Web Masters Episode #75: Rotten Tomatoes


Rotten Tomatoes Adjusts Criteria to Include More Diverse Critics

Stephen Wang:

1999 was actually when things really began coalescing. Part of that was because just a slate of movies that came out that year. Historically ’99 is one of those years that people in film really are fond about, because movies like The Matrix, I believe, came up then and Episode 1, and in particular was probably a big kickoff point for the website, because that’s the movie that everybody was anticipating back then.

And just coincidentally, reviews wise, it was just riding the line between Fresh and Rotten, leading up all the way to its release. So that was almost like a point, I think when, online people began really sharing the Star Wars page in anticipation of the movie’s release. That was right around the time that we were thinking about maybe departing from doing the design business and doing a new business.

Aaron Dinin:

That was Stephen Wang talking about the big year for movies in 1999 with releases he mentioned like The Matrix and Star Wars: Episode Number One. 1999 also saw the releases of other iconic movies like Fight Club, The Sixth Sense, American Pie, Office Space and The Blair Witch Project. 1999 happened to also be a big year for the tech industry; the dot-com boom was kicking into high gear. Millions of new people were coming online and they were all starting to use the Internet to search for things they wanted to learn more about.

Movies happened to be one of those things. And feeding that hunger was a hobby website by one of Stephen’s former college friends turned employees, Senh Duong. That site was called rottentomatoes.com. I’m guessing you’ve heard of it. Now, are you ready to hear the story of how it got started? Let’s get dialed in.

[INTRO]

Aaron Dinin:

Welcome to the 75th episode of Web Masters. This is the podcast for people who love learning about entrepreneurship, Internet businesses, Internet history, tech startups, those kinds of things. And that’s because on this show, we’re constantly talking with some of the digital ages’ most impactful innovators.

I’m your host, Aaron Dinin. I’m a serial entrepreneur and I teach entrepreneurship at Duke University. I thought we’d celebrate this milestone episode by trying something a little different. I’ve got not one, not two, but all three co-founders of Rotten Tomatoes joining me for this conversation. I’m excited to share it with you. But first I want to share a bit of info about this podcast partner for the 75th time. That’s right. It’s time to tell you a little about our sponsor.

Web Masters is being brought to you with the help and support of Latona’s. Latona’s is a boutique mergers and acquisitions broker that helps people buy and sell cashflow positive Internet businesses and digital assets. What does that include? Well, maybe you are running a super popular movie review website like the guests on this episode, that would certainly count as an Internet business. Also it includes things like SAS apps, Shopify stores, Amazon FBAs, e-commerce websites, domain portfolios, pretty much any type of online work from anywhere Internet business you can think of.

If you’re currently operating a business like that and thinking of selling it, talk with the team at Latona’s, they can tell you everything you need to know about the process and help you get your business sold for a great price. Or, if you’re hoping to maybe buy an Internet business, then you should be checking out the Latona’s website. They’re always adding new listings for businesses they’re helping to sell.

That website is of course latonas.com, L-A-T-O-N-A-S.com.

Like I mentioned earlier, this episode has three guests. They are; Patrick Lee, founding CEO of Rotten Tomatoes, Stephen Wang, founding CTO of Rotten Tomatoes and Senh Duong, founding COO of Rotten Tomatoes. What do those titles really mean? Well, I’ll let Senh explain what they meant for the founding team of Rotten Tomatoes.

Senh Duong:

Patrick was CEO, Stephen was the CTO and I was COO. That was our titles. I think that Patrick and Stephen’s were more applicable. My role was mostly a product manager. I was thinking what features we should have. And COO was just kind of one of those titles that we decided on.

Aaron Dinin:

I’m highlighting these roles because they help underscore the early ambiguity of startup responsibilities and efforts. Most of these Web Masters episodes retell the story of the startup from one person’s perspective, usually though not always, it’s the CEO type of person and it kind of makes it sound like that one person was responsible for having the original idea. And then that person’s passion helped turn that idea into a reality. Sometimes that’s actually what happens. But it’s not always the case. Rotten tomatoes is a good example of a different version of a founder story.

