The face that launched 50 million hits has cherubic cheeks, golden curls, and a gaze that's innocent yet mischievous. It belongs to Pearl McKay, a two-year-old whose father, Adam, directed and co-wrote the Will Ferrell hits Anchorman and Talladega Nights. Pearl's old man and Ferrell are partners in Funny or Die (funnyordie.com), a video-sharing website that Sequoia Capital, the site's financial backer, envisions as the flagship of an internet armada capable of sinking old media. (View slideshow.)

Funny or Die is being touted as the first successful collaboration between Hollywood and Silicon Valley, the first time top-tier Hollywood talent (Ferrell, McKay) has been paired with comparable engineering know-how (the site loads as fast as YouTube) and shrewd investment muscle (Sequoia). The portal made its debut in April 2007 with a dozen offerings-one was an ersatz sketch featuring Ferrell and Pearl, who was fed lines off-camera by her parents. Improvised at Ferrell's home following his son's third-birthday party, the two-minute video has since become the site's cyberboon-and bane. Pearl plays a boozy, tyrannical landlord who demands that her delinquent tenant (Ferrell) pay his rent. "I want my money!" she screams, before burbling a string of expletives that are helpfully subtitled. "I need to get my drink on!"

The video went viral at mouse-click speed. With television's professionally outraged fanning the flames (on Fox News-over a caption that read "Child Exploitation?"-Bill O'Reilly asked, "Did actor-comedian Will Ferrell damage a two-year-old girl by putting her into an internet comedy bit?"), it quickly became a celebrity cause c�l�bre. Seven months later, "The Landlord" was the third-most-watched video ever posted on the Web. (The reigning champ, "Evolution of Dance," has been viewed on YouTube more than 66 million times.)

"The Landlord" gave Funny or Die instant brand recognition and cybercred. More than that, the site seemed to herald the birth of a new media model, one that gives artists a hefty stake in ownership and offers major stars some low-cost, high-profile exposure unfettered by studios, media companies, or endless development meetings. "Talent now has the opportunity to go directly to fans, at little or no cost to them," says Mark Kvamme, a Sequoia general partner and one of the founders of Funny or Die. "It started with MySpace, then it was YouTube, now it's sites like ours. What is amazing about the internet is that there is no friction in finding your audience."

Faced with mounting costs and eroding profits, Hollywood is having a collective panic attack over who gets to deliver-and make money from-online entertainment. That anxiety was the subtext of the writers strike: The Writers Guild of America argues that its members are entitled to a share of the money generated by the streaming of their work. Producers counter that even though much of the broadband-related programming now includes paid ads, the medium is still essentially a promotional tool; they insist that the breakneck pace of innovation makes it imprudent, if not impossible, to draw up a fixed compensation formula.

Unease about the future of digital formats has spawned numerous ventures. A year ago, Turner Broadcasting System unveiled Super Deluxe, a mishmash of comedy by both amateurs and professionals. United Talent Agency and the Web-based ad agency Spot Runner have formed 60Frames Entertainment, a ministudio that will produce gonzo film and video for internet dissemination, and, possibly, cable broadcasts. Its business model: Pay up front for content, then syndicate it.

Funny or Die is now part of a rapidly changing media landscape where more viewers-and more dollars-are moving online every day. Ad revenue for Web videos has swelled to $775 million, nearly double what it was in 2006; that figure is expected to double again in 2008. In its first three weeks, Funny or Die-patched together with just $17,000 in seed money from Sequoia-drew almost 3 million unique visitors, a figure that exceeded the monthly averages for the websites of such established smart-alecky competitors as Comedy Central, the Onion, and CollegeHumor, which hosts a "Girls on the Toilet" photo contest. "Running porn or party jokes or female nudity would clearly bring a lot of eyeballs our way," says Chris Henchy, Funny or Die's creative director. "But we're into observational humor, not cheap laughs." Not that he's opposed to laughing cheaply. After all, an early name for Funny or Die was WetMyPants, and its well-stocked library includes the titles "Masturbation" and "The Vagina Whisperer."

Part of what separates the site from other YouTube-like portals is a merit system that allows voters to banish unfunny videos to the "crypt" section of the site. Also, there's an aspirational quality that comes from associating with Ferrell and McKay, who critique clips and pick their favorites. Pitch your gags on YouTube, and it's as if you're one of a million comic wannabes on some public-access channel; at Funny or Die, you feel like you're auditioning for Saturday Night Live. "In the old days, to get the public to see your act you had to be in a sitcom," says Zach Galifianakis, a club comic for whom the site has been a springboard to TV and movie appearances. "Now I can upload my most daring routines on Funny or Die and the whole country sees them. It's become the premier site for professional stand-up comics, a comedy community."

That community includes well-known performers enlisted by Ferrell and his posse. Bill Murray, Jenna Elfman, John C. Reilly, Jimmy Fallon, Jeremy Piven, John Mayer, and Henchy's wife, Brooke Shields, have contributed cameos. And Funny or Die's newest partner, Knocked Up director Judd Apatow, has ponied up skits. The celeb video that has come closest to inciting another Web frenzy is a parody of the Paris Hilton sex tape, starring Desperate Housewives' Eva Longoria.

