Funny Is Money

12:47 PM PST 01/11/2012 by Jay A. Fernandez , Paul Bond
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Danielle Levitt

Five years ago, Funny or Die launched big with a trash-talking 2-year-old. Now the creators of Hollywood's breakout viral content site, Will Ferrell and company, have Mike Tyson as Herman Cain, Marion Cotillard with breasts on her head and, most important, an actual money-making venture.

During a recent republican primary debate, Michele Bachmann spoke of having "dozens and dozens of children without once having sex," while Ron Paul pushed his new book about how to keep kids out of abandoned amusement parks. When moderator Larry King asked Rick Perry about the gap between the rich and poor, he said: "Right now, my brain is thinking of this really funny, racist joke about this Injun and this colored fella -- I'm sorry, two colored fellas."

It may not be immediately apparent, but the debate is a parody. It hit the Internet on Jan. 6, and at 13 minutes it's one of the longest videos in Funny or Die's five-year history. Courtesy of distribution partner Yahoo and its 700 million users worldwide -- and with 1.6 million views already logged, according to Yahoo -- the video has a shot at becoming as popular as another politically themed video from FoD: Paris Hilton's response to a John McCain ad, which has been viewed more than 10 million times in three years. That would thrill Citibank, which has one of several 15-second ads attached that viewers can't skip. This isn't just fun and games, after all. It's business.

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According to the executives at FoD, a producer and online host of comedy videos that was founded in 2007 by Will Ferrell, Adam McKay, Chris Henchy, CAA and others, it's a profitable business, though how profitable they won't say. But that it still exists at all is an impressive feat in light of the high-profile failures that preceded it -- anyone remember Pop.com from Steven Spielberg and Ron Howard? That online content initiative had major resources behind it but foundered back in 2000 (too expensive, too slow and, perhaps, too early). It took even Amazon seven years to make money.

In terms of branding, it took just a few weeks for FoD to become a hip club. The GOP debate video features not only King and his famous suspenders but also Patrick Warburton as Perry, Erin Gibson as Bachmann, Horatio Sanz as Newt Gingrich, John C. McGinley as Rick Santorum, Mike Tyson as Herman Cain, Reggie Brown as President Obama and Rob Delaney as "Lands End model Mitt Romney." Performers rarely are paid for their work, but the exposure for up-and-coming comedians (like Gibson and Delaney) is invaluable. "This is definitely a brave new world," says FoD creative director Andrew Steele. "The new Belushis and Aykroyds are appearing on the Internet."

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Established names like Tyson also can benefit. "I'm just motivated to entertain," says Tyson, who wasn't paid for his Cain videos or the FoD Oscar-talk segment he did last year with Leonard Maltin. "I like to perform and show people that I have the actor side of me. I put Funny or Die in the same league almost as Saturday Night Live as far as the spoofs. I don't do it for a fee. I'm getting more and more experience every time I do a skit."

 With banks, breweries and phone companies using FoD to sex up their images -- and studios and networks to showcase their upcoming projects -- CEO Dick Glover acknowledges that when AOL paid $315 million in February 2011 for the Huffington Post, a company with similar revenue ($31 million annually), he took notice. "We said, 'Wow, we must be worth a lot of money,' " says Glover, though he stresses that no IPO or acquisition is expected anytime soon. "There is no exit strategy. Let's build this brand, let's build a library, let's build a skill set, let's build lots of money in the bank -- then we'll have a zillion options."

In September, the company moved from a former photo lab hidden behind a mini-mall on La Brea into classier digs a few blocks down the street in Hollywood. Given the commitments of their feature careers, McKay and Ferrell now act more as consultants, though Henchy often can be found in his FoD office when not shooting. 

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"We're always looking at the site," says Ferrell. "Checking things out as fans and chiming in here and there to go, 'Hey, we need more of this or less of that.' "

But Glover, Steele and president of production Mike Farah run the operation day to day, pumping out 25 to 30 videos a month, with Steele making most decisions free of approval. "Part of what we're trying to do is generate that feeling of lean, mean, guerrilla comedy," says Glover. "There isn't a lot of process."

