“Over a million views?!” Sarah Silverman says incredulously. “There’s not one funny joke in that!”
The edgy comedian, dressed all in black (black dress, black tights, black combat boots), is on her stomach, sprawled across the desk of comedy producer Daniel Kellison, who is showing her an apparently not very amusing YouTube video on his laptop.
Many, many people find this Gentlemen’s Rant video funnier than Silverman does. In fact, its creator, John Elerick, has had his comedy viewed more than 56 million times by people who like to hear this scrappy twentysomething guy riff on easy targets like Brooklyn hipsters and Starbucks. More than 300,000 folks subscribe to his YouTube channel. Silverman, by contrast, is a YouTube dwarf: She has 4,000 subscribers to a channel she barely knows exists, and when she does do a video that goes viral, like her pro-Obama piece about voter suppression last fall, it’s generally pro bono.
Kellison plays another video. “That was a joke?” she asks.
Kellison smiles. “This,” he tells her, “is why you could be queen of the Internet.”
Turning Silverman into online royalty is just one goal of Jash, a YouTube-funded channel launched in March by Kellison, Silverman, and a band of other funny people, including awkward indie darling Michael Cera. (The group tried to get “josh,” as in to joke, for the domain name, but since it was already taken, they settled for the Midwestern pronunciation of the word.) Unlike Silverman, Cera is not stupefied by homegrown YouTubers–he’s one of them, having written, produced, and starred in online videos since 2006. Today, he’s holed up in a closet-size room down the hall, editing his first video for Jash. He says he “shot it one evening in my apartment, just really quickly.” His next project for the channel is more ambitious: The writer Bruce Jay Friedman, whose “The Heartbreak Kid” is a literary touchstone for Cera, has agreed to work with Cera to adapt his short story “Brazzaville Teenager” into a 15-minute film.
According to Kellison, when YouTube’s executives approached him to be part of a program that would spend several hundred million dollars to develop high-quality original content, they said, “‘You’re gonna have 100% creative autonomy, you’ll never get a note from us, and you’ll own everything 100%.'” These were things that the late-night comedy veteran, who cut his teeth working for David Letterman and later did battle with both Comedy Central and ABC as Jimmy Kimmel’s producer, had never heard before. “It sort of struck me as a once-in-a-lifetime opportunity,” says Kellison.
It also struck him as a real business for people like Silverman who, he says, “don’t know how to monetize their shit.” With Jash, Kellison hopes to correct that–and avoid the fate of most celebrity YouTube channels that have failed to ignite, serving more as whimsical side gigs for busy TV stars like Amy Poehler and Sofia Vergara. His staff includes Mickey Meyer, a YouTube guru he hired away from Maker Studios, who sits silently through Silverman’s rant about Gentlemen’s Rant. He only chimes in at the video’s end, pointing out the “end slate” that will drive viewers to “keep watching your videos,” he explains.
“We’re going to make money for everybody!” Kellison yelps. “Just create content consistently, and we’ll be fine.”
Silverman, who jokes that she has “the poorest fame-to-money ratio” of any “nonscandal” celebrity, looks pleased. “I’m mainly doing this for fun,” she says, now bouncing herself up and down on a bright blue yoga ball. “But, you know… I need to eat.”
The entertainment business is having a Sarah Silverman moment. A host of forward-thinking stars, producers, agents, and studio executives are going digital–lest digital displace them. Their timing could not be better. In 2012, for the first time, Americans watched more movies via the Internet (through Netflix, Amazon, and Apple’s iTunes Store) than they did buying and renting physical DVDs. Apps like Angry Birds have become as profitable (on a cost-to-revenue ratio) as blockbuster franchises like The Dark Knight.
Global smartphone and tablet apps were an $11.7 billion market in 2012, according to Forrester Research, a total larger than the U.S. box office. If apps follow their predicted trajectory to a $38 billion business by 2015, they will surpass global movie ticket sales, which inched up slightly in 2011 (the last reported data) to $32.6 billion. As a result, Hollywood currently seems more interested in discovering the next Instagram–which in 18 months went from launch to acquisition by Facebook for $715 million–than in finding the next Channing Tatum. Silverman may have contempt for the YouTubers’ “talent,” but she and her Hollywood peers are very interested in YouTubers’ understanding of online distribution and their gift for creating audiences that generate millions in advertising revenue.
