Only a month after merging into the world’s largest exercise entertainment provider, a Calgary company is fighting to avoid financial collapse.
Netpulse E-Zone Media Networks has laid off key Calgary-based software developers while also reducing operations in Quebec City and San Francisco and sales offices across the United States. Chief technology officer Todd Simpson of Calgary said 150 employees remain with the company (compared to 350 before the merger). He did not have figures on the number of Calgary or San Francisco-based employees who have left.
“All aspects of the company have been scaled back,” said Simpson. “We’re not deploying as rapidly as we were.”
Netpulse E-Zone designs and markets both the software and hardware contained in media terminals which resemble laptop computer screens and are attached to exercise equipment. The devices, which have gone through a series of upgrades, allow people to watch television, listen to the radio and surf the Internet while huffing and puffing on exercise machines in fitness facilities.
The equipment is attractive to fitness club operators because it lures people into their facilities and lets them choose their own entertainment on individual screens and audio systems, while Netpulse E-Zone has a captive, affluent audience to which it can present Internet-based advertising.
Netpulse E-Zone was formed in December after Calgary-based E-Zone joined forces with former rivals Netpulse Communications of San Francisco and Xystos Media Networks of Quebec City.
Simpson said Netpulse E-Zone hoped to raise $50 million, but it hasn’t been able to obtain the money as rapidly as expected.
“We’re experiencing the tech slowdown,” said Simpson, referring to the downturn in tech stocks which has seen Calgary-based industry leaders like Wi-Lan and Cell-Loc suffer huge share-price losses.
Simpson said Netpulse E-Zone is attempting to generate revenue through networks that it has already established, rather than new networks that it has yet to deploy.
“We’ve changed things significantly,” said Simpson. “We’re looking at (raising) significantly less — $5 million instead of $50 million. We’re in more of a maintenance mode as opposed to a growth mode.”
Simpson said the revised plan will “obviously” allow the company to become profitable sooner.
The conservative approach contradicts the build-it-big, build-it-fast strategy that E-Zone embraced after it received an $85-million US injection from Northridge Canada, a venture-management company. (Northridge’s founder, Eric Hobson, also founded the successful Metronet technology firm that, as part of a $4.9-billion purchase, became AT&T Canada.)
Along with the financing from Northridge and other backers, which included the Ontario Teachers Pension Fund, Netpulse E-Zone had an estimated 11 million users and contracts to install upwards of 34,000 media terminals in 700 fitness facilities across North America.
But the company has yet to show a profit, while investors have soured on dot-coms with big dreams and small returns.
Netpulse E-Zone based its primary strategy on Internet-based advertising sales in top-10 U.S. media markets, including New York City and Los Angeles. The company provided millions of dollars worth of equipment to fitness clubs for free in return for the opportunity to sell advertising that is aired while people work out.
But last week, a Wall Street analyst viewed as a long-time dot-com booster predicted zero growth in Web ad sales this year. The prediction of Merrill Lynch and Co.’s Henry Blodget came after Yahoo, a giant Internet portal that draws 90 per cent of its revenue from selling ad space, saw its share price tumble to $27.19 US on the Nasdaq stock market, down from $225 US a year ago.
Keith Maher, co-manager of Mackenzie Financial Corp.’s Univer-sal Internet Technologies Fund, has also speculated that Internet ad-driven companies will face a tough environment in the short term.
Ron Wright, Netpulse E-Zone’s former senior software developer, said that in hindsight, E-Zone might have been better off if it hadn’t merged with Netpulse and Xystos, although it would have faced competition from them. Wright said E-Zone spent most of 2000 sorting out the merger details when it could have focused on developing and selling its products.
However, Wright also noted that E-Zone had reason to fear for its survival if it hadn’t merged, because Netpulse had already secured thousands more fitness clubs as clients.
The partnership with Xystos was seen as a political move. Simpson said that Netpulse E-Zone hoped to raise $50 million in grants from the Quebec government, which subsidizes tech company employee salaries.
Simpson said he’s disappointed that Netpulse E-Zone couldn’t achieve its original vision, but the company has to deal with market pressures.
“It’s just life,” said Simpson, who designed most of Netpulse E-Zone’s products but doesn’t control their patents. “You change your expectations and you move on.”
Will Simpson, who holds a doctorate in software engineering from the University of Calgary, move somewhere else?
Pausing momentarily, Simpson said he plans to stay. “I’m not jumping ship.”
