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ELIZABETH FARNSWORTH: The “Industry Standard,” a San Francisco-based magazine that chronicled and mirrored the rise of the so-called new economy and its dotcom wizards announced last week that it was ceasing publication. As of tonight, about 175 employees will be out of work. In a three-and-a-half-year publishing history, the “Standard” rode the dot-com boom to the top. At its height in the spring last year, with advertising revenues pouring in, the publication ran to 360 pages.The last issue, dated August 27, had shrunk to 88 pages, as advertising revenues from struggling high-tech companies plunged.
The “Standard” won journalistic awards as it charted the rise of high-tech stocks and dot-com successes like eBay, and covered the efforts of bigger high-tech companies to dominate the Internet world. In the past year, the “Standard” has also chronicled the high-tech downturn with more sober articles and cover pages.
John Battelle founded the “Industry Standard” and was chairman of the board. Over the past few years, he has appeared on the NewsHour from time to time to help us understand the ups and downs of the high-tech economy. He joins us now. Thank you for being with us on what must be a very tough day.
JOHN BATTELLE, Founder, “The Industry Standard:” Well, thank you for having me. It certainly is.
ELIZABETH FARNSWORTH: Will…Is there any chance there will be a last-minute rescue?
JOHN BATTELLE: Well, when you have a situation like this… I think over the past four years we’ve built a significant asset, and certainly there has been an outpouring of both support and interest in, you know, some form of continuance. But we decided that we needed to suspend publication in order to both sort through those opportunities as well as, you know, conserve the ability of the assets to possibly be sold to somebody. So I can’t say for sure, but it is certainly my hope.
ELIZABETH FARNSWORTH: Will the company declare bankruptcy this week?
JOHN BATTELLE: It’s very probable, because in cases like this, as many companies that expanded very rapidly in the last couple of years, we took on a lot of liabilities which sort of overhung our ability to pay them, and very similar to the stories that we have been covering in large companies and small alone. Let’s see, today, for example, Lucent just restructured its debt with all of its creditors, and it has laid off half of its work force, so it’s quite probable that that’s what will happen, although there are possibilities of other scenarios as well.
ELIZABETH FARNSWORTH: And for the record, the online presence will continue for a while, right?
JOHN BATTELLE: That’s right. We have about a million unique visitors a month online. It’s a very strong part of our magazine, and we will be continuing that for the time being.
ELIZABETH FARNSWORTH: Just a year ago, you were growing very rapidly and talking about growing even more. What happened?
JOHN BATTELLE: Well, I think a sort of combination of many factors. You know, every business is a unique organism, and every business has its own history and its own story. Ours did mirror the general boom of technology and financial services in particular, which were two of our strongest categories of advertising. No one predicted a revenue decline of 75 percent in a matter of two or three months, which is what happened to us, and our entire field, sort of the new economy publication field, between about late November of 2000 to January or February of 2001.
That extraordinarily rapid decline in revenues sort of left us very exposed, on the firsthand; on the second, we are sort of a unique beast in what is a rather established world of old-line media publishing – an independent media company, a small, independent media company with its own infrastructure and its own liabilities, and that kind of a decline made it very difficult for us to keep publishing. We didn’t have the economies of scale of a very large corporation. On the other hand, we did have a somewhat complicated ownership structure, in that we had a majority shareholder in IDG, who was…
ELIZABETH FARNSWORTH: International Data Group.
JOHN BATTELLE: Right, the International Data Group. And oftentimes management, the majority shareholder, and the minority investors, which included many sort of name-brand names like Morgan Stanley, Pearson, and J.P. Morgan, might have disagreed from time to time about the best course for the company’s future.
ELIZABETH FARNSWORTH: I want to explore with you the ways in which your experience did mirror the larger downturn. You’ve alluded to this several times already.
JOHN BATTELLE: Yeah.
ELIZABETH FARNSWORTH: For example, were you overly optimistic or overly bullish in your view of what the Internet economy was and could be?
JOHN BATTELLE: I think in the short-term the answer to that question is yes. And a more sort of complicated answer to that question is, it was very hard to have any other answer, but we had to expand. When we had more advertisers than we could take into the pages of the magazine, we managed to make a lot very angry, because for the quality of the journalism, we felt that the magazine was getting too big, and we capped the size.
So we were leaving a lot of advertising money on the table, something that generally businesspeople aren’t… you know, don’t like to do. And our advertisers and our readers were asking for more products from us. They wanted more conferences, more magazines, more online services, more newsletters, more research, and so we expanded in order to create those products.
