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The closing down last week of Webmedia, a leading Web-site producer partly owned by Maurice Saatchi, stunned the U.K. Web site production industry, especially after the company's own Web site proclaimed, "We've been shafted!," allegedly made by an ex-employee with a password.

Webmedia (www.webmedia.com) was part of Webmedia Group, London, a pioneer in Britain's Internet brand marketing sector with clients including German airline Lufthansa and British Broadcasting Corp.

Webmedia Group is 43%-owned by Megalomedia, a company in which Mr. Saatchi has a 6% stake and the role of part-time chairman.

But Webmedia had been losing money since its launch three years ago. Megalomedia, a public company specializing in funding media-related ventures, has seen its original $1.1 million investment devalued to $326,000.


However, the liquidation, which axed 17 of 20 jobs, prompted Webmedia Group's disillusioned founder and Chairman Steve Bowbrick to question the commercial viability of Britain's Web site production business.

"You can't make money doing sites; there's just no space anymore for creating them," he said.

He said Web sites are becoming cheaper to create and more companies are producing them in-house, leaving the U.K. production market polarized.

On the one hand, major computer companies such as IBM Corp. with big Web design units can "do electronic commerce deals for about $30 million and ask a mere $500,000 to build several Web sites," said Mr. Bowbrick. At the other extreme are small agencies willing to take risks.

As a result, "it's difficult to make a profit," he added. Instead, Mr. Bowbrick is setting up an Internet consultancy with a new name, which will be a new subsidiary of the Webmedia Group. He emphasized that Megalomedia is still supportive as a shareholder.

However, rival London-based new media agencies have dismissed Mr. Bowbrick's negative view of the U.K. Internet production and design market and say Webmedia only had itself to blame.

"The Web site business is a very healthy sector," commented Ajaz Ahmed, managing director of AKQA, a London-based new media communications company that counts Microsoft Corp. among its clients.

"Clients need to perceive the difference between major [independent] organizations and tiny, two-man operations. If the big players don't stay innovative, they die," he said.

John Hunt, CEO of Syzygy, a new media agency with financing from WPP Group, had attempted to rescue Webmedia by acquiring its assets, but that deal did not materialize.

He also disagreed with Mr. Bowbrick's view that developers can't make money.

"I think the comment is nonsense," said Mr. Hunt. "It reflects the company's specific issues. This is a fast-growing and healthy marketplace."


Webmedia's demise became high-profile last week when dramatic accusations against Megalomedia were posted on Webmedia's site.

Phrases in the posting, allegedly from a disgruntled former Webmedia employee, include "Saatchi-Megalomedia: Suck this!" and "We've been shafted!"

"Apart from being untrue and libelous, it's just easier [for the writer] to blame us. But all we did was provide the cash," said William Sargeant, a director at Megalomedia. "The decision [to close down Webmedia] was [made] by Steve [Bowbrick] and Peter [Beech, the managing director]."

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