Over at the BankofKev's blog is a post about the supposed demise of short films on the internet, which I highly disagree with. The basic point Kev tries to make is that "the idea of putting up a short online and getting WB to fund you 30 million and distribute your opus is most likely not going to happen." Which is largely true, but so is the idea that any random script is going to be produced (or even read), or that going to film school means you'll land a studio deal. Kev is correct in pointing out that a first time director will most likely need to go the "normal" route by getting investors, making a feature independently, exhibiting it at festivals, and then hoping a studio will take notice.
However, I think Kev misses a couple marks here. First, to believe short films on the internet are a thing of the past is short sighted - now that cel phones and the iPod can download and stream video, the market for short bits of entertainment I believe are just getting started. Besides, people with high speed internet connections have been sharing shorts and video clips online for years. Indeed, companies like iFilm and AtomFilms have largely been money pits for their multimillion dollar investors, this is likely more due to the fact that they launched when the vast majority of internet users were using dialup. This is a sting still being felt by people wary of investing more in internet sites featuring shorts. On the flip side, now that there's cheaper bandwidth costs and just about anyone who grew up in the 90s either has web development skills or knows someone who does, indie filmmakers can host their shorts on their own sites.
The second, larger point I think Kev misses is in his claim that those few filmmakers who do get a deal based on their shorts are an exception to the rule... with all due respect to Kev I say, "no duh". Anyone who is able to have a film widely distributed is an exception to the rule. Almost every director has a unique story of how they were able to get noticed and given the helm of a production. Some went to film school and built a reel strong enough to land a deal (or feature film backing) straight out of school, others are screenwriters with enough clout to gain studio support to direct a major film, and others are homegrown filmmakers who've never had a breath of LA smog but managed to make a low budget film that was accepted in the festival circuit, and this gained the attention of the studios.
(some real world examples from some releases in the top ten: Peter Jackson (King Kong) made films since a small child and didn't even go to film school - a friend of his convinced him to try and get a low budget feature he made to be screened at Cannes, which garnished him notice... "Narnia" director Andrew Adamson worked in special effects for years before being given the opportunity to direct an animated film called "Shrek"... Adam Shankman, who directed Cheaper By The Dozen 1 and 2 was a film and music video choreographer prior to directing The Wedding Planner... Thomas Bezucha was a creative services exec for Coach and Ralph Lauren, and an interior designer for Sharon Stone, before writing and directing Big Eden and most recently The Family Stone...)
Back to the original point, posting a short film on the internet and then kicking back, hoping it will gain enough popularity that a studio will notice it and toss you a ton of dough for a feature is indeed beyond realistic. But the internet has proven a realistic approach to gain attention and street cred. While the makers of internet hits like 405, George Lucas In Love, and Troops may not have ended up with a feature after their shorts gained worldwide attention, they did gain face time (meetings) with studio execs and potential investors, which is nothing to scoff at. And it isn't unusual for assistants to convince their bosses to meet with the makers of a random internet short that caught their eye.
As for a personal experience, a short I produced five years ago called "Arrowhead Beer" cost less than $300 to make (mainly spent on food, parking, renting a small dingy, and production insurance), ended up with over 60,000 views on iFilm, "bootlegged" copies on countless other sites (at one time including a Korean translation), beaing featured in Maxim Magazine Online, DVD distibution via TromaFilms, and finally being paid a small amount for exhibition on British television. While a far cry from a studio deal, represents at least one resume bullet point for the director, Jeff Bacon (pictured above).
What was my point? Oh, yeah... internet shorts are just one avenue to approach landing the coveted studio deal, or a the backing for a first feature. Not the only avenue by any means, but one tool accessible to anyone with a computer and a video camera.