Salon clings to dot-com swagger

Special to The Times

The parties at Salon.com have been rather lean lately.

Late last year, the pioneering online magazine celebrated its seventh anniversary with a small gathering in its downtown office here. In 1999 Salon had leased two floors in a new office tower just off Market Street. With bare concrete underfoot and exposed ducts and wiring overhead, the office was all dot-com swagger with stunning city views to match Salon's ambition as a public company that would leverage its brand into spinoff businesses in everything from television to software.

Those grand visions never came to pass. Instead, the greatly shrunken Salon staff in November was lifting margaritas in toast to its unlikely survival. "Almost from the beginning," Salon founder David Talbot wrote in a note posted online, "our little magazine has carried on its back a host of doomsayers, idly kicking our sides with their heels as they enumerated the reasons our days were numbered. No one wanted to read serious articles online, much less pay for them. Only sites that specialized in finance or tech coverage would survive. We were too literary, too edgy...."

Talbot wasn't at the party; he was on the road trying to raise money to keep the lights on.

Salon is perhaps the last great independent experiment in online journalism. Once the Web was crowded with nervy upstarts such as Suck and Feed, new media sites that disparaged their traditional rivals as dinosaurs but were actually the first to disappear. Salon was one of the most celebrated -- and, with 30 million page views a month, one of the most popular -- but the online magazine has been struggling for years to reach profitability and recently has been teetering on the edge of insolvency.

Now in what may be a last-ditch effort to stay alive, Salon is about to dramatically change its business model. The company is expected to announce this week that it will require all readers to either buy a subscription for full access to stories or agree to click through several screens of advertising to gain limited access. (Salon instituted a limited-subscription option a couple years ago that made some content available to subscribers only.)

"There's no free lunch on the Web anymore," Talbot says. "There's no viable media without developing a base of revenue."

Salon has been trying like crazy to keep the business afloat. A few days after Talbot's editor's note, Salon released its quarterly 10-Q financial report to the Securities and Exchange Commission, which disclosed that the company would run out of cash in several weeks. A board member came through with a $200,000 loan.

The company Christmas party, which was held at the house of Chief Executive Michael O'Donnell's in-laws, was yet another spartan affair. "There's been an incredible amount of stress, coming to work and not knowing if we're going to be here for another month," Talbot says. "There was a lot of tears and fears, especially on my part since I've invested so much of my heart and soul."

Then on New Year's Eve, Salon reported to the SEC that it had raised an additional $200,000 -- the first installment, Talbot says, of a major round of financing from private investors that will carry the company to profitability in the fall. Although it should be noted that Talbot has been claiming that profitability is just around the corner since 1995.

"We're inches away," Talbot says. "Salon is on the verge of closing a round of financing that will secure not only Salon's survival but our long-term profitability. We're so close."

A chorus of skeptics, however, remains doubtful that any strategy can save Salon.

Paul Grabowicz, the director of the new media program at the UC Berkeley school of journalism, says Salon is essentially an online version of a general interest magazine, a dying genre in the real world.

"If they're going to be viable long term, I don't think they'll do it by turning a profit," Grabowicz says. "They'll have to subsidize it somehow. It's just very hard to see how a publication like that can have revenue that exceeds expenses."

Magazines with Salon's financials, he says, typically survive on foundation grants (such as Mother Jones or the Nation) or depend on the largess of rich patrons (Microsoft's Slate.com, the New Republic, the Weekly Standard).

Part of Salon's problem, as well as its appeal, is that the publication covers so many things. Under Salon's umbrella are 10 frequently updated Web sites on politics, technology, arts, books and sex, among others.

"There are so many things that look like Salon and there are so many other things that have a piece of what they do," Grabowicz says. "Even if the economy were going gangbusters you're still going to have a tough time as a general-interest publication trying to turn a profit."

Over the last two years, Salon has tried to cut its costs to the bone, getting rid of half its editorial staff (now down to about two dozen). While the magazine still attracts many well-known political writers, spanning the spectrum from outraged liberal (Joe Conason) to grumpy conservative (Andrew Sullivan) and has staff-written columns devoted to gossip and sex advice, Salon no longer seems to underwrite as much in the way of foreign reportage or other expensive journalistic endeavors, although Talbot says he is sending a writer to Iraq.

"Salon has been a big disappointment," says Larry Pryor, the executive editor of USC's Online Journalism Review. "It started out strong with reporting on politics that really mattered. Over time, Salon has degenerated. It's become softer and softer. The political coverage is largely by columnists, commentators and blogs. I just don't find enough substance there anymore."

