Why a new crop of Hollywood players are betting big on Web video

If you’ve been wondering how the online video business can support the hourly influx of new online studios, content creators and Internet video channels, then just follow the money.

Market research firm iSuppli predicted in June that professionally produced video will generate nearly $5.9 billion in revenues in 2011, up from $423 million in 2006.

That’s why venture capital firms are funding startup after startup at a dizzying speed, almost rubber-stamping anyone with a business plan for three- to eight-minute videos.

It’s also why companies such as Next New Networks, Vuguru, ON Networks, Revision 3, Pixel Corps, 60 Frames, Crackle and others are bumping against each other, jostling for elbow room.

Each one offers a slightly different twist to online production and financing, but they share a focus on finding, producing or showcasing top-tier Internet talent.

“User-generated is over,” says Josh Felser, co-president and founder of Crackle, the new name for Grouper, purchased by Sony last year. Crackle has shifted its business model away from user-generated content to focus exclusively on funding and producing “premium” Internet talent.

“I don’t think any space is sparsely populated right now,” Felser says. Crackle is betting on its studio affiliation with Sony as a competitive weapon. “We have a unique offering that Veoh or any other startup can’t match. We are part of a studio and we are going to use that.”

Then there’s the newest entrant, 60 Frames. The company launched in mid-July, with $3.5 million in funding from Tudor Investment Corp. and the Pilot Group. Like most online video ventures, 60 Frames expects to make money by selling ads against targeted content and integrating sponsors into productions.

But the company won’t actually make the shows. Instead, 60 Frames is a hybrid company that will finance production in the same way a TV studio would, as well as sell advertising and secure distribution like the syndication arm of a TV studio. 60 Frames will distribute to Web portals, video-sharing sites, peer-to-peer networks, iTunes, mobile phones and other outlets, CEO Brent Weinstein says.

He brings to the job relationships with artists, writers, actors, directors, managers and lawyers that he has cultivated over the six years he spent at United Talent Agency. He said he’s building 60 Frames to be artist-centric. “The entertainment industry has moved to a place where most of the power has been taken out of the hands of the artists and put into the hands of executives and corporations, and I get that. But the Internet has the opportunity to put the power back into the hands of the artists.”

The company already has signed up noted theatrical filmmakers Joel and Ethan Coen, who will create content and serve on a creative advisory board for 60 Frames.

Creative Niches

Another new-media production and distribution shop, ON Networks, creates and licenses short series for the Web, mobile phones, the Xbox and Apple’s iPhone, iTunes and Apple TV. ON Networks counts about a dozen Web series in its lineup, including “Golf Tips” and “ON Dating,” produced for on Networks by NBC.

ON Networks targets specific areas of interest, such as cocktails, golf or online dating and operates the company according to “the scalable studio model,” said Kip McClanahan, CEO. That means on Networks brings producers and editors into a sort of “virtual co-op” and shares revenues with them. “We only work with professional content creators — folks doing ads for ad agencies in town, for instance,” he says. ON Networks then syndicates or licenses the content to media companies, distributors or Web sites. ON Networks makes money by selling the video series to distributors and via advertising. He says the company aims to differentiate through its focus on all-professional, original and high-definition content.

In that capacity, on Networks squares off against Vuguru, a formidable opponent given its pedigree. It’s run by Michael Eisner. But unlike other production shops, Vuguru so far has focused on scripted and episodic series like the successful “Prom Queen” that amassed 15 million views during its two-plus month run this spring.

“In comparison to these competitors that repurpose content, with little-to-no actual storytelling, Vuguru creates high quality, story-driven original content,” says a Vuguru spokesman.

Networks and Matchmakers

So that gives us financiers, studios and entertainment producers. There are also online networks.

Next New Networks is helmed by former Nickelodeon president Herb Scannell. He describes Next New Networks as a series of Internet channels devoted to specific topics. “What we consider ourselves to be is a media company targeting specialized audiences,” he says. Next New Networks produces some of the shows it carries in-house and commissions others.

Scannell bristles at the notion that Next New Networks might be considered an online studio, explaining that a studio simply makes content and then looks for distribution.

“We want to make something that lasts longer,” he says. “We are in the business of being habitual. You like to visit and revisit the things you like regularly. We wanted something more permanent. Networks have permanence and are about brands.”