I've walked into the middle of a swine flu outbreak.
"Here, put this on!" Ashton Kutcher bounds from around the corner in his loft-style Hollywood office, wearing a paper face mask and holding another one. "You can choose whether to wear it or not, but we all are. We can't afford to get sick!" Within seconds, I am surrounded by a fast-moving herd of masked Flip-cam marauders, filming my every move. Perched on the stairs. Popping out from the office kitchen. Uh-oh. "Seriously!" says Kutcher, with a goofy grin around his mask. "Swine flu!" He points to the mask in my hand. Punked and defeated, I put it on. "Awesome," he laughs.
I've walked right into an episode of Katalyst HQ, a Web-based video serial that puts the staff of Kutcher's production company, Katalyst, through a loosely scripted, hopefully funny parody of its workday. The current 16-week "season" is sponsored by Hot Pockets, the savory pastry item whose creators want us to "eat freely," unencumbered by a knife and fork. (Truly. The brand manager told me that.) The program is a collaboration between Katalyst; Slide, a Web company founded by Max Levchin of PayPal fame; advertising titan Publicis Groupe; and Nestlé, which owns Hot Pockets. It has been a huge hit, with millions of reposts of the videos on Facebook, each one reaching an average of 65 friends.
"There is nothing really like this out there," says an obviously thrilled Mike Niethammer, Nestlé's group marketing manager. Niethammer, who reviews the script concepts, chuckles at the report of my punking. "I did throw out a Hot Pockets mention," I say. "Nice," he laughs.
The Katalyst HQ series illuminates what Kutcher's production company wants to become: not just a home for his television and movie projects but also a go-to source for brands looking to deploy what's called "influencer marketing," a squishy hybrid of entertainment content, advertising, and online conversation that finds its audience via video, animation, Twitter, blogs, texts, and mobile. "Entertainment, really, is a dying industry," says Kutcher. "We're a balanced social-media studio, with revenue streams from multiple sources" -- film, TV, and now digital. "For the brand stuff, we're not replacing ad agencies but working with everyone to provide content and the monetization strategies to succeed on the Web."
Kutcher, 31, is not exactly the image of a business visionary. He's still best known for his eight seasons as Michael Kelso, the pretty-boy lunkhead from That '70s Show, and as the executor of cringe-worthy celebrity pranks on the hit MTV show Punk'd. (Not to mention his marriage to Demi Moore.) But his future, Kutcher insists, will be all about business. He intends to become the first next-generation media mogul, using his own brand as a springboard. "Punk'd is part of who he is," says Sarah Ross, Katalyst's director of new media. "We're using his brand as a syndication system."
If this all seems far-fetched, hang in there. Mask off, Kutcher holds forth nonstop on his multiplatform plans. He talks of Web trending, content pirating, and the fact that Twitter has yet to make any money. "If we in this industry don't figure something out, we're going to go the way of the music industry and be cannibalized by the Web," says Kutcher. "It's really a war to make money."
It's not just talk. Some 3.9 million people follow Kutcher on Twitter (@aplusk ), and he has nearly 3.3 million Facebook fans. Those numbers have helped attract corporate clients beyond Nestlé -- including Pepsi and Kellogg -- and supporters such as Oprah, Larry King, and former News Corp. No. 2 Peter Chernin.
Kutcher and his partner, Jason Goldberg, spent the better part of two years courting the wizards of Silicon Valley, converting them from teachers and skeptics to friends and allies. For all their pranks, Katalyst's digital division can claim one thing most other social-media businesses can't: profitability.
The episode I walked into has a Thanksgiving theme, and Kutcher tells me he plans to let loose a live turkey in the office. "Then everyone will be worried about bird flu!" he says. This from a future media titan? Still, even if Kutcher turns out to be more style than substance and Katalyst doesn't become the Next Big Thing, Kutcher's experiment points toward a new model for the evolving media business that connects Hollywood, tech, and Madison Avenue. No kidding.
