How Does Funny or Die Make Money?

Thanks to star power and eager advertisers, the comedy website is laughing all the way to the bank.

Mar 15, 2014 at 10:30AM

It appears President Obama believes laughter really is the best medicine.

The administration's got a big shot in the arm last week after President Obama appeared on Funny Or Die's Between Two Ferns program to plug the heath care website.

It seems to have worked: Roughly 24 hours after a video was posted Tuesday morning, more than 13 million people watched the interview and some 54,000 of them heeded the president's advice and checked out the government-run insurance exchange, making the comedy site the highest source of individual traffic referrals to the federal health insurance marketplace, a White House official said.

It's easy to see why the president would go to the website to tout the health care program. Funny or Die (FoD) gets 20 million unique visitors a month and has 7.8 million followers on Twitter and 5.5 million likes on Facebook. White House Press Secretary Jim Carney told reporters:

The President's interview with Zach Galifianakis on Between Two Ferns was designed to reach Americans where they live. And they watch the show in huge numbers -- I think the average video gets something like 6 million views. I'm convinced we're going to break that average.

It doesn't hurt to have Will Ferrell on staff

The comedy site was launched in April 2007 by venture capital firm Sequoia Capital and a Hollywood production company whose principals include Will Ferrell, Chris Henchy, and Adam McKay.

Sequoia funded FoD with an $18 million Series A and $15 million Series B rounds. The site hasn't raised venture funding since 2008, but other investors include Creative Artists Agency and Time Warner (NYSE:TWX) subsidiaries HBO and Turner Broadcasting.

The privately held site is profitable, but principles won't say just how profitable. According to Wall Street Journal sources, the website's revenue grew 40% to 50% in each of the past three years, to a projected $40 million in 2012, with profit expected to be in the single-digit millions.

That makes FoD quite the outlier. Being a profitable entertainment company on the Web has been an elusive trophy for many. For example, Walt Disney's (NYSE: DIS) interactive unit lost money for 12 consecutive quarters and recently laid off 700 employees, about a quarter of its workforce.

So what does FoD do differently?

The winning formula, according to CEO Dick Glover, is: keep the cost of content and marketing low, keep the quality high.

On the content and marketing side, FoD keeps costs down by producing everything produced in-house. The small team of writers, directors, producers, and editors churns out upwards of 20 to 25 videos a month. 

And while other online video companies settle for serving up content on YouTube, depending on the Google-owned giant for traffic, promotion, even monetization, FoD is different, relying primarily on direct traffic to its site. This allows the site to retain all of its advertising revenues.

On the quality side: The site has undeniable star power. Celebrities line up to star in video goofs such as "Justin Bieber After the Dentist," "Undercover Karaoke with Jewel," and "Lindsay Lohan's eHarmony Profile." But the celebrities are paid little or nothing.

The ace up the FoD sleeve, however, is branded entertainment. Companies such as Under Armour (NYSE:UA), Starbucks (NASDAQ:SBUX), and Subaru, are now coming to Funny or Die to pitch their products. The writers create branded entertainment, generating a new revenue stream for the site and an entire new genre for marketers.

Insiders told The Hollywood Reporter that branded campaigns can run from $100,000 to $900,000, depending on how many videos are created and other criteria. Those fees include salaries for staff and payment to the stars.

So far, branded entertainment has been a successful strategy for the website. FoD's direct traffic has certainly made the site alluring to stars looking to let their hair down and advertisers who want to amp up their cool ratio. It remains to be seen whether other video websites will be able to replicate that success. And whether they'll be able to snag President Obama for an interview.

In case Zach Galifianakis didn't answer all your questions...

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Sheryll Poe has no position in any stocks mentioned. The Motley Fool recommends Facebook, Starbucks, Twitter, Under Armour, and Walt Disney. The Motley Fool owns shares of Facebook, Starbucks, Under Armour, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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