When the Writers Guild of America went on strike in 2007, it looked as if Hollywood’s balance of power favoring big, money-hungry studios would never be the same again. To some extent, that’s the case, but not necessarily in the way the striking screenwriters expected. The growing popularity of free, web-based writing software — available to anyone, anywhere — is breaking down the barriers to entry of the screenwriting profession as never before, says Sunil Rajaraman, co-founder, president and CEO of Scripped.com. As he tells it, the urgent mission for his California-based screenwriting software startup couldn’t be clearer, yet more daunting: Change Hollywood.

An edited transcript of the conversation follows.

Knowledge at Wharton: How was Scripped.com born?

Sunil Rajaraman: The idea started with my business partner, Zak Freer. Zak is a very talented filmmaker, but he lacks some of the soft skills it takes to make it in the film industry — the networking, etc. He won the Hollywood Shorts Film Festival in 2008. Despite that honor, he couldn’t garner attention from mainstream producers or directors. We wanted to find a way to get talented people — like Zak — exposed to the Hollywood system, who would otherwise not make it.

Knowledge at Wharton: About half a century ago, aspiring scriptwriters used typewriters to craft their work. More recently, they could spend about US$200 on Final Draft or a similar software program to write scripts in formats meeting screenplay submission standards. Today, with cloud computing and Scripped’s free software, anyone, anywhere can become a movie writer — and perhaps the next John August, the Hollywood screenwriter (who wrote The Corpse Bride and Charlie’s Angels, among others) and film director. How did we get here?

Rajaraman: Enter Ryan Buckley, the third partner of Scripped, who had an idea that people can put together stories collaboratively using web-based software. Zak, Ryan and I formed Scripped. We combine cloud computing and web-based software to provide free access to Scripped.com to aspiring writers worldwide, to find the next John August. He or she might be in Thailand, China or India — not necessarily in Los Angeles, which is the way the film industry has traditionally thought about sourcing this kind of talent.

Knowledge at Wharton: Could you talk about how the rise of cloud computing is changing the screenwriting industry and how it could change it down the road?

Rajaraman: Two problems are solved with web-based screenwriting software. The first is collaboration. Many of the scripts of the films we see in movie theaters have undergone dozens of rewrites before they make it to the screen. For example, for the original of Good Will Hunting, Matt Damon and Ben Affleck put the screenplay together with more anecdotal stories about South Boston and friends they grew up with. Characters were eliminated from the screenplay and it underwent a very detailed rewriting process. Who knows how many writers had their hands on that screenplay before it was made — and it eventually won an Oscar. Collaboration is made easier with web-based software…. That goes for people collaborating across different locations. Let’s say you are working with writers in China or India and you are here in the U.S. Scripped makes it easier to share drafts, track real-time changes and so forth.

The second problem online software solves is access to writers. If you give the software away for free — it is very cheap to provide the software — you can attract all sorts of talent that would have otherwise not been interested in screenwriting. All of a sudden, they are looking for free screenwriting software on Google. A plethora of options are available. By creating access to more writers, the software becomes a mechanism to aggregate talent.

Knowledge at Wharton: In the movie business today — whether in Hollywood or Bollywood — how has the community responded to this new service? Does it challenge the status quo? Do certain people get upset? Is it something the community feels it needs?

Rajaraman: The verdict is still out on us in some international markets…. The only market with an official stance is the U.S. — specifically the Writers Guild, whose members are not too happy about these developments. The Writers Guild West consists of about 9,500 writers, a very small group. The average price in Hollywood for a feature-length script from an accomplished writer is US$250,000. These writers have to protect the system, and the system exists to provide for them. Because Scripped aggregates talent worldwide and brings new content to producers, it is a threat to the way business is currently done.

Knowledge at Wharton: What is the mission of Scripped?

Rajaraman: The film industry pays roughly US$1.2 billion a year for screenplays — including television, short scripts and international markets. So point one, producers are not necessarily getting the most talented writers to write those scripts. And, two, they are overpaying for those scripts. We aim to democratize the process, cut the cost and increase the talent pool of writers who have access to the Hollywood studio system and elsewhere. We can find the best writers [more cheaply]. [These writers] want their chance to make it.

Knowledge at Wharton: Sounds like you and your co-founders are trying to change a big part of the movie industry.

Rajaraman: That’s exactly right. We want to make sure that Hollywood allocates talent in the most efficient way possible by opening the market to everyone out there.

Knowledge at Wharton: Let’s discuss your site’s functionality. I poked around Scripped and I noticed that everything on the site is free. How does Scripped generate revenue from users?

Rajaraman: There are two sides of the revenue equation: the writer side and the producer side.

One thing you may have noticed on our homepage is that we run contests every month. Our current contest is for an actress, Dawnn Olivieri, who is one of the stars of Heroes this season. The company that’s sponsoring her is “crowdsourcing” [that is, “outsourcing” to the general public] the writing of a screenplay featuring her.