Hollywood has had tech crushes before, but they’ve always been short-lived. This time feels different. Gone is the hubris of the first tech bubble, when Hollywood simply slapped its business model onto Silicon Valley technology, like casting then-big stars such as Mike Myers in online videos at Pop.com, DreamWorks’s forgotten precursor to YouTube–only to discover that decent bandwidth was not available. Nor are talent agents looking at online personalities solely for their Jennifer Lawrence potential. “Agencies had a very narrow view, just trying to find next-generation stars,” says Keyvan Peymani, a Netflix alum whom ICM Partners recruited away from Warner Bros. to be its digital guy. “That’s not the entire landscape of what’s possible.”
This New Hollywood includes international movie stars such as Ben Stiller, talent agency chieftains such as William Morris Endeavor (WME) co-CEO Ari Emanuel, studio heads, and an emerging “Harvard digital mafia” of 30-year-olds with high-profile gigs in finance, publicity, and startups. These pioneers seem to have learned from the mistakes of the music and newspaper businesses, which have been decimated by technological change. Rather than be reactionary and afraid, the New Hollywood crowd is proactive and creative. They’re rethinking their business and adopting some of the tech world’s culture, attitudes, and practices. Rather than pursue talent, the new obsession is intellectual property, content that the creator can own and repurpose forever. Setting up shop on YouTube is seen as getting in on the cable TV of the 21st century. Equity stakes have replaced the quick-and-dirty up-front cash deal. “Folks in the entertainment world realized that equity is how people get rich,” says Chris Sacca, a Googler turned investor who recently launched a dedicated digital entertainment fund and tapped Matt Mazzeo, a former agent at Creative Artists Agency (CAA), to be lead investor.
The changes have even spread to Hollywood’s most traditional institutions. In late January, Warner Bros. named Kevin Tsujihara as its new CEO, because his experience in dealing with digital issues while running the home entertainment division–he lacks creative experience making films and TV shows–can advance the studio’s already significant tech initiatives. “We want very rapid innovation in connected entertainment, because that is how our consumers are experiencing our content,” says Thomas Gewecke, president of digital distribution at Warner.
No one is embracing tech more passionately than the talent agencies, which have seen their traditional business shrink since the glory days of $20 million deals for rising stars like Jim Carrey. (That’s how long ago those days were.) They are transforming themselves in order to get behind startups and other companies with an eye toward long-term growth. “We’re about being in business with our clients,” says Jeremy Zimmer, CEO of United Talent Agency, making clear that it doesn’t matter if that business is a sitcom or a startup. Last May, WME, a UTA rival, sold a 31% stake in itself to the Menlo Park-based private-equity firm Silver Lake Partners, which has invested in everything from Alibaba to Zynga. (For more, see our Creative Conversation with WME’s Emanuel and his co-CEO, Patrick Whitesell, on page 88.) Around that time, ICM changed its corporate structure to a partnership so that it could more easily build startups, launch apps, and act like a venture capital firm.
“We’re at the very beginning,” says Michael Yanover, who is “Agent Zero” of the startup boom. The head of business development for CAA, Yanover claims to have sunk $95 million of raised capital into five different startups since 2006. “These cosmic changes make for opportunities we’ve never seen. But is there also a lot of bullshit? Yes. There’s a bit of a fool’s rush toward this gold mine that does exist for some, but not for all.”
Indeed, while Hollywood deserves a participation award for its efforts thus far, it has yet to transform the fundamental financials of its business. But the process is as fascinating as any potboiler. As former CAA agent turned tech investor Sandy Climan puts it, “The ecosystem is an intersection of worlds that’s never happened before. Old players are moving to new-media companies, while the people who service traditional media–studios, agencies–all have digital divisions. Google, Hulu, AOL all have big-studio stuff going on. New players are doing new things. And piling on, by people who don’t want to miss the new, new thing, goes hand in hand with the acknowledgment that the business is changing.”
“I remember that meeting,” says Ben Stiller, a wry grin breaking across his chiseled face. “Yeah, sort of.”
The year was 2009, and Stiller met with a rather large entourage–his agent, members of his production company, studio executives, and his publicists. The momentous occasion? To get the comedy icon started on Facebook and Twitter. “It sounds so 101 now,” says Natalie Bruss, whose first idea as the head of digital strategy at publicity firm ID was to show Stiller the potential benefits of social media. “We talked about how he could be one of the first celebrities to sign with Twitter and have a direct, authentic relationship with his fans.”
