The entertainment company dominates teen books, television, and film, so why not the Web, or the rest of the world?
Josh Bank is a cheerful guy in a red-checked shirt and pressed khakis with millions of young women under his influence.
On this Sunday morning in Los Angeles, several of those women are on the set of his new Web series, Hollywood Is Like High School with Money. Bank, 42, the president of Alloy Entertainment (ALOY), is one of the creative forces behind hits like the television show Gossip Girl and the novel and movie The Sisterhood of the Traveling Pants. Perched in a director's chair, his eyes alert, Bank watches two actresses run through lines he thought up with another set of charges, the mostly young, mostly female editors and writers who churn out stories for him at Alloy.
"I love the idea of a teenager giving an adult rules about how to survive in Hollywood. It still makes me laugh," says Bank about his show, which revolves around Quinn, the high school Queen Bee, who teaches a hapless studio assistant named Taylor how to outmaneuver a ruthless rival. Then he turns serious, describing the icy derision that is the signature mood of Alloy stars, many of whom are studies in the Machiavellian teen. "I insisted when we were writing the script that Quinn be absolutely intolerant of everything Taylor does in that classically teenage girl way," he says. "Quinn doesn't give an inch."
The other millions of young women under Bank's influence? They watch Alloy's Twilight knockoff, The Vampire Diaries, and Huge, the critically acclaimed show about teens at a fat camp. They read Alloy books like the best-selling series Pretty Little Liars, which was conceived as Desperate Housewives for teens; eight such products have been on The New York Times best-seller list this year. Nearly 21 million teens logged on to Alloy's websites in September, according to tracking service comScore (SCOR), and 6 million see Alloy's ads on its in-school television network, Channel One News. Private, Alloy's first Web series, got 14 million hits and convinced Bank and the other executives that their digital future had arrived.
On the Web, Alloy hopes to do what it can't on television or in film: control the content, the distribution, and the advertising sales, and thus the profits, for its shows. If all goes according to plan, Alloy could be a digital studio and broadcaster in one. It could own the teenage girl, and maybe even the holy grail of demographics, prized for its spendthrift, trendsetting ways: the 18- to 34-year-old woman. Maybe Hollywood really is like high school: Rule No. 1, says Quinn, is "Be aggressive."
In June, Strauss Zelnick, head of the private equity firm ZelnickMedia, and other investors paid $126.5 million to acquire Alloy Entertainment and its publicly traded parent company, Alloy Inc., which also includes a youth marketing and research firm. When the deal closes later this year, Alloy will have an ambitious owner in Zelnick, who was once president of 20th Century Fox and is also trying to revive video gamemaker Take-Two Interactive (TTWO). "I expect them to be nothing less than the most important entertainment company serving the youth market," he says. With Zelnick comes a new chairwoman, Geraldine Laybourne, who pretty much invented the cable channel Nickelodeon and founded another, Oxygen Media, and now wants to influence a new generation. She used to tell Sumner Redstone, her boss at Viacom (VIA.B), that Nickelodeon wasn't just a channel, it was a lifestyle. She has something similarly grand in mind for Alloy. "We can get under the skin of this huge market," she says, noting that teens are at once ubiquitous and elusive. "Are we going to be an important content creator and brand for young adults? Yes. What shape that takes, I don't know. We're creating something new."
In some ways this is Alloy's own coming-of-age tale. The company wants to grow up on its own terms, idiosyncrasies intact. And it's doing so just as those millions of teen girls are getting hold of the mobile technology that could let Alloy's stories beguile them almost anywhere. There may or may not be a TV in the 21st century teenager's bedroom, but there will quite likely be a laptop or tablet. "I'm excited about what the iPad means for this generation," says Laybourne. "Once tablets are in their hands, Alloy is perfectly positioned to create new content."
Online video is already huge. Eighty-four percent of the 213 million Internet users in the U.S. now watch an average of 14 hours of video a month, according to comScore. And in September, ads accounted for more than 12 percent of all videos viewed online.
Other companies, of course, share Alloy's ambitions. Over on Sony's (SNE) well-funded crackle.com, the most popular series, The Bannen Way (about a con man doing one last job), drew 13 million views in its first two months. Results like that are bringing the traditional television players into webcasting—again. They tried it a few years ago, and when those attempts failed they scaled back their plans. Now the networks and big studios are aiming higher with original Web series. NBC is airing a comedy, FCU: Fact Checkers Unit, about magazine assistants trying to confirm celebrity gossip. Lionsgate (LGF) recently announced it will produce its first Web show, a 24-episode animated series called Trailer Trash.
The real experiments, weird and funny, are (no surprise) occurring outside Hollywood. CollegeHumor, which is owned by Barry Diller's IAC (IACI), has 15 million monthly users who watch shows like Hardly Working, the absurdist sketches that star CollegeHumor's staff and are filmed in its offices. At My Damn Channel, the independent Web studio, the most popular original series so far is You Suck at Photoshop, a combination tutorial and comedy routine that's been seen more than 24 million times.
