Funny Is Money

 Danielle Levitt

The company also is evolving into a genuine TV production studio. TBS is doing a reality pilot off the FoD sketch "Undercover Karaoke," in which pop star Jewel disguises herself as a businesswoman to belt her own songs at a karaoke bar. Fuse just premiered Billy on the Street with improv comedian Billy Eichner, and HBO has picked up Funny or Die Presents for a third season. The site's feature-film influence is beginning to bear fruit as well. Tim and Eric's Billion Dollar Movie, which came about through the relationship of creators Tim Heidecker and Eric Wareheim with the FoD principals, is set to premiere at the Sundance Film Festival on Jan. 20 before its release through Magnolia Pictures in March. Ferrell and McKay are executive producers. And Farah has been on the hunt for a script that they could turn into a movie for less than $1 million and promote entirely through the site's social media.

As part of its mission to maximize profitability while keeping a tight rein on costs, the company leans heavily on social media. Everything at FoD is broken down into 25 categories -- a political video, for example, would get shot over to the Huffington Post, Politico and others. The recent GOP debate video was an FoD idea that drew interest from multiple distributors; Yahoo was chosen because of its huge reach and partnership with ABC News.

Ultimately, the actual penetration is hard to gauge, though Ferrell has a pretty good idea. After years on Saturday Night Live and huge film hits such as Elf and Blades of Glory, Ferrell is recognized all over the world by fans who aren't shy about quoting some of his famous lines back to him. But one encounter in 2010 caught him off guard. Ferrell and his family received a surprise invitation to the White House Christmas party, where he and his wife, Viveca Paulin, found themselves sitting with first lady Michelle Obama. While chatting amid the holiday lights and high-level Cabinet members, the FLOTUS unleashed an unexpected compliment.

"I just have to tell you, I saw 'The Landlord,' and oh my gosh …" she said to Ferrell. Then, with a chuckle, she threw out the infamous line: " 'I want my money, bitch!' "

"Landlord" was FoD's calling card, a 2½-minute video featuring McKay's daughter that was first unleashed April 12, 2007, when Henchy, McKay and a few others involved in the site's creation e-mailed the link to 10 friends.

Nearly five years later, FoD's staff has grown to 73 people from an idea  Sequoia Capital partner Mark Kvamme first had in 2006. He was visiting the CAA offices in Beverly Hills and met with its head of business development, Michael Yanover. Kvamme's venture capital firm was on a successful run of funding top-tier web initiatives like Google, PayPal, Oracle, Yahoo and YouTube. While kicking around ideas, Yanover suggested a site that included professional content to augment the amateur, user-generated kind. Coincidentally, Kvamme's son Michael, an aspiring stand-up comedian and videomaker, had been griping that it was too hard to find decent original comedy material among the sea of crap on YouTube. Why not do a Hot or Not-style site with comedy content? he suggested. Bingo.

Yanover and Mark Kvamme knew that comedy, unlike sci-fi or action, had the added benefit that it could be produced guerrilla-style, in large quantities, with very low production costs. And if all those goofy kitten videos everyone's mom e-mails around were any indication, the better videos would easily go viral. All FoD needed was a few recognizable names to headline the project whose reputations would draw additional actors, writers and filmmakers to feed the professional content they would lay atop the amateur stuff. Oh, and it would be helpful if those headliners were very, very funny.

By early spring of that year, Ferrell and McKay were putting the final touches on their summer release Talladega Nights: The Ballad of Ricky Bobby and planning, with Henchy, to launch a new TV and film production company called Gary Sanchez Prods. (named after an invented Paraguayan entrepreneur). As head writer on SNL from 1998 to 2001, McKay had written for Ferrell for years and helped launch the show's digital shorts, so he knew the comedy short-form well. And Henchy had been producing TV shows such as Spin City and Entourage. Everyone agreed that the Sanchez guys were the perfect comedy crew to leverage for FoD. There was only one problem: They didn't want to do it.

