Zoom Culture: zc.tv