For folks like Bruss, who in 2003 wrote her junior-year thesis at Harvard on how the Internet would transform real-world social networks, there was no doubt about the role that Facebook and Twitter could play in initiating Hollywood into the power of technology. Not everyone at that meeting shared her prescience. Bruss recalls someone in the room saying of Facebook, “I don’t understand. Who are the buyers? Who are the buyers?” Stiller, who speaks with the thoughtful, considered tone of someone who’s already done most of what there is to do, remembers that the mood was “all like, What is this new thing that everybody’s doing? Whatever it is, we better jump on board before we get left in the dust,” he says, laughing.
Now, three and a half years after his first tweet, Stiller, who typically makes $15 million to $20 million a movie plus a percentage of the film’s gross revenue, is more than just another celebrity who likes to occasionally tell his almost 4 million followers about his love for the Knicks. When he and I meet on a cold February morning at his production office in SoHo, it becomes clear that the star is putting considerable energy and resources behind digital entertainment.
For starters, that Where are the buyers? question is long gone. Red Hour Digital, the online arm of Stiller’s production company, has lined up a slew. Red Hour’s Burning Love, a web-series parody of The Bachelor, has been a hit for Yahoo; it attracted a deal to promote brands such as Tums and debuted this winter on E!, which bought the rights to air the first season. Hulu picked up Stiller and Meara, featuring Stiller’s parents reprising their comedy act from the ’60s and ’70s in their living room, after it too had run on Yahoo. More shows are in development, including an animated series based on Zoolander and Next Time on Lonny, a series created and originally self-produced by recent New York University grads Alex Anfanger and Dan Schimpf. “Digital is now a pillar of what Ben Stiller does,” says Chris Jacquemin, WME’s head of digital media.
Jacquemin’s bosses, Emanuel and Whitesell, are quick to note that film work remains the bread and butter of Stiller’s empire. “Red Hour Digital is making money,” says Whitesell, “but is there a really great business model around it yet? No.” Indeed, Mike Rosenstein, who started at Red Hour as an intern and is now its digital chief, says that integrating brands like Tums into a web series is “100%” how the digital shop makes its money today. But that already appears to be changing: Paramount’s InSurge division, which has a first-look deal with Red Hour, is now selling the first three seasons of Burning Love to international TV markets.
As a filmmaker and star, Stiller has admitted to being angsty and perfectionist; not so with digital, where he seems to be genuinely having fun. “Every individual star has potential to play in this space,” says ICM’s Peymani, “if they can find the natural outgrowth of who they are.” That’s what Stiller has done. Whether or not he’s in front of the camera, the content reminds him of his roots filming sketches and parodies for MTV and Fox. The big difference is that he’s not engaged in anything like the infamous battles he fought with Fox when he made The Ben Stiller Show. The web lets him “do what you want to do and have this very pure creative thing.”
It also serves as an incubator of sorts, a place to develop ideas and talent that could cross over into film or TV. Debbie Liebling, Red Hour’s head of TV, first sent Stiller a link to an episode of Next Time on Lonny several months ago. The show managed the unusual feat of weaving together space travel and masturbation; Stiller promptly shared it on Twitter with the high praise, “Man, this is funny.” Stiller happened to be casting The Secret Life of Walter Mitty at the time (Mitty is due to be released this Christmas), so he took a flyer and asked Anfanger to come in for an audition. The 27-year-old wound up snagging a part. Red Hour then became a producing partner on the second season of Lonny, and Anfanger wrote a TV pilot that Liebling is shopping around to cable and digital companies, from Comedy Central to Amazon. “And if they have a movie they’re doing,” adds Stiller, “hopefully we can help.” Zoolander, after all, started as a short for VH1.
Part of what makes Stiller’s digital adventure remarkable is that it began in 2009, when the rest of Hollywood still saw YouTube as a place for amateurs, as Jordan Levin, the former CEO of the WB TV network, puts it. “Weirdos,” is how Sarah Penna, cofounder of Big Frame, a digital management agency that also operates a YouTube network with the same name, remembers those days.
But it turns out that 2009 was the pivot point for many in the entertainment industry. That Christmas, Brian Robbins treated his two sons, Miles and Justin, then 10 and 12, to a luxurious Miami Beach vacation at the Fontainebleau Hotel. The actor turned producer/director got tickets to a Heat game, and he booked a room equipped with an enormous flat-screen TV, which Robbins assumed would be perfect for his entertainment-devouring boys. Wrong. “I was like, Do they not know about the TV?” Robbins told me recently, sitting in his loftlike production office in West Los Angeles. Instead, the boys whipped out their laptops and watched everything from The Simpsons to wrestling videos on YouTube. Something about the experience of seeing his kids treat a state-of-the-art home-theater system like a clunky transistor radio “crystallized things for me,” he says. He realized, This is it. The Internet is not the future. It’s now.
