Race on to create studio model for the online market

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On Nov. 11, the Hollywood creative team of Marshall Herskovitz and Edward Zwick unveiled the dramatic series "Quarterlife." Not on network TV or cable, not in movie theaters, but on the massively popular online social networking site MySpace. And they own and control every plot, every line of dialogue and every dollar earned.

"Ed and I had a running joke for the last two years that one day two kids in college would make a movie for $15,000, make $8 million and make the studios irrelevant," Herskovitz says. "And then we thought, 'We could be those two kids.'"

Herskovitz and Zwick aren't alone in thinking there might be gold in Internet content. A slew of Hollywood players are entering the fray, from Michael Eisner, whose Internet video studio Vuguru produced "Prom Queen," to Hollywood trio Will Ferrell, Adam McKay and Chris Henchy, who founded FunnyOrDie.com, a comedy video Web site with original exclusive clips, as well as user-generated content (UGC).

"My girlfriend said, 'If you had a chance to buy IBM stock in 1954 for 8 cents a share, would you do it?'" says actor Robert Hegyes, who has executive produced and written Internet series "The Venice Walk" with writer Craig Titley (2003's "Cheaper by the Dozen"). "That's the Internet."

The intersection between Internet video entertainment and social networking is emerging as a powerful model. Herskovitz and Zwick have created a stand-alone social networking component that they hope overlaps with the series' audience; Internet video site FunnyOrDie.com allows viewers to decide which content stays and which "dies." And social networking powerhouse MySpace has gotten into the Internet TV business.

"Roommates," which debuted Oct. 22, the first and only scripted Web series co-developed by MySpace TV for the MySpace community, was developed in collaboration with production partner Iron Sink Media and will initially be exclusive to MySpace.

"We're excited to provide the content exclusively to our users for now, but we're looking at the model (of posting it on other sites) and will make decisions that are right for the show and our users," MySpace TV general manager Jeff Berman says. "The whole focus here is serving the MySpace users. We're really community first and a video site second."

Whereas the Hollywood players rely on their production expertise to create "premium" content, which they're betting will win out over the hit-and-miss dynamics of lower-quality UGC, social networking sites believe their experience in creating communities will give them a leg up in generating loyal audiences. "We really approach it from the perspective of how our community engages with content," says Berman, who notes that the TV series' characters will video blog and respond to feedback on their MySpace pages. "It's about discovering content, sharing it, using it to express yourself and communicate with others."

None of this would be possible without advances in technology, specifically, the increased penetration of broadband access. Unlike dial-up connections to the Internet, broadband is a bigger pipe that takes the herky-jerky out of video viewing. According to the Pew Internet Project, among adults with a home Internet connection, 70% go online using a high-speed connection. Forty-seven% of all adult Americans have access to a broadband connection. It's taken this broadband explosion to create potential audiences of a size to interest both programrs and advertisers.

And the advertising dollars are following. "As we talk to brands, they're excited about the opportunity and increasingly interested in how to target the right people and have the data about them," says Berman, who reports that Ford Focus is advertising on "Roommates." "For advertising online, they're increasingly focused on targeting the user more than the content. There's such incredible value in reaching the right person even more than the right content."

The advertising-supported model is important for another reason. "The Internet evolved as a place where consumers don't pay for content," Vuguru business manager Jane Hu says. "You can't charge people 10 cents for an episode. They're willing to sit through a three- to five-second ad."

When Vuguru launched "Prom Queen" in April, it sold ad inventory to New Line, to promote "Hairspray." "It consisted of a three-second 'brought to you by' curtain and a 15-second post-roll, which was a call to action for people interested in the movie to sign up for a sweepstakes," Hu recalls.

"The other part of our monetization was with distribution fees. We've also noticed that there is quite a bit of monetization available for international distribution."

Because these are the early days of the Internet video studio, nearly every studio operating has a different business model.

Digital Entertainment Corporation of America (DECA), a startup digital entertainment studio funded by $5 million in venture capital and founded by Michael Wayne and Chris Kimbell, mimics the traditional studio model, with an Internet twist.

"In the traditional studio model, the studio is really venture capital," says CEO Wayne, who reports that the company's first property is Boing Boing TV. "Studios put up the money to produce movies and TV. We put up the money to develop and produce properties. Studios have, like we do, finance and legal and development and an actual physical studio where people can shoot things. Their ideas come from outside; each of our projects is a stand-alone company. DECA is the studio that sits on top, not a consumer-facing brand."

DECA's plan to market and monetize content relies on licensing and, predominantly, advertising. "With Boing Boing, we have Federated Media selling the advertising," Wayne says. "We also have sponsorship capability, and we'll work with some bigger sponsors on some things."

60Frames Entertainment, which was incubated by UTA and Spot Runner and funded by venture capital sources, aims at providing a venue for traditional artists venturing into the Internet, as well as new artists who emerge in the space. "The Internet sides of media companies continue to treat Internet projects like traditional media projects, with complete ownership and very little revenue sharing," says CEO Brent Weinstein, who reports that the company's first programs will be launched at year's end. "Why should an artist give up all the upside?"

Weinstein says that 60Frames offers a simplified contract "geared to favor the artist," as well as physical and legal resources, including cameras, lighting packages and editing equipment. The artist also enjoys "a significantly higher ownership position" than he or she would in a deal with a traditional media company, including shares in licensing and merchandising.

Advertising is where Weinstein thinks 60Frames Entertainment will reap rewards. "We believe we can have a sustainable model based on advertising," he says. "Advertisers are saying they desperately want to spend money in the online space, but they need more volume, and there aren't enough companies providing that. As we develop an aggressive slate in terms of volume, we think we'll be profitable through advertising and that anything we do with relicensing or merchandising will be pure gravy."

Success in reaching the youth market was what gave Go Go Luckey Prods. -- responsible for Fox's "Nashville," MTV's "Laguna Beach: The Real Orange County" and the upcoming A&E series "Paranormal State" -- its chance to enter the Internet programming space. According to executive producer Gary Auerbach, Johnson & Johnson and its agency, McCann Erickson, approached him to create a back-to-school program for the contact lens Acuvue.

"We had to come up with something that aired on traditional broadcast TV but that led people to the Web," Auerbach says about the six-week campaign. "You watch a 60-second commercial on TV that ends in a cliffhanger, and then you go to HamptonHighRevealed.com for a three-minute episode on the Web. You don't have to watch the spot to get the story, but a lot of people did that."

Having the TV component played an important role, Auerbach says. "One of the toughest things about Internet productions is getting eyeballs to your site," he says. "You can have the best production in the world, but how do you get people to watch it? This isn't a tested model yet. There is absolutely no metrics that guarantee it. We're just betting that it becomes a good model."

How to successfully market Internet video productions is an unknown. "Our deal with MySpace is to put it in front of as many people as possible and, after MySpace's window, to put it in front of others," says Herskovitz, who admits he has "zero dollars" for advertising. "We have a whole viral marketing campaign, but the thing is, it's self-select. You can't really game it. People have tried, and it doesn't work well. You put it out there and find out if people like it or not."

If people do like it, the most popular Internet video programs may have a shot at reinventing themselves -- on TV. "I would be fine if this went to TV, and I think there's a good chance it would," Herskovitz says about "Quarterlife." "But there would be two circumstances: that I continue to own it and creatively control it. Then I'd be thrilled to be on TV."
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