Digital studios launched on the thesis that the Web could democratize television by eliminating the middleman are discovering the road to success leads through the very power houses these low-budget upstarts meant to bypass. Moreover, this is a two-way street where the cross-pollination between digital studios and Hollywood brings with it a potential to transform the TV viewing experience as well.
“Digital studios have the potential to do many things,” says Brent Weinstein, CEO of 60 Frames Entertainment, a venture-funded startup whose shows were viewed more than 50 million times in 2008. “We combine the creative output of an elite group of artists, actors and producers with support from national brand advertisers to create franchiseable media, some of which is migrating to TV and film.”
Digital studios are new media replicas of traditional studios – they’re smaller, faster and more nimbly run, but they play the same role in the digital world. They create programming. And they’ve figured out that for their Web shows to make money they must embrace Hollywood, ink deals with traditional networks and studios and adopt old media’s best practices.
Many of these companies have been built by executives, producers and agents with Hollywood pedigrees, such as writer Brent Friedman’s Electric Farm Entertainment and cable executive Rob Barnett’s MyDamn Channel. Wienstein, before founding 60 Frames, was a senior executive with talent agency UTA.
There are also new production shops and distributors for Web-only shows such as For Your Imagination, Revision3, EQAL and On Networks, among others. They’re joined by digital media efforts from networks themselves, including CBS and NBC, the most aggressive of the broadcasters in pursuing Web originals.
Studios, too, have established digital destinations for original shows, such as Sony Pictures Television’s comedy site Crackle.com and its online network The Minisode Network that carries shortened versions of classic TV shows.
They’re setting up digital shops because audiences are migrating to the Web. By late 2008, half of online Americans had watched a TV show on the Internet at some point in the past, double the rate in the fall of 2006, according to research firm Solutions Research Group. That figure is even higher for younger people. About 70 percent of 18 to 34 year-old online Americans have watched a TV show online at some point in the past, while 15 percent visit a network Web site once a month specifically to watch a TV show online.
Of course the lion’s share of viewing still goes to Web originals, including user-generated content. In December, Internet users in the United States viewed a record 14.3 billion online videos – including Web shows, viral videos and TV shows – up 13 percent from the month before, reported online audience measurement service comScore.
The quick scale of Web video is attractive to digital studios, which are eager to cash in on the explosive growth and the new advertising opportunities in reaching those Web-viewing consumers even in a tough economy. eMarketer predicts online video advertising spending, the dominant revenue stream for Web video, will grow 45 percent this year to $850 million. That’s a nice growth trajectory, but it’s still a relatively small overall number, which is why many of the digital firms are hedging their bets by developing multiple revenue streams, from advertising to license fees to international distribution.
Here’s a look at how some of the leading digital studios fared in 2008, especially when it comes to ad deals:
Next New Networks is venture backed to the tune of $23 million and has landed ad deals from Lionsgate Films, Janome, Windows Vista , Starburst and others. The online TV studio just re-upped with Janome this year and also recently ran an online campaign for Warner Brother’s latest “Friday the 13th” installment. Next New Networks is best known for its “Barely Political” network, home to Web superstar Obama Girl. The network earned about 300 million views for all its shows last year.
MyDamnChannel is a scrappy startup with only $3 million in funding, but the company has churned out award-winning Web hits like “You Suck at Photoshop” and “Wainy Days.” Most of the shows on the site cost about $7.000 per finished episode, says CEO Rob Barnett. The company was on track to break even late last year and to turn a profit this quarter because of its lower cost model.
Revision3 has developed some of the most successful tech and lifestyle-centric shows online, such as the popular “Diggnation,” “Tekzilla” and “Scam School.” Those shows helped Revision3 draw 41 million complete views in 2008 for all its shows, translating into 1.2 billion minutes of engagement for the year. Advertisers include Netflix, Virgin American and Bank of America and EA.
For Your Imagination distributes shows such as “DadLabs” and “Real World Green,” which are luring targeted advertisers in Baby Bjorn and Primo Water. FYI relies on ad dollars but also makes money by operating in a work-for-hire capacity to produce Web shows for media companies.
ManiaTV is well funded with $26 million, but the company slashed staff in the fall after investing too heavily in its own hi-def studio and facilities. Mania’s sponsors include Doritos, Coca-Cola, Adidas, Nike, AT&T, Showtime, Ford, Pepsi, P&G, Motorola and Wrigley.
Electric Farm Entertainment has produced the profitable Web shows “AfterWorld” and “Gemini Division” and makes money from brand integration, distribution deals, network partnerships and international licensing.
60 Frames Entertainment, with successes like “Douchebag Beach” and “Who What Wear TV,” landed ad deals with marketers such as McDonald’s, Sprint, Saks and Procter & Gamble. Late last fall, 60 Frames partnered with NBC to produce Web shows for NBC’s digital studio.
Digital studio EQAL is pursuing a multi-pronged strategy. The company that stealthily built the first true Web hit in “LonelyGirl15″ is now focusing on production deals with networks. As an example, EQAL is creating a companion Web program for the CBS primetime series “Harper’s Island.” The Web show will be called “Harper’s Globe.”
One of the first Web studios to pursue international licensing is Michael Eisner’s Vuguru. His company secured foreign rights deals for its Web shows “Prom Queen,” “Sam Has 7 Friends,” “Foreign Body” and “Back on Topps” in countries including Australia, Brazil, Canada, France, Germany, Japan, New Zealand and Scandinavia.
With the economy in turmoil, digital studios are fighting to survive. That survival will increasingly depend on Hollywood deals and a continued cultivation of multiple revenue streams.
