How Digital Entertainment Network soared on the passion of its young true believers and fell into the squalor of sexual abuse charges, bankruptcy, and an FBI investigation. A tale in Internet time.

"Good? It was beautiful!"

Amalia Terrazas is slouched on a white plastic cafe chair, out-of-doors on a sun-dappled and drowsy California afternoon, a block from the boardwalk in Venice. All around her, young people skate and chatter and drift toward the sea, their thoughts most likely on sun and surf and the blazing bright future. But Terrazas is talking about how a dream died.

"They were revolutionary," she says, with a zealot's passion. "They were doing something that nobody else was doing -- at least not like that." She is mourning the demise of Digital Entertainment Network, and four months after the company closed its doors, she is still eager to talk about what might have been. "How many people are at the forefront?" she asks wistfully. "When I came on board, it was the best thing that ever happened to me."

Digital Entertainment Network, or DEN, as it was known, may have been the most vaunted, most talked-about launch in the short, gory, glorious history of the Net. Formed in 1998, DEN went on to attract some US$65 million in investor backing. Hyped by media outlets large and small, DEN was everybody's pick of the pack, a startup that promised to reinvent television as an online video stream aimed straight at the 41 million Gen-Yers between 14 and 24 years old. This audience would be able to turn to DEN for everything from extreme-sports programs to Christian fare, from youth-oriented news to gay soap operas. More important, perhaps, is that each of these viewers, armed with only a modem and a phone line, could become a foot soldier in the great crusade to snatch the future from the wrinkling hands of the Boomers.

"The boob tube zombie television is dead," DEN's prospectus crowed. "Digital Entertainment Network will create the last network."

From the start, DEN was fueled by high-octane hubris. Not for one moment did its founders -- Marc Collins-Rector, Chad Shackley, and Brock Pierce -- doubt that they could remake the face of modern entertainment, as surely as the first black-and-white Philco in the living room redefined the life of the '50s family. They were true believers, it seemed, and for a few dazzling months many people believed right along with them.

But that was before DEN became a soap opera in its own right -- before the lawsuits and recriminations, before the charges of deceit and excess and uncurbed appetites, and before a boy named Daniel S. sat down to compose a suicide note detailing how DEN had destroyed his life. In a lawsuit he filed, and in reports and complaints that have begun leaking into lawyers' offices and press bureaus throughout Los Angeles, Digital Entertainment Network the artistic-technological wonder was transformed into the DEN of infamy, where young boys, drugged and doped and zombified, were hired and used and bribed and threatened by adult men.

In the end, DEN wasn't the synergistic, revolutionary blend of youthful idealism and technological wizardry that sounded so good to so many not too long ago. It was, to put it cynically, simply show business as usual. And these days, the three men who were once so vocally behind it aren't saying much of anything. Although hordes of reporters, lawyers, and, no doubt, investors would like to talk to them, Collins-Rector, Shackley, and Pierce are nowhere to be found.

Think back to the fall of 1998, when the dot-com gold rush was in the first throes of its mad growth and the wonders of broadband were being loudly touted. While today only a small portion of Americans -- about 22 million -- have access to high-speed services at work, home, or school, the prospect of ultra-fast, ultrarealistic video and audio had captured the Web community's imagination. Perfect video on every desk was just around the corner. And the old TV networks were still missing the point: 30-second clips from last night's news, parceled out at an excruciating 56Kbps, were not what this revolution was all about.

A bright start

Suddenly you started to hear all sorts of wild, adrenaline-pumped predictions about companies like Pseudo and Medium4.com and DreamWorks-backed POP.com. You might even have checked out some of these sites yourself, more than a little curious to see what the future of digital entertainment looked like. But as Pseudo and the others learned all too painfully (amid layoffs or worse), you probably didn't find so-called online TV habit-forming. The speeds were too slow, the content wasn't there -- it was all hype.

But DEN would be different. Collins-Rector and Shackley had made a fortune in the mid-'90s from the sale of Concentric Research, an Internet service provider they founded together in Michigan. Though they had no entertainment experience, they did understand technology. Along with Pierce, a 17-year-old actor best known for such family fare as First Kid and The Mighty Ducks, they set out to produce online programming that would be nearly as satisfying over a standard phone line as it was via broadband. The timing was perfect, and their pitch fell on eager ears.

One former DEN staffer (who, like most of the ex-employees interviewed for this story, requested anonymity) recalls the arrival of Collins-Rector and Shackley in L.A.: "Chad was 24. Marc was, like, 40, and came out here from Michigan. The first thing they did was sort of hang out with this Hollywood crowd. The geeks want to be cool, and Hollywood wants the geeks' money, which I think is what the whole goddamned L.A. thing is about."

