For Broadcast, May 3, 2007

Dawn Airey took the top job at Iostar only to watch the spectacular collapse of the multimedia giant in just a matter of days. Kate Bulkley examines the flawed business model and the industry landscape in its aftermath.

As the dust is still settling on the Iostar debacle and the excuses are mounting up, the feeling around the industry is mostly amazement that such a high-profile project with so many senior execs and top brains could ever get this far and still fail so abjectly.

Sure, this was an attempt to create a new breed of company and, yes, the directors needed to raise lots of money (a bit more than £30m by all accounts) and, of course, there would be risk, but where were the fail-safes, the contingency plans and how could the company's celebrated CEO take up her post and then exit after just eight days?

It's an "extraordinary tale" according to someone close to the birth and early demise of the company. It is also one that is difficult to get to the bottom of, given that at least one senior executive has called in the lawyers.

Iostar promised in its promotional literature to be a "multi-faceted, multimedia" enterprise, bringing together TV, film and theatre production with talent management, an advertising agency, a branding company and a modelling agency. The big idea was to be more than a super-indie producer and to build a new kind of media powerhouse that would be better suited to navigate the choppy waters of a changing media landscape.

To sail these waters required plenty of experience. Iostar's original ideas duo – Mark Grenside, a former senior Hallmark exec, and Tim Carron Brown, a serial media entrepreneur – dazzled onlookers by signing to their cause the likes of Dick Emery, ex-CEO of UKTV; Tim Wooton, former chairman of media buying giant Zenith; actor Stephen Fry; and, most significantly, the much-admired Dawn Airey, the former head of Five who left a senior position at Sky to become CEO of the new venture.

From the incorporation of the company in December last year to last month's spectacular implosion of the operation, any news about Iostar – though slightly mysterious – was positive. The story went that the company was lining up talent and signing up well-established, cashflow-positive firms to its cause. The companies included West Park Pictures (a production company headed by film-maker Andre Singer); Sprout, Fry's own production company; and Models 1, an agency representing Twiggy and Yasmin Le Bon among others. The new company was also said to be targeting talent agency PFD that counts Keira Knightley, Ruby Wax and Kate Winslet among its clients and Branded, a UK-based branding company.

The business concept spearheaded by Carron Brown and Grenside was to work beyond the UK and ultimately create a global integrated-media giant. But the crucial element that now seems to have been missing during the whole of Iostar's five-month ride was the money to support the business plan. Sources say that the approach to the money-raising itself was part of the problem, with the directors scorning private equity in favour of family trusts and high net-worth individuals, typically called angel investors. Investors need to fully understand what they are funding and they were clearly not convinced enough to start writing cheques.

One source familiar with Iostar's plan went further: "The underlying concept was viable and the ingredients were all there. They were targeting well-established and profitable companies, but the issue was why they went down a particular financing route. The fundamental flaw in all of it was who they relied upon to find the finance," said the source.

Iostar's funding was predicated along the lines of the big bang approach – get all the deals in line and then money will come. According to one source close to the company, the problem was convincing potential backers that Iostar could pull off all its planned deals. The problem is that even the slightest crack in such a strategy can shatter the whole plan.

"It all sounded nice on paper," said one financial source in the City who is familiar with Iostar's plans, "but what was at the core of it and how was having all these different kinds of companies under one umbrella going to give them a competitive advantage?"

Ultimately, the big-bang style of funding let Iostar down – in retrospect, building from the bottom up rather than the top down seems like a more obvious strategy.

The Friday before the annual MipTV market in Cannes last month, turned out to be a pivotal date. This was when the money was meant to come into the company and the targeted businesses purchased. But it didn't happen and even though the company went ahead with a trip to Cannes for MipTV, where it would try to sell 200 hours of programming to international buyers, the fact that the Iostar stand was mostly deserted fuelled rumours. A few days later the game was up when Airey, who had only recently swept in, almost immediately swept out.

Now Airey, who is understood to be the biggest creditor, has called in her lawyers to look at what she claims might be a "significant breach" of her contract, while most of the other senior directors have gone to ground to lick their wounds. Wooton has told The Guardian that Iostar's plan remains a good idea even without Airey at the helm, while another director said that the concept still has legs and could yet reappear. Meanwhile, the rest of the industry looks on and shakes a collective head.

Few in the business think that the idea of putting a group of companies together to leverage off each other is a bad idea. In fact, less ambitious versions of what Iostar was trying to do can be seen at Tiger Aspect, where a talent agency was run alongside the core production business. DCD Media is another smaller indie in the UK that has both production, distribution and a talent company under one roof. RDF Media and All3Media both have talent and distribution arms as well as production.

But as well as stitching disparate companies together, a problem noted by many observers was the lack of a strong core of production at the very heart of Iostar. And with few major indies left to acquire, it was hard to see where that would come from. Says Wall to Wall CEO Alex Graham: "I'm not a fan of vast vertical and horizontal integration. It seems to me to be the corporate equivalent of jack of all trades and master of none. But even if you accept the synergy argument for a moment, and with all due respect to Andre Singer, there was not enough content at the core of this business to drive it. It's like building a Rolls Royce and putting a Ford engine in."