If the Web is a kind of short-attention-span theater, websites are perfect stages for byte-size screwball skits. Maybe too perfect: There have been more comedy portals than comics at your local Yuk Yuk Hutt's open-mike night. The sites have tended to be as laughably laffless as they were unprofitable. This was especially true during the first internet boom, when videos were more likely to trickle than stream. "Downloading in 2007 is 100,000 times easier than it was in 1999," says a talent agent familiar with Funny or Die. "Still, in eight years, nobody has figured out how to make money off comedy sites." But with new media now siphoning off old media's ad revenue at an alarming rate, the agent predicts that profits will come soon.

Among the old-media entries recently flushed are NBC's DotComedy.com, Time Warner's This Just In, and-perhaps most risible-Time Inc.'s Office Pirates, allegedly a satirical look at the workplace, which capsized after seven months.

The biggest comedy sites all lust after the same young-male demographic that is notoriously difficult to reach through traditional media. But the content is often wildly dissimilar, ranging from the broad Hee Haw burlesque of Break.com (paint-gun accidents, nosy neighbors falling off fences) to the Onion's sharp, mordant send-ups. Its Onion News Network is the Miles Davis of anti-mainstream media cool; among ONN's deadpan features: "Is the Government Spying on Paranoid Schizophrenics Enough?" and "Al Qaeda Also Fed Up With Ground Zero Construction Delays."

Funny or Die tends to be far more uninhibited than Break.com and far less sophisticated than the Onion. The site has a full-time staff of 30, six of whom are writers. This so-called creative team has an office in Hollywood; the techies are in Palo Alto, California. Together, they have cranked out more than 100 videos.

Some of their best bits have been the "Zombie-American" monologues, in which The Office regular Ed Helms mulls over life as a modern-day undead. "You get a lot of creative freedom," Helms says. "Having no studio oversight or censorship makes the thing feel more renegade, more run-and-gun, which can be exhilarating."

To date, the time Helms and his fellow videomakers have put into their projects has been sweat equity; at Funny or Die, neither A- nor D-listers are compensated-yet. "Revenue sharing is a little down the road," says Sequoia's Kvamme. "In the future, we hope to give some filmmakers small budgets to cover production costs." Ferrell and McKay had just a $5,000 budget for their first video, but Kvamme expects the pay structure to change dramatically when the ad dollars start coming in. "Talent can make much more money with us than they currently do," he says. "Part owners of a hugely successful company will make more than just paid talent." Kvamme is still working on how to pay those who don't have a stake in the company; his answer will probably be a formula based on how much traffic a video pulls in. The pay will also vary depending on who the creator is. Sacha Baron Cohen can expect a bigger cut than the Fort Linda, Montana, Improv Players.

Sequoia invested in some of the Web's biggest winners early on, including YouTube, Yahoo, and Google. "When Sequoia bankrolls something, you know it's worth taking a look at," says Scott Kurnit, founding C.E.O. of About.com. Funny or Die just received an infusion of $15 million, partly from Sequoia and the rest from a couple of institutional backers Kvamme declines to name. That money, Kvamme says, will be used to hire more creative and engineering talent. Sequoia thinks the site-and others like it-is where the audience is heading. "The internet gives viewers more control," says Kvamme. "They get to see more of what they want and vote with their time, which will have to translate into advertising dollars." He compares what Sequoia is attempting with Funny or Die to "an entrepreneur who comes up with an idea like MySpace or Facebook. The reason the founders of those companies are very rich today is that they risked their time and their idea. Talent will need to do the same thing in this situation."

A Silicon Valley native, Kvamme was born into one venture capital family and married into another: His father, Floyd, and father-in-law, Pierre Lamond, were both founders of National Semiconductor. In 1980, Kvamme got his first job, at Apple, while a freshman at the University of California at Berkeley. He quit both in 1981 to study at the University of Oslo, in Norway, where he programmed financial-planning models at the local subsidiary of I.B.M. Next stop was the University of Paris. At 21, he helped set up the Apple subsidiary in France.

Kvamme returned to the States in 1982 and graduated from Berkeley with a degree in economics and French literature. He got his start in comedy in 1986 by launching a company that sold dummy cell phones to wannabe yuppies. His slogan was "Status without the static." The joke wasn't on Kvamme: He sold 80,000 Cellular Phonies and pocketed $110,000 in profits.

Three years later, he co-founded CKS Group, one of the first interactive ad agencies. He guided CKS into a merger with USWeb Corp., an internet-services company. In 1999, Kvamme resigned as chairman of the combined company to become a partner in Sequoia. There, his investments include the professional networking site LinkedIn and Imeem, an online social and media service.

Kvamme got the idea for Funny or Die from his teenage son, Michael, an aspiring stand-up comic. The younger Kvamme complained that it was too hard to find comedy on YouTube. (Michael, by the way, posted four of the original 12 Funny or Die videos, one of which has the dubious honor of being the first consigned to the crypt.)