Senh, the guy who just described himself as basically a product manager with a fancy title. Well, he was the person who originally had the idea for the site and launched it. Not Patrick, who was the founding CEO. And while those distinctions might matter to some people, one of the things that struck me as most interesting during my conversation with Rotten Tomatoes.com’s three co-founders is that first and foremost, they seem most interested in being friends. Or, as Patrick put it when we spoke.

Patrick Lee:

I think what I’m really happy with is the fact that a lot of us, we’re still in touch. Stephen, Senh and I, we do calls once a month. And our old editor, Susan married my younger brother, so getting connected even more, I mean, we basically ran it like a family and we all still keep in touch.

Aaron Dinin:

Rotten Tomatoes launched in 1999. Patrick, Stephen and Senh left the company at different times, but all of them stopped working on the site well over a decade ago. And yet here they are still having monthly catch-ups, which is pretty cool. It actually goes back to how they all met and originally decided to work together.

Patrick Lee:

So Senh and I we’re actually on the same floor of the dorms at Berkeley, freshman year of college.

Aaron Dinin:

That’s Patrick again.

Patrick Lee:

So we were just down the hall from each other. And then Stephen and I, we met through a Chinese martial arts club called Wushu, W-U S-H-U. And Senh also took Wushu, as well so that’s how we all met.

Aaron Dinin:

And is it safe to guess that all of you liked movies?

Patrick Lee:

The thing I remember about Senh was he would always have a lot of movies from Hong Kong. So he would be watching Jet Li movies and things like that. Once Upon a Time in China, I think was one of the ones I remember. And so he would be playing those videos in his room. And so a couple of us who were into that stuff would all like crowd around in his room to watch it. Was that right, Senh?

Senh Duong:

Yeah, Denny was into Hong Kong movies too. I had bought this little tiny, I think it’s like a 20 inch TV back then. And I was putting in a bunch of Hong Kong movies.

Patrick Lee:

And I was actually watching that Jet Li movie, I had done the Wushu in high school and Jet Li was like a famous martial artist in Wushu. And I saw that and I was like, “Oh man, I kind of want to go back and start training again.” So I found the club, and Senh and I both went to go take it. And that’s when we met Stephen,

Stephen Wang:

I think early on we’d met each other in the Kao Wushu club.

Aaron Dinin:

That’s Stephen, by the way. This is the first time we’re hearing from him.

Stephen Wang:

I was already part of the TaeKwonDo club and I was doing some back office work for the whole martial arts department. At that point, Patrick was also leading the Kao Wushu club. So that meant he was with the back office a lot as well.

Early on, we would do a lot of workouts. This is summer time. So basically you had the whole day to work out. And then at nighttime we’d all eat together and then head over to our friend’s house to watch again, Hong Kong martial arts movies; Jet Li, Jackie Chan, Donny Yen, those kind of movies. It was a pretty good summer. But after that actually, Patrick and I, we were working in the Martial Arts office together.

Later on, we had organized quite a few events for the Martial Arts department, including some performances from the Beijing Wushu team to come to the US. So that was actually the first opportunity for us to actually collaborate together. It just seemed like a very natural working environment. In fact, a lot of the folks from those early years happened to later join us for the various startups, including Rotten Tomatoes that we had.

Aaron Dinin:

So you all had other startups before Rotten Tomatoes?

Stephen Wang:

Well, both of us actually early on before graduating, had our own startups before we started working together on an actual startup together. So for instance, we were actually in the same apartment building where Patrick was downstairs with three of his friends doing a startup. And I was upstairs with two of my friends. That was before ’97 when Patrick and I founded our first startup together, a web design firm called Design Reactor. And that’s when actually Senh joined us professionally. Senh was the creative director for that design firm, while Patrick and I were partners on the technical and also the operations side.

Aaron Dinin:

It’s interesting to me that you all got into startups. Was that a mutual decision, a collaborative decision, or was the culture just that strong where, and when, you went to school that lots of people were launching startups?

Stephen Wang:

I would say doing startups certainly wasn’t as much of a science as it is now. There’s many podcasts and things that… You need to basically teach yourself entrepreneurship now. Back then in the Bay Area, we certainly weren’t the first. In fact, there was a sister company to ours. They had run Berkeley’s very first private dial-in ISP. Before that everybody was basically using the school’s dial-in modems, which were always clogged.

