RETHINKING `SILIWOOD'.

Byline: Russ Britt Daily News Staff Writer

The honeymoon is over for Hollywood and Silicon Valley, and now the entertainment and computer industries are struggling to make their marriage work.

Roughly a year after the major film studios started setting up interactive divisions in a union known as ``Siliwood,'' entertainment companies have discovered that breaking into the computer game is not as easy as they thought.

``The bottom line here is I think a lot of people have flailed around,'' said one studio executive. ``I think people are building a `Field of Dreams.' ''

But few customers have come. Companies are rethinking strategies and are taking more tentative steps before investing millions in computer games or movie tie-in products.

Some have found a more promising market on the Internet, while others are resigned to contracting out with small technology firms to develop the next hit software title.

Previously, studio executives with little knowledge of computers often were plugged in to head interactive businesses, a strategy that didn't always work.

``They don't get it,'' is the phrase often used by software experts when discussing the studios' inability to quickly penetrate the computer business.

Michael Backes, co-founder of Rocket Science Games and screenwriter of such films as ``Rising Sun,'' is spending half his time in the film business and half in the computer business, and says many studios are finally getting a handle on what it takes to make it in the game business.

``I've gone from being very, very cynical on the studios' ability to compete creatively to thinking now they're getting their act together,'' Backes said. ``I just think it's taking them a while to get up to speed. It's an incredibly competitive market for talent now.''

Hollywood executives have learned that in the Siliwood marriage, they are not always going to be the head of the household. Studios are beginning to hire software experts from Silicon Valley and bring them south to head their interactive divisions.

To paraphrase Shakespeare, Hollywood is discovering the game's the thing and the creative forces necessary to arouse interest should come from the field of software designers.

Last week MCA Inc. named Paul Rioux, a former Sega of America Inc. executive, to head a newly created interactive group. MCA had a small presence in the computer market and now is trying to beef it up.

DreamWorks, for example, has drawn executives from the software industry to head interactive divisions at its companies.

Glenn Entis, president of DreamWorks Interactive in Los Angeles, said his company hopes to capitalize on the fact it has a 50-50 partnership with software giant Microsoft Corp. DreamWorks is the partnership of director Steven Spielberg, studio executive Jeffrey Katzenberg and record mogul David Geffen.

``We see ourselves as a game company first,'' Entis said. ``It's game design first. That will drive the decision of what kind of marketing, what kind of movie talent we'll use.''

The studios now are trying to raid smaller software developers for talent, said Harry Wilker, senior vice president for Broderbund Studios in Novato, Calif., makers of such games as ``Myst'' and ``In the 1st Degree.'' Wilker said studios constantly are calling Broderbund programmers and game designers for help in getting their divisions going.

``It's nonstop. We've thought of giving them a desk here,'' Wilker said. ``They're going to be a player because they have resources, they have determination, they have some of the skill sets.''

Perhaps no entertainment company has had a bumpier ride on the information highway than Time Warner Inc. The New York-based conglomerate poured an estimated $100 million into developing interactive businesses and was parent to Atari Games, a maker of home video games.

Analysts said a lack of direction on the part of Time Warner led to failure for the company. As a result, its interactive business was scattered among its various divisions, and Atari was sold earlier this year.

Time Warner is finding greater success with its on-line services such as Pathfinder, which is acknowledged in the industry as one of the more often used sites on the Internet. Although the site is free for users, Time Warner is able to command higher rates for companies advertising on it than most other Internet stops.

A similar effort is under way at the company's Warner Bros. studios in Burbank. Jim Moloshok, senior vice president for Warner Bros. Online, said advertisers are beginning to treat Internet promotions such as banners over Web sites as the equivalent of buying time on radio or television.

``Along with radio and television, they want to know what the cost will be,'' Moloshok said. ``On-line ads have gone from being a novelty buy to being a media buy.''

That, however, does not mean that the business already has proved lucrative, said Paul Sagan, president and editor of the company's new media division.

Sagan said Time Warner is looking to start offering more elaborate games and material for a fee to subscribers, similar to ESPN's Sports Zone. That may help bring profitability to the business, he said.

``I don't think we can pay the bills with just advertising,'' Sagan said. ``I don't think a news site or an entertainment site can rely just on that.''

One company that experienced immediate success on the Internet is Walt Disney Co., based largely on its instantly recognizable product line. Last year, the Burbank-based giant had five of the top 10 software titles, said Amy Malsin, Disney Interactive spokeswoman.

Disney Interactive's work force went from 125 when it started in December 1994, to 700 today - one of the largest interactive divisions among studios. Disney is moving from contracting out with smaller software companies to develop games to taking on more of those duties in-house, Malsin said.

And unlike some other studios' divisions, Disney Interactive's president Steve McBeth was not hired from outside to run the division. McBeth was a regional vice president for the firm's consumer products division.

Critics say Disney's first games were not as engaging as their more recent products, and relied on the strength of character recognition from such movies as ``Lion King'' and ``Aladdin.'' But now the company seems to be getting more technologically adept, Backes said.

``Disney has the best (research and development) in town,'' said Backes. ``Disney is really on the right track.''

Meanwhile, Metro-Goldwyn-Mayer is looking to keep its interactive division small by contracting out with software companies, said division President Ron Frankel. MGM has fewer than 20 people coordinating the distribution of games and educational software.

MGM is expected to release five software titles this year, as opposed to two last year, Frankel said. Although Frankel is viewed as a sympathetic to the cause of the software designer, he said he will take a good idea from either the company's creative forces or technical experts from outside.

``We're looking to make great products,'' he said.

CAPTION(S):

2 Photos

Photo: (1--Color) DreamWorks Interactive President Glenn Entis, left, and Douglas Tennapel show off figures from ``The Neverwood Chronicles.''

(2) Time Warner Inc. is looking for a lasting place on the Net.

Gus Ruelas/Daily News