THAT UNSEEMLY CLATTER heard 'round the World Wide Web recently was the sound of the Internet "content" business buckling, perhaps from the weight of over-inflated expectations. One by one, the New Economy's information darlings--Salon.com, iVillage.com, The-Street.com, Drkoop.com, to name a few--swooned and sputtered. Depending on whose numbers you believe, somewhere between 2,000 and 3,500 dotcom workers lost their jobs delivering news, entertainment and information in May alone. While that's a small fraction of the armies of journalists now employed online, the recent troubles have punctured the media-fueled aura of invincibility surrounding all things dotcom.
"The world of online journalism has turned into a giant game of 'Survivor,' " wrote one online magazine, Suck.com, in June. Indeed, says Bruce Koon, a regional vice president of Knight Ridder's online news operations: "The culture has changed. The mythology of the killer app is gone. The idea that you'll make a fortune overnight is gone. This is now a very long-term proposition."
Any journalist who needed a reality check got one in late spring when APBnews.com, a well-regarded crime news site staffed with seasoned reporters and editors (and two Pulitzer winners), ran out of money. The collapse of APBnews, whose strapped parent continues to search for new investors, took down 140 writers and editors. At AJR's deadline, a small band of volunteers continued to post material on the site.
Surely, it's the end of one era (perhaps just the age of journalistic naiveté) and the beginning of a new, more mature phase. Either way, the question is, what now?
If anything, what Internet news veterans say they've learned so far is that the early conventional wisdom about online news was wrong. Remember how putting news online was supposed to be inexpensive, relieving publishers of costly necessities like printing presses and delivery trucks? It turns out that delivering information via the Internet is expensive. Creating content requires manpower, which means labor costs.
Getting the news up requires new technology tools, which means capital expenditures. Getting attention requires advertising and marketing, which means more spending.
"This is software development, and software development is really expensive," says Steve Outing, an Internet entrepreneur and an online columnist for Editor & Publisher. How expensive? APBnews.com burned up $27.1 million in two years before cratering in June. "What's our advice?" e-mails a chastened Joe Krakoviak, APB's spokesman. "Let's see, match your funding to your business plan? Don't finance a four-year business plan...unless you get all the capital up front? Plan ahead for when the capital markets become totally irrational and indiscriminate in what companies they won't finance in your sector?"
If there's a silver lining, it's that the dotcom carnage has come in the middle of exceptionally strong economic times. This has given oldline media companies the luxury of experimenting (i.e., spending) on uncertain new-media projects without demanding an immediate payoff. Nowadays, in fact, it's the online versions of the oldline media companies that appear to have the deepest pockets and, hence, the brightest prospects. Editor & Publisher says that 148 of the 150 largest newspapers are online; the Newspaper Association of America reports that two-thirds of all daily newspapers now have their own Web sites. Some newspapers have even become Internet service providers, hooking readers up to the Internet for free.
Although the level of involvement varies widely (among chain operators, Knight Ridder and Tribune Co. have been aggressive online investors, while Gannett has followed a more modest path), virtually every Internet news site has this in common: red ink. This is because the Internet has so far defied the traditional equation for media prosperity--subscription revenues plus ad revenues equals profits.
With the exception of the Wall Street Journal, no major newspaper charges for access to its Internet site, and only a handful of stand-alone sites do so (usually for access to premium content). There's little chance this will change soon. "People are used to getting what they want for nothing on the Internet," says Jeff Moulton, an analyst with PC Data, a market research company in Reston, Virginia. "Publishers have to find alternative means other than subscriptions. The attitude [among users] is, 'Everything is free. It's up to the business people to figure out how to make a profit.' "
Worse still, advertising revenue hasn't grown enough to cover costs at most sites (see "A Tough Sell" ). Some advertisers question how effective online ads are ("clickthrough" rates on banner ads remain microscopically low); but more important, frenzied competition and a bottomless ad "hole" have sunk the cost of space on many Web sites to bottom-of-the-barrel-scraping levels. Undoubtedly, one or both of these uneconomic aspects of the Web will change in the years ahead. As Newsweek and Washington Post columnist Robert Samuelson wrote recently: "Capitalism is many things, but charity it isn't.... Sooner or later, the Internet will become profitable."
