Web Video: How to Actually (Maybe) Make Money

Startup EQAL has a hit on its résumé, a big-name client, and a four-pronged business plan

By Jon Fine

The two thirtyish founders of Web video production company EQAL, Miles Beckett and Greg Goodfried, are too media-savvy to boast they've cracked the code for minting big hits from serialized short online videos. Nevertheless, this is what their business (say "equal") is based on, and it's why CBS (CBS) is paying them to create a Web series offshoot of the network's upcoming mystery show Harper's Island. (EQAL's Web series, called Harper's Globe, will make its debut on Mar. 18, about a month before the show hits the airwaves.)

Along with screenwriter friend Mesh Flinders, Beckett, then an urgent-care physician, and Goodfried, then a lawyer, made a loud Web debut in the summer of 2006 with Lonelygirl15. In that, a young female diarist narrating her life in a series of YouTube (GOOG) videos dragged legions of fans (myself included) down a rabbit hole, trying to answer a simple question: Was she real, or was it scripted?

That it was the latter did not derail the show. Lonelygirl was durable enough to hold its audience through several, um, "seasons." Lonelygirl's YouTube channel page has been viewed more than 15 million times. (Beckett and Goodfried say the Lonelygirl videos' total YouTube views are 150 million.) The show generated a British spin-off called KateModern that "aired" primarily on social network Bebo, and, EQAL executives say, an Eastern European version has just been licensed. Lonelygirl attracted product placement and sponsorship deals with the likes of Neutrogena (JNJ) and Hershey (HSY). (CBS will handle all ad sales for Harper's Globe.) All that allowed Beckett and Goodfried to forgo signing a development deal—an old notion, that—in favor of raising $5 million from investors to form EQAL, which has 18 staffers. The question the Lonelygirl guys now raise is this: Can you build a production company, in this environment, from a new form of storytelling?

Storytelling Beyond the Videos

If video on the Internet merely meant "television," as CBS Interactive CEO Quincy Smith puts it, then that network's top show, CSI, would be its most popular online. (It isn't. Reality series Survivor is.) EQAL's work has only a passing resemblance to traditional TV. The episodes are brief (Beckett claims the ideal length is two and half minutes, like a stripped-down pop song). Narrators stare straight into the camera and address viewers, in the intimate and familiar technique established by videobloggers. And it would mark a major departure for EQAL if Harper's Globe were not driven by an attractive young woman threatened by some mysterious and unnameable danger.

Thus, the Web's version of Lost: The enigmas embedded in the storylines let obsessives spend hours combing the videos for clues and chattering to each other, in this case in EQAL-designed forums and social networks. "The key thing for us," says Beckett, "is for the story to flow beyond the videos" and play out in the conversations of its fans—which can then inflect future plot developments. A favored EQAL move: Puzzled characters find some kind of mysterious code or clue; the more infatuated viewers happily decipher it. That EQAL has already shown it can create a connective tissue binding viewers to its work even when they're not watching it is precisely why CBS called them up, says Smith. "What is the fantasy football for entertainment?" he asks, making clear he thinks this is what EQAL has achieved.

Goodfried and Beckett envision four ways for EQAL to make a buck: original online series that generate ad and sponsorship deals; doing work-for-hire for the likes of CBS; licensing its series abroad; and providing its tech platforms for videobloggers who've scored success on YouTube and want to start their own sites. Those ancillary streams are now important, Goodfried concedes, since selling ads and sponsorships around EQAL's original work just got tougher: "What we do is the R&D side of marketing, and everyone is cutting that in the short term."

Sign of the times: EQAL, despite pioneering a promising storytelling subgenre, remains vulnerable to the vicissitudes of this business climate. Apparently, Media Old and New still have a few things in common.

Fine is BusinessWeek's MediaCentric columnist and Fine On Media blogger .