There was no compelling financial reason for Robbins to go digital. He’s done more than okay over the past 20 years. The long-running teen dramas Smallville and One Tree Hill were cash machines for him and his business partner, Mike Tollin. Even Norbit, the critically loathed Eddie Murphy movie he directed in 2007, made almost $100 million domestically.
Even so, Robbins knew he was no longer in the go-go ’90s, when Hollywood was flush with cash, studio executives had green-light fever, and people paid to watch movies in theaters on Friday and Saturday nights. “There is no movie business anymore!” he says, leavening the audacity of his statement with a sly grin that is very familiar to any fan of the ’80s sitcom Head of the Class. Robbins’s face may be more angular now than back in his acting days, and his mullet may have been replaced by a close-cut trim, but when the corners of his lips slowly widen into a Cheshire Cat smile, it’s Eric Mardian you’re looking at. All he needs is a leather jacket. “The model’s broken, and I see that as an opportunity.”
When Robbins returned to Hollywood, he asked his sons and their friends about a young man named Lucas Cruikshank, who played an annoying character with a high-pitched whine named Fred Figglehorn. Robbins had met Cruikshank previously and was aware of his status as the No. 1 YouTube star of the time, but he didn’t think the gawky, pale-faced teen would last three seconds at a network casting call. “I was like, ‘Do you guys know who Fred is?'” Robbins recalls. “And they all did the Fred voice. Then I asked, ‘Would you guys want to see a Fred movie?’ And one of them said, without hesitation, ‘Tonight? Like, right now?'”
Robbins financed the Fred movie himself for $1 million, bypassing his production deal at Paramount, figuring that the studio’s reaction would be, What are these stupid videos with him shouting at the camera? How is that a movie? (This predates the studio’s digital deal with Stiller.) Robbins completed Fred: The Movie in just four months, and it aired on Nickelodeon the weekend of September 18, 2010. When Robbins learned of the ratings, he was astounded. “In two runs that weekend, more than 12 million people watched the movie,” he says. Smallville, whose pilot alone cost $7 million to make, averaged 4.34 million viewers over 10 seasons.
Most satisfying, however, was that for the first time, Robbins wasn’t just a filmmaker for hire. He–along with Cruikshank and Cruikshank’s management company, the Collective–held the rights to a property that could be valuable forever, in everything from home entertainment to merchandise. (There have already been two Fred sequels.) That’s when Robbins decided to go all-in on YouTube as a place to develop new ideas.
His timing was propitious. Shortly thereafter, YouTube began to fund an array of high-quality original content that could make the site feel more like a real TV viewing experience, investing a reported $100 million. The YouTube Original Channels initiative set off “a feeding frenzy,” says Brent Weinstein, head of digital media at UTA. Hollywood loves nothing more than new money, and Robbins, with Weinstein’s help, became one of the first people to receive funding.
Spend even a few minutes with Robbins–or any executive involved with a YouTube channel–and he will tell you that YouTube isn’t just a lot like cable TV but that it will eventually be exactly like cable TV today: a targeted programming paradise that’s also a gusher of cash and profits for the major players. “I don’t know if you know about how ESPN started but it was, like, these guys in Connecticut,” Robbins says, analogizing its middle-of-nowhere roots to the unfashionable home base of his teen- and tween-oriented YouTube network, AwesomenessTV, amid sushi-ramen joints and a Bed Bath & Beyond. “This is not that different.”
Steve Raymond, a former Comcast exec who’s now CEO of Big Frame, the YouTube production company that he founded with Penna, says, “We’re like the new Viacom or the new NBC, and YouTube is kind of the new Comcast.” “I always think of it like HBO in 1976 or 1977,” says Michael Green, who, before cofounding digital management and production company the Collective, repped stars such as Roseanne Barr and the Backstreet Boys. He’s sitting in his Beverly Hills office wearing a baby-blue-and-white-checked shirt and jeans, his Adidas-encased feet propped up on a wood table with a Galaxy soccer ball prominently displayed in the center. “The difference is that because of technology, it can happen a lot faster than it did for cable.”
