The face that launched 50 million hits has cherubic cheeks, golden curls, and a gaze that’s innocent yet mischievous. It belongs to Pearl McKay, a two-year-old whose father, Adam, directed and co-wrote the Will Ferrell hits Anchorman and Talladega Nights. Pearl’s old man and Ferrell are partners in Funny or Die (funnyordie.com), a video-sharing website that Sequoia Capital, the site’s financial backer, envisions as the flagship of an internet armada capable of sinking old media. (View slideshow.)

Funny or Die is being touted as the first successful collaboration between Hollywood and Silicon Valley, the first time top-tier Hollywood talent (Ferrell, McKay) has been paired with comparable engineering know-how (the site loads as fast as YouTube) and shrewd investment muscle (Sequoia). The portal made its debut in April 2007 with a dozen offerings—one was an ersatz sketch featuring Ferrell and Pearl, who was fed lines off-camera by her parents. Improvised at Ferrell’s home following his son’s third-birthday party, the two-minute video has since become the site’s cyberboon—and bane. Pearl plays a boozy, tyrannical landlord who demands that her delinquent tenant (Ferrell) pay his rent. “I want my money!” she screams, before burbling a string of expletives that are helpfully subtitled. “I need to get my drink on!”

The video went viral at mouse-click speed. With television’s professionally outraged fanning the flames (on Fox News—over a caption that read “Child Exploitation?”—Bill O’Reilly asked, “Did actor-comedian Will Ferrell damage a two-year-old girl by putting her into an internet comedy bit?”), it quickly became a celebrity cause célèbre. Seven months later, “The Landlord” was the third-most-watched video ever posted on the Web. (The reigning champ, “Evolution of Dance,” has been viewed on YouTube more than 66 million times.)

“The Landlord” gave Funny or Die instant brand recognition and cybercred. More than that, the site seemed to herald the birth of a new media model, one that gives artists a hefty stake in ownership and offers major stars some low-cost, high-profile exposure unfettered by studios, media companies, or endless development meetings. “Talent now has the opportunity to go directly to fans, at little or no cost to them,” says Mark Kvamme, a Sequoia general partner and one of the founders of Funny or Die. “It started with MySpace, then it was YouTube, now it’s sites like ours. What is amazing about the internet is that there is no friction in finding your audience.”

Faced with mounting costs and eroding profits, Hollywood is having a collective panic attack over who gets to deliver—and make money from—online entertainment. That anxiety was the subtext of the writers strike: The Writers Guild of America argues that its members are entitled to a share of the money generated by the streaming of their work. Producers counter that even though much of the broadband-related programming now includes paid ads, the medium is still essentially a promotional tool; they insist that the breakneck pace of innovation makes it imprudent, if not impossible, to draw up a fixed compensation formula.