Web News Sites Fail to Click
Online journalism, with its immediacy and low cost of distribution, was by now supposed to be on the road to burying the print dinosaurs and overtaking the TV broadcast titans.
Evidence of the online journalists’ ambitions is everywhere around the Staples Center in Los Angeles this week. Scores of new Web sites occupy colorful booths at the Democratic National Convention’s “Internet Avenue.” Several have even leased sky boxes. Hundreds of energetic online writers and video producers race hourly to their computers to update the latest bit of unrest or comment on the political scene.
But even as they beat the traditional media with constantly refreshed stories and images, a different verdict is emerging on whether many of today’s Web sites will exist to cover the next convention. Despite millions of viewer-readers, almost none of the World Wide Web’s roughly 32,000 news sites earn a profit. And there is little prospect that will change in the foreseeable future.
Even prominent, journalistically excellent news sites have seen their fortunes take a nose dive:
* In June, CBS laid off a quarter of its Internet staff. NBC Internet followed suit last week with 170 layoffs.
* Salon.com, a popular and innovative Internet magazine, fired 13 staffers in June--including the founder and editor’s wife--to slow its perilous “burn rate” of cash reserves. Salon raised $26.3 million a little over a year ago by selling stock to the public; now $15.6 million remains after it posted a $4.6-million net loss in its last quarter. Its stock, meantime, which had risen as high as $15.13 a share, is trading for $2.
* Stock prices for Salon.com, NBC Internet, TheStreet.com, CNet, Sportsline.com and Marketwatch.com, among the few Web news companies whose shares are traded publicly, have plummeted an average of 77% since last fall.
* The Wall Street Journal’s Internet site, which has attracted an almost unheard of 461,000 paying subscribers, has lost money in all but one month of its five years of operation.
* APBnews.com, an award-winning crime-reporting site, raced through $33 million in cash in less than two years before it fired all 140 of its employees in June and filed for bankruptcy protection in July.
It Was Great While It Lasted
Amy Worden, 37, a former reporter for the Washington Post and Associated Press, was among the APBnews casualties.
She called her year there “the best job I ever had. Not because anyone made a fortune, but we all thought we were working for something together--a common goal, a common spirit.”
But Worden vows never to go back to a Web start-up.
“It’s a big risk, and you fall hard. It’s just been agonizing,” she said.
Until recently, print executives worried that Internet media were about to consume their profitable classified ads, lure away top talent with lucrative stock options and seduce readers with flash and novelty.
The American Society of Newspaper Editors asked technology wizard Andrew Grove, chairman of microprocessor giant Intel Corp., for advice. Speaking at the organization’s 1999 annual convention, Grove warned that unless they retooled to compete with the online explosion, newspapers had three years before beginning an irreversible slide into irrelevance. “Nothing sharpens the awareness of a situation like the sight of the gallows,” he warned.
Traditional media companies took the point and have been posting news stories, radio reports and video streams on their own Web sites. They also have been scrambling to hook up with Internet companies, as seen in the watershed merger pending between America Online and Time Warner.
Yet few such ventures have demonstrated a plausible business model for making money from online journalism any time soon. Even the most savvy technology companies have yet to solve this puzzle.
In 1996, Microsoft bankrolled Slate, one of the earliest Web-only newsmagazines. The software giant installed top magazine journalist Michael Kinsley at the helm.
After abortive efforts to sell online subscriptions and even a printed version, Slate acquiesced to the plan of nearly all other Web media: offer stories for free and hope to make up the cost with Internet advertising. Slate has since gained a sizable following, with 1.7 million monthly users in June, according to the Web rating service Media Metrix.
“Frugality, more than Microsoft’s deep pockets, has brought us to the threshold of financial success,” Kinsley said, noting Slate’s relatively modest staffing. Yet Slate is still in the red, with losses of “less than $10 million a year,” with profitability yet to be projected.