These particular geeks were an odd, unsavory bunch. Collins-Rector, by then well into his thirties, had moved to Michigan to be near Shackley, a teenager who eventually moved in with him. In Hollywood, they added to their merry band young Pierce, a pouty-faced youth who was the subject of a mildly homoerotic Web site and several lively chats. (His devotees on the Net, however, have turned on him with a vengeance since he became involved with the DEN scandal.) These were the self-proclaimed prophets of the new Web, when they were not busy throwing parties for their young male retinue.

The dot-com bubble of '98 and '99 helped power the company's early success. Although DEN never offered its shares to the public, numerous private investors and venture capitalists wanted a piece of the action. While the dot-coms listed on the Nasdaq exchange saw their share prices head for the sky, private companies like DEN watched money flow in through the doors, from investors who wanted to be on board for the initial public offering -- which would often bring the insiders their first big payoff.

"A lot of Hollywood was seeing an opportunity to get in on the Internet [wave] that had so far passed it by," says Joel Brand, who covered Bosnia for Newsweek before joining DEN to help set up and run its news division. Indeed, major movers in the entertainment industry -- such as studio heads Frank Mancuso and Terry Semel, producer (and onetime congressman) Michael Huffington, and actor Fred Savage -- elbowed their way up to sink money into DEN, investing alongside Microsoft, Intel, Dell, Chase Capital Partners, and Enron.

To the outside world, backing DEN was a brilliant play. "This revolution will not be televised," predicted USA Today under a headline announcing that DEN was hoping to be the MTV of the future. An article on The Industry Standard's Web site proclaimed that DEN was "Getting the Net Ready for Prime Time." To would-be employees, the idea of DEN was just as seductive. Eventually some 300 people -- most of them young, ambitious, and clever -- flocked to the company, eager to see how they could use the Web to rewrite the rules of mass communication. "There was certainly a lot of idealism at DEN, a lot of people who drank the Kool-Aid," Brand says. "People believed what management said about a revolution, and then they heard it echoed by the mainstream press. It was intoxicating."

DEN was on its way. "We always knew that when the history of entertainment on the Internet was written, DEN was going to be a whole chapter," Brand adds. "The question was, was it going to be a huge success -- or a cataclysmic failure?"

The players

If this story has a tragic figure, it's Daniel S. Like any red-blooded California teen, Daniel S. had movie-star dreams. Though he lived in the determinedly un-chic town of Upland, some 30 miles east of Los Angeles, Daniel had an agent, one who saw promise in his lean, kid-next-door looks. One day he sent him to audition at DEN's hip, postmodern studios, located in an old commercial space on Broadway in Santa Monica. DEN was assembling the cast for a series called Chad's World, about a gay teenager coming to terms with his sexuality, and Daniel's agent thought his gangly, all-American client would be a perfect fit for a supporting role in what was presented to him as a sensitive coming-of-age story. When Daniel got the part, it was a breakthrough for him, one that seemed like the first step toward a brilliant career. Instead, it became a step into the Boogie Nights fantasy of a group of wanna-be Hollywood players.

As it happened, Daniel stumbled into DEN at a formative time in its existence. Collins-Rector, Shackley, and Pierce may have dreamed of becoming Hollywood machers, but it was only after Chad's World first streamed onto the Net, in the summer of 1998, that they decided to launch a full-scale network. "They were really smart about it," a former executive says. "They advertise it on all the gay newsgroups; it gets a little buzz. They're so enthused by the attention they got, and the press, that then they decide to build this whole company around it."

DEN began to grow in every direction. It hired away from Disney a 38-year-old studio executive named David Neuman, giving him a Hollywood-size salary of $1.5 million a year, a $1 million signing bonus, and the title of president. Record executives brought in to develop a DEN music label were paid $600,000 each. Even the teenage Brock Pierce was pulling down $250,000 a year.

While most other dot-coms remained the turf of the young and the edgy, DEN stood apart for its ability to attract older, more seasoned hands -- "adults," as it were. "The management team was getting inundated by Hollywood companies and players who wanted a piece of the magic Internet dust," Brand says. Randal Kleiser, who made Grease, among other big-budget films, signed on to direct the science fiction series Royal Standard, and even waxed ecstatic in a trade magazine about the restrictions imposed on him: little camera movement, green-screen backgrounds, and broadcasts made up of slow, jerky images. "Working in the rapidly changing world of digital production for the Internet," he was quoted as saying, "reminds me of what it must have been like in the early days of silent movies, when there were no rules...a Wild West feeling."

