Older strategies bring in financing, advertisers for digital studios

LOS ANGELES – Nine studio executives sat in a glass-enclosed conference room in Beverly Hills, Calif., discussing potential snowy locales for filming later this year.

Utah was a viable option, advised the head of production. So, too, was upstate New York – in part because of tax credits. Over the course of the hourlong production meeting, the executives also discussed social media plans for one soon-to- debut series and mulled a festival screening strategy for another project.

Such a session would not have been out of place at any major studio. That it occurred at the offices of Vuguru, the digital studio founded in 2006 by former Walt Disney Co. Chief Executive Michael D. Eisner, is a sign that Web video is growing up.

“It’s a little bit like when TV guys were no longer considered ghetto people, we could actually grow into being the movie business,” said Eisner, who spent his early career at ABC television before running Paramount Pictures. “Slowly, the people who work in the digital space are no longer considered odd and strange.”

Vuguru, the creator of such Web series as “Prom Queen,” is doing more than adopting the rituals of Hollywood. The studio is applying familiar “old-media” business models to underwrite the cost of digital production. Vuguru strikes foreign distribution deals that can cover roughly half a given project’s budget, in a funding approach borrowed from the world of independent film. And it structures its original series in pieces that can be snapped together or pulled apart for viewing on multiple platforms.

Take, for example, a scripted series like “The Booth at the End,” which made its U.S. debut last week on online video site Hulu. It can be watched in two-minute vignettes on mobile phones (62 episodes in all), as five half-hour TV episodes or as a single full-length movie. This approach is designed to attract advertisers who are eager to follow audiences onto the Web and portable devices – but also be packaged in a familiar enough format to be placed on TV.

The potential for more ad revenue translates to healthier production budgets.

“As the market matures, maybe we increase our budgets as it makes sense,” said Vuguru President Larry Tanz.

For the moment, Web-exclusive video is far from a moneymaker. One study of 250 new media titles made available on YouTube, Hulu, Netflix and other major digital platforms revealed that such entertainment attracted sizable audiences – about 1.3 billion views. But the payback to producers was relatively paltry: a combined $15 million paid by 13 major distributors last year.

Studios like Vuguru script and structure their new media series with old media in mind. Fox International Channels, News Corp.’s international multimedia business, acquired rights to “The Booth at the End,” which it aired on its pay-TV channels, as well as on the Web.

“They’re rolling it out online, putting it on TV; they’re experimenting, cross-promoting,” Tanz said.

Media companies are betting that these new platforms, including cellphones and tablets, eventually will become big business. Eisner predicts that digital distribution will one day be the first stop for new projects.

“Digital distribution is so obviously the future,” Eisner said, adding, “That is happening, but there’s a long way to go.”