So there was definitely sprouts of Internet startups before we had started with the web. There was really that first opportunity for new entrepreneurship in a really fast growing field that didn’t seem as boring or mundane as what the older generation of say hardware startups. Or, back then another popular thing was doing multimedia design consulting firms, I think around ’95, ’96 as Netscape and Yahoo really hit the scene.

And then I think another pivotal moment was around that year as Microserfs, the novel came out. I think that was really, at least for me, a really inspiring book. Which is around the same time that Patrick and I started our respective apartment startups. That’s really when things began going startup wise in the Bay Area.

Aaron Dinin:

In the beginning, it sounds like all three of you were working on different startups. How did all of you come together?

Patrick Lee:

In the beginning, I convinced a couple of other friends to leave school early, to try and do a company.

Aaron Dinin:

We’re back to Patrick again.

Patrick Lee:

And our company was very simple. We were just buying and selling computer parts and then building computers for people. And at the same time, that’s when Stephen was doing a web design firm. So for me, we had built a website for our company to try and help sell computer systems components. And then also one of my partners, this guy, Lyle Fong, he would go on, was it like Usenet? He would actually go and find people who wanted to buy things. He would also list things to sell there.

And so we were actually using it to try and transact. And I remember back then, he was the one who was actually like, “Oh, we should get everything on the web.” And he was showing sites like eBay and things like that. And we’re like, “Oh yeah, that makes sense.” But Stephen was actually the one with two of his other friends that was doing a design firm.

And so later on, when I started working with Stephen on Design Reactor, it was at that point that I was like, “Oh yeah, I think the web seemed like it’s making sense. And building websites for people seems like it makes sense.” And then with Senh, I knew that Senh was doing like architecture. I always remembered he was really good at drawing and he was good at doing 3D design, things like that. So I went out and I was like, “Hey, Senh, why don’t you come and work with us because Stephen and I were not graphics folks.” And we weren’t really good at that part as much. I felt like someone like Senh would be perfect for that. So that’s when I grabbed Senh over for us to all start kind of working together on Design Reactor.

Aaron Dinin:

In all your startup iterations, you seem to prioritize working with friends. Out of curiosity, why was that?

Patrick Lee:

I felt like a lot of my friends from high school, we went everywhere around the country to go to college. And then I knew that when people were going to graduate from college, everyone would just leave and go find jobs in different companies. And I thought, “Why does it have to be that way? I can just grab a couple friends and we can work together, so we don’t all have to split up.”

So at least for me, that was my main motivation. And I think every one of the startups I ever done had at least one friend from pretty much like freshman year of college.

Aaron Dinin:

So that’s actually kind of impressive to me because I’ve always struggled when working with friends. We just wind up hanging out, goofing off rather than actually working. How do you successfully navigate being friends and getting work done?

Patrick Lee:

Seemed like a natural extension just because we were already hanging out so much from either the martial arts clubs or hanging out to watch movies together.

Aaron Dinin:

From watching movies together as friends to building one of the world’s most popular movie websites that, in its simplest form, is the story of Rotten Tomatoes, which is actually pretty cool. It kind of sounds like a movie script, but as I alluded to earlier, the actual story of Rotten Tomatoes wasn’t exactly like that.

For starters, the three co-founders didn’t even come up with the idea together. Remember Senh was actually working for Patrick and Stephen’s web design firm, a company called Design Reactor. Here’s Stephen helping explain what that company did.

Stephen Wang:

Around that time. we had started out doing Design Reactor. Initially, we didn’t have a clear concept other than we just wanted to work with our friends across branding and 3D animation and web. We weren’t even clear about what exact services we were going to hone in on. We wanted to offer everything.

Luckily we were actually able to have introduction to the folks at Disney via a mutual contact. And initially, we almost did work on spec for them. We just submitted a portfolio of stuff that we thought we could do for Disney. And they happened to like our work and it was good timing because they were seeking new talent. I can imagine they wanted probably pretty cheap talent, which we were as just recently leaving school.

And that relationship really blossomed from starting with just Disney Channel. And we had a relatively successful project there called Zoog Disney, which was their primetime programming block. And it was Disney’s first on air, online project. Basically where they took assets like over 100 plus online Flash and Shockwave games that were created and brought them on air during broadcast. And then that eventually grew into doing movie websites for Disney animation, doing the Theme Park. And then also ABC, the channel, managing the abc.com website as well.