Shows were planned, shows were put on the drawing board, shows were produced. Aggronation, an extreme-sports program; Tales from the Eastside, a Latino gang drama; Redemption High, a Christian kids' show -- product started rolling out of DEN's studio. On paper, the ideas were perfectly attuned to the target audience. ConfiDENtial, for example, would feature real teens discussing such topics as bulimia, AIDS, and depression. Hip Hop Massive would tap into the enormous popularity of hip-hop among teens of all demographics; Fear of a Punk Planet would offer an ironic twist on the '60s show The Monkees, following the adventures of a punk band as its members developed their sound and their lives.

"I'm not saying the content was always the best," Terrazas concedes, "but what they were trying to do -- it was amazing."

Soon after DEN actually started streaming its programming, however, the skeptics began to weigh in. Writing in Business 2.0, Mark Frauenfelder described his visit to DEN's studio, during which he watched as shots for one show were blocked out using electricians as stand-ins for the actors. "The whole scene has a from-the-hip feel to it," he reported. "A streaming video entertainment network? Anyone who's ever attempted to watch a streaming video feed on a dial-up connection knows it's not exactly a flowing experience. Shown in streaming video, Mikhail Baryshnikov becomes the staccato David Byrne of Stop Making Sense." In the same article, Jupiter Communications analyst Patrick Keane commented: "The sobering reality is that today the Internet is a narrowband world."

The beginning of the end

Even within DEN, doubts began to arise. One young executive, now a high-ranking star at another startup, remembers being stunned by the amateurish nature of the shows and the apparent cluelessness of the people in charge. "I thought they were nuts," he says bitterly. "They didn't get the Web. There was nothing going on -- no production values, no excitement. All they did was make everything as minimal as possible." Another former executive points out that DEN's 13 shows were attracting an almost negligible audience, averaging fewer than 5,000 hits per day.

The culture of many Internet startups is casually communitarian, reflecting something of the hippie ideal of the '60s. As Craig Caryl, DEN's former head of production, phrases it, "The Web is all about sharing."

But DEN didn't work that way, at least not when it came to producing its shows. "DEN was never really a startup, in the sense that there was never a cross-pollination between different kinds of expertise," Joel Brand explains. "Part of what the startup thing is about is getting a potent mix of energy, talents, and experiences together and seeing what they create. At DEN, the vision was always top-down, and there wasn't that kind of mixing....DEN was a house divided. On one side were all the former television people, who made up the executive team and the production staff. On the other were the tech people, many of whom were far more creative and saw what was coming from very early on."

Through further rounds of venture-capital funding, as well as through advertising contracts with major clients that totaled some US$7.5 million, the money continued to pour in. Unfortunately for the investors, it was pouring out again just as fast. With outlays for salaries, cars, and business entertainment continuing to climb, DEN's burn rate sailed north of $3 million a month. Meanwhile, DEN's founders filled their offices with $1,800 Eames chairs and state-of-the-art DVD players, hoping the smell of money would be enough to keep attracting Hollywood players. They also began spending less and less time in the Santa Monica studio, preferring the comforts of a place they shared in Encino -- a mansion that had once belonged to Suge Knight, the jailed founder of Death Row Records.

Daniel S., too, eventually wound up in Encino. After finishing his acting stint, he was offered a job maintaining DEN's computers. Soon he was assigned to an office in an outbuilding on the estate grounds.

At the mansion, Collins-Rector, Shackley, Pierce, and their guests enjoyed a lifestyle as lavish as any of DEN's writers could have dreamed up. "There were white shag carpets, there were gold banisters, and there were statues of black jaguars in the house," says one former employee who spent some time at the estate. "I'm talking about the very new rich. Not that I'm old money or anything, but I know not to have gold banisters, and I know that bookshelves are nice, as opposed to neon lights on the wall."

As time wore on, the attention of the three men wandered from the company to focus increasingly on the constant round of parties they threw for a largely male group of friends. "You would go to the house," says another former employee, "and the door would be opened by this 15-year-old boy, and there would be teenage boys all over the place. It was very strange."

Ultimately it fell to David Neuman, the former Disney executive, to see to the task of actually running the business. Though he'd never before worked at an Internet company, Neuman became the public face of DEN, adopting the air of a techno-prophet. The media loved to quote him. In USA Today, the Los Angeles Times, The Wall Street Journal, and a host of trade publications both on- and offline, he emerged as the glib, well-spoken voice of the next new Web success. (Neuman declined to be interviewed for this article.)

On September 17, 1999, DEN filed a Form S-1 with the Securities and Exchange Commission, formally signaling that it intended to offer its stock for sale to the public. According to its filing, the company expected to raise as much as $75 million from the IPO -- though by now few employees expected the money to go toward creating a better product. "They might have been able to cash out," says one. "They never would have had a successful company, but all the investors would have been able to cash out and take their profits. That's what it was all about. You think these people care about the computer? Do you think they care about the technology or the Internet?...They just care about cash."

Visit ZDNet.com.au tomorrow for the second installment of this story

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