Felicia Day

Cyd Sherman is having a bad day. “Friday night, and still jobless,” she confesses in a video diary. “I haven’t left the house in a week, my therapist broke up with me …and, oh yeah, there’s a gnome warlock in my living room, sleeping on the couch.”

Cyd is obsessed with an online videogame, a multiplayer sword-and-sorcery adventure similar to World of Warcraft. It’s a time-sucking hobby that’s contributed to the loss of her job (violinist in the back row of an orchestra) and therapist (“Cyd, you can’t grow if you’re still immersed in an imaginary social environment”). It’s also caused other problems, not the least of which is the fellow player turned stalker who tracked down her street address and showed up on her doorstep.

“I’ve been friendly online, but nothing you wouldn’t say to a co-worker,” Cyd laments. “I guess online flirtation can be interpreted in many ways—especially if you’re delusional.”

Fortunately things are going much better for Felicia Day, the 32-year-old actress who portrays Cyd in episodes of The Guild, a comic Internet TV series. Day holds down multiple jobs—actress, screenwriter, producer, author—and has plenty of reasons to leave the house: If you saw her on the street, you might recognize her from roles on TV shows such as Buffy the Vampire Slayer, House M.D. and Monk.

“Hollywood typecast me as the secretary,” says Day. “I could have worked as the quirky secretary for the rest of my life, but I decided not to do that.”

Instead she started down an unconventional path to stardom, and in 2007 wrote and produced the first few episodes of The Guild, releasing them for free on the Internet. The show became a cult hit, and Day collected enough donations from fans to finish a full season of shows.

Since launching in July 2007 The Guild has completed four seasons, a total 58 episodes at seven to eight minutes each. It’s been seen 100 million times, won piles of awards, been turned into comic books and T-shirts, and attracted licensing deals with Netflix, iTunes and Hulu. It’s gone from a self-funded dream to a profitable venture: Since the second season all production costs (over $10,000 an episode) have been covered by sponsorships from Sprint and Microsoft.

Day’s company, Knights of Good, now has three full-time staffers, and has supplanted acting as her primary source of income. It’s growing fast, with several new projects in development, including the fifth season of The Guild, which launched July 26, and Dragon Age: Redemption, an original series commissioned by video game giant Electronic Arts, which debuts this fall.

As a result, Felicia Day has become a guru to the Internet content crowd, one of the leaders in a generation of Hollywood stars who are trailblazing paths on the Web toward big audiences and big money. She’s a mogul in the making: Think George Lucas back when he was shooting a movie about Jedi Knights in the Tunisian desert.

Star Wars stunned Hollywood by finding an unexpected army of geeky moviegoers, ultimately earning $307 million its original 1977 release. Online video has tapped into an equally surprising audience. According to market research firm Nielsen, 142 million Americans watched video online in June —just over 45% of the entire population—downloading more than 14.4 billion individual streams, for an average total viewing time of four and a half hours per person. (Let’s keep things in perspective: That’s still less time than the average American spends watching regular TV per day.)

The Guild connects with gamers because Day is one of their own: She grew up playing video games, and as an adult developed an eight-hour-a-day World of Warcraft habit. “It became a little destructive, so I quit cold turkey and I decided to write something,” she says. She wrote what she knew: a series about a young woman with an online gaming addiction.

But when Day showed the script around, it fell flat. Studio execs “didn’t even understand the concept of gaming,” she says. “It was like a foreign country to them.” Agents advised her to drop it and write a script for an established program. But Day wanted to tell her story. So she produced the first few shows herself, borrowing equipment, recruiting actor friends, and shooting in her living room. It was, she says, the scariest thing she’d ever done—but it worked.

“The minute we uploaded a video and started getting feedback and interacting with our audience, it was so much more fulfilling than anything I’d done before,” she says. “There was no point for me to go and try to sell it as a TV show, especially when we put in a PayPal button and people started donating.”

Committed fans were key to the success of The Guild, and Day cultivated them carefully, using Twitter and Facebook to build two-way relationships. “We shoot a season once a year, but maintain our social network all year, because we’re committed to our audience,” she says. “They support us, we support them.”

Her devoted core audience, young and Internet-savvy, quickly attracted attention. Sprint subsidized production of The Guild in return for a short “sponsored by” message at the beginning of each episode. Microsoft paid to debut each season exclusively on Xbox Live, the Zune Video Marketplace and MSN Video. Episodes go to the Web four weeks after they complete that exclusive run.

Other makers of streaming video say Day’s success demonstrates that a Web series can match or exceed the quality of broadcast TV and become a legitimate business. “She’s done an awesome job,” says Jim Louderback, CEO of the Internet television network Revision3. “It’s authentic and real, and talks to the gaming culture in a way that no other show does.”

Revision3 started in 2005 with one program, and today it has 28 shows and 23 million unique viewers per month. Still, Louderback admits advertisers haven’t caught up. “Much of what we are competing against is traditional Web and TV dollars, and educating buyers as to why the audiences we’ve built are desirable.”

One buyer that didn’t need convincing was videogame giant Electronic Arts: When executives at subsidiary BioWare heard Day was looking to produce her first follow-up to The Guild, they approached her with a pitch for a show tied into their Dragon Age franchise.

“I’m a huge fan of BioWare’s games, and when they called I got so excited that I said I would do anything,” says Day. “I even wrote a script before the contract was done, and I was like, ‘Here, this is what I want to do, please let me do it.’ ”

The finished program, Dragon Age: Redemption, will debut this fall: BioWare paid an undisclosed amount to fund its production and own the intellectual property. Beyond that, Day says that the company’s involvement was confined to making sure the story fit within the game’s lore, and providing occasional editing notes.

Still, some critics are skeptical of a model where an advertiser directly commissions a series. “[Advertisers] exert undue influence on the end product, driving out the creativity, edginess and independence,” says Jim Louderback. But he adds, “If anyone can pull it off, Felicia can.”

That’s an increasingly common attitude, both in Silicon Valley and Hollywood. Day says she’s received offers to produce a broadcast television series; for now, she’s turning them down. She’s convinced that Web video provides artists the best opportunity since television began to disrupt the entertainment industry.

“I know that some Hollywood people are like, ‘Why isn’t she doing pilots?’” says Day. “But I’d rather be opening doors for people behind me to tell different stories.”

(A version of this story appears in the 08/22/11 issue of Forbes Magazine)