How to make $200,000 in four daysDecember 14, 2011: 12:16 PM ET
Comedian Louis CK is raking it in with a Web-based experiment that cuts out distributors. That should make media companies very nervous.
By Dan Mitchell, contributor
FORTUNE -- Comedian Louis CK said on Tuesday that he had taken in $500,000 in less than three days from selling his latest standup special directly to the public at $5 a pop. This should make media companies nervous because this is the future -- and increasingly, the present -- of media distribution. Remember all that stuff people were saying 15 years ago about the Internet's capacity for disintermediation? It's all coming true now.
Here's the thing about media companies: they have trouble with edge. That's why local newspapers often churn out inoffensive mush. It's why "local" commercial radio sounds precisely the same in Birmingham, Ala. as it does in Berkeley, Calif. And it's why a brilliant comedian like Louis CK couldn't make it on network television despite two attempts: network executives filed his edges completely away, even though people like him precisely for his edges.
Even auteur-friendly outlets like Time Warner's (TWX) HBO act as filters between artist and audience. In that case, much of the downside comes on the business end. Louis CK told Terry Gross on Fresh Air this week that with traditional comedy specials, he gets his fee, but never a cut of the aftermarket, where the real money is made. After the special airs, he said, "then they put it on video, you know, on iTunes (AAPL), Netflix (NFLX) and DVD, and then they go try to make a profit with it. You're supposed to participate in that profit, but I've never seen a check from a comedy special. They're just -- it's never -- it never ends up being that."
Here, it's all that. On Wednesday morning, the comedian tweeted that sales of the new special had reached 130,000 downloads, for a gross of $650,000. On his Web site, he broke down the finances: the cost of producing the six-camera shoot and renting the Beacon Theater was basically covered by ticket sales (he directed the thing himself and edited the video -- which looks as good as any "professionally" produced special). Expenses associated with distributing the video were minimal -- there is a near-zero marginal cost for each video sold. And unlike traditional media, very little in the way of fixed costs. No big marketing expenses, no focus groups, no paying media-company middlemen to do ... whatever it is they do. (So far, he's netted about $200,000.)
"If the trend continues with sales on this video," he wrote, "my goal is that I can reach the point where when I sell anything, be it videos, CDs or tickets to my tours, I'll do it here and I'll continue to follow the model of keeping my price as far down as possible, not overmarketing to you, keeping as few people between you and me as possible in the transaction."
He also made the video DRM-free. He was worried about piracy, and he's been pleading with his fans to not put the video on bittorrent sites. Of course, it was pirated within minutes, which might be cutting into sales a bit. But with a $5 price point, the incentive to download pirated copies is almost nil. True fans will pay it and, given how successful the enterprise has been for all concerned, piracy can be seen as simply a cost of doing business rather than the Armageddon the media industry sees.
Most important to Louis and his fans, though, is this: "I got to do exactly the show I wanted, and exactly the show you wanted." Indeed, this might be the funniest hour of standup Louis CK has ever done.
Of course, it helps that Louis was -- thanks in part to big media companies -- already famous. The funniest comedian in the world couldn't have done something like this on such a scale if he or she were unknown. And standup specials are one thing -- produced television is something else. Even Louis needs a network like FX to finance production and distribution of his sitcom, Louie, though it should be noted that it's done on the cheap, and the network lets Louis do basically whatever he wants. He demanded that freedom going in, and the show is successful for that reason.
Media companies will be around for a long time to come, to develop talent and distribute product (though the Internet eating into that part of the business, too -- just look at the success of comedy podcasts by relative unknowns). But the fact that no big companies were involved in this should give pause to all media executives who think they know better than performers what audiences want, and how much they're willing to pay to get it.