"Our first response, especially in light of the tech crash in the late '90s, was no," says McKay. "We were just so dubious of any kind of startup, dot-com venture because all that garbage from the late '90s had all evaporated so quickly." But the idea stuck with them. Throughout the summer, Yanover and Kvamme worked on designing the architecture of the site, the technology and the launch plan. At one point, they stopped by Ferrell's trailer on the set of Blades of Glory to discuss progress, and Ferrell asked, "So how much money do we have to shoot these videos?" When they informed him that the budgets would land somewhere just north of the zero-dollar range, the $20 million star blinked and said, "Really?" McKay remembers the site's initial budget as around $35,000. But Mark Kvamme knew that the site couldn't be corporate-backed with millions of dollars. At least not right away. To have credibility, it had to grow organically.

By early 2007, Yanover, the Kvammes and Henchy tracked down Ferrell and McKay in a room at the Bel Age Hotel (now the London West Hollywood), where the sweatpants-clad writers, surrounded by pizza boxes, were bullying together the Step Brothers script. They were told it was in-or-out time.

"Jimmy Miller, who was also involved in setting this deal up, said to us, 'There's really nothing to risk,' " says McKay of the Mosaic manager who reps the Sanchez trio. "He said, 'At best, you're going to get a situation where you can do sketches that you can't do on Saturday Night Live and discover new talent. It could be really fun. And at worst it goes nowhere and you don't lose anything.' And that was really what got us over the hump on it."

McKay and Ferrell brainstormed ideas, collecting one from Michael Kvamme and one from writer-actor Nick Thune that featured him masturbating. They shot a video with Ferrell taking McKay's wife, Shira Piven, on a date to an outhouse. And McKay was convinced he could make something funny out of his daughter Pearl's ability to regurgitate anything he said to her. Others were dubious.

But on April 12, a Thursday, the FoD "staff" -- Kvamme, Yanover, Henchy, Ferrell and McKay -- each e-mailed a link to the site, which then contained just 10 videos, to 10 friends. That was it. That was the marketing plan.

One of the videos was "Landlord," which was shot and edited by a friend of McKay's named Drew Antzis, a massage therapist at the time. And it involved a little girl berating a whining movie star. By Sunday, it had gone mega-viral. When the team reconvened Monday morning at the bungalow office they were using in Hollywood's Whitley Court, Kvamme had great news and potentially terrible news: The traffic explosion was so unexpected -- tens of thousands were viewing it and passing it on -- that they were short servers and the site was in danger of crashing. "And we just start giggling," Ferrell says. "We're like, 'Really? Are you sure?' And he's like, 'Oh, yeah, we're sure.' "

Within a few days, FoD was on the radar of the voracious comedy-consumer community, which began uploading its own videos, YouTube-style. Unadulterated, uncensored videos came flowing in, so Sequoia threw $500,000 of seed money in to bolster the infrastructure.

To amplify the comedy-cool quotient, the founders recruited old friend Judd Apatow, whose Knocked Up had just completed a very successful theatrical run. Apatow long had been a magnet for young comedy talent, and he would be a major draw for professional contributions to the site. He came aboard as a co-owner in October 2007, and though he, Ferrell, McKay, Henchy and CAA have no money in the venture, the agency, Apatow and Gary Sanchez are minority shareholders in the company. (Glover declines to specify ownership stakes but notes that no single entity has a controlling share of the equity.)

By the end of the year, celebrities were showing up. Eva Longoria delivered a fake sex tape, Jack Black and Michael Cera starred in episodes of Derek Waters' "Drunk History" and the site cemented its status as a go-to showcase for anyone with the jones to play around. None of the talent was paid back then, but the opportunity to star in a viral video was incredibly alluring. Based on the site's momentum, Kvamme was able to corral new investors -- DAG Ventures and Tenaya Capital -- as well as additional capital from Sequoia.

Almost a year after launch, FoD finally hired a CEO. Glover was the guy at NASCAR who four years earlier had made McKay, Ferrell and Apatow's dream of a racing comedy happen by convincing the family-owned brand that these loopy guys could be trusted to make a movie that would not merely lampoon NASCAR culture but also celebrate it. In June 2008, HBO invested in the company in exchange for the sketch show series Funny or Die Presents, which would be produced out of the FoD offices. This brought the total investment portfolio to an optimistic $20 million, but in the background was the tanking economy, and a number of parallel "Or Die" efforts were abruptly ditched in favor of focusing on the core comedy brand.

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