In 2006, Kvamme senior pitched Funny or Die to Creative Artists Agency, which represents Ferrell. C.A.A. dispatched Kvamme to the set of Blades of Glory to see if he could persuade Ferrell to join the new venture. After some initial reluctance, both Ferrell and his director, McKay, succumbed to Kvamme's charm and persistence.

A deal was brokered by C.A.A. and Ferrell's tenacious manager, Jimmy Miller. The founders of Funny or Die are Kvamme, his son Michael, Henchy, Miller, Ferrell, McKay, site programmer Randy Adams, and C.A.A. The agency hasn't invested in the site but has put time and brainpower into the operation and is anticipating its standard 10 percent commission on future profits of the Funny or Die partners it represents. C.A.A. also uses the site to promote clients, from prizefighter Oscar De La Hoya to actor Danny DeVito. A scabrous teaser for DeVito's FX sitcom, It's Always Sunny in Philadelphia-he invokes a clause in his contract obligating the show's executive producer to perform oral sex on him-has played more than 250,000 times and is widely credited with helping the show nearly double its ratings over the previous season opener.

Will the site become prime real estate for advertisers? Sony Pictures, ABC, and the CW have signed up as sponsors. "We should gross a few hundred thousand dollars in 2007," Kvamme says. In 2008, "we should gross a few million." If all goes well, Funny or Die will even consider product placement. "My hope would be that we'd do it in a way that didn't disenfranchise our audience," says Henchy. "I think visitors to the site probably have a tolerance for that sort of thing."

Kvamme says he wants Funny or Die to be much more than just a great place to sell Doritos. "Ultimately," he says, "we want the site to be one of the five or six destination portals that visitors come to and hang around on a regular basis, like Facebook or MySpace."

That will not be an easy goal to achieve: According to Nielsen Online, Facebook's 18 million unique monthly surfers go through the Facebook site at the leisurely pace of an hour and five minutes, about half the time of MySpace's 58 million users, whereas the typical Funny or Die fan changes channels after five minutes and 40 seconds.

At this stage, Kvamme says he is less concerned about cashing out than in creating a brand, reaching critical mass in viewership, and getting in early before everything makes perfect sense. "The key factor isn't going to be Funny or Die's content," says Patrick Koppula, C.E.O. of ffwd.com, a video aggregator. "What really matters is the level of community engagement. If the site is trying to target advertisers, the important thing is its ability to hit multiple touch points."

Kvamme and his partners plan to hit as many of those touch points as possible by building a mini-Viacom comprising dozens of "or Die" sites, each marketed by the same sales force. The value, he explains, will come in leveraging the properties-advertisers will pay for the total number of eyeballs all the sites can deliver. To that end, Kvamme has launched Shred or Die-an attempt to mix extreme sports and celebrity culture-and MyBlueCollar.com, an offshoot of the deep-fried bumpkinisms of Jeff Foxworthy and Larry the Cable Guy. Both sites are still looking for their "Landlord."

Funny or Die's strategy has been called anachronistic. "Why not just make Funny or Die a channel on YouTube?" says Kurnit. "Hoarding your wares doesn't work when your competitors are putting their goods everywhere. Embed ads in your videos and they'll appear all over the place. Visitors will find their way back to your site."

Kvamme disagrees. "All you do is make YouTube richer."

Some are skeptical about the viability of the Funny or Die network, but Koppula finds a lot to like in its concept. "I think it has sufficient resonance," he says. "You'll know it's a success when you see college students walking around with 'Or Die' T-shirts."

Ferrell and several other comics with videos on the site will begin a seven-campus Funny or Die tour next month, timed-not coincidentally-to promote Ferrell's upcoming movie, Semi-Pro. Pearl, though, won't be reprising her act onstage. Over the summer, her father decided to put a stop to her show-business career.

The runaway success of Pearl's maiden effort raised expectations that were impossible to meet. More than 16,000 videos have been posted on Funny or Die since "The Landlord" premiered and none have come near its 50 million views. The site's No. 2 is a sequel called "Good Cop, Baby Cop." This time around, Ferrell plays a murderer and Pearl is a police interrogator who extracts a confession from him with a postmodern beatdown.

"We're a hit-driven society, and Funny or Die has had one big hit," says Michael Pond, a media analyst for Nielsen Online. "To be successful, the site must not only drive people in but get those who are already there to return." When "Landlord" traffic began to wane, so did Funny or Die's viewership. By August, the monthly unique visitors had plummeted 73 percent, from 2,896,000 to 775,000, placing the site outside Nielsen's top 10 humor destinations. "I kind of wish we'd released 'The Landlord' today and not last spring," says Kvamme. "The site was nothing then, and now it's a robust thing."

Powered by minor traffic spikes from videos by major celebrities, Funny or Die's monthly tally of unique visitors has risen steadily to a respectable 2,361,000 in October. If Google Analytics is to be believed, 44 percent of the site's users are repeat visitors. "The challenge for Funny or Die is to keep putting up content that creates the same buzz as 'The Landlord,'?" Pond says. "The site needs to follow a breakout hit with a breakout hit." In other words, if surfers aren't consistently amused by Funny or Die, its very name will become its epitaph.

 

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