What no one knows is how or when that will happen. "Everyone is new at this," says Elizabeth Brenner, publisher of the News Tribune in Tacoma, Washington. "Everyone is still learning. No one has the answers. But some answers are starting to emerge." Yes, indeed. Wizened Internet vets (that's anyone who's been around for more than two years) have a few strategies for survival:
Don't get too far ahead of yourself. The shifting whims of the capital markets may ultimately have done APBnews.com in, but excessive speed seems to be a contributing cause. Consider that in addition to 140 staffers, APBnews had a reported 130 stringers and contributors on its payroll, including marquee names like O.J. Simpson prosecutor Marcia Clark. It also set up its own radio operation and prepared to launch book-publishing operations and a state-of-the-art television production studio. It spent 40 percent of its original bankroll, $11 million, on advertising. Its stated aim was to "own" the crime-and-justice news genre before competitors challenged it. But with skimpy ad sales and barely detectable syndication and e-commerce revenues, the site was dangerously overextended. (APBnews.com chief executive Marshall Davidson initially agreed to an interview for this article but failed to respond to later inquiries.)
Pick your spots. The Mercury News in San Jose, in the heart of Silicon Valley, was a daily newspaper pioneer on the Internet. But at a time when many news sites have turned themselves into local portals (providing numerous features geared toward readers in the paper's primary circulation area), the Mercury News is just getting around to starting its own regional portal, BayArea.com. Odd that a newspaper in such a technologically sophisticated area is just now catching up to the likes of, say, the Philadelphia Inquirer? "We had to make some choices, set some priorities about how to use our resources," Koon explains. In the Merc's case, managers decided to nurture their vertical site (the business- and technology-oriented SiliconValley.com) for the past two years before trying to add more portal-like features. Doing more than that might have been a strain. "It's easy on the Internet to take a shotgun approach and try to hit everything at once," Koon says. "But when you do that, at a certain point you run out of ammo."
Knight Ridder online executives like Koon regularly assess the viability of their online projects through a system called TRIE, which stands for traffic, revenue, innovation and efficiency. Because a Web site's servers can provide a precise portrait of where users are going, managers can immediately see what's drawing traffic and what's being ignored. Features that don't pull in visitors are subject to being dropped or adjusted at regular intervals (anywhere from 30 to 90 days). In a somewhat more ominous vein, Salon used a similar method to determine whom to fire during its recent cutbacks. By checking its traffic logs, for instance, it found that its travel section wasn't drawing enough hits, hence the dismissal of its travel editor. Koon defends this by-the-numbers approach--to a point. "The newspaper mentality is to add a feature and leave it there for five years," he says. "You put in a column on birdcalls, but you don't know if anyone is really reading it. You can't base all of your editorial decisions strictly on metrics, but the point is, online journalism is fundamentally different than the print side. We're more like broadcast TV [where Nielsen ratings determine a program's fate] than print." That's where the E (for efficiency) in TRIE comes in. Koon believes Internet news managers can be smarter than their print brethren about where and how to direct their resources. Some parts of the news (political results, for example) will always be sacrosanct on- and offline, he says. But computer metrics permit editors to put everything else in their Web editions "up for grabs."
Keep your focus. In 1997, National Journal disbanded a partnership with the Washington Post and ABC News that had produced a Web site called PoliticsNow. In hindsight, it was a smart decision, says Troy Schneider, editor and associate publisher of nationaljournal.com. Despite National Journal's expertise in political and policy reporting (and its partners' powerful brand names), the marriage proved to be an odd and unworkable arrangement. In addition to fundamental disagreements over strategy, there was a mismatched view of the target market. The Post and ABC, he points out, reach a broad audience; National Journal (and sister publications like Hotline and Congress Daily) reach a specialized audience of inside-the-Beltway policy wonks and politicos. "We had to stay with the audience we knew," Schneider says. "We know how to write to that audience, how to market to them, and how to communicate with them." Rather than reach a general audience, National Journal is proud to be exclusive; users get access to the full run of its Web site only if they buy a subscription to one of the company's print magazines (at $1,100 a year or more). The key, he says, is not trying to be all things to all people. "Saying that we're going to build a portal site is not useful. Saying that we'll create all the information a political candidate needs is something you can work with," Schneider says, adding that his site is one of the few on the Web that can claim it's turning a profit.