As Green indicates, no one wants to wait one or two decades to build the new cable TV: They’re in land-grab mode now. Machinima, a network of video-game-oriented content that generates 2.5 billion views a month, raised $35 million last May (valuing the whole company at a rumored $190 million) to fund further expansion. Last December, Maker Studios raised $36 million, at a similar valuation, from a roster of Hollywood names including Time Warner, Elisabeth Murdoch, Robert Downey Jr., and Avatar producer Jon Landau. Investors are betting that these networks could be the next ESPN, which is now estimated to be worth $40 billion.
The strategy can best be seen at Alloy Digital, a roll-up of such popular YouTube channels as Smosh and Clevver. Alloy has been engineered precisely to drive up rates by aggregating a monolithic, advertising-friendly audience. “It’s no different from what I did at the WB, creating series like Gilmore Girls and One Tree Hill,” says Levin, who is now president of Alloy Digital. “We’re chasing the same audience, but now the audience lives online.”
Advertising rates have risen since YouTube has become “less of a dark alley and more of a brightly lit street,” he says, referring to its Original Channels. But they still haven’t quite reached TV. YouTube’s rates are up from $2 or $3 per 1,000 viewers to around $25 that for the most popular content; Modern Family, which has a weekly audience of more than 10 million, charges $33. While part of the rush to create networks of channels stems from the feeling that rates will catch up to TV, Levin admits, “We can’t be dependent exclusively on advertising revenue if we really want to grow this business.” He rattles off a number of other possible revenue streams, including gamification, merchandising and even paid subscriptions–which are cable TV’s livelihood, and an approach YouTube will experiment with this spring.
Given that consumers are starting to reject cable subscriptions, it’s hard to imagine how replicating it on YouTube will work. More creativity is needed, especially because this land grab is really about locking in the loyalty of teenagers, not convincing current cable customers to switch. “Everyone knows that digital skews young,” says R.J. Williams, a former child soap star who now runs an E!-like online network called Young Hollywood–but they didn’t know how young. “On YouTube, it starts at 13. And the sweet spot is 13 to 18. They’ll go to 30, but there’s not much above 30.”
Williams and I are sitting in a tricked-out suite at the Four Seasons Hotel in Beverly Hills–white leather sofas, stocked bar, popcorn machine–which, thanks to a branding deal, is where Young Hollywood films seven days a week. He explains to me that this point was driven home when he invited a fiftysomething Emmy winner to appear on Young Hollywood–and views plummeted. “The audience probably didn’t know who he was,” Williams says as he waves hello to Skylar Astin, the Pitch Perfect star who’d just arrived for a shoot. “But you could have the fifth lead from Vampire Diaries and it’ll do phenomenal.”
YouTube defines its prime audience as “generation C,” says Alex Carloss, its global head of entertainment. That cohort, as he defines it, features folks “under 35 who curate, create, and connect within this very engaged community.” When I remark that 35 seems a bit old, Carloss points out that channel partners like Vice have well over half a million subscribers. True, but the most popular YouTube channels, which have 7 to 12 times that many subscribers, target 13-year-olds.
So far, the rules of traditional Hollywood have not really applied to YouTube. “A lot of people thought, Oh, I have this celeb who’s really huge in traditional, I’m just gonna put them on there and it will be successful,” says Big Frame’s Penna, thinking of the channels launched by such celebrities as Amy Poehler and Shaquille O’Neal. “But the majority of those haven’t worked. It’s a different world.”
The difference, say YouTube creators who were online before Hollywood cared, is threefold: They make videos that are shareable, not just watchable; they interact directly with viewers; and they support and cross-promote each other’s programs. Thirteen-year-olds don’t want a glossy celebrity to look up to; they want a warts-and-all friend who acknowledges them on video and in comment threads.
The only Hollywood rule that does apply to YouTube? Give the audience a steady stream of content. “I watch people make videos and they get lots of views, but it’s just a one-off,” says Harley Morenstein, the 6-foot-6 Canadian whose Jackass-in-the-kitchen cooking network, Epic Meal Time (think 20-inch bacon sandwiches doused in maple syrup), has garnered 3.7 million subscribers. “If they don’t follow up, it’s a waste.”
Traditional celebrities aren’t used to working that way. Comedian Silverman says that one sticking point in the Jash negotiations with YouTube was the number of videos she and her partners were to deliver. “They were like, ‘You will be obligated to do eight videos that you’re in, and then this many that you produce per year.’ We were like, ‘Fuck that!'” Silverman pauses before explaining her outburst. “We want it to be inspired. We don’t want to be pencil pushers who have to get a certain amount of content for Google. We’ll probably go way beyond that amount, but you know, we want it to be fun! We’re spoiled.”