Around that time though, we had a friend actually Patrick’s partner from his first college startup who had gained success. He raised what, at that time, was an unimaginable amount of money to essentially create the very first gaming portal called gamers.com. And those guys actually started co-leasing space from our own office. At that point, our Design Reactor firm had moved from being just this small Berkeley operation into moving into much more professional office space and hiring people. And as part of that, we also leased some space to our friends, who then went about and raised money and had a very large startup in their own right.

And we were looking at the work that we were doing at that time for Disney and Warner Bros. And as good as it was, it was still essentially work for hire. And I think we really wanted to explore doing something that we owned. Something that could grow like a baby. Our own baby, rather than taking care of somebody else’s baby.

Aaron Dinin:

And I’m guessing that’s what pushed you to Rotten Tomatoes? Is that right?

Stephen Wang:

Initially the idea was actually because we were doing a web design startup from Design Reactor, that we would do an incubator. There was a really fashionable and relatively successful incubator back then Idealabs that we had drawn inspiration from. But as we were helping Senh, and his little hobby site, it was steadily growing into something that people actually depended on and really enjoyed using. We ultimately decided we would much rather just concentrate our time and our efforts on raising one baby to be successful and not trying to split our time between lots of different projects.

And that’s when we decided rather than do the incubator, we’d raise a round of funding for Rotten Tomatoes.

Aaron Dinin:

So where did the idea for Rotten Tomatoes itself first come from?

Senh Duong:

It was a huge Jackie Chan fan and-

Aaron Dinin:

That’s Senh was the huge Jackie Chan fan.

Senh Duong:

I was actually working on a Disney project called Movie Surfers. I was designing the website for it. I always look in the newspapers to see what movies are showing. I ended up using that concept for the Movie Surfers project. In these movie ads on the newspapers, there are always quotes, no matter how good or bad the movie is. So I kind of used that concept for moviesurfers.com. And then I was thinking maybe I do a website later for movies. I should also use this kind of similar idea, similar design, similar concept.

I was constantly reading reviews on Jackie Chan’s movies, mainly just because I want to see how people will receive him in the US because he was hugely popular in Asia. And as Asian in the US, you want to someone Asian doing well on a big screen. So I was just reading reviews and seeing how critics are receiving him. And after a while, I’m like, “Hey, if I’m spending all this time looking up reviews, what if I did something where I provided this service to people and like the newspapers? Even bad movies get a lot of quick quotes from critics.” I also showed the bad reviews. That’s the kind of genesis of it. And shortly after Movie Surfers, I was kind of thinking about it and just kind of started working on it on the side.

Aaron Dinin:

Okay. Rotten Tomatoes begins life as a little hobbyist movie review website. So when do you all start getting a sense that it could become something more? Especially you, Patrick, you are running this seemingly successful design studio, why pivot it to something totally different?

Patrick Lee:

I mean, for us, I remember Senh was doing it on the side, and it was actually affecting his work a bit because he was putting a lot of time into it. He would be working Wednesday, Thursday nights, usually trying to gather reviews for it. And he would end up either coming in late on Fridays or calling in sick or just being very sleepy and stuff when he would get in. And so I remember Steve and I would be like, “Oh, I don’t know if this is that productive for him because it’s kind of distracting him away from his work.”

But we were also hosting it so we could see that the traffic was growing. I think we ended up putting some folks over to help. Senh also brought in some of his friends as well to help. And so we could tell when things would be mentioned about it. It was getting you featured on Netscape and Yahoo.

I remember Roger Ebert wrote an article for Yahoo Internet Life Magazine, where he picked out his favorite movie websites and Rotten Tomatoes was one of them. And I also remember pretty early on, Pixar released A Bug’s Life. And we saw a spike in traffic on the site. And it turned out that, that traffic was coming from Pixar.

So those are at least a few things early on that I saw to the point where we were like, “Hey, maybe this could be the business.” We actually went to investors with a couple of different ideas. Rotten Tomatoes was one of them and they seemed pretty interested. And so I went and talked to Senh and said, “Maybe we can kind of join forces to really try to make Rotten Tomatoes like a real company.” And Senh agreed.

So we essentially all became partners into the design firm as well as partners into Rotten Tomatoes. And then we brought up in his whole team, as well as all of the folks in our design firm. And in total we were something like 25 people. And then went out, raised eight million in funding from our investors, a number of which were our clients from our design firm.