The company's strategy early on was to be an ad-supported site in the YouTube mold, only much more targeted. Eventually, it expanded into sponsorships, and a branded-content department was created to broker deals that involve more immersive advertising, with the buyer underwriting the cost of production. It can be a tightrope, with FoD protecting its reputation as a rock 'n' roll, answer-to-no-one outfit while being mindful of its need to bend to the occasionally conservative wishes of the brands that are footing the bill.

"We never wanted it to be forced and sweaty … just a cool, fun thing to play around with," says Ferrell. "And as that slowly caught momentum, bigger and bigger names started getting attracted to it, as well as their representation, and studios, and they all started seeing it as a tool to promote things. But all the while, we wanted it to seem like it was slightly on the edge and punk rock."

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Mini Cooper, Starbucks and Discovery Channel's Shark Week are some of the brands that have commissioned sponsored videos, which account for about 15 percent of FoD-created content on the site. Steele and Farah have a monthly production budget they can spend on any number of videos they choose, and in-house productions still average as little as $2,500 for outside costs. Branded videos come with their own, generally larger, budgets. Some brands are looking to amp up their cool factor, while others, as was the case with the Hyatt hotel chain, want a way to keep eyeballs on an other-wise dry website for a little longer. These brands are happy to tout their relationship with FoD. They're not just paying for the creation of funny videos -- or to be incorporated into an existing series, as Mennen has done by paying to have Zach Galifianakis goof on Speed Stick deodorant during episodes of Between Two Ferns -- but also for the privilege of having them reside at FunnyorDie.com, a site frequented by nearly 4 million people a month, according to ComScore, who watch videos there 60 million times each month. (The company says that as many as 16 million unique visitors have hit the site in a single month.)

FoD is an especially popular buy for entertainment companies because stars are willing to shill if it's for one of their own projects -- and they realize the brand gives them a certain immunity, even when the videos are veiled advertisements, such as Paul Rudd's recent bit in which he pitches marketing ideas to Harvey Weinstein for the release of Our Idiot Brother.

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"What matters is how people receive stuff," says Comedy Central programming and production executive Kent Alterman, who scours the site in search of overlooked talent. "Funny or Die is a great example of where comedy rules. If Paul Rudd does something with Harvey Weinstein and it's funny, then it's going to get passed around and people are going to care about it."

The FoD system has flipped the entertainment dynamic on its head because the talent has a direct channel to fans and consumers, while their studio and network employers are in the less powerful position of essentially needing FoD's invitation. Where features and TV series take months or years to come to fruition, stars and filmmakers can have projects up on FoD in a week and see immediate reactions to new characters. They also essentially have final cut. "We give them the greatest thing you can give anyone, which is, if they don't like the video, we won't air it," says McKay, who cites  a video from Pharrell Williams that was nixed.

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FoD never buys or owns the content amateur talent provides, so those filmmakers can do whatever they want with it, and FoD promises it will never exploit user-generated content in another medium -- such as compilations. Those videos are left unedited to sink or swim, and there are plenty of poorly received clips that have never been heard from again (the "or Die" option).

"Our mantra is: 'Content drives the deal,' not 'The deal drives the content,' " says Glover. "It is the ultimate integration of a product into a form that is hopefully wildly entertaining. Talent doesn't want to get abused, and a brand doesn't want their message to get lost."

So far, so good. Two years ago, FoD typically worked on two branded campaigns a month, whereas it's about six today. "We're seeing a good amount of repeat business," says Chris Bruss, who oversees branded entertainment for FoD. He won't let on how much FoD charges for its branded entertainment efforts, only that no two deals are structured the same way and that things can get pricey when celebrities -- who can share in profits -- become involved. Insiders say that branded campaigns can run from $100,000 to $900,000, depending on how many videos are created and other criteria. That money covers production costs and goes to cinematographers, production designers, costumers and other crew, many of whom work with FoD repeatedly at standard, low Internet rates.

In Glover's formulation, the company has been "sustainably profitable" since the fourth quarter of 2010. Since the company is privately held, FoD won't disclose its financials. Tom Taulli, author of the book Investing in IPOs, predicts FoD will post $40 million in revenue in 2012 and could be worth close to $300 million if it were to go up for sale.

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