Who Will Be the Godfather of Web Video?

Well-funded, big-studio-backed comedy-video Web sites have taken more hits than they've made. Does anyone have a plan that's not a joke?

It was slated to be a "brave new world of comedy." In January 2007, Turner Broadcasting System frothily launched Super Deluxe, a short-form video site with original content by the "funniest peeps in the comedy biz" (read: up-and-comers) such as Eugene Mirman and Brad Neely. Content wouldn't be limited to the Web; Super Deluxe would serve as a cheap testing ground for potential television and film projects, and videos could be distributed to content-hungry cell phones. Turner was bullish, mobilizing a staff of 35 and giving the venture 42 free ad spots a week during Adult Swim programming on Cartoon Network in an effort to lure advertiser-cherished 18- to 34-year-old males.

Then — bada bing! — 14 months after Super Deluxe had launched, Turner announced the site would sleep with the fishes. At its peak, it corralled only 400,000 monthly viewers and didn't win substantial ad revenue (a paltry $19,000 in the first quarter of this year). With a fat staff and a fatter roster of outsourced talent, the site was bleeding money. Turner fired the entire staff save one employee, and very little, if any, of Super Deluxe's content is expected to move over to AdultSwim.com when Turner formally takes the site down later this year. So the whole enterprise (and the $15 million or so spent building it) will completely evaporate into cyberspace. "They only had enough money to make deals with everyone for one-and-a-half years," says Eugene Mirman, who now skewers Tom Cruise and the presidential race, among other topics, for 236.com, a Huffington Post — IAC joint venture.

Super Deluxe is only the latest casualty in a string of high-profile comedy-video blowups. In fact, Turner's humbling experience represents parent company Time Warner's third failed foray into Internet comedy. This Just In, a joint venture between AOL and HBO, closed in August 2007 (six months after it launched), and Time Inc. pulled the plug on Office Pirates in September 2006 (six months after it debuted).

Time Warner isn't the only media company serving rotten tomatoes online. NBC Universal's DotComedy — a jumble of stand-up and content from SNL and Late Night With Conan O'Brien — was shuttered after less than a year. Sony's offering, Crackle, has gone through several iterations since the corporation purchased Web-video startup Grouper for $65 million in 2006, and despite additional multimillion-dollar investments, the site has yet to generate sticky traffic or turn a profit.

Even Funny or Die, cofounded in 2007 by Hollywood's hottest property, Will Ferrell, and supported by a generous investment from Sequoia Capital, hasn't been able to keep an audience. Its first video, "The Landlord," which starred Ferrell and a 2-year-old girl as a swearing and beer-seeking landlord, was a runaway hit — collecting a wildly impressive 57.8 million views thus far — but the site has never seen numbers like that again. Despite the draw of Ferrell friends Judd Apatow, Eva Longoria, and Bill Murray, all of whom have contributed videos, the site pulls just 1.5 million unique viewers monthly, and the average visitor comes only 1.8 times, according to Quantcast. "It's a slow build," admits CEO Dick Glover.

What gives? Surely there's an appetite for short-form comedy video — on YouTube, four of the top five subscribed-to channels are individuals posting funny clips — so if any Joe can create a consistent audience, why can't the pros? It turns out it's not the comedy that's falling flat. Mostly, it's the business model that's the joke.

Singing the Advertising Blues

Although online video has grown in terms of content production and viewership, significant revenue and especially profitability — even for YouTube with its massive audience of 69 million viewers — has been largely elusive. The prevailing model is ad supported, but that market isn't necessarily ripe. Although video advertising is increasing, it totaled only $775 million this past year, a "tiny amount" of the overall $21.1 billion spent on online advertising, says Kris Oser, communications director at eMarketer. Worse, most marketers aren't particularly enthralled by what these sites are peddling. "Advertisers, besides the edgy ones — Mountain Dew, Powerade, and Sprite — aren't interested in being affiliated with questionable content," says Matt Stodder, VP of sales strategy and operations at online-ad-sales rep Gorilla Nation Media.

Leery advertisers haven't even been lured by impressive traffic and proven content. When This Just In tried to sell ads against "David Blaine Street Magic 2," a sequel to a spoof that first appeared on YouTube and generated about 20 million hits, no advertiser bit. The sequel garnered another 10 million hits, but marketers had no regrets: They balked again when This Just In peddled ads for a third iteration.