And then we decided to start running Rotten Tomatoes as a real company. And this was probably in ’99 and we officially tried to start doing it around January, of 2000. And so that’s kind of when everyone came together.

Aaron Dinin:

What exactly were you selling these investors on? I mean, you had, you said 25 employees for kind of a hobbyist movie review website. What were you telling them was going to be valuable? How is it going to make money? Or, was it just that this was 1999, 2000’ish and basically everyone thought everything online was going to make lots of money?

Patrick Lee:

I mean, part of it was back then, like Stephen had mentioned our friends, they did gamers.com and they raised, it was like 13 million or something like that. And we had another friend, this guy Ben Chu, he was doing a site called killerapp.com and they were one of our clients, and they ended up selling to CNET for, I think it was like 50 million or 80 million. It was a price comparison engine. And so he was one of our investors.

And the thing with Rotten Tomatoes was, it had already been building up traffic while Senh was running it on the side. And later when Senh was running it full time for a while, so we could show the investors like, “Hey, there’s already this site that is growing in traffic and brand. Pixar’s using it. It’s one of Roger Ebert’s favorite movie sites.”

And at the same time we could be like, “Look, we also have this design firm doing a lot of work for the entertainment industry. We have contacts into the entertainment industry. We have a whole team that can build basically anything for the web.” And we were pitching to our investors who were our clients. So they already knew what we could do. They know that we could do stuff for the web. We already had a property through Senh that was growing in traffic and brand, so that was kind of the pitch.

Aaron Dinin:

So, that was the pitch. And you got investors, but then how did you actually end up monetizing it? How did Rotten Tomatoes turn into a business?

Patrick Lee:

Stephen, you want to take it?

Stephen Wang:

Sure. Well, early on, I mean, one of the things that actually managed saving graces for the company at least very, very early on is that we had signed a essentially buy as much inventory, ad inventory as we could give them and kind of deal with CNET at that time, CNET was just looking for ad inventory to place banner ads. So they basically paid us, I think it was one CPM for as many page views as we gave them. But it was only a one year deal, but it happened just as we switched over from Design Reactor over to Rotten Tomatoes full time, so for all through 2000.

That was actually good because it gave us a north star by which to really run our operations. How can we actually increase page views on Rotten Tomatoes? I mean that wasn’t our only guiding star, but it was something that really gave us an incentive to work hard on it.

In addition to that, around April is actually when the dot-com crash started. That was actually the official switch over from Design Reactor to Rotten Tomatoes. And it was also when the money arrived in an account from the investors, was in April, of 2000. So that was the real switchover, 100% switchover to Rotten Tomatoes. Because the.com crashed happened just a little bit after we had money in the bank and the round closed, it actually happened to be a saving grace for our company because it allowed us to kind of foresee that this was going to be a prolonged downturn.

Some of our competitors or other people in the industry didn’t have that saving grace. A lot of people signed for instance, multimillion dollar AOL keyword five or 10 year deals that really basically blew through their entire round of funding in a single signature. We had just received funding. So we had a longer runway than a lot of our competitors did. And then we also had the CNET deal to basically guarantee revenue for the rest of the year.

That allows us to actually kind of scale down our efforts gradually during the downturn, more gracefully than I think some other people in the space were able to do, and gave us a bit more runway to imagine alternative ways, make money while advertising took a hit.

Aaron Dinin:

What other ways did you come up with for making money with a site like Rotten Tomatoes? Because from the outside, it seems mostly like a site that makes money via eyeballs and page views.

Stephen Wang:

So 2001 and 2002, we spent a lot of time finding revenue through sources like automating the operations for Rotten Tomatoes, both in terms of expanding it from being just about movies and theaters, to really importantly, being about movies all across the catalog, the whole history of movies. So we instantaneously went from maybe a catalog of a couple hundred movies to literally tens of thousands of titles on Rotten Tomatoes via the power of licensing and databases.

And that really juiced a lot of the traffic. Just as Google and other search engines were really becoming important sources of traffic, people searching for old movies, all of a sudden found Rotten Tomatoes as the number one search for result on Google or search engines like that.

