In 2006, Shane Felux was on a makeshift set near his home in northern Virginia producing a Web video when he received an out-of-the-blue phone call from Barry Jossen, who was then executive vice president of production for Disney's ABC Studios.
"I thought it was some friends of mine screwing around, but my wife said the caller ID read 'Disney' and I should take it," recalled Felux, who was already a minor celebrity on the Web for his "Star Wars" fan film "Revelations," but had never earned a penny doing it.
Jossen dangled an irresistible offer to the aspiring filmmaker with no Hollywood connections: Did he want to be part of a new venture Disney was planning to produce original shows that viewers could watch on the Internet?
In February 2008, Disney launched Stage 9 Digital with an initial roster of shows that included "Trenches," a 10-part sci-fi series from Felux with a budget of $250,000. But "Trenches," completed last September, still hasn't shown up on the Web. In fact, with the exception of its first series, "Squeegees," a comedy about window washers, none of the more than 20 projects in development at Disney's digital studio have ever seen the light of day. In March, after little more than a year, Stage 9 shut down.
It's far from the only Hollywood-backed Internet video business to go dark. 60Frames, an online content company that launched in 2007 with $3.5 million from investors including the United Talent Agency and advertising agency Spot Runner, closed in May. Other Web video flops have included Turner Entertainment's SuperDeluxe, HBO and AOL's This Just In, and NBC's DotComedy.
Conceived with great fanfare, big media's attempt over the last two years to capitalize on the Internet video phenomenon embodied by YouTube and "Saturday Night Live" digital shorts has fallen victim to recession-triggered cuts and inflated expectations about the advertising revenue they would command.
"It's very similar to what happened in '99 and 2000, where everyone saw gold in the hills," said Mika Salmi, the former head of digital media for MTV Networks and now a technology venture capitalist, in reference to the first dot-com boom. "The reality is that it's much harder to make money than everyone thought."
The calculus was elementary: If amateur Web stars like "Fred," the high-pitched persona of Nebraska teenager Lucas Cruikshank, can create the most popular channel on YouTube, imagine what Hollywood could do with its stars, budgets and marketing muscle.
In some cases, big media ventures financed talent who had already succeeded on the Web, like the comedy troupe Handsome Donkey that made "Squeegees," with more money than they could come up with on their own. In others, they attracted better-known talent with the promise of more creative freedom. Turner's SuperDeluxe featured videos by comedians including Dave Foley, who starred on the NBC sitcom "NewsRadio," and Bob Odenkirk of HBO's sketch comedy series "Mr. Show."
And viewers responded. "Young Hillary Clinton," a comedy depicting a grade-school-level Clinton honing her barracuda political instincts, produced by 60Frames, attracted nearly 1 million views on YouTube alone.
But unlike other media, where larger numbers of viewers lead to higher advertising revenue, high-volume traffic on the Web hasn't necessarily translated into big money. Advertisers in short-form Internet video pay about $10 to reach every 1,000 viewers, so even a video that gets watched more than 1 million times -- a big hit by Web standards -- might not generate more than $10,000. Three- to five-minute-long "Webisodes" cost $5,000 to $25,000 to produce.
"So many of the major media companies thought they could just make a good show, put it online and sell advertising," said Jim Moloshok, a former Warner Bros. and Yahoo executive who is now chairman of online advertising company Betawave. "That's like taking a radio show and running it on television."
It wasn't Hollywood's first foray into online entertainment. The initial euphoria over the Web in the late 1990s attracted such big Hollywood names as Steven Spielberg and Ron Howard, who started POP.com, a project that was scrapped before launch. The dot-com implosion of 2000 also claimed hyped ventures such as the Digital Entertainment Network and Icebox.com.
Then by 2006 Web mania swung back in full force, with YouTube leading the way. Entertainment companies tried to jump on the bandwagon by building their own video sites, such as DotComedy, which launched in 2006, and SuperDeluxe and This Just In, which followed in early 2007. In theory, this made more sense than putting videos onto YouTube, since the companies would be able to keep the advertising for themselves rather than sharing it with a third party.
The problem was that building a short-form video website that people would turn to is extremely difficult because YouTube is so dominant -- the Google Inc.-owned giant attracts 60% of the U.S. audience watching video on the Internet, according to comScore.
As a result, by the time 60Frames and Stage 9 launched in late 2007 and early 2008, respectively, DotComedy and This Just In were already gone and Super Deluxe was struggling. So these new companies took the opposite approach: They would be distributors only and spread their videos to any other sites where they thought viewers would watch them. But the ad dollars didn't grow fast enough to cover production costs, let alone overhead.
60 Frames closed its doors in May when it ran out of cash and couldn't raise more money. Stage 9 was eliminated as part of cutbacks when ABC merged its production studio with its network in March.
"It was a combination of hubris and bad timing," said Dean Valentine, a former president of Walt Disney Television who now runs Comedy.com, which collects funny videos and ranks stand-up comedians.
That's not to say Hollywood has abandoned original Internet video, so long as it serves some larger objective, such as cross-promoting programs or facilitating relationships with talent.
Comedy Central still produces some comedy shorts for its Atom.com website, but then also shows those segments on the cable channel's late-night program "Atom TV." Sony Pictures Television uses original series to lure viewers to its Crackle.com site, where it makes more money by getting them to watch TV shows it already owns such as "Rescue Me." Warner Bros. produces Web videos with talent it wants to bring to television, as it recently did with former "Daily Show" correspondent Rob Corddry.
The number of studios bankrolling Web videos has shrunk significantly, however. As a result, many who continue to believe in the promise of Web video are coalescing around new ideas such as integrating sponsors into projects ahead of production.
"There are fewer buyers now, so increasingly that conversation involves working backward from what a brand needs, rather than financing a Web video in complete isolation," said Jordan Levin, chief executive of production company Generate, which specializes in digital content.
With the search for a sustainable business model ongoing, many wonder how long talented people will continue to work for peanuts and the promise of rewards somewhere over the rainbow.
Los Angeles-based Big Fantastic, a group of filmmakers, has produced six series over the last two years for various Web production companies. Still, writer and director Chris Hempel admits they're waiting for their big reward.
"We're willing to strap the boots on and take risks knowing these are hard times and eventually something is going to happen," he said.
He's not the only one. Even with a comparatively generous budget of $25,000 per "Webisode," Felux struggled to cover the costs of "Trenches." He poured every dollar into production and worked a full-time job while producing his show on the weekends.
"I could have made more money delivering pizza," he said.
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Online no longer
November 2006 to November 2007
NBC Universal started with original Web series and video weblogs, then added user videos and old TV shows.
January 2007 to May 2008
Turner Entertainment spent more than any of its competitors on dozens of original series featuring up-and-coming Web stars and established comedians on its alternative comedy site. Five shows are now carried on AdultSwim.com, a site devoted to the network's television programs.
February to July 2007
Time Warner siblings AOL and HBO joined together for an ill-fated comedy weblog featuring original video series. It didn't even make it to the half-year mark.
July 2007 to May 2009
This Web studio backed by $3.5 million from investors, including the United Talent Agency, produced more than 30 series for online syndication, but ran out of cash in less than two years.
Stage 9 Digital
February 2008 to March 2009
Announced with much fanfare as an "experimental new media studio," it posted only one series on the Web before shutting down.