Due credit: an early jump into making the bells and whistles for DVDs allowed Jayson Won and Matt Kennedy's 1K to become an industry leader. Now they fight to retain share.

NOT all Hollywood success stories begin in front of the camera.

In 1997, when just about every twenty-something with an entrepreneurial bent coveted a dot-com, Jayson Won and Matt Kennedy decided that fledgling digital technology for movies and television represented a wide-open field.

Since starting 1K (which takes its name from Won's last name and the K in Kennedy), the company has worked on more than 2,000 film titles and now counts all of the major studios as clients. 1K has won numerous awards for both film and television projects, and it has played a part in such innovations as behind-the scenes interviews and the use of 3-D and other original elements in DVD menus.

Still, 1K faces a wave of new competitors eager to get a slice of the DVD business.

"We had a big head start. We made a decision to become to first DVD-centric company, or at least the first we knew of," said Kennedy, who met Won in the early 1990s when they both worked for television graphics company Novacom Inc. "We've kept waiting for someone to overtake us, but it's been six years and we keep growing."

The company has grown into a $10 million operation with 55 full-time employees, in addition to dozens of freelancers at any given time. The North Hollywood offices are casual, but they have a no-nonsense feel--there's a small room not much larger than a closet that has a swipe-key entry and other security devices to discourage would-be pirates from copying the digital films and television programs stored there. This is the raw material used to add the features and other extras to DVD releases.

A couple of years ago, Won and Kennedy launched Spark Hill Productions, an audio company that records commentaries and other material for DVDs. And a year ago, they launched Sarinjay Entertainment, a music label that has a distribution deal with Warner Bros.

Won and Kennedy are equal partners in all three ventures.

"I almost feel guilty, I'm so blessed," said Won, 34, a native of Korea who grew up in a rough part of Carson and dropped out of high school in the 11th grade.

Rapid rise

A drummer, Won has spent most of the last year getting Sarinjay (named for his two daughters) off the ground while Kennedy, also 34, has been more involved with 1K and Spark Hill.

Kennedy was raised in Dallas and Seattle and has a degree in a studio art from Colorado College. He took a job with the Department of Health and Human Services after graduating, giving up government a few years later to move to Los Angeles and try his hand at computer graphics.

Won had been hired by Panasonic to create an interface for its first experimental DVDs. He approached Novacom with the idea of expanding into that area, but the company declined, he said. Instead, he turned to Kennedy, with whom he felt an artistic and personal kinship, and the two agreed to use their credit cards to fund the venture.

Won remembers he and Kennedy going out for Thai food to celebrate their new partnership and getting the same fortune in their fortune cookie. The message: "you are about to embark on a prosperous venture."

Mining their old business contacts and taking advantage of friends' contacts, Kennedy and Won began pitching their ideas to the studios.

"What was impressive, besides the fact that 1 thought they were both outstanding personalities, was that their background was in broadcast graphic design," said Jeff Radoycis, senior vice president of worldwide DVD production for Paramount Pictures. "They had a much better understanding of what graphic design was supposed to look like on television."

As Paramount and others began releasing more titles on DVD, 1K was given greater creative license, as well as bigger budgets.

"Right when the format was first introduced we met up with them and they've done a lot of our titles," said Joe Yamamoto, supervising producer of Menu/ROM for New Line Cinema. "They basically were there when the format was created."

Competition grows

Today, a typical budget can run anywhere from $10,000 to more than $100,000. "Everyone was caught off guard by how fast it happened," Kennedy said. "At the beginning, we'd send an invoice to the studio and it would take months to get paid because DVD was so new that no one knew who was responsible."

With growth, however, came swarms of competitors. Radoycis said that for a while he was receiving a call a day from companies that wanted to do DVD work. "There was a bloodbath for a while and we are just starting to get out of it," Kennedy said. "With that competition prices started to drop."

But do DVD buyers and renters really care about all the added frills?

"There's been a number of studies that say (menus and extras) are a key selling point for consumers for consumers who might want to buy a DVD instead of just rent it," said Radoycis. "It's an art form of sorts."

Won and Kennedy said they get the most satisfaction from having established a business in which creativity is valued. "We still get a huge thrill out of doing really good work," Won said. "We've been creative in both business and design."

PROFILE

1K Studios

Year Founded: 1997

Core Business: DVD menu design

Revenue in 2002: $9 million

Revenue in 2003: $10 million

Employees in 2002: 48

Employees in 2003: 55

Goal: To expand into the high-definition DVD market and become big enough to allow employees an ownership stake in company

Driving Force: Being the No. 1 creative DVD company in Hollywood