Automating those operations, it actually allowed us to begin looking at actually licensing information from Rotten Tomatoes to other sources. So for instance, for a short while the Tomatometer was actually available via Netflix. Netflix would show the Tomatometer, Google would show Tomatometer in search results. And Microsoft’s Set-top box WebTV, was showing Tomatometers.

All of those things were paid licensing that both allowed us to monetize efforts that essentially gathering movie information, but also allowed us to bring the Tomatometer in front of millions of film fans through alternative partners like Netflix. And then also doing things like, if you just watched the movie, you might want to buy memorabilia. We offered affiliate sales through all those different channels on Rotten Tomatoes, as well.

As the ad industry crashed, we were able to increase our revenues in the alternative sources where it kind of balanced out the revenue. A little more than 50% of our revenue was coming from non-ad sources by 2002, 2003.

Aaron Dinin:

Wow. I don’t know why that never really occurred to me until you said it, but obviously yeah, the power of the brand. Every time I, or anyone would come across a Rotten Tomato score on a big service like Netflix, it would have to have been licensed content, so that’s obviously a great revenue stream. Anything else? Or by 2003, is that when the advertising industry starts picking back up?

Stephen Wang:

2003, really for the entire industry was the turning point. That’s when Google AdSense first went online, they were essentially beta testing it with about 50 websites. And it was a similar deal to CNET, where those first 50 websites, which actually included Rotten Tomatoes, for the first year Google essentially paid one CPM for as much traffic as you could give them. That single move, I think, really established the baseline for the entire industry, because it basically overnight, at least for those 50 websites, grew revenues ad revenues by multiple times, by being able to guarantee a certain minimum base revenue.

Aaron Dinin:

Based on the story we’ve heard so far, I think it’s fair to say timing played a key role in the ultimate success of Rotten Tomatoes. Senh launched his movie review website at a good time, a time when there was increasing demand for that kind of content and not a lot of good sources filling that demand. The Rotten Tomatoes team also managed to raise their funding at the perfect time, basically right before the bottom fell out of the tech mark kit during the dot-com crash. And getting to be one of the first 50 partners for Google AdWords was surely serendipity, at least to some extent. Obviously they had to have the traffic to be attractive to Google, but it was great timing for Rotten Tomatoes to have been such a popular website right as Google was looking for launch partners.

Mind you, I don’t mean any of this to minimize the work of Patrick, Stephen and Senh. In fact, it’s the opposite. They did an incredible job positioning themselves for success. By that I mean, as we’ve heard dozens of times on this podcast, timing plays a critical role in the ultimate outcome of every startup. So much so in fact, that I’d argue one of the most important responsibilities of any founding team is making sure their company is as well positioned as possible to take advantage of whatever opportunities come, whenever they come, which is clearly what the founding team of Rotten Tomatoes was able to do all the way up to when they exited the company.

For that story, here’s Patrick explaining how they were eventually acquired.

Patrick Lee:

We had gotten some different offers along the way. I think very early on den.net, the digital entertainment network, actually tried to acquire us, right I think as we had raised funding. I remember they were even threatening us. They were like, “Hey, you either sell to us or we’re going to copy you and destroy you.” And then they had a very famous implosion pretty soon after that.

Patrick Lee:

Later we had offers from, I think it was iFILM. We chose not to sell to them. We had offers from the folks who made MySpace. Do you remember, Stephen?

Stephen Wang:

Intermix.

Patrick Lee:

Intermix, yes. And they had come up to make an offer to us with stock and they had also created MySpace. But right around that time, there was something weird with their stock that it actually got frozen or something like that. And we were like, “Oh, that’s really scary. We probably shouldn’t have sell to these people.”

And at the time these offers were like 10 cents on a dollar, 25 cents on a dollar. Some of our investors wanted us to take it because pretty much everything else they had invested in during that time went to like zero because of the crash. But then eventually we ended up selling to IGN. IGN had approached us earlier. We said, no. They eventually came up and made a better offer where they would buy us for at least our post money valuation. And that’s for us the bar, where we’re like, “We’re not going to sell for anything less than our post money, which was 6 million.”

We had raised a million off of a 5 million pre, so we were at 6 million post. And then they came in with an offer of around nine or so. And we talked to investors. Most of our investors were for it. We got it a little bit higher. And then we decided, “You know what? We can sell our investors will make money. We will get some essentially money off the table, but we could still do other projects from there.”