Microsoft also joined with NBC to create a major cable and Internet company. MSNBC.com attracts one of the largest audiences of any Internet news site, but has been forced to delay plans to sell its stock to the public, given the disastrous year for Internet stocks. Likewise, plans by Dow Jones Co. (publisher of WSJ.com) and the New York Times Co. to issue separate stock offerings for their Internet properties have stalled.
Dreamers Awake to a Cold Reality
To be sure, many journalism sites have fallen victim to the Internet-economy binge and purge: Investors pumped billions of dollars into start-ups with few plans beyond gaining a large audience through marketing. The dreamers awoke early this year as worries over soaring losses in all manner of Internet firms sent stocks plummeting, which then dried up capital markets, forcing good companies and bad to retrench.
In the process, many journalists lost their illusions for the Internet--including hope for riches in what has traditionally been a labor of love.
Howard Witt, 40, a plain-speaking veteran foreign correspondent and editor with the Chicago Tribune, began a hard-knocks Web media education in 1997.
The Tribune (whose parent company owns the Los Angeles Times) tapped Witt to edit a Web version of the newspaper. As the paper ramped up online offerings, tensions grew in a manner now familiar to mainstream news organizations.
Web site executives didn’t understand journalism, and “the newspaper was often reluctant to aggressively promote the Web site and to integrate the site into daily operations,” Witt said. “It put me at odds with many of the leaders of the newspaper.”
He left after two years of frustration.
Witt landed at Brill’s Content, the media-criticism magazine, taking over its Web operations.
“Unfortunately, when I got there, it immediately became clear that [founder Steven] Brill wasn’t going to spend any resources on the Web site,” he said.
Witt lasted a few months, then spent an equally brief interlude at a Web start-up that never took off. He is now editor of the Washington City Paper, a free weekly newspaper in the nation’s capital.
“I learned some hard lessons,” he said. “You’ve got a lot of people dabbling in this without any real idea how they are going to make a business of it.”
Witt added: “There’s no way I will ever go back to another Internet job. You can’t pay me enough salary, give me enough [stock] options or vest me fast enough.”
Intense Scramble for the Ad Dollar
Such stories have become typical as the Web news media struggle with daunting business problems.
The first is learning to survive by depending on Internet advertising, which sounds easy at first.
Total Web ad revenues have risen spectacularly, from virtually zero in 1995 to $4.6 billion in 1999, and $2 billion in the first quarter of this year, according to PricewaterhouseCoopers. And the New York merchant bank Veronis Suhler projects annual Internet ad revenues to reach $24.4 billion by 2004--boosting the Web above all other media except newspapers, TV and radio.
But competition for those Internet ad dollars is intense. Today there are more than 1.4 billion Web pages of all sorts, according to the Web navigation company Alexa Internet. Media sites fight for every “eyeball” against major Internet service providers and portals such as AOL and Yahoo--which maintain hugely popular news sections--as well as thousands of specialized sites--from Women.com to Christianportal.com--with their own news links, plus government, university and library sites.
Buyers of advertising seem to have thrown up their hands at this information overload. Just 8% of Web ad dollars go to news and information sites, only a handful of which are in the top 50 that receive 95% of all ad revenues, researchers say.
Then there are the other media competitors--some 20,000 magazines, 10,000 newspapers, hundreds of TV programs.
Under such circumstances, “the prospects of the broadcast [TV] business as we know it are probably going to be superior to any Web-based content venture forever,” said Peter Appert, a media analyst with the investment bank Deutsche Banc Alex. Brown.
Witt predicts that few newspaper Web sites will ever turn a profit. “Any Web site that does not treat content as a loss leader is doomed to fail economically,” he says. “They’ve got the loss. Where’s the leader?”
News Web sites also face a readability problem. Most people find the computer screen tiring for reading more than snippets. Web “surfer” is no misnomer; users are notoriously impatient, switching sites rapidly and avoiding longer articles.