The Flip cams have left the room. Kutcher is making the case for his business. And he can barely keep still. He begins by taking jabs at the companies that have fueled him in the social space, specifically Twitter and Facebook. And he's pretty funny about it, even if he's also sorta serious. "When I have a conversation with someone and they say, 'I'm not worried about monetization yet,' that scares the shit out of me," he says. He's poking fun at social Web companies that run up their user base without regard for how they're going to make money. "I'm part of an industry that is struggling daily. Daily. And I'm always worried about the numbers." He jumps up, turns his Cubs cap around, and tucks his legs underneath him before plopping back down. "You cannibalize this business" -- he waves at Hollywood -- "a profit-positive business that trades at a decent multiple, and you're just going to put people out of work. And these folks are counting on just figuring it out. And if they don't, we're fucked! That's not okay."
Then Kutcher does a spot-on impression of Facebook's Mark Zuckerberg: "I can sell a more-targeted individual based on the content that you want -- blah blah." He laughs at my reaction. "Fucking awesome, dude. Go do it. And make a ton of money off of that, and I'll make programming for that all day. But nobody is actually doing that."
Next rant: ad agencies. "For years, the ad business has been happy to have a completely ambiguous accounting system that they've been monetizing off," he says, referring to Nielsen ratings. "Now that the Web offers a slightly more granular dollars-and-cents audience-acquisition metric -- now they're going to get completely granular about how they're getting money?"
What the Katalyst team is planning, he says, is simple: Make entertaining stuff, give it to people where they already are, let them have some fun with it, and mix in brand messaging. And because of the viral nature of the Web, each new consumer is cheaper to win than the last one. "The algorithm is awesome," Kutcher says, sounding simultaneously sophisticated and adolescent. "Katalyst is a merger of three industries," he goes on, settling into an unexpectedly credible argument. "A piece of us is connected to ad agencies. Because we get the complex overlay of the social Web, we know how to engage an audience and how to make entertainment for the social Web. And we know how to gain and activate and retain an audience. So we create social networks for brands."
This is the way things are going, says Netscape founder Marc Andreessen. "Katalyst is way out on the leading edge in terms of thinking this stuff through," he says. Katalyst steps into the gap left by ad agencies that gave up on the Web after the dotcom bust. "Banner ads aren't going to cut it," he says. "And media companies have not been creative or aggressive about making products designed for engagement marketing. Now that's changing, giving brand advertisers a new way and reason to buy."
Garrit Schmidt, who leads the experience design and client-strategy practice for digital marketing firm Razorfish, agrees. "People are discovering that experience matters more than traditional advertising now," he notes. "Using celebrity as a personal sphere of influence is an interesting [distribution] model." Of course it's risky, Schmidt adds, because the more commercialized personalities become, the less influence they have. Kutcher acknowledges this: "I am consciously risking my career on the edge of what's too much information. Eventually, we'll open up this platform to others, just like Facebook and developers. For this to work, it has to be open."
Jason Goldberg's office is rapidly filling with toxic fumes. "Either this is a staff revolt or part of an episode of Katalyst HQ," he says, blinking and talking fast. His office floor has been covered with hundreds of Styrofoam cups, filled alternately with motor oil, red wine, vinegar, and what is rumored to be Kutcher's pee. Door closed, the stench is impressive. The evil twist: The cups are paper-clipped together, making them nearly impossible to remove efficiently and cleanly. Goldberg gingerly steps around them to take a call from his 1-year-old daughter and actress wife, Soleil Moon Frye. (I can follow her at @moonfrye , he tells me cheerfully.) "You should see what they've done to my office," he says to his wife. To me, he remarks, "You don't want to prank the prankster. I have their Social Security numbers." I smile conspiratorially, wishing I'd held on to my mask.
