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.