But guess what? If Silverman’s not entirely prepared to play by YouTube’s new rules, YouTube stars aren’t prepared to play by Hollywood’s old mandates. R.J. Williams says he’s been approached by networks to bring Young Hollywood to television, but he’s not tempted. For one, the executives he’s talked to want to make his show more sensationalistic and gossipy, which he doesn’t like. And two, he says, “digital’s more important to me. This is the future.”
“It’s not your typical startup office, is it?”
Actually, when Matt Kozlov and I step off the elevator on the eighth floor and enter a room filled with whiteboards, it looks exactly like a startup office. Three scruffy dudes wearing hoodies are staring into laptops. One manages to glance up from an array of empty Coffee Bean cups as we walk in, and wearily mutters, “Hey.” They’ve been here all night. Or longer.
The difference? This crew is housed within the gleaming, block-long Century City headquarters of talent agency CAA, an edifice known locally as the “Death Star.” Later this morning, the coders’ silence will be shattered by a clatter arising from the shiny hallways around them–cursing phone calls about pay-or-play deals, the bustle of assistants picking up their boss’s gluten-free lunches. Kozlov, a fresh-faced 30-year-old, heightens the disconnect with his Silicon Valley garb: khaki pants and a casual button-down shirt.
This is Moonshark, a startup created and incubated by CAA to connect game builders with celebrities. Kozlov was recruited away from Sony Music by Yanover and then-CAA agent Mazzeo, whom he knew from Harvard. Kozlov enjoyed his time at Sony, where he got a firsthand look at how celebrities could juice the success of a mobile app. The problem, however, was that “very few of our artists actually wanted to do something new with their label. CAA has real influence over its clients.”
Inside the Death Star, Kozlov can really connect to those clients. One day, for example, he ran into Jenna Adler, the agent who reps Jennifer Lopez’s touring business, and started telling her about DancePad, a finger-dancing tablet app his crew was developing. Adler lit up: “Hey,” she said, “you should come to this meeting we’re having with Benny!” (Medina, that is–Lopez’s manager.) The next thing Kozlov knew, he was in a town car headed to the Ritz-Carlton, where Medina keeps a rooftop suite. “It was a beautiful building,” says Kozlov, sounding like a wonder-struck geek. “I’ve never seen anything like it. I saw Kobe Bryant in the elevator.” DancePad launched last summer, featuring the music of Lopez and other stars.
This business of developing startups is the latest iteration of Hollywood’s digital evolution. The “venture business,” as UTA’s Weinstein describes it, can be found everywhere from the warrens of DreamWorks Animation and Warner Bros. (both of which have incubated photo-based social networking apps) to the financial portfolios of talent-slash-angel-investors Ashton Kutcher and Justin Bieber. But the talent agencies are clearly out in front. They’ve invested in things you’d expect–like Chill, a video site that lets comedians and documentarians sell their work directly to fans, or theAudience, an agency that helps stars navigate social media. But they’re also backing stuff that has nothing to do with Hollywood. WME, for example, is an investor in Uber, the car service app used in cities like San Francisco, New York, and, yes, Los Angeles. Why? Well, WME co-CEO Emanuel says he’d love to see a reality-TV spin-off along the line of HBO’s Taxicab Confessions (and even jokes about an Uber-based movie: perhaps The Fast and the Furious meets Driving Miss Daisy?). But what he’d really love to see is an Uber sale for billions of dollars, with WME reaping its share.
To get a sense of how avidly the agencies are pursuing this incubation model, I called Jaclyn Shanfeld, the 29-year-old founder and CEO of Shop Hers, a fashion website that allows its high-end members to shop each other’s closets for high-end designer clothing. Shanfeld, a former scout for the Ford and Vision modeling agencies, came up with the concept after running out of things to wear to friends’ weddings. Shanfeld had plenty of connections in the fashion and entertainment worlds–her mother, Nancey Silvers, is a TV writer, and her grandfather was comedian Phil Silvers–but in the tech world, she was an outsider desperate for help. Trying to find a CTO was “like trying to find a hot, kind, Jewish husband in L.A.,” she says, only half-joking.