Goldberg comes by his pranking credentials honestly. When he and Kutcher founded Katalyst in 2000 to capitalize on Kutcher's growing '70s Show appeal, their first project was Punk'd, which lasted seven fun-filled seasons. Their pitch -- a bunch of short-form, quasi-reality-based videos -- had been kicked to the curb everywhere before MTV gave them a shot. "If I had to do it all over again, I'd take that show straight to the Web," says Goldberg. "Short form is perfect for the Web, for people who want to consume and share, but also create content."
The partners decided two years ago to get serious about understanding the Web. They took on their first investor, a New York outfit called Prime Capital, and became semi-regular Southwest Airlines commuters to the Bay Area, attending tech conferences, taking meetings, and earning the techie rite of passage: getting called out on Valleywag ("incomprehensible videos"). They debuted their first Web-only property, the gossipy animated series Blah Girls, at the annual TechCrunch 50 confab in 2008. The characters poked insidery fun at Web stalwarts like Jason Calacanis and Mark Cuban -- "the industry pit bulls," jokes Goldberg.
About a year ago, Kutcher and Goldberg persuaded Sarah Ross to join as head of digital. Ross, a Web 1.0 veteran, spent 10 years in marketing at Yahoo and has five startups under her belt. When it comes to tech, "Hollywood always misses," she says, perhaps recalling her days at Yahoo under Terry Semel. "You've got to invest the time to become part of the community, and you have to earn Web cred." While Kutcher did his best -- "Ashton would hang out and talk to engineers and bloggers who reach, like, six people," Ross notes -- she brought formidable Valley contacts: Andreessen, for one, and PayPal cofounder Levchin. "I had Max Levchin come down and speak to the group," she laughs. "The boys had no idea what he was saying, but they were riveted." Goldberg calls the event "an out-of-body experience for our crew."
The digital team's most visible success on the social Web to date is its complete and utter domination of Twitter. (Kutcher says @aplusk  "is Ashton plus Katalyst. It's both." Very savvy.) Ross explains, "We decided that when we hit a certain reach and traction on Twitter with Ashton, we would test the notion of creating a social movement there." Ross consulted with Ray Chambers, a longtime friend from her Yahoo days who is also special envoy to the UN for malaria. Was there a way to use Kutcher's Twitter profile to raise awareness for the upcoming World Malaria Day? Could the effort connect people to something tangible, like a bed net to save a child?
Chambers pointed Ross to a small organization called Malaria No More, which he'd cofounded with Chernin. "When Sarah came to us, we knew it sounded cool," says Malaria No More's CEO Scott Case, a founder of Priceline.com, "but we weren't sure where it would go. We worked together to build out a framework, which we started testing in March with Ashton." It turned out to be ideal: First, it had a simple, twitterable message -- "Every 30 seconds, a kid dies of malaria. Nets save lives" -- and an affordable call to action: $10 buys a net. The goal was to drive people to Malaria No More's Web site to donate.
But the Katalyst team decided to up the ante. At that point, @aplusk had 750,000 followers on Twitter. Using Kutcher's celebrity as a lever, they unilaterally launched a race against CNN -- the next-most-popular Twitterer -- to be the first to have 1 mil-lion followers. The deadline: April 25. If Kutcher won, he promised to donate 10,000 nets and encouraged other celebrities to give too. "It would either work or I'd be out of a job," says Ross, laughing. CNN, suddenly part of the story, agreed to match Kutcher's contribution, and Anderson Cooper, Wolf Blitzer, and Larry King all gave the race airtime. Katalyst and the Malaria No More team hit the Web with videos, tweets, Facebook updates, and blog posts. "Our servers melted. We had more traffic in April than the prior 12 months combined," says Case, who consulted routinely with Chernin on strategy. "Everyone who said they'd donate did," he says, sounding very Hollywood. "Diddy, Seacrest, and Oprah -- they all were intrigued by the echo Ashton created." Final tally: nearly 90,000 nets. (Ever the closer, Case says donations can still be made at malarianomore.com .) Meanwhile, Kutcher's own strength in the social-media marketplace was assured; he has the largest Twitter following on the planet.