Aaron Dinin:

That’s honestly, kind of, not the exit I’d expect for a company with a brand that’s still around today and as recognizable as it is. Any regrets about how that exit played out?

Patrick Lee:

For me, I think at the time when we sold, it was the first time we ever had a chance to sell something like Rotten Tomatoes, and we weren’t good at networking. We weren’t good at getting out there, making a lot of connections. I don’t think that was our personality. We were all more just focused on building. We were in Emeryville, which is in the Bay Area, but we weren’t in Silicon Valley, we weren’t in San Francisco. We were a movie site and we weren’t in Hollywood.

And so we just happily were building the site, but we weren’t really getting out there networking, could have been doing as the CEO, but I just didn’t have that personality. And at the time I was very scared of public speaking and I didn’t really like networking.

And so when we had all these offers, we just didn’t have much information outside of our investors as to, should we sell, how do we sell? Is this the right time, et cetera? And I think probably the biggest regret is had I had a better network of folks who could really advise me on things, potentially we could have timed or optimized it a little bit better and maybe sold it later or just had more information.

And one thing for us is we ended up selling IGN, but Google had actually approached us maybe two or three weeks before we closed everything with IGN. And we had actually tried to reach out to Google earlier in the process, but we just didn’t have good contact. We tried to write to some director-level person. They never wrote back. And then later, a much higher level person actually wrote to us and said, “We heard you’re looking to sell. We’d like to talk.”

But at that point we had already signed a no shop agreement. So it was technically illegal for us to even talk. And then we were like, do we secretly try to talk to Google? Or, do we try and wait out the no shop agreement to then talk to Google? But if we wait out the no shop, we had already spent a couple hundred thousand on legal fees negotiating with IGN.

So these are things that we were grappling with and we ultimately decided, “You know what? Let’s not talk to Google, let’s just sell to IGN.” But back then, Google had not gone public yet. So if we even just sold for the same amount in Google stock, instead of in cash to IGN, these are things that could have been life changing to everyone involved. Like us, our team, to our investors.

And so that’s probably the biggest regret. All that work we did building up Rotten Tomatoes to that point, it’s the same amount of work. It’s just that end point, I think we didn’t do a great job, or I didn’t do a great job with that.

Aaron Dinin:

It also sounds like the exit was a victim of bad timing as in the scars of the dot-com crash were still on a lot of people’s minds. So you were stuck with a bunch of potential buyers who undervalued what you had, but you also had investors who just wanted to get their money out. So would you say you were a bit pressured into a sale?

Patrick Lee:

I would say, at least on my part, I don’t think I truly realized how hard it is to get something as good as Rotten Tomatoes. And I thought, “Oh well, we can always do another company, raise money for something else,” because we had already proven ourselves with Rotten Tomatoes. And even though that was true, we could raise money to do other things, especially within consumer, it’s really like lightning in a bottle. And it was not easy to go out and make something again that would have as much success as a Rotten Tomatoes.

I don’t know if Stephen, Senh, do you guys have anything that you want to add as far as the selling?

Stephen Wang:

I mean, I think we had been doing Rotten Tomatoes six years at that point. The site continued to grow, but I think there was interest in doing other projects as well. When we approached by IGN, IGN had pitched this vision. They were already growing as the largest destination for gamers. We had grown to be the largest non-acquired website for movies. IMDB had already been acquired by Amazon, way, way early in the web days. Some of the other websites like Yahoo Movies or movies.com was from Disney, Moviefone was from AOL. Those competitors were all owned by giant multinationals.

Whereas Rotten Tomatoes was right in that mix and was still independent. So we thought the combination of the largest video games website with the largest movies website would potentially be something valuable in the marketplace, and joining forces with IGN to do that would allow us to take the largest destination for entertainment on the web to the public markets. And that’s what we worked on, post-acquisition at IGN, leading up to eventually, ironically IGN right after they filed their S1 to go public, it got acquired by News Corp who, in that same month also acquired MySpace, the team that had sought to acquire us several years earlier.

Aaron Dinin:

As you heard Stephen allude to, the company that acquired Rotten Tomatoes soon got acquired as well, kicking off a series of ownership changes for the popular movie review website. However, while most acquisitions that bounce around from owner to owner tend to be companies that are steadily decaying towards obscurity. Rotten Tomatoes is actually more prominent today than back when its original founders were running it.