After a few meetings, she was about to sign with a traditional tech incubator when she got a call from UTA. Word of her company had gotten back to the agency–would she take a meeting? Shanfeld was perplexed. “Why UTA? I’m not trying to be a model or an actress.”
After meeting with Weinstein–a fast-thinking, fast-talking agent with a cleanly shaved head–it was clear that UTA would be as aggressive and high energy about getting Shanfeld’s entrepreneurial idea off the ground as it was about representing Johnny Depp. Compared with the folks at the tech incubators, Weinstein had “chutzpah,” says Shanfeld: Before she’d even agreed to partner with UTA, he had set up meetings for her with angel investors–each of whom became a funder. Even Zimmer, UTA’s cofounder and CEO, came on as an investor. “He said, ‘I love this company. My wife loves this company, I’m in. UTA’s behind it and I want to be behind it personally,'” Shanfeld recalls.
“Here’s a guy who’s been in Hollywood forever,” says Robbins, the filmmaker and UTA client of Zimmer, who has also personally invested in AwesomenessTV. “He’s been a motion-picture lit agent his whole career, and he’s seen what’s happened to the industry. He’s looking at the business going, ‘What’s the future?'”
Zimmer is understated about his role. “I’m not looking to raise a big fund to buy technology. That’s not what we’re about,” he says. “We help people do the stuff they’re really excited about. That frequently ends up very well.”
One afternoon last year, Warner Bros. CTO Darcy Antonellis sat with a group of developers at the San Francisco airport, enjoying a glass of pinot noir at the wine bar Vino Volo. The team was heading back to Burbank after a day at Flixster, the movie trailer website that Warner had recently acquired. Antonellis’s tech team has a wide array of digital duties at the movie studio; they spent much of last year helping movie theaters get ready to handle Peter Jackson’s The Hobbit in hyper-immersive 48 frames per second (twice the normal rate). But the group also has a strong entrepreneurial bent, and as they sipped their drinks, the conversation turned to one app in particular: a cloud-based photo-sharing service. That’s when someone ordered another round of drinks and someone else blurted out, “Let’s just build it!”
Clearly, it was the wine talking.
In Hollywood, there is no such thing as “let’s just build it.” There are lunches, dinners, drinks, phone calls, meetings, more phone calls, follow-up meetings, meetings about who’s going to give notes in the next meeting, and then, of course, more phone calls. All of this runs through a battalion of middlemen: publicists, assistants, managers, agents. A “quick” turnaround on a movie means green-lighting a project that comes out 18 months later.
Folks like Antonellis are tearing down this cultural divide. After returning home, her team held a 29-hour hackathon to build working prototypes for what would become OutMyWindow, a photo-based social-networking app that launched last July. “It was clear that if we eliminated the [usual corporate] structure, like any startup would, we could create new products much faster,” Antonellis says. Hackathons are now a regular part of life in her department.
OutMyWindow bombed–were you wondering why you hadn’t heard of it?–but studio execs and agents are still jealous of a business culture that appears so nimble. Slowly, Silicon Valley-style work culture is creeping south. When DreamWorks decided to leap into the app-creation business with Ptch, an iOS app that allows users to create their own music videos, it created a separate company called DreamWorks Investments, which wouldn’t get weighed down by studio bureaucracy and red tape. Ptch “needed autonomy to make decisions on a daily basis,” says cofounder Ed Leonard, who oversees a staff of 15 people, all of whom have equity. “It was important to empower the company.”
This divide even extends to Ptch’s physical setting. Although the company is housed on DreamWorks’s lush, Italianesque campus in Glendale, California, Leonard & co. are not in a gleaming corner office. They’re in the old storage space in the basement. “We literally tore the carpet out, put in Ikea desks, and screwed them together ourselves,” he says. He’s not complaining; in fact, he’s downright proud.
Hollywood’s startup mania amounts to a bet on two things: first, that the standard operating procedure of the digital age requires a nimbleness found more in Palo Alto than in Burbank; second, that Hollywood can cut itself a financial slice of the tech pie. As CAA’s Yanover says, he’d like to back a company that “just spits out cash while we sit back as a shareholder, collecting dividends.” On that benchmark, the results so far are middling, with the notable exception of WME’s investment in Uber. The rapidly expanding company has blown past its rumored $300 million valuation and appears headed for an IPO or a multibillion-dollar sale.