On average, home users of Web news media spend only half a minute per day for online news, according to Nielsen/NetRatings, which gathers data from 150,000 individuals in eight countries. By comparison, the average time spent with a daily newspaper is 25 minutes, according to Veronis Suhler.
So while Internet audiences may be huge, most attention spans are short--and divided. According to a recent survey, a quarter of the American public watches TV and surfs the Web simultaneously.
With news as a commodity, sites struggle to differentiate their offerings. Witt concluded that to casual Web users, a quick Reuters wire service story on a plane crash disaster, found on any of a thousand sites, looks the same as a comprehensive report on a major newspaper’s Web site.
The problem is worsened by constant pressure to keep a news site fresh with limited staff. Editing can be light, and quality suffers. “[Web news] often depends more on tone of voice [or] wit . . . than thoughtfulness, development and insight,” said Orville Schell, dean of the Graduate School of Journalism at UC Berkeley.
A Banner Year for Print Media
Meanwhile, although most newspaper company Web sites lose money by the bushel, their newsprint products are enjoying a banner year, with ad revenues and profits soaring at large and small papers alike. Ironically, part of the ad boost has come from massive advertising bought by “dot-coms” desperate to build brand recognition.
Although many media company sites may survive as break-even necessities of the Internet Age, “except in a few rare cases, the idea that anyone will make money from selling news on the Web is laughable,” said Barry Parr, an analyst with International Data Corp.
One such rarity may be the Wall Street Journal’s online edition.
WSJ.com has managed a remarkable feat for the Web: Readers pay for it. Subscribers shell out $29 to $59 annually, with a 51% jump in subscribers in the last year.
Analysts say that WSJ.com sells well because it offers unique content from a trusted brand operating in a lucrative niche. (Among consumer publications, only Consumer Reports and Playboy magazine have been able to sell a meaningful number of online subscriptions.)
With its paid subscribers, WSJ.com can charge a premium for ads despite a far smaller audience than other major media sites, said Gordon Crowitz, senior vice president of Dow Jones. The online Journal took in 60% of its $12.1 million in revenue in the last quarter from ads, 40% from subscriptions.
Yet even WSJ.com is not profitable.
Parr believes that Dow Jones may be squandering a chance to dominate financial news.
“If they took the [subscription] shackles off, they could be a monster,” he said. “They have a nice little business, but no bigger than a third-string daily paper [right now].”
If it were free and millions of affluent consumers came to rely on its content, Parr said, Dow Jones could ultimately make much more money on ads and commercial tie-ins.
Most Internet media start-ups seem to be counting on two saviors to boost traffic and the potential for profits: new technology and tech-savvy kids.
According to a poll by the Pew Research Center for the People and the Press, less than a third of young adults read a daily paper--yet half of them go online for news at least weekly.
Meanwhile, development is racing ahead on ultra-fast wireless networks in which text, sound and video will be instantly accessible from cell phones, hand-held PCs and other devices. Media sites hope this will dramatically boost their use--along with advertising and syndication revenues.
“Once there are screens you can take to the john . . . all [media companies will] be content providers, and the platform will be up to the customer,” said Slate’s Kinsley. “That’s the standard Internet-vision b.s., but it’s really true.”
With Microsoft’s endless resources, Slate might live long enough to see Internet content become the centerpiece to a thriving business. But hundreds of e-journalism sites operating on an APBnews business plan certainly will not.
Yet for many, an abiding faith in some kind of online future seems impervious to today’s business meltdowns.
For Hoag Levins, a 30-year news veteran and part of a skeletal staff rehired for now as APBnews.com seeks to emerge from bankruptcy, there’s no looking back. If his company folds, he’ll find another dot-com job.
“I really see the Web and the Internet as the future of all media,” he said. “Twelve months from now, you’ll see a whole series of other sites that [will demonstrate] journalism will be a success on the Internet.”