Salon, somewhat ironically, was initially supposed to be a magazine. Talbot, the former features editor at the San Francisco Examiner, went to the Hearst Corp. (which then owned the Examiner) with an idea for a publication about politics and culture. Hearst didn't bite, so Talbot took his idea to the Internet.

With backing from Apple Computer, Adobe Systems and Borders Inc., Salon launched on the Internet in 1995. The Web zine quickly won praise for a lively mix of politics, commentary and cultural coverage. While Salon generally leans left, it has long given a platform to opinion monger David Horowitz, who delights in bashing liberals.

Writers sang the praises of getting zonked on kava in the South Pacific. The sex writing was bolder than what most polite publications would dare print: One male author wrote about the pleasure of sex with priests. Another about dating strippers.

That combination drew just the demographic advertisers covet: educated, affluent (average household income, $71,300) readers, 90% of whom were younger than 50.

But profitability proved elusive even as Salon distinguished itself during Bill Clinton's sex scandal in its examination of the president's attackers. Salon made headlines itself when it broke a story that many media outlets had passed on: Republican Rep. Henry J. Hyde of Illinois had engaged in an affair 30 years earlier.

In 1999, Salon turned its high profile into a public stock offering, which raised $26 million for the publication (and a paper profit of $4 million for Talbot). Investors fared less well: The stock went public at $10.50, briefly climbed above $15 and then sank from sight. Nasdaq eventually tossed Salon off its exchange, although the stock is available in the penny market for about a nickel a share.

These days, the company's woes are almost biblical. Layoffs started in 2000, when the staff peaked at 175. About 50 people are still employed, including around 25 in editorial. Staffers who weren't fired had their wages sliced by 15%. A second floor of prime office space still sucks money off the balance sheet but sits unused. For more than a year the company's accountants have been issuing periodic warnings about Salon's survival.

Losses have narrowed and revenue has grown, hitting $1 million in the third quarter, but under the most optimistic scenario Salon needs more financing to come through if it wants to celebrate another anniversary. By the end of September, the company declared to the SEC that its cash was down to $266,000, enough to keep paying the bills through October. John Warnock, a board member and co-founder of Adobe Systems, came through with the $200,000 loan.

In April 2001, Salon started selling subscriptions, restricting 20% of its content (mostly politics) and removing ads from pages to people willing to pay $30 a year. Salon's perennial rival, Microsoft's Slate.com already had tried and abandoned a subscription model.

In that first year, about 1% of Salon's readers purchased the ad-free subscriptions -- later, the magazine offered subscriptions for $18.50 to those willing to get ads with their content. Subscribers now total about 49,000 readers.

"It's been a success in our eyes," Salon Vice President Patrick Hurley says. "You don't need a huge percentage of your free readers to subscribe. Just 7% or 8% and we'd be profitable."

Subscriptions and other fees account for about 45% of the company's revenue, advertising generates about the same amount of money, with the remainder coming from books and syndication.

In November, Salon tried yet another strategy: offering "ultramercials," which require visitors to spend 10 seconds clicking through a series of ads about Mercedes-Benz in exchange for a 12-hour pass to view Salon's subscription-only content -- with Mercedes paying Salon an advertising fee.

Salon also is renting out its name to other businesses for selling online services, such as personal ads and writing classes. "There is not going to be a silver bullet," Hurley says. "It's going to be bullets, 10 or 12 revenue streams."

By Salon's reckoning its Internet experiment in journalism has been a success: The site is one of the most popular content providers on the Web, with a reported 3.4 million unique visitors a month and 30 million page views.

But popularity isn't cheap. Salon has burned through about $80 million to get to where it is (although Hurley says $55 million of that was in cash).

"That's not a staggering amount of money to spend," Hurley says. "It takes six to 10 years to break even for a typical media property. Most take a significant amount of time and cash and investor faith to break even. I don't think online brands are going to be any different."

Talbot insists there's a need for Salon, maybe more than ever before.

"There's too much media concentration. It's imperative that America has more voices. With the Internet we all thought there would be a 1,001 platforms to reach the public. That, sadly, hasn't come to be. Most of the usual corporate giants have gobbled up the Web. We feel a sense of mission here. There's not much like Salon left out there. We're doing something that's important. Not just for ourselves, but for the nation and American journalism."

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