We charge the producers for access to our writers. If someone wants to commission a screenplay, Scripped charges for that service. On top of that, Scripped charges for filtering submissions. The producer buys the full rights to the script without any legal ambiguities.

Second, there is the writer revenue. We charge writers a nominal fee to enter the contests as a self-selection mechanism. We also introduced a premium version of our screenwriting software for which we charge US$5 per month. We convert about 10% of our users to paying customers every day. We launched the premium software in September and it’s been well received.

Knowledge at Wharton: Who are Scripped’s main competitors and how does Scripped differentiate itself from them?

Rajaraman: On the software side, there are many competitors — everything from Final Draft and Movie Magic, which are considered the premium offerings at US$250, to Zhura out of Boston and Plot Bot out of Los Angeles. Success typically has become a game of effective search engine optimization strategies, marketing, branding and getting name exposure. We have made some inroads with schools. In Grand Rapids, Michigan, a middle school, for example, [just started] randomly using Scripped. Schools really like us in part because of the way the site feels. We now rank number two on free screenwriting software on Google, and we are picking up 50 new writers a day that way without sinking money into advertising.

On the producer side, our biggest competitor is Ink Tip, which is focused primarily on the feature-length market. It has had a lot of success at aggregating writers, but more “Guilded” and professional writers, and basically represents those writers to get their works out to studios.

Knowledge at Wharton: Because Scripped software is online and there is now a premium version, is there anything proprietary about it?

Rajaraman: Like any software business, without a patent, there are virtually no barriers to entry. I could sit here and say that they are not going to do [enter our space] for various reasons, but the reality is that at any time, a company could do this. Final Draft and Movie Magic have not done this, in part, because I’m sure they are afraid of cannibalizing their box products. It’s just [a matter of] time right now. We have a lead on them, and we have a rock star chief technical officer (CTO) named Josh Smith, who we found on Craigslist.

Knowledge at Wharton: You found your CTO on Craigslist?

Rajaraman: Josh found us, but yes.

Knowledge at Wharton: There’s a focus for Scripped now on the short video market. Could you give an overview of what a short video is, why you think it is important and why Scripped is trying to get into that market?

Rajaraman: Companies like YouTube and Break Media are releasing shorts and monetizing them quite effectively. I use Break Media as an example because its CEO is a fellow by the name of Keith Richman, who we recently added to our board. A short-video company makes a deal with an advertiser. In Break’s case, it recently announced a deal with Southern Comfort. The short-video shops produce a series of scripts based on the brand. The production process for a short video, which is usually about five minutes, is not much different than that of a feature-length script. They have line producers. They have writers. They have actors and crew. It costs about US$1,000 a minute to produce a high-quality short video. You can imagine there are many, many short videos currently, and Scripped short videos is the fastest-growing area. We view this as an opportunity to bring our writers into this space. We can get our writers to produce shorts cheaper.

Knowledge at Wharton: Scripped is active in Hollywood’s community, working with universities like UCLA and organizing conferences. How does this outreach fit your strategy?

Rajaraman: One of the nice things about film schools is the new crop of young, hungry people ready to write every year. We view this as the main source of talent replenishment. We do direct outreach — the phone calls, emails, holding conferences at UCLA and so forth — to make people aware of what we are trying to accomplish, so that young film school students hustling to make it will have opportunities [to write] while in school and then will remember us years later when they get their big break and perhaps be one of our customers down the line.

Knowledge at Wharton: Are you targeting schools just in LA or are you looking at New York and other creative-writing programs elsewhere?

Rajaraman: We cast an even wider net. We were looking for four-year institutions, two-year film schools and community colleges with at least one screenwriting class. This list grew to over 1,000 before we stopped building it. We started emailing professors directly to say, “I see you are running a screenwriting class for XYZ Community College and we’d like you to use our software.” We’re finding that their students are using our software. Scripped is not formally sanctioned software, but professors recommend us on a regular basis to their students.

Knowledge at Wharton: Not only is the movie industry changing, but also the way in which people watch movies. Ten years ago, I rented a VHS and my parents rented Betamax. Now everyone has a DVD player. But the younger generation watches movies on iPhones and streaming them through their computers or getting a feed through their PS3s. How does that affect how Scripped operates?

Rajaraman: The biggest way the film industry is changing is distribution. I say that in the context of independent films. [When] movies like Fargo and some old Coen brothers movies [were made], you raised money from private financiers, who would give you US$25,000 to make your movie. Then low and behold, if you were lucky, you got distribution after winning the Sundance Film Festival. You made millions and the film became extremely profitable on the initial investment.

