Writers strike turning into incubator for Web start-ups

By Joseph Menn
Los Angeles Times Staff Writer

January 12, 2008

Few online entertainment ventures today make money. Yet that has not deterred striking Hollywood writers, eager to bypass the studio system, from forming start-ups to distribute their work on the Web.

At least three start-ups, each with a different business approach, are unveiling their corporate monikers and the names of their founders as they intensify the search for venture capital and top management. With names such as Hollywood Disrupted and Virtual Artists Inc., these new ventures have lured investors such as the Oscar-winning writer of "Rain Man" and the Emmy-winning scribe behind "Homicide," along with prominent software developers and technology executives.

These new ventures are incubating in the fiery glow of the 2-month-old strike by the Writers Guild of America. The work stoppage has affected about 10,000 union members, who are seeking higher pay when their movies and TV shows are shown on the Internet. Their studio employers have pushed back, contending that the economics of the Internet are too uncertain for them to ratchet up writers' online pay.

Some writers are now taking matters into their own hands, using their downtime to meet with venture backers, other writers and technologists.

"We should show the studios some gratitude for getting us together," said "Rain Man" coauthor Ron Bass, a member of the WGA's negotiating committee and an investor and director of Virtual Artists. "This is not just an Internet play, but the beginning of what the future is going to look like."

About 20 entertainment and software writers are investing an average of $10,000 for a chunk of Virtual Artists. Co-founded by Aaron Mendelsohn, a screenwriter who created "Air Bud," Virtual Artists plans to fund projects as varied as shorts and feature-length movies. Its other investors include star television writer Tom Fontana of "Homicide" and "Oz"; "Hotel Rwanda" co-writer and director Terry George; "Chicken Run" screenplay author Karey Kirkpatrick; and John Logan, writer of "Sweeney Todd" and "The Aviator." Susannah Grant, who wrote "Erin Brockovich," and Warren Leight, who runs the TV show "Law & Order: Criminal Intent," also have agreed to invest.

More surprising is the participation of major contributors to the movement for free software, who see the writers' fight as a kindred rebellion against corporate control.

"The biggest resonating point was removing the barriers between the writers and their audiences," said Henri Poole, a Virtual Artists director who also sits on the board of the Free Software Foundation.

Advocates of free software believe that collective wisdom can do a better job than big private companies in developing software. Some of the movement's best-known projects include the Web browser Firefox and the Linux computer operating system.

Entertainment online is still in an experimental mode. It's unclear what sort of new venture will find the most success on the Internet -- the broad-based efforts of many artists or the initiatives of a few big-name writers and actors who have set out on their own.

"It will take time for the business form of it all to come together," said entertainment attorney Kevin Morris, who negotiated a landmark deal last year giving the creators of Comedy Central's "South Park" a major share of the digital profit from that franchise. "It has obviously been a limiting factor that there's not any money there yet for artists' going straight to digital, but what better way to force people to try to come up with new business models than to take away their main gig?"

Details of these new online ventures are only now emerging. Hollywood Disrupted co-founder and "Waterworld" coauthor Peter Rader said his company would function as a marketplace for the creative community as well as a launching pad for completed work. He said participants would describe projects they were working on and offer pay or partial ownership to those who wanted to contribute.

Rader said big-name writers were supporting the venture, but declined to identify them. He described the site, which is seeking investors, as part private Hollywood networking site and part professional YouTube.

On the networking side, members of any Hollywood guild can post material and solicit co-workers, then rate their performance. The lesser known are likely to take on projects for less compensation while they build up a reputation within the network, Rader said.

"Quentin Tarantino is not going to be the next Quentin Tarantino," he said. "The people who are going to crack the Internet are the ones who have to be thinking outside the box."

The website's members would vote on whether finished material was worthy of posting publicly. Creators of the material would be free to take it elsewhere, with the company and its eventual investors keeping a 10% ownership stake.

A third venture, Founders Media Group, plans to form a series of companies with writers and other creators. Each venture would zero in on a particular niche audience on the Web.

Initial backers of the company include former AOL Chief Creative Officer Michael Wolfson, who produced the Web-broadcast benefit concert Live 8, and Writers Guild members Tom Smuts and Nina Sadowsky. Smuts has produced and written for TV shows including "Close to Home," and he has worked as a law professor, investment banker and new-media executive. Sadowsky has written screenplays and served as a production executive. They have been joined by three former senior managers of AOL.

"The goal of Founders Media Group is to make the emergence of talent-owned, 'Internet-first' content companies possible," Smuts said, referring to projects that debut on the Web but could build to the point where they merit more profitable forms of distribution. "For meaningful ownership, talent needs to found companies, not just create shows."

Virtual Artists is an outgrowth of the frustration with the studios that Mendelsohn and Bass experienced as a result of their membership on the WGA's negotiating committee. "While we were waiting for them to come back with the latest ridiculous offer, we were looking at each other and wondering why we were fighting over pennies when it's our work that created their empires," Mendelsohn said.

At around the same time, Mendelsohn received an e-mail from a friend, entertainment media entrepreneur Brad Burkhart, who had once run a small production company with Mendelsohn. Burkhart mentioned that his friend Poole, the software developer, had some ideas. That led to a brainstorming session with marquee writers in Hollywood. Another meeting took place in Silicon Valley with key figures in the distribution of free software.

Poole brought in his acquaintance Brian Behlendorf, a lead developer of the free Apache Web Server, the world's most popular software for delivering Web pages.

About 50 well-known writers have already agreed to work for less than they usually charge in exchange for a larger ownership stake in their work, Mendelsohn said, adding that these creators also could have a role in managing the studio.

Internet distribution probably will include a mix of ad-supported and subscription offerings. Works that catch on will have the best chance for more lucrative theatrical or DVD deals with mainstream studios.

Poole and Behlendorf said that although some striking writers were interested in making deals with the likes of Google Inc. and Yahoo Inc., they wanted to make sure that such Web giants don't become what they called "the new intermediaries," profiting by becoming gatekeepers between the creators and their audience.

Mendelsohn said the financial plans would depend on the results of a search for a chief executive and on what alliances were formed with advertising and technology firms. He said the venture would be profitable as long as it avoided the bubble-era overspending of such firms as Icebox.com, which put up premium content but also employed more than 100 people, some with big salaries.

Icebox narrowly avoided filing for bankruptcy protection and now has only one full-time staffer, Tal Vigderson, who said available Internet ad revenue for original content remained much smaller than writers might imagine.

Icebox has survived largely by working on sponsored projects, such as an animated version of "24" for Fox.

Vigderson said shows produced on a budget and good enough to generate viewers who return every week could change the economics. "It's going to take a Howard Stern or a 'Sopranos,' " he said, a hit that establishes a new medium as viable.

"Once the revenue is proved, more will follow," Vigderson said. "This is the future of entertainment -- that's why we've hung on so long."