During the dot-com bust, Mondo Media almost befell the same fate as the adorable animals in its "Happy Tree Friends" cartoons: brutal death.
The animation studio -- specializing in funny, violent and politically incorrect programming aimed at teens and young adults -- took in $30 million in venture capital from 1999 to 2001 to distribute its content on the Internet. Then the bottom fell out of the online advertising market.
"We were the butt of everybody's jokes about what happened to the entertainment business on the Internet," said Chief Executive John Evershed. "That can be a great motivator."
Mondo keeps coming back for the next episode, just like Nutty the candy-addicted squirrel and the other cuddly critters that, in gruesome fashion, lose their limbs and lives in "Happy Tree Friends."
Even as traditional media companies are moving online, companies such as Mondo are building viable entertainment businesses in the other direction, from the Internet out -- to mobile phones, video-game consoles and even television.
The cartoon series, which its creators warn is "not recommended for small children or big babies," is one of the most popular shows that parents don't know their kids are watching.
Happytreefriends.com attracts 1.2 million visitors a month, with the vast majority of its traffic coming from overseas, according to research firm ComScore Networks Inc. The show's episodes, which generally run between one and seven minutes long, are watched a total of more than 5 million times a month on the website, and 3 million via iTunes, Evershed said.
Privately held Mondo has been breaking even for the last year and a half through online advertising, sales of "Happy Tree Friends" merchandise and distribution deals to get the show on as many types of screens as possible, Evershed said. He declined to disclose Mondo's revenue.
The series made its domestic debut as a TV show in the fall, when cable channel G4, which is owned by Comcast Corp., bought 13 half-hour episodes. "Happy Tree Friends" also appears on MTV in Germany and Latin America, and is being picked up for broadcast in Israel, Greece, Brazil and Canada.
"They have just stayed focused on being a creator of original content, and the market has come around to them now," said Mika Salmi, president of global digital media for MTV Networks Co. and former CEO of Atom Entertainment Inc., which helps distribute Mondo's shows online.
Evershed and partner Deirdre O'Malley were working in advertising when they started Mondo in 1988 to create content for Prodigy and other pre-Web interactive services. They began to work on computer games and other animation projects before switching gears in 1998 to fashion Mondo as a provider of cartoons to syndicate to other websites. They created more than 20 series, such as "The God & Devil Show" and "Like, News."
Venture capital poured in.
"The audiences were coming in bigger and bigger numbers," Evershed said. "It's just that there was no underlying economic underpinning."
After the online advertising market, whose torrid growth Mondo and many other companies had been betting on, tanked in 2002, the company sharply cut its payroll and other expenses, and began hatching a plan to escape the mess. The then-budding market for DVDs persuaded the company to focus on what had become its most popular series: "Happy Tree Friends."
The show is an over-the-top take-off of the cartoon violence pioneered by "Tom and Jerry" and other series, said "Happy Tree Friends" animation director and co-creator Kenn Navarro. It started as a joke, when Navarro and fellow animator Rhode Montijo would try to crack each other up by drawing cute animals being maimed and murdered in increasingly grisly, blood-spurting ways. They put it online in 2000, and teenagers loved it.
"I can't even imagine this show passing through network censors," Navarro said. "The Internet was the only place it could have thrived."
Because Navarro's team didn't feel like writing scripts, the show has no real dialogue, and the lack of a language barrier has helped "Happy Tree Friends" spread overseas.
There are more than 670 reviews of the series on Apple Computer Inc.'s iTunes website, where episodes can be downloaded. A few viewers have registered their repulsion by giving the show one star out of five: "It is just pure MEAN, CRUEL, WRONG and PATHETIC!" one person wrote. "There is NOTHING, absolutely NOTHING funny about cute little animals murdering themselves and each other. You people disgust me. UGH!"
But the series enjoys an average rating of four stars, with the target demographic becoming quickly evident through the reviews: "This podcast is twisted, gory and downright wrong. Awesome!!!!!!!!!!"
While sales of "Happy Tree Friends" DVDs, T-shirts and stuffed animals initially kept the company going, Mondo has generated additional revenue by selling the rights to distribute the show on mobile phones overseas and in the United States. The company also has "Happy Tree Friends" video games in the works: Sega is developing one for Xbox 360, and Disney is making a game for cellphones.
Meanwhile, the Internet advertising market, which started to recover in 2003, is booming. The "Happy Tree Friends" website is peppered with flashing banner ads for dating services and giveaways of iPods. Ad Infuse, also based in San Francisco, inserts short commercials at the beginning of the episodes available on iTunes.
But even as Mondo's cartoon was becoming a hit online, Evershed felt that the show's absence from television had been hurting its credibility with potential partners. For example, he said, it was routine for Mondo to struggle to reach a deal with a distributor of merchandise and DVDs until people at the distributor went home and asked their teenagers whether they had heard of "Happy Tree Friends," Evershed said.
"To get to a certain level, you almost have to have a TV property," Navarro said. Because Mondo is growing an audience from grass roots, he said, "You have to prove to all those old-media gatekeepers, 'Hey, this works on TV, too.' "
Cable channel G4, branching out from its original video game theme, began airing "Happy Tree Friends" shorts in the fall of 2005, then bought 13 half-hour episodes that debuted this year.
"The majority of G4 viewers are also very heavy users of the Internet, often surfing the Web and watching G4 programming simultaneously," said Neal Tiles, G4's president. "Not only had Mondo Media developed a strong online brand that we knew would resonate with our core demographic of young men, but the presentation of the animation itself was something that seemed to bridge a stylistic gap between the Internet and broadcast media."
Since the show's debut on G4 on Oct. 3, an average of 43,000 people have tuned in for each episode, including reruns, with viewership ranging from a measly 5,000 for a 2:30 a.m. broadcast to 199,000 for a Sunday afternoon, according to Nielsen Media Research.
The last episode is set to run Monday. A G4 spokesman said the channel was still evaluating whether to pick up the show for another season. Thinking it's unlikely, Evershed is negotiating with other cable channels.
Josh Bailey hopes the show finds a home. The 19-year-old from Beckley, W.Va., started watching the series online because he likes gory comedy, but he said he had grown to love how the characters interacted -- even while they were shedding blood.
"Not too many online cartoons have made the leap to television," he said. "If this show is successful, it could open the door wider."