The independent film financing market has completely died. You can’t raise money like this anymore, even if you are the Coen brothers. The way to fix that problem is to shoot the movie guerilla-style with existing equipment and then finding distribution channels on the web. For the early adopters you are talking about, the Indie film market has shifted from theatrical distribution and gone directly after distribution channels like iTunes, Netflix and so on. If you are an aspiring filmmaker, you have to go through one of these channels. You just cannot raise money anymore.

Knowledge at Wharton: What will be your largest growth markets? You mentioned before that in terms of the response to Scripped, the verdict is out. Is it safe to assume that you are focusing on countries with high levels of broadband penetration?

Rajaraman: We have not been focusing on countries with developed Internet technology. We are focused on anyone who is interested in using our software. I’ll give you a good example. Our biggest market is obviously the U.S., followed by the U.K., Australia and India, all of which boast thriving film industries. Beyond this, a film school in Dubai contacted us about doing some work through a class submittal form where the professor can view their work. The point I’m making is that lots of obscure markets are out there that we just have not gone after.

Knowledge at Wharton: Let’s discuss obscure markets. What often happens with a new company is that as it moves from point A to point B or maybe point C, other opportunities arise on the journey that … may be fruitful. Do you sense what you are doing at Scripped can be applied in different arenas?

Rajaraman: Yes, absolutely. Auxiliary revenue streams do exist — specifically with crowdsourcing companies. A lot of companies are trying to crowdsource different forms of art, whether it be photography, film or music. These companies also have a need for talented writers, so Scripped fills a niche for them. We can provide them with writers. Recently, a 43-year-old mother of two from Scotland using our software beat a Guilded writer to win a short-script competition about the financial crisis (link). It is for this reason auxiliary revenue streams are starting to pop up.

Knowledge at Wharton: Given Slumdog Millionaire‘s Oscar, how is Scripped approaching India? The link between Bollywood and Hollywood is growing for various reasons.

Rajaraman: Slumdog Millionaire obviously captured the hearts and minds of people here [in the U.S.] and elsewhere. The film industry is already thriving in Bollywood, and Ryan Buckley, my partner, went to India as part of his studies and had some Scripped meetings to discuss doing work with producers. I have done direct outreach for investment to India and we have generated some interest. I don’t think we have yet tapped the full potential of that market. That is something we are going to have to focus on in the coming months. But needless to say, we are very intrigued about what can be done in India.

Knowledge at Wharton: How have your Indian roots played a role in your experience as a professional, entrepreneur and co-founder of Scripped?

Rajaraman: My dad is the reason I pursued entrepreneurship. It has always been in my blood. He moved [to the U.S.] in 1967. He came from a modest family, got his Master’s and Ph.D. and dove into the start-up lifestyle. He worked for a very small company in 1971 called TimeNet, the first company to put together a commercial version of the Internet where companies could “talk” to each other. That company was acquired and spun off multiple times. He even left British Telecom, which was ultimately the suitor for TimeNet down the line for another start-up in Cleveland called Voice-Tel, which was acquired by Premiere Technology in Atlanta. He has always had the bug in him ever since he moved here from India and as a result, I have it in me as well. It is probably a little contagious and hereditary….

Knowledge at Wharton: How has your experience as an Indian-American imprinted itself on Scripped?

Rajaraman: Indians have a very blue-collar work ethic. That’s something I have always admired, especially our generation. Our parents came from India and worked extremely hard to provide for us and most of us want to live up to our parent’s example. With Scripped, nothing was handed to us. I had no connections in the film industry before I started Scripped. Nor did Ryan or Zak. But we did whatever it took….

That aside, there is something about being Indian that makes it easier to interact with all cultures around us. We are well respected across various industries and various walks of life. It’s easy to start a conversation about the film industry as an Indian. People automatically connect with that….

Knowledge at Wharton: How have you been able to use the Indian diaspora? There is an Indian community where you live in the Bay Area and in Hollywood. Have you thought about leveraging those networks?

Rajaraman: Absolutely. I have talked to Indian producers who are doing work in Hollywood and abroad. I have talked to actors and actresses who are Indians as well. We haven’t aggressively played those cards yet, but we intend to. It’s been a very good education for me as to how the film industry works. I have a good friend — an Indian producer — who is working on multiple projects in Bangalore. She has provided me with a very good education. The market is different there, such as how films are made and the guilds.

Knowledge at Wharton: How is the market for what you are doing different in India versus the U.S.?

Rajaraman: The Indian audience is different. Their taste is different. Costs are different. They don’t have what we would call a traditional Writers Guild. Writers are disparate. The financing environment is a little bit different.

What little interactions we have had with writers from India and from our user base [indicate] they want to make it in Hollywood. So we are going to provide them with more access to the Hollywood system via the crowdsourcing contests. Giving people access to that traditional Hollywood studio system and independent film system is what motivates writers abroad.