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Downsizing Dot-Coms

Shrinking profits and rising costs have led to hard times in the dot-com news industry. Will the trend continue? Four experts discuss the situation.

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  • TERENCE SMITH:

    For more on the dot-com experience, we turn to four guests currently at the helm of news Web sites. Martin Nisenholtz is CEO of New York Times Digital, which includes The Boston Globe's Web site, as well as NYTimes.com. David Talbot is chairman and editor-in-chief of Salon.com. Hoag Levins, the former executive editor of APBnews.com, is now editor of AdAge.com, the Web site of Advertising Age magazine. And Neil Budde is editor and publisher of Wallstreetjournal.com. Welcome to you all. Hoag Levins, the shakeout is clearly under way in the news Web site business, and APB was, of course, one of the victims. Tell us what you were trying to accomplish and what you learned from the outcome.

  • HOAG LEVINS:

    APBNews.com was an attempt to show that it was possible to build a stand-alone news Web site, cover crime and justice in a way that newspapers and others had covered it in the past, build a huge audience very quickly, and develop a brand- name Web site over the course of four years that would be there when the audiences and the advertisers finally came. Well, we did prove that the newsroom worked, but we ran out of money and the whole thing collapsed.

  • TERENCE SMITH:

    Why?

  • HOAG LEVINS:

    It collapsed because the markets panicked. Our company and most of the other dot-coms, the stand-alone dot-coms, were selling to their investors a four-year investment program. Put your money in, and four years later when the audiences come, and when there is enough of an audience to draw advertisers and there is money to be made, you'll be at the leading edge of it. And when the markets panicked last year and turned 180 degrees and pulled out, the entire thing collapsed.

  • TERENCE SMITH:

    Martin Nisenholtz, yours is not a stand-alone effort as Hoag Levins was describing. In fact, you have association with some of the most powerful names in publishing, The New York Times, The Boston Globe and others. Are the Web sites making money?

  • MARTIN NISENHOLTZ:

    No, the Web sites are still not making money, but we have told The Street, as well as everyone else, that we will be cash flow positive next year in 2002.

  • TERENCE SMITH:

    And what's the formula here, and how does it work? Yours is based purely at this point, anyway, on advertising.

  • MARTIN NISENHOLTZ:

    No, that's not strictly true. We have a fairly diversified revenue base. Actually, some part of our revenue is advertising oriented, and that includes both classified advertising as well as display advertising, but we also sell content through archive search service. We have premium channels, such as Diversions, where people subscribe to particular parts of the Web site. So, it's a diversified revenue play, and I think that's more and more going to be the order of the day.

  • TERENCE SMITH:

    David Talbot, yours is a stand-alone effort, an independent newspaper or magazine on the Web. Have you figured out how to make it work financially?

  • DAVID TALBOT:

    We think we're getting close. As you say, we had to trim our budget this year, but as a result — or rather late last year — as a result, we can now see profitability within sight, which I think is a major achievement for us. We've been at this about five years. Most media companies that are startups — whether they're in print or broadcasting — take at least between five and ten years to find their audience and to develop a viable business model. And I think Salon will reach that this year, and that will put us at the six-year mark.

  • TERENCE SMITH:

    So you think it's a matter of time?

  • DAVID TALBOT:

    Just a matter of time for the best companies. If you have a good product, if you've built an audience, as we have, as The New York Times, and The Wall Street Journal have, that audience is a commercial asset, and you can sell advertising, you can sell other services. As Martin was saying, we're selling personals advertising to our readers directly. So there are a number of ways you can exploit that audience, if you build it, if it's a loyal audience, if it's a sticky audience, and that's what Salon has been able to accomplish.

  • TERENCE SMITH:

    Neil Budde, you have a different model. You do sell subscriptions to Wallstreetjournal.com and I know that number is growing. Is that the way to go?

  • NEIL BUDDE:

    I wouldn't say it's the way to go for everybody. I think it's made a lot of sense for us to build a subscriber base. As David noted, a lot of this is about attracting an audience — and a loyal audience– in some ways, the subscription is part of that, to make sure it cements that loyalty to us. But I think you have to have a product that has substantial depth and breadth and value, and certainly in the business world, The Wall Street Journal does represent that kind of value.

  • TERENCE SMITH:

    Hoag Levins, you're now, of course, with Advertisingage.com. And I wonder how advertisers, as you understand it, look at news Web sites. Do they devalue them, perhaps, as opposed to the print version?

  • HOAG LEVINS:

    I think right now advertisers are looking for Web sites and an Internet that provides a viable advertising environment and it doesn't do that yet. That is, the Internet — the World Wide Web — is not reaching into enough homes in a quality way to make it worthwhile for the advertisers to migrate their money out of print and out of TV broadcast and over on to the Web. And this is not unusual. Editors at Advertising Age have the advantage of being able to go back in the archives and look at what happened in previous media. That is, Ad Age has been here since 1930, and it covered the emergence of TV.