Malaria wasn't Katalyst's only cause. Around the same time, Ross started working with Kellogg, which was looking for a way to call attention to hunger in America and to what the company was doing to help. For Ross, it was a way to bridge the gap between civic action and big brands -- to show marketers what Katalyst could do. "We provide a content solution for them," she explains. "We can then take that content and syndicate it through social environments in ways that they couldn't buy in those social environments on their own." Like those Facebook ads that no one clicks? "Exactly," she says.
Katalyst brought in Kutcher's wife, Demi Moore (whom he dubbed "Wifey McWiferson" in a recent video), to help tilt the demographics toward women, Kellogg's target. In response to the couple's tweet streams (Moore's Twitter name is @mrskutcher ), users submitted short video segments on hunger, which Moore edited into a single video. She also added a bit of news from Kellogg: "We decided to donate one day's worth of production to food banks," says Kellogg VP Kris Charles, roughly $10 million worth, some 55 million servings. The video appeared on Facebook on the Kellogg Cares fan page. "We had 200,000 fans in less than a month, and the vast majority were women over 25," says Charles. "That's the audience we want to reach. And Demi was a great fit for that."
It is Katalyst's work with Pepsi on something called DEWmocracy that may best illustrate the model Kutcher & Co. is after. The first iteration of DEWmocracy was a reasonably successful promotion: a destination site with an animated film made by actor Forest Whitaker, where fans could pick the next Mountain Dew flavor. For the second iteration, Frank Cooper, chief marketing officer for beverages for Pepsi North America, says, "We talked to lots of companies with impressive track records in the digital space." But, he says, "Katalyst had new ideas about where we could find value in the social-media space and how to mobilize large groups of people." The campaign, which runs through early 2010, lets people pick not only the flavor, name, color, and label of new sodas but eventually the in-store merchandising and the ad agency, in an online bake-off. Fans can also submit their own ads. "My theory is, you have to engage the constituency and let them be the voice of the brand," says Kutcher. "I help connect people to the Mountain Dew brand so they can be creative with it."
Cooper reports that Mountain Dew's Facebook fan page grew fivefold at the launch, but says the big win is inside Pepsi. "A lot of senior managers at consumer brands feel like their role is to control the communications around a brand," he explains. They are uncomfortable with the transparency of social media because "people will say negative things about you." What makes him happiest about DEWmocracy, he says, is "the competency we're building throughout the organization in using these new tools. It's a symbol of what's possible within brand marketing at Pepsi."
Kutcher and Goldberg acknowledge that Katalyst today is still primarily a film-production studio. And not all on that end is going swimmingly. Its most recent Kutcher vehicle, Spread, earned a pathetic $250,000 in the United States, although Kutcher says, "We made $10 million overseas, so we recouped." The Beautiful Life TV series was canceled after just two episodes, and Personal Effects, a teary drama starring Kutcher and Michelle Pfeiffer, got little U.S. distribution. For 2010, Kutcher has two major features coming out, and Katalyst is producing what the partners call an "experimental film" that could easily flop. "We're taking a big risk, but we're all about learning," says Goldberg.
Learning continues with their digital business as well. Nate Zegura, a kid out of Cleveland, was recently tapped to do a regular live fantasy-football show on the Katalyst Web channel. "Sometimes I'm on the show, sometimes I'm not," says Kutcher. "We're going to open it up -- but it's still our channel, our audience."
Kutcher bursts back into Goldberg's office, bringing in a literal breath of fresh air and a squad of Flip-cam commandos. "Dude, we've got two names for you: American D-Bag or Stuntholes." He smiles and waits. We all weigh in on the merits of the two names, without being told what they'd be used for. We're evenly split, but Kutcher is leaning toward Stuntholes. "Basically, anything with an S sound before 'holes' is going to be funny," he declares, pleased with the focus group. Kutcher looks at me over the sea of Styrofoam cups: "This is going to be really, really fun. All of it."