Comic website laughs all the way to the bank

Funny or Die, the comedy website founded by Will Ferrell, is pointing the way for Web-based entertainment companies by combining the scrappiness of an Internet start-up with A-list talent that attracts viewers.

What started as a lark for Ferrell and writing partner Adam McKay has become a profitable company, with revenue approaching $30 million this year, according to a person with knowledge of the Los Angeles-based business.

Funny or Die's third show on cable TV, Billy on the Street, started Thursday on Madison Square Garden Co.'s Fuse network. The first feature film, Funny or Die Presents Tim and Eric's Billion Dollar Movie, premieres at the Sundance Film Festival in January.

"Somebody is going to figure out the strategy of marrying traditional media to this new-media model, to the way people are now consuming content, on a massive scale," Funny or Die chief executive officer Dick Glover said an in interview. "We're doing it in our little world. We're doing OK."

Since the dawn of the Internet, entertainment companies have struggled to make money on the Web. Walt Disney Co.'s interactive unit has lost money for 12 consecutive quarters. The company said on Nov. 7 that it had formed a partnership with Google Inc.'s YouTube to create short, family-friendly videos. YouTube is investing about $100 million to add channels in collaboration with celebrities such as Amy Poehler, Ashton Kutcher, and former basketball star Shaquille O'Neal.

Mark and Michael Polish, the writer/director team behind Twin Falls Idaho and The Astronaut Farmer, have turned a modest profit from For Lovers Only, a feature they launched on Apple Inc.'s iTunes and video-on-demand.

"The bottom line is, you have to have the right product because you really depend on word-of-mouth," Mark Polish said in an interview. "Are they going to like it and link it to Facebook or Tweet it?"

Funny or Die's ethos was established with its first Internet video, The Landlord. The two-minute sketch featured McKay's 2-year-old daughter Pearl as a foulmouthed landlady who intimidates a tenant played by Ferrell. Shot with no budget in 60 minutes at Ferrell's house, The Landlord attracted 78 million views, according to the website.

The success generating traffic enticed stars willing to work for free for the exposure Funny or Die gave them with young, Web-savvy audiences. The money came later, as marketers bought ads on the site and film studios hired Funny or Die to create videos for the stars of upcoming films.

Funny or Die is backed by Sequoia Capital, a Menlo Park, Calif., venture capital firm that has put $15 million into the company. Owners also include Ferrell and McKay's production company, Gary Sanchez Productions, director Judd Apatow, Time Warner Inc.'s HBO, and Creative Artists Agency.

The Landlord remains the website's most-watched, followed by a Justin Bieber sketch that drew 40.8 million views, according to rankings on funnyordie.com.

"We walked into Funny or Die looking at it as a clubhouse for our friends," McKay said. "The quality didn't have to be that high, it could be goofing around. What we didn't anticipate was how much people would like that approach."

Website ads account for about two-thirds of revenue. The rest comes from so-called branded entertainment, 50 or so videos the company is hired to make each year to promote movies and products. The site has kept its credibility with fans by maintaining tight control over the creative process. Typically, the only reference to the product being promoted is made at the tail end, after the sketch is over.

Tim and Eric's Billion Dollar Movie, the first feature film under the Funny or Die brand, stars frequent collaborators Tim Heidecker and Eric Wareheim. In the picture, two friends get a billion dollars to make a film, the biggest budget in history, only to see the project fall apart. Ferrell also appears, and Gary Sanchez Productions and Mark Cuban's 2929 Entertainment are among the backers.

Tim and Eric's Billion Dollar Movie will be offered through video-on-demand and for sale at Funny or Die's site on Jan. 27, and will reach theaters on March 2, according to the duo's website.

Billy on the Street features comedian Billy Eichner approaching New York pedestrians with questions about pop culture. The company's other shows on cable are Comedy Central's Jon Benjamin Has a Van and HBO's Funny or Die Presents.

Funny or Die can charge $100,000 or more for custom-made videos and promotional campaigns, fees that include salaries for staff and payment to the stars, said the person, who declined to be named because the company is private.

"There's an idea that young people reject advertising," Glover said. "That's not true. They reject bad advertising. They love advertising that talks to them in a certain way."