    And I went back and pulled out some clips and it is amazing how similar the early days of TV and the wild, frantic search for an audience and paying advertisers was to what we're seeing today. You really have to put what you're looking at in terms of the devastation of the Internet into historical perspective and understand that the developmental problems we all encountered recently shouldn't blind you to the long-term potential of the Internet. And you have only to look at your family members, your friends and your co-workers to see how incredibly addictive and alluring the Internet is and will be down the road when it becomes the major mass medium that stitches together all our other mediums.

  • TERENCE SMITH:

    You said there are not enough households now. How much is enough?

  • HOAG LEVINS:

    In the newspaper world, if you don't have 60 percent… if you're not reaching 60 percent of the households in your community, you're not going to pull too many big advertisers, because they want to reach the matrix of your community. Right now, people are bandying about figures, and saying, oh, the Internet reaches 40 percent of the communities. And when you really scratch into that, what you find is a whole lot of that is e-mail, and that is wildly different, and as a matter of fact, as much as half of that may be e-mail use. So you may actually have maybe 20 percent or 25 percent of any given community in the United States that is actually accessing the Internet in a meaningful way. And then, when you get into that, you'll find that the quality of the connection that that 25 percent is getting is absolutely dreadful. 56k modems are not the kind of thing that are going to cause people to interact for long periods of time, every single day, in a way that advertisers want to buy into. It's going to be three to five years before broadband comes in before this is really going to be a viable advertising matrix.

  • DAVID TALBOT:

    But, Terry…

  • TERENCE SMITH:

    Yeah, go ahead.

  • DAVID TALBOT:

    It's not just the numbers, it's the quality of the audience, and the Internet audience is very attractive to advertisers. Salon has found a number of blue chip advertisers, not just dot-coms, but the automotive companies, big technology companies want to reach our demographic because they're educated, they have high- income, and they're a loyal audience. So I think the Internet actually gives advertisers great access to a very key demographic.

  • TERENCE SMITH:

    Martin Nisenholtz, I saw you shaking you head.

  • MARTIN NISENHOLTZ:

    Yeah. Well, there are a couple of very important points to be made based on what Hoag has said. First of all, many of us reach users not just in homes, but in businesses. In fact, NYTimes.com reaches more folks at work than it does at home. And there are high-speed connections in many offices now, and those knowledge workers look to the Times and other quality information sources during the day, and this is a whole new time period for us to be reaching our user base, as well as for advertisers to reach people. That's the first point. The second point is that while it's true that some newspapers may require significant penetration in a local market, papers like The New York Times and The Wall Street Journal and their Web sites are national and even global in scope. 80 percent of our users are outside of the DMA, 18 percent of our users….

  • TERENCE SMITH:

    DMA?

  • MARTIN NISENHOLTZ:

    The area… The marketing area that defines the New York region. And 18 percent of our users are outside of the United States, and I suspect that that's true of other nationally oriented properties as well.

  • TERENCE SMITH:

    Okay. Neil Budde, look ahead for me. Is there a day in the future that you can foresee where the online version of The Wall Street Journal supplants The Wall Street Journal or competes with it in some way?

  • NEIL BUDDE:

    I think that day, should it come, is very far out into the future. I think a lot has to happen to bridge the gap between what is really good and powerful about a printed newspaper. We have about 150,000 of our subscribers who pay for both the print Wall Street Journal and the online Journal. And when you talk to them, you find out a lot about what they do, and it tells you something about what's good about print and what's good about online. Some of our readers actually sit there and go through the newspaper and are reading it, and you can scan a lot of information across a couple of broadsheet pages very quickly. You can't do that online. They still turn to online for things like fast updates, for searching archives, for getting information that may not appear in the newspaper. So the technology to sort of get what we deliver electronically, digitally, to a point where it's as useful and as convenient and as accessible as the printed newspaper has got a long way to go. Plus, I think people's habits have a long way to go.

  • TERENCE SMITH:

    David Talbot, let me ask you to look into the future, and the future for stand-alone independent operations like yours.

  • DAVID TALBOT:

    Well, I would like to think it's a rosy future, because one thing the American media needs at this point, particularly, is more variety, more diversity. And I think, you know, when you have a situation where four or five large media conglomerates are, you know, crowding the airwaves and gobbling up most of people's bandwidth, that's not healthy for our society. But I do think that the Internet gives you that ability. It gives the ability for small players like Salon to find an audience, a quality audience, and build on that.

  • TERENCE SMITH:

    Hoag Levins, what's your image of how this shakeout will finish, and what will survive?

  • HOAG LEVINS:

    I think the future of the Internet and the fate of all of the publications that we represent and write about can be found by walking through the nearest school. If you walk through any college campus in your area and you walk through the dormitories and look in the cracks of the doors, all you see are blinking screens. Out on the campus, all you see are people doing two-way paging and communication. In the elementary and the high schools, the same way. These kids, in the schools of America, after a multi-year wild wire-up of our school systems, are going to change us at a faster rate than we all realize, because they're going to want what they want, and these kids want digital.

  • TERENCE SMITH:

    All right. There's the future, and it's now. Thank you, all four, very much.