From what I can tell after speaking with them, this sustained prominence is unquestionably the biggest source of pride for Rotten Tomatoes’ founding team. Here’s what Patrick had to say about it.

Patrick Lee:

Rotten Tomatoes, I’m really proud that it’s still around. We had a lot of friends who also did tech companies around that time or later that sold and no longer exist, usually within a year or two. The companies that acquire it don’t know what to do with it and they end up killing it or getting rid of it. And so the fact that Rotten Tomatoes has actually changed hands many, many times. I mean, IGN sold it to News Corp. News Corp sold it over to Flixster, then Warner Bros and now Fandango owns it.

It’s been revamped multiple times, but it’s still around. It’s still being used. That is amazing. After we sold, I went to Asia for nine years, doing some startups with Stephen actually. And after we came back, Rotten Tomatoes was bigger than ever.

Aaron Dinin:

As for the guy who originally had the idea for Rotten Tomatoes and posted those first Jackie Chan movie reviews all those years ago, well, here’s what Senh thinks.

Senh Duong:

It’s funny because now that I have kids, they’re like, “Hey daddy, there’s a Rotten Tomatoes thing on TV. Hey daddy, are you famous? Like we Google you and we see your name mentioned in places.” When I see it, I still get like, “Wow, it’s Rotten Tomatoes on TV.”

The funny thing is like early on Patrick had signed everyone out to these business conferences and we were actually pitching it to all these business people. And most of them, their reaction was actually kind of disappointing. They were like, “Ohm it will be a great hobby site.” That was like the most common reaction to it. But to see it turn into something that actually, it stayed around for that long and is even bigger now than it was before feels pretty good.

Aaron Dinin:

Imagine seeing something you stopped being involved with over a decade ago, something you actually invented well over two decades ago. Imagine not only does that thing still exist, but it’s more popular than ever. Well yeah, as Senh said, I imagine it feels pretty damn good. And hey, maybe I’ll be able to say the same thing about this podcast in 20 years. For the that to happen I’m going to need your help because, well, as I told you at the beginning of this episode, it’s only episode number 75. A lot more to come if we’re going to make it 20 more years.

So please take a moment to rate and review this podcast wherever you listen, and be sure you’re subscribed as well. I want to thank all three of my guests for taking time to join me on this episode of Web Masters. That’s Patrick Lee, Stephen Wang, and Senh Duong. Thanks to our audio engineer, Ryan Higgs for his help, with the editing of this episode. And thanks to our sponsor Latona’s for their support.

Don’t forget to check out latonas.com, especially if you’re interested in buying or selling an Internet business. We’ll be back again soon with episode number 76. So be sure to stick around for that. For now though, it’s time for me to sign off.

[OUTRO]

Aaron Dinin:

Just curious then, where did the name for the site come from? I mean, it’s such a well recognized brand now that it kind of rolls off the tongue pretty easily, but back when you first had it seems like it would’ve been kind of a weird name for a movie review site, right?

Senh Duong:

At this time I was a big fan of the Siskel & Ebert show. Originally, I actually wanted to name it like, Thumbs Up or Thumbs Down, but the URL was taken and anything with movies was taken. So I got frustrated. I’m like, let’s think of a name no one would take. Back in the old days when people watched things on stage, if they don’t like, they throw tomatoes at them. I also saw a Indie film called Leolo and tomato was a big part of that movie.

So all those things came together and I was like, “Let’s call it Rotten Tomatoes.” I was kind of naive. I actually bought the URL rotten-tomatoes, instead of just rottentomatoes. We officially formed the company and we’re like, “Oh crap. We should probably buy rottentomatoes without the dash.” I forgot, did we ended up having trouble buying that? No, was it still available back then?

Patrick Lee:

In my recollection, it was after I think, after we watched Star Wars or something and it was still using rotten-tomatoes. And then when I ran home, amazingly rottentomatoes without the dash was still available, so we didn’t have to pay extra for it.

And I remember there was, Stephen tried many, many times for a long time to try and get rt.com. We even made an offer and everything, but we could never get it. And I think now it’s like the Russian Times, I think eventually he did sell it, yeah, to Russia.