Nothing succeeds like the thing that succeeded before. Outside of a handful of stand-alone online successes (America Online, Yahoo!, ebay), the most successful brands in cyberspace are those cloned from the old media. There's no secret why sites like MSNBC.com, usatoday.com and nytimes.com are among the most popular on the Web. Just as NBC and CBS were able to extend their radio networks into the new medium of television in the late 1940s, the old print and TV dinosaurs have leveraged their positions in the offline world to colonize the new. It's more than just a familiar name that draws traffic. It's also the promotional platform that the old media provides. Plus, it doesn't hurt to have the steady cash flow of an established parent.
Moulton, of PC Data, offers this blunt assessment: "I don't think we'll have stand-alones for long. There has to be some convergence between the brick-and-mortar companies and the [Internet-only] operations."
"The brand is everything," adds Elizabeth Brenner, speaking of her medium-size (circulation: 150,000) daily. Newspaper publishers "all got rattled when Microsoft rolled out the [regional] Sidewalk sites and committed resources to it. [Sidewalk] had deep pockets. It had Microsoft. It had Bill Gates. What it didn't have was the content franchise. [Sidewalk went under in October 1999.] I think it taught us the value of what we really own--relationships in our communities and expertise in telling the story of our communities." Though the News Tribune's Web site is minimally staffed (it has seven full-time employees), it is able to draw on stories and resources from the newspaper's newsroom. That still makes it the biggest newsgathering operation in Tacoma, an advantage no online-only operation can match--or even cares to match, says Randy Bennett, the new-media honcho at the Newspaper Association of America. "In reality, not many online companies want to do what newspapers are doing online," he says. "They'd rather be niche players--in sports, or financial news. It's too expensive to compete against a newspaper" in local news and feature reporting.
Keep an eye on the vertical horizon. It's probably not enough simply to replicate the print version on your site. "If you're not generating your own news [online], you are not a news organization. You're a phone company," argues Larry Pryor, a former editor of latimes.com who now runs the online journalism program at the University of Southern California's Annenberg School for Communication. The specialization of the Web has compelled many news organizations to add highly targeted (or "vertical") content. Knight Ridder newspapers, for example, carry That's Racin', a subsite generated by the Charlotte Observer devoted to stock-car racing. The Santa Rosa, California, Press Democrat, owned by the New York Times Co., added Winetoday.com as an outgrowth of the paper's position in the middle of northern California's grape-growing belt. For super specialization, check out the Intelligencer/Record in Doylestown, Pennsylvania, in the Philadelphia suburbs. The paper's Web site (www.phillyburbs.com) maintains an archive devoted to native son James A. Michener. Whether publishers can raise additional revenue through this kind of specialization is unclear, says the NAA's Bennett, but he says the idea is to draw in a broader audience than local readers.
The 24-hour day is overrated. The Internet's news cycle may theoretically be all day, seven days a week, but managers are finding there are peaks and valleys. The peak: generally between 10 a.m. and 5 p.m. EST, a time when office workers check their stocks and swoop by news sites to look for breaking stories. For this reason, washingtonpost.com last year began its PM Extra edition, with staff-written news stories and updated market information appearing around 1 p.m. But few news sites have followed suit; many prefer to freshen the news package only when developments warrant it. "We see a major dropoff in traffic after 5 p.m.," says one Web site executive, who asked not to be named. He speculates that at the office, people are using fast connections (and company time) to surf, and are psychologically in the mood for news. At home after a long day, however, Web users want entertainment, not information.