But Uber is a pure financial bet for WME; when the industry incubates companies closer to the entertainment business, it has just one breakout hit to date. Funny or Die, Will Ferrell’s CAA-incubated venture, has become the most popular humor destination online and has TV shows on HBO, Fuse, and Comedy Central. The result is a profitable, revenue-generating company that sold a 10% stake last April to Time Warner’s Turner division for a reported $20 million, which values FoD at $200 million.
Other than that, most of Hollywood’s bets fall into a spectrum with “tiny” at one end and “failure” at the other. For all of UTA’s ardent pursuit of Shop Hers, for example, its stake is just 4% of the company. When Socialcam, a Facebook-fueled video startup backed by WME, was sold to Autodesk for $60 million, the agency “made some money, not a lot,” according to a WME source.
Worse yet, celebrity is turning out to be no guarantee of success. Lopez’s DancePad, the most popular of Moonshark’s three apps, became the No. 1 music app and No. 3 overall in the U.S. Apple App Store on its third day of release. But by the end of its second week, it had dropped out of the App Store top 50 and started sliding down the music charts. And while the WME-backed Airtime, a video chat network started by Napster cofounders Shawn Fanning and Sean Parker, got a splash of publicity from its glitzy (albeit glitch plagued) launch with Joel McHale, Olivia Munn, and Ed Helms, the startup, with its $33 million in funding, could boast no more than 400 daily users after four months of operations. Of the disastrous rollout, Emanuel says, “That was mainly on [Parker]. Except for getting celebrities there, we weren’t involved.”
As the Airtimes, DancePads, and OutMyWindows pile up like straight-to-DVD thrillers, a question looms: How will Hollywood deal with all this failure? In this town, after all, financial missteps usually end in execution. A studio comes in poorly in the end-of-the-year box-office rankings? Buh-bye, head of marketing! The most repeated line in Hollywood may be the one about success having many fathers and failures having none. That’s a far cry from the Silicon Valley mantra of “fail fast and fail often.”
While its financial bets are iffy, there’s no question that Hollywood culture is, in fact, changing–and fast. It’s something that’s forced on the industry as the line between digital and traditional content blurs more and more. When you combine web series such as H+, an apocalyptic sci-fi tale produced by X-Men director Bryan Singer; programming like House of Cards and Battleground from Netflix and Hulu, respectively; and all the professional programming on YouTube’s Original Channels, you get a redefinition of what Hollywood content can look like and how it’s made. As Liebling, Stiller’s TV honcho, says of her decision to shop the identical script to both Amazon and Comedy Central, “The two are lumped together in our heads. I don’t think people make the distinction anymore.”
Stewart Hendler, who directed H+ as well as Halo 4: Forward Unto Dawn, a 90-minute prequel to the universe established in the video game, says that making the web series “felt very much like any legit, mainstream TV production.” He worked with a Hollywood cast, including Anna Popplewell (The Chronicles of Narnia) and Daniel Cudmore (Twilight: Breaking Dawn). “We’re up there with a full-size crew; 150 people are standing around; there were generators, cranes, explosions; and everyone was making a pretty solid day rate.”
These days, the best place to witness this culture shift may be YouTube’s new creative facility in L.A., which opened in January. Located in Playa Vista, the site was once an enormous airplane hangar; in the 1940s, this is where Howard Hughes constructed the Spruce Goose, the largest seaplane the world had ever seen. YouTube spent $25 million on renovations, creating a unique workspace for its Original Channel producers. The place feels like a revolutionary mix of Hollywood and the Valley. It features sound stages, green-screen rooms, and a screening room fit for a mogul. But there are no VIP parking spots, the bathrooms are unisex, and there’s a fireman’s pole that folks use to hustle from one floor to another–a Googley touch.
Silverman, Cera, and the Jash crew are among the creators who have filmed here. “I’m not the most techy person,” Silverman admits, “but to not experiment with new things? It’s like a doctor who stopped learning after medical school. It’s kind of crazy to not be a part of this world now.”
She stands and gathers her things. Old Hollywood calls: She needs to go home and pack for the U.K. press junket for Wreck-It Ralph. “I don’t know how this is going to turn out,” she says. “I’m on the edge of my seat.”
“But I like that.”
[Stiller Photo by Jake Chessum, Cera and Silverman: Getty Images; Jash Network Image: Courtesy of WireImage, Headshot Photographs by Jeff Brown; hair and makeup: Juanita Lyon for Celestine Agency]
[Ed. Note: The online version of this story, which appears in the April print issue of Fast Company magazine, clarifies the source of CAA’s investment in startups since 2006. It also corrects the proper name of agency ICM Partners.]