With so much revenue coming in the door and so much demand from our readers, we felt it was our responsibility to try to create those products; that brings its own attendant problems. When you grow from a hundred or so people to four hundred or so people in the course of one year, you have to lay in systems very rapidly and management very rapidly, and I think that was very similarly suffered by many other companies during the period of 1999-2000.
ELIZABETH FARNSWORTH: But you were watching this all the time. You were charting the rise and fall of companies –
JOHN BATTELLE: Absolutely.
ELIZABETH FARNSWORTH: — but you must have seen also that the same thing was happening to you. You were mirroring their experiences, right?
JOHN BATTELLE: We very much… We very much were. I think one very important distinction was we were making money. We had a very large revenue line, $150 million, and we were making money. We weren’t actually taking in large public offering… You know, taking public capital on a small revenue base and losing, you know, $60 million a quarter. We were actually making money.
So we felt we were being responsible in that we had a profitable business and we were trying to expand it quickly. But I think that in hindsight, which is of course always 20/20, it would have been better to start decelerating the expansion and then cutting back earlier than we did, and I certainly take responsibility for that, as does the whole management team.
ELIZABETH FARNSWORTH: Why didn’t you do it?
JOHN BATTELLE: Because at the time, to be honest, we were growing so fast that I might have had a revolt on my hand of the employees, who were overworked as they were, you know, trying to crank out the high-quality editorial that was our trademark and our standard.
We had 120 pages of editorial every issue, and we were doing 50 or so stories on the Web. And to ask, you know… and that was increasing. And to ask people to do more work without, you know, hiring more quality journalists, hiring more advertising people, more support people, would have been very difficult to do.
So it was sort of a bind between expanding because the revenue was coming in and people wanted us to expand, and trying to prudently judge when this bubble was going to deflate or burst. And we did take the tack that we believed, and we planned for it to deflate, as opposed to burst, and I’m afraid it burst.
ELIZABETH FARNSWORTH: So over the years, you’ve helped us understand this new economy. What conclusions do you draw about it now, based on your experience?
JOHN BATTELLE: Well, there’s a few: First of all, I think that the magazine coverage… Just as I did when we started the “Standard” four years ago or three years ago, and I thought the magazine coverage about the Internet were somewhat short in their thinking about the phenomenon, I still believe that to be the case. It’s certainly not over. The nexus of information-driven industries are the most critical industries in our economy, and I think it’s proven by the fact that when you look at those industries, be they technology or telecommunications or Internet e-commerce or financial services or media and entertainment, those information-leveraged industries, when they go into a decline or a recession, the whole economy, the global economy shudders.
And I think that that proves that they’re the most important sector of the economy, and there is a very important story in covering them. That has been and really continues to be the “Standard’s” mission, and I certainly hope someone, you know… We can come to an arrangement that allows us to continue that. I don’t think that the full effect of this transformation of the information industry and its effect on the global economy has played out in any way, and I think it will continue for many, many years to come.
We will look back on this era as a time when we almost had a mass realization across the entire business community of what was possible, but rather less of… more of a lack of understanding of how much work there was involved in making that, in crossing that divide to actually, you know, becoming an information economy. You can dream it, you can imagine it, you can see what’s possible. But getting to it takes a lot more work and a lot more time than I think a lot of us and a lot of people in the industry gave credit for.
ELIZABETH FARNSWORTH: And what conclusions do you draw about the future of the media in that new economy? It was always kind of ironic. You were a traditional big magazine covering the Internet.
JOHN BATTELLE: Right. Well, we had a very large Web site, or course, as well, and we integrated the two quite studiously. It was part of our overall business plan. But I think that, in general, the media industry is certainly going through one of its roughest periods in quite a long time. I recall in the fall of last year, most media executives were saying, “well, this is almost as bad as 1991.” Now everyone is saying it’s far, far worse; it feels like 1973.
I think the future is bright, but of course, I think one of my, you know… Perhaps one of my flaws is being an eternal optimist. I think it is bright, but I think right now we’re going through a significant retraction, and we’re looking at what has happened, what have we learned, how can we put that to work, and how can we move forward with it, because I’ll tell you one thing: People are not going to stop using the Internet. People are not going to stop using cell phones and pagers and wireless devices. People are not going to stop getting their news from nontraditional sources.
And it’s not so much about one or the other; it’s about how they work together. And we are only now coming into a generation of people in the media business who really think that way and have grown up that way. So it’s going to be, I think, you know, ten or so years before really we can look back fondly and say, “you know, that was a really interesting time, but it started something big,” whereas during this time I think we really believed this was it; everything was going to change very quickly. I think it is going to take a lot more time in the media business in particular. And you’re just starting to see it.
ELIZABETH FARNSWORTH: Well, John Battelle, thanks a lot for being with us.
JOHN BATTELLE: Thank you for having me.