Maybe you're not a dotcom after all. Despite the reflexive migration of publishers to the Internet, some content doesn't need to be online, says Larry Kramer, a former newspaper editor who's now chief executive of CBS MarketWatch, a financial news site. Is there something so compelling and urgent about The New Yorker that it begs to be read online? he asks. For that matter, how about Salon or Slate? "A lot of media companies ignored the fact that people might not want [some] information delivered [via computer]. People want to use this medium for what it's good at"--breaking news and searchable databases of archived information. Thoughtful, long-form journalism may have its place, but its place may well be on paper, Kramer says. Slate and Salon--pioneers in the Internet zine field--both offer high-quality editorial and attract a loyal following. But Kramer has a point. In a recent survey of online news consumers, the Pew Research Center for the People & the Press found that thoughtful commentary was not high on Internet users' minds. Respondents said their top reason for going online was to access the latest weather, followed by science, health, technology and business news.
Rethink the medium. "The definition of what a media site is has to change," says Jon Katz, the author and online media critic. "The model of a bunch of people called journalists collecting information, packaging it and selling it is in trouble." Katz calls the conventional Web news approach "closed" media. He argues instead for "open" sites--those like Yahoo! or CNET.com that carry news but also put users in touch with news and information elsewhere. Sites like Yahoo! also offer users a host of nontraditional media services, such as shopping, bill paying, stock tracking and search functions. "What's been hard for traditional journalists to grasp is that people aren't interested in a top-down model, the William Safire model," says Katz. "It's not telling people what they should think. It's pointing them to the information and services they tell you they want. The best way to keep people is to allow them to go elsewhere, because then they'll come right back to you. You'll become their home base."
Make friends. The uncertain future (and chaotic present) of Internet news makes alliances attractive, if not inevitable (see "Get Big or Get Out"). In theory at least, content-sharing arrangements among compatible news organizations spread costs, increase cross-promotion and expand newsgathering. That was the rationale behind the Washington Post's linkage with MSNBC earlier this year, and the New York Times' deal with ABC News. CNN.com, meanwhile, has agreed to provide video clips from CNN to local broadcast TV and newspaper affiliates like the Houston Chronicle and Boston Herald, in exchange for carrying up to three stories a day from these partners on CNN.com. Many local papers also have cooperative news-sharing arrangements with radio and TV stations in their markets.
Although some of these deals are bound to blow up (remember National Journal's ill-fated fling with ABC and the Washington Post), they all anticipate the increasing sophistication of both the Web and Web users. Already, new wireless Internet "appliances" (such as cell phones and Palm Pilots) are making it possible to get news online anywhere, anytime. E&P's Outing suggests that one potentially revolutionary device may be the e-book, which can store hundreds of pages of electronic text. But instead of storing Stephen King's latest novel, e-books could hold a daily download of news or magazine stories. "Before you go on vacation, you'll put all your reading material for the trip on it," he says. "You'll take it with you to the bathroom, on the plane, anyplace."
The next important revolution may be in the nearly invisible network of lines that carry information around. At the moment, an estimated 2 million households have access to so-called broadband connections--high-capacity, high-speed lines such as computer-connected cable wires or digital subscriber lines offered primarily by phone companies. As more homes get broadband capabilities, the way Americans use and view information online could radically change, predicts PC Data's Moulton. Broadband not only makes the Internet easier to use (since it's always "on," there's no more waiting to connect via modem), it also makes it possible to pass around "richer" information (video clips and sound files, for example). Given access to these powerful capabilities, people "won't just want to read about the news. They'll want to look at it, see it move and hear it talk," Moulton says. "Broadband will open up a whole new set of doors. You want real-time video with TV-quality resolution? You'll get it. Right now, I feel we're at a plateau. It's time for the next step."
It's important to keep in mind that less than a third of American adults now go online for news once a week, according to the Pew Research Center. That means more than two-thirds don't. Historically, this suggests that Internet news is in its infancy, that it is still taking its first uncertain baby steps.
It's hard to grasp, but nevertheless true: The Internet is still a long way from taking wing and really flying.