Even in a best-case scenario, when a video does get advertising, a financial success is hard to achieve. Many of the comedy sites adhere to a studio structure, tapping a collection of outside talent and paying per video ($1,000 to $12,000 per piece, although some climb to $15,000 or $20,000). With a $10-per-thousand-views ad rate, not uncommon in this market, a video that attracts 1 million views — a colossal hit — generates only $10,000. That's often break-even at best. "It's almost impossible to make the numbers work," says Steve Stanford, This Just In's former general manager and now a partner in William Morris's Agency 3.0.

Family Guy creator Seth MacFarlane's much-ballyhooed deal with Google to syndicate original content and sell ads against it is an attempt to sidestep this challenge. But it creates a new one: Costs for advertisers will be well above standard Google search ads. That means clicks will have to dramatically outperform — an unproven hypothesis.

As sites search for bankable revenue, "customized branded-content opportunities" — making videos that feature an advertiser — have become a lifeline for some. Unilever's Axe deodorant brand approached Funny or Die and paid the site a "high six-figure" commission to create content to help promote a new male-hygiene product. "The video is not about the product," Glover says. "It's about — forgive me, this is the only way I know how to say it — sweaty balls." It will air exclusively on Funny or Die for up to a week and then be distributed elsewhere. "This is the cash cow," he adds. "You have to sell a whole lot of banners to make up for this." The problem? "Axe body sprays can only sponsor so many things," as Stanford, unaware of the Funny or Die deal, puts it.

Honey, I Shrunk the Audience

Tremendous pressure to draw a crowd has also led sites into strategic errors that alienated viewers. This Just In, for example, was promoted on AOL's home page — something that brought millions of hits. But "the AOL audience was not the best audience for push-the-envelope comedy," says Eric Spiegelman, former head of business and legal affairs at This Just In and now the digital chief at GreeneStreet Films. AOL linked to a This Just In video about a contestant in the Westminster Dog Show being caught in a sex scandal, but it labeled it as news — not satire (oops!) — and the site got hundreds of angry comments.

In Super Deluxe's quest for traffic, Turner did "ridiculous" things, says Gerard Babitts, who oversaw marketing at Super Deluxe. The company, he notes, made deals with at least 150 content providers as a way to attract everyone, rather than define its audience. "They didn't want to put their dick on the line." Turner also bought search keywords — lots of them — including "Britney Spears" and "boobs," which pumped traffic but didn't create loyal fans. "People who type 'boobs' into a search engine aren't looking for a comedy site," Babitts remarks drily.

"People who type 'boobs' into a search engine aren't looking for a comedy site."

At the same time, these companies have missed out on smarter online audience-building tactics. Turner sent cease-and-desist letters when Super Deluxe videos showed up on sites such as YouTube. Meanwhile, This Just In contributors independently posted to YouTube — and saw remarkable results. "Condelicious," a hip-hopping Condoleezza Rice, got 2 million — plus views. "It was the video that put This Just In on the map, and it wasn't on our site," says Craig Bowers, former director of marketing at This Just In. "The reality is, if someone hears about a video, they don't wonder what site it's on, they just go to YouTube." James DiStefano, Super Deluxe's director of user experience and community, adds, "The model was stickiness — page views and time spent on the site — but in the current paradigm, you have to be spreadable, not sticky."

Funny or Die, which recently received an investment from HBO (try number four for Time Warner, but who's counting?), is doing some spreading of its own. Glover has hedged his bets on comedy, rebranding the company Or Die Networks and adding such niches as Shred or Die, an extreme-sports site with skater Tony Hawk in the Ferrell role, and Eat Drink or Die, with celebrity chef Tom Colicchio.

A Child Shall Lead Us

One comedy site has succeeded — by embracing its inner niche. CollegeHumor was founded by two high-school friends as a way to share humorous stuff with each other when they were at different schools, and the site hasn't strayed too far from its original intent or startup ethos, despite current ownership by IAC. (IAC purchased a 51% stake in CollegeHumor's parent company, Connected Ventures LLC, for an estimated $20 million in August 2006.) It has 12 people in the video department creating almost everything in-house for a fraction of what the other sites fritter away on production deals. It also eagerly plays with other Web sites, distributing its content to YouTube and MySpace after a one- to two-week exclusivity period on CollegeHumor. That runs counter to the way the other sites have worked, and, like a lot of the strategy employed at CollegeHumor, that's the point.

"I don't want to seem like an ageist, but I started doing this when I was 19," says Sam Reich, director of original content. "I'm 24 now. The average age here is 24, and we have a different sense of what will be popular than an executive, especially a TV executive." The site has attracted advertisers such as Motorola, Fox, and Subaru and reaped $4.2 million in ad revenue during the first quarter of this year. CollegeHumor is profitable — the only profitable major comedy-video site.When it comes to Internet comedy, entertainment-industry inexperience is nothing to laugh at.

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