COMPANY TOWN : A New Kind of Game : Defense Software Firm Turns to Multimedia

A couple years back, Michael Alexander caught the multimedia bug--just around the time everyone else did. A longtime executive with MCA Inc. whose credits include turning around the USA Network and WWOR-TV in New York, Alexander was looking for a new challenge.

But in a trendy industry where major corporations are spending millions for stakes in tiny start-ups that have yet to produce anything and interactive firms with proven records are valued at huge premiums, he was having trouble finding anything close to a good investment opportunity.

So he opted for a novel approach.

Last month Alexander and a group of investors completed a $30-million leveraged buyout of Intermetrics Inc., a Cambridge, Mass.-based software firm that anyone can see is no young, hip multimedia company. Founded in 1969, its first contract was to produce software for the Apollo mission, and its biggest client for years has been the Defense Department.

But Alexander--now chairman and chief executive of the company--says within five years half of Intermetrics’ revenue will come from multimedia products aimed at consumers, from video games to World Wide Web sites.

“This is a company that has the skills and expertise to be in the multimedia business but is not perceived as being in that business,” Alexander says. “And that is its strength.”

Whether he can transform a staid defense contractor into a creative entertainment company has yet to be seen. But the transfer of computer skills honed for the business of war into the business of fun is becoming a mini-trend in itself.

Pony-tailed, black-clad twentysomething multimedia developers beware--graying engineers with pocket protectors and a dozen years of experience are starting to compete.

Last year, when Sony Corp.’s interactive division was looking for someone to develop a cutting-edge flight simulation game that would showcase its new Playstation video game machine, it turned to SingleTrac Entertainment, a start-up founded by former employees of Evans & Sutherland, a venerable designer of military flight simulators.

Out of SingleTrac’s expertise in 3-D graphics and creating immersible environments for pilot training came “War Hawks” and the racing game “Twisted Metal,” both due out this fall. Sony was impressed enough to take a minority equity stake in the firm.

SingleTrac’s president and co-founder Mike Ryder says he was motivated to venture into the high-risk realm of Hollywood by a combination of entrepreneurial spirit and yearning for a more creative existence.

“When we worked on military-type contracts you’d go into it with a big stack of documents on your desk that defined what the contract was,” Ryder says. “When you do a game you start out with a prospectus that’s only a few lines long that says ‘this has to be fun.’ ”

There were, Ryder acknowledges, adjustments to be made to the “differences in style” between the government officials he used to do business with and the Sony executives who took him to lunch on his visits to Los Angeles from the firm’s Salt Lake City headquarters. “More casual dress, certainly. Less structured would be one way of putting it.”

Ryder’s first brush with Hollywood fashion came when he was still at Evans & Sutherland, which is itself delving into the entertainment business, on a slightly larger scale. The firm has built a virtual reality ride for Burbank-based Iwerks Entertainment that takes 24 participants on a simulated underwater mission to rescue the Loch Ness monster.

A good chunk of virtual reality technology comes from aerospace flight simulators, and many of the companies now providing the technology for the games are offshoots of aerospace suppliers faced with declining defense dollars.

Greystone Technology Inc. is a San Diego-based software developer whose biggest clients until recently were aerospace and defense contractors such as Lockheed Martin and Hughes. Anticipating a steep drop-off in its military contracts, the firm several years ago began developing virtual reality-based rides.

It is now working with Steven Spielberg’s Starbright Pediatric Network to install a virtual reality ride on the back of a winged dinosaur as a method of pain distraction for severely ill children at the UCLA Medical Center.

Brian Fargo, chairman and founder of Irvine-based Interplay Productions and veteran of the interactive industry, likes the irony of it all.

“I think it’s great that the defense guys are doing this. It’s where the job security is now. It used to be in defense. Now it’s in the video game business.”

Fargo, who was introduced to Intermetrics’ Alexander by former MCA President Sidney Sheinberg, has hired the firm to reprogram some of Interplay’s PC games to run on Macintosh computers, a common practice in the multimedia industry.

Interplay’s virtual pool game, “Solaris,” was developed by programmers who had worked on submarine tracking software for the military, and Fargo says he believes the skills can definitely transfer.

“But you also need to make the changeover to being in the entertainment business. You need people who understand the philosophy of games and what makes good entertainment,” he says.

Alexander, who stands to make a bundle if his plan to redirect Intermetrics succeeds, says he knows the hardest part will be changing the culture of the company.

To help him do that he is hiring producer Thomas Parry, whose job will be to seek out Hollywood partners for the firm, and he says the firm’s 550 employees are near unanimous in their enthusiasm for building a new business.

Says Alexander: “You’re going from something that a lot of people look down on now to something that is a glamour business--and that makes it a little easier.”

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Readjusting Its Aim

Michael Alexander has big plans as Intermetrics Inc. chairman to steer the software maker away from its defense-oriented roots and toward entertainment. Known for its work on programming systems for the space station and the space shuttle, Intermetrics is one of several defense companies being transformed into multimedia start-ups. A look at highlights in the company’s 26-year history:

* 1969: Intermetrics is founded by five former Massachusetts Institute of Technology engineers to take advantage of software-development opportunities at the National Aeronautics and Space Administration.

* 1975: The company completes work on HAL/S, which becomes the standard programming language used by NASA and its contractors’ computers.

* 1977: The Department of Defense chooses Intermetrics’ Ada system as the language for all of its programs.

* 1982: The software maker completes its first public offering of stock.

* 1988: Executives acquire Whitesmiths Ltd., considered a pioneer in the use of C language and UNIX programming on microcomputers and IBM mainframes.

* 1989: The company is awarded its initial contract to certify the flight readiness of the space shuttle’s avionics and software systems.

* 1992: Intermetrics forms an alliance with International Business Machines to promote a digital signal processor, known as the M-wave subsystem, for multimedia computing.

* 1993: The company creates a subsidiary--Intermetrics Systems Services Corp.--to focus on long-term software and information services contracts.

* 1994: NASA awards the company the largest contract in its history: an $85-million, 10-year agreement to inspect NASA’s Earth Observing System Data Information System.

* August, 1995: Intermetrics announces that it will be acquired by Apollo Holding Inc. for $28 million. One of Apollo’s directors, Michael Alexander, says he plans within five years to transform half the company’s business into multimedia products for consumers.

Sources: Bloomberg Business News; Intermetrics Inc. Researched by JENNIFER OLDHAM / Los Angeles Times