360hip hop.com has been burning through its cash at a rate of $1.5 million a month, according to industry insiders. So, just how will the deal be structured? BET.com and 360hiphop.com will function as one unit with “integrated teams.” Translation: Simmons will have to lay off more employees. Prior to the acquisition, Simmons had already cut about 30% of his staff.
UBO.net has not been spared its share of growing pains. The site was launched by Cooper, the late George Jackson, and Adam Kidron last July after a year of planning and an infusion of $37 million in financing from such venture firms as Flatiron Partners and the New York City Investment Fund. Like other newly minted dotcoms, the site has been immersed in turmoil, including tight cash flow, staff defections, and marketing missteps such as its now infamous-and expensive-launch party on Ellis Island.
So while the remaining sites reposition themselves and jockey for more investment dollars and partnerships, the issue of profitability remains.
OPERATING IN A NEW ENVIRONMENT
The common scenario for these dotcoms has been that they spend loads of dough before figuring out how to make it. In fact, even the most popular ‘urban’ entertainment sites have become cash-strapped within months of a launch.
Take DME Interactive. Last y
ear, Darien Dash, CEO of 5-year-old Digital Mafia Entertainment, transformed his privately held Internet services firm into a company publicly traded on the Nasdaq exchange. (DME was listed after it acquired the assets of Pride Automotive Group, a publicly traded automotive leasing company, in a transaction known as a reverse merger.) Shortly after going public, the company, which received much fanfare, and enough credibility to ink a multimillion-dollar deal with AOL Inc. and CompuServe Interactive Services Inc. to launch places of Color, an urban Internet access community. Yet just a few months later, rumors began to circulate that the company was in trouble. The rumors were confirmed by the third quarter of this year. SEC filings revealed that as of June 30, DME had only $27,222 in cash. During the summer, the cash-strapped enterprise laid off 60 employees-and halted plans to launch Places of Color and Fan4Life.com.
DME and other dotcoms are operating in a far more discriminating environment. Cooper believes the current shakeout will bring more instability to what was an increasingly segmented space and “force companies that don’t have a sustainable business model out of the marketplace.”
He adds, “Now, venture capitalists are stepping back and waiting to see whether companies are viable before they fund them. Given those constraints, the question is, ‘How do you generate traffic and show a profit?’”
Rucker believes the failure to pay attention to the true demographics of the African American community is yet another hurdle the dotcoms face. “There are people in the 35- to 60-year-old market who buy homes and cars, go on vacations, take cruises, and have money to spend,” he says. “Not everyone in the African American community is ‘urban’ or ‘ghetto.’ The African American population is getting older and more affluent; and these