Seen by whom? Quite likely young men. If there is a market in which teen girls are underserved, digital entertainment may be it. Vuguru, the studio founded by Walt Disney's (DIS) former chief executive officer, Michael Eisner, offers a few such shows, including Prom Queen, a series of 90-second episodes that has attracted 11.1 million views. And the new MTV Scratch is going after millennials from all angles. But so far no one can really match Alloy's near-obsession with the fantasies and anxieties of young women. "They want to be the place for everything that teenage girls want," says Reed Phillips III, co-founder of media investment bank DeSilva+Phillips. "Their chance of success is pretty high."
For its first online shows, Alloy adopted a conventional Internet model, where the advertiser pays for the series. Hollywood Is Like High School is a 10-episode, seven-figure Web production, with all seven figures coming from L'Oréal. Even with advertisers bankrolling the programs, however, Alloy doesn't quite break even. For now that's close enough for Matt Diamond, CEO of Alloy. He thinks economies of scale will eventually work in Alloy's favor, particularly if it can turn some of the series into feature films, as it's doing with Private, now in development, or into television shows.
Inside the Alloy empire, there are few worries about protecting creative work from the influences of advertisers, unlike in many more traditional media organizations. This may be due in part to the backgrounds of Diamond and Leslie Morgenstein, the CEO of Alloy Entertainment. Diamond, 41, worked at General Electric (GE) and got his MBA from Harvard before he and a friend started Alloy in 1996 as a youth marketing company. Four years later, he bought Morgenstein's book-packaging business, 17th Street Productions; Morgenstein, now 43 and with an MBA of his own, brought in Bank, a college friend from Sarah Lawrence College who was working at an advertising firm. All three are understated, unthreatening, apparently uncomplicated. Their hair is short, their shirts are tucked in. They're married and have kids. They run and play golf. The widget they sell just happens to be the attention span of teenage girls.
"The goal is to make advertisers super happy and make us super happy," Morgenstein says. "They don't want to write the script," adds Diamond. "But they won't put money into something that won't ultimately be a good ad campaign."
Two months after L'Oréal signed on to Hollywood, executives from the company were reading over the script. "They were very helpful in saying where they'd like to see their product," says Bank. The second episode's script reflects this cooperation: "Stage Note: Quinn applies Telescopic Explosion Mascara and primps in front of the mirror. In her bathroom we see 360 Go Clean, L'Oréal Hairspray, Infallible Lip Gloss, True Match Roller, True Match Blush, eyeliners and lipliners."
On the set, advertisers were just as helpful. "If the sponsor sees something they don't like, they'll speak up and we'll change it," says Tripp Reed, an independent filmmaker who joined Alloy to produce its digital programs. L'Oréal executives declined to comment.
In September, Alloy also introduced a series called First Day, created expressly for Kmart (SHLD). It's a comedy about a girl who relives her first day at a new high school, in different Kmart clothes each time, until she gets it right. Kmart executives had one concern: no mean girls. That might sound crippling—like having a superhero without a villain—but Alloy complied. "We really just tweaked some of the dialogue," says Andrew Stein, the vice-president of marketing and planning. "It wasn't that difficult." When the shows air, viewers can click on certain outfits and be taken straight to Kmart's website to buy them.
Does this relentless focus on product make the stories suffer? Bank and Morgenstein say it doesn't. "There's never been a case where we felt we sacrificed quality," says Diamond. But working so closely with companies is likely more challenging than they let on. Laybourne, who brought advertising to Nickelodeon, concedes that in general, "The sales process in branded entertainment often gets in the way of figuring out the best creative solution." So even as it starts work on a third series, Talent (backed by Procter & Gamble (PG)), Alloy is looking to reestablish some boundaries. It will continue to produce as many as eight branded shows a year, but it also wants to finance its own programs. Advertisers, Morgenstein says, will have nothing to do with the content. They'll buy airtime and maybe some product placement. "We still want advertisers to play with us, but we want to fence them off a little bit," he says. "We'll walk right up to the edge. It will be more like what we've done on TV."
Zelnick already seems to be enjoying the possibilities at Alloy. "Do we get engaged in reality shows?" he asks. "What use do we make of the enormous reach of our digital network?" Diamond, who helped take Alloy private and will stay on as CEO, offers his own riff on Alloy's future. "We're at an inflection point," he says. "Gerry got what others don't: This is a system that can feed a much bigger media engine. We want to be a more important media company to youth. We want them to know us."
Alloy has never really promoted itself. Now, though, "It's necessary for them to become a brand, particularly if they are trying to be the MTV for teenage girls," says Phillips. "It's necessary if they want to build value with an eye to selling the company in three to five years."
Back on set, Bank is saying, "Someone get her a lobster bib!" Taylor is eating cheese-drenched nachos, and he doesn't want to see a costume ruined. Between takes, he tells the actress playing Iris, the studio boss, to put her hand up to end a conversation. "Iris doesn't pause," he notes. Then he leans back in his chair to muse on what all this means for Alloy. "The computer and TV will become one," he says. "I don't know when, but they will." And that's how millions of young women—who are way ahead of him here—have Bank under their influence.