Dotcom downturn leads to rethinking of strategies, investments
This column appeared Jan. 25, 2001, in the Online Journalism Review. Here’s the version on the OJR site.
Madeline Baro was thrilled last April when she became the first online reporter dedicated to the Miami Herald’s Web site. The experiment proved short-lived. Eight months later she was among the casualties when KnightRidder.com scaled back its online operations, laying off 68 people.
Patricia Marroquin, fresh off a new media fellowship from the Newspaper Association of America, was startled to learn she was one of three online editors let go at latimes.com last October. Within days she was offered her old job back as copy editor on the newspaper’s business desk, but she and her husband, an executive news editor at the Times, decided to make a fresh start of things on the print side of the Dallas Morning News.
“It’s disturbing,” she says. “Online operations are really important corollaries to the newspaper. But I don’t know if I want to go back to online now. As excited and pumped up as I was to work on the online side, I’ve kind of soured on it now. It’s too unstable.” (See related story on latimes.com.)
A young staffer who was one of the 69 casualties at New York Times Digital on Jan. 7 says that staffers were disappointed the company couldn’t find a way to prevent layoffs but few were truly surprised, given the downturn in the Internet industry.
A young staffer who was one of the 69 casualties at New York Times Digital on Jan. 7 says that staffers were disappointed the company couldn’t find a way to prevent layoffs but few were truly surprised, given the downturn in the Internet industry.
As nearly every week brings word of a new round of layoffs and cutbacks in new media, current and former online staffers, executives and industry analysts are surveying the wreckage and wondering whether the reluctant, often testy romance between media companies and the Internet has come to an end. My God, was it all … just … a meaningless fling?
The consensus so far? Media companies have begun some serious retrenchment and rolled back a number of initiatives, but they have not yet begun a full-scale retreat from the online medium. While the Holy Grail of online publishing — a profitable business model — remains elusive, the quest continues.
“We’re moving full speed ahead,” says Ken Doctor, vice president of strategy for KnightRidder.com. “The way things are looking right now, if you’re in dot-com land, it’s a good time to be attached to a Fortune 500 company.”
Adds Michael Oreskes, assistant managing editor for electronic content at New York Times Digital: “There’s been no dimunition at all of our commitment to new media. Whatever short-term changes are necessary, the long-term future is crystal clear: Over the next few years broadband and digital technologies will have a profound effect on the way all of us get information from newspapers, television, radio and from any media company.”
That sunny forecast comes amid a veritable Northeaster of industry woes. Consider:
• On Jan. 17, CNN announced 130 of 750 staffers at CNN Interactive would lose their jobs the following week and that the online unit would no longer exist as a separate entity.
• On Jan. 7, the Internet unit of the New York Times Co. confirmed that 69 people were being let go at nytimes.com, Abuzz, Boston.com and newyorktoday.com. Hardest hit: Abuzz, an interactive knowledge-based network of experts that the Times acquired last July, which lost about a quarter of its workers.
• On Jan. 4, Rupert Murdoch’s News Corp. said it was shutting down its Digital Media division, eliminating half of the 450 online jobs at FoxNews.com and FoxSports.com.
• On Dec. 4 KnightRidder.com laid off 68 staffers at its online newspapers and city sites, with the brunt of cuts coming in smaller markets.
• On Oct. 12 the Tribune Co. laid off 34 employees, including 20 at the online unit of the Los Angeles Times, which it acquired last March. In addition, 46 open positions were eliminated from Tribune Interactive’s workforce of 650.
All this comes on the heels of bloodletting at pure-play content dot-coms. More pink slips are widely expected to fly. Most vulnerable: NBC’s Internet subsidiaries CNBC and MSNBC, and the digital properties of Disney Internet Group, which includes ABCNEWS.com.
Behind the cutbacks
To strain the weather metaphor a bit, industry analysts suggest we’re seeing the convergence of two storm fronts: (1) a slowdown in Web advertising — no surprise, given the flood of dot-gones waving bye-bye to all that funny money; and (2) the inevitable result of misplaced bets made by traditional media companies.
Industry analysts suggest we’re seeing the convergence of two storm fronts: (1) a slowdown in Web advertising — no surprise, given the flood of dot-gones waving bye-bye to all that funny money; and (2) the inevitable result of misplaced bets made by traditional media companies.
No one disputes the dip in online advertising. Charlene Li, research director for media and entertainment at Forrester Research, says the downturn is real but relatively short-term. “Everyone dependent on online advertising is going to have a rough year. Traditional advertisers have been slower to hop online than the dot-coms, which is why you’re seeing the temporary plateauing, but they’ll come onboard in droves starting in late ’01 as they ramp up their digital marketing efforts.
“It may not be until 2003 that everything picks back up,” she adds, “so I hope these sites have enough money to weather the storm.”
Advertising isn’t the only culprit, however. A few years ago brick-and-mortar companies scaled up to take advantage of the dot-com land grab and to protect their local franchises from virtual predators. Panicked at the prospect of Microsoft, America Online and other competitors eating their lunch by gobbling up online classifieds, car ads, real estate listings and by setting up virtual local communities and city guides, media companies responded in kind.
“A lot of these companies went out, forged alliances and allocated considerable resources to stem the threat,” says John Morton, president of Morton Research, a media consulting firm. “Some followed the example of Bill Gates, who bets on every horse in the race. Unfortunately, they’re not seeing a lot of winners.”
Now that the dot-com bubble has burst, he says, “tightening the faucet on the Internet division is an easy way to save some bucks in this soft economy because those operations aren’t making money anyway. But it would be a mistake to cancel your insurance policy just because the thunderclouds have lifted a bit. This whole arena is so young we don’t know how it’s all going to work out.”
After a phase of innovation, then, we’ve entered a phase of consolidation as some business models pan out and others don’t. Those that do should benefit from the Net’s continuing growth.
It may take years before we know whether some initiatives succeed, such as KR.com’s ambitious Real Cities, a network of local and regional Web sites. But other experiments are already on the chopping block — and contributing to the current climate of layoffs.
KR.com’s pas de deux with Koz — a company that works with online newspaper clients to allow people and organizations to build their own free Web sites — will likely end when the contract expires in late March, two sources say.
“We believe the community space is important in terms of service and creating attachments to our products,” KR.com’s Doctor says, adding that discussions with Koz are continuing. “But it’s hard for anyone in the community space to create enough sustained usage to monetize the traffic. We’re working on some new formulas that are different ways to skin the cat.”
Koz channel managers were among those laid off by KR.com. Bill Hughes, a 36-year reporter and editor at the Columbia State in South Carolina, oversaw the building of 560 community and individual Web sites through Columbia Today in recent years. “I have no regrets” about accepting an early retirement package, he says. “After all the financial hemorrhage of the past year, it came as no surprise.”
Integration vs. separation
One key issue that the recent turmoil has brought to the fore is the strategic decision of whether media companies should spin off their Internet efforts into separate business units. With the financial incentive to do so now gone because of the collapse of the IPO market, the new line of thinking seems clear: Online units are being pulled back tightly into the mother ship. That can be extraordinarily painful, as the cutbacks at CNN.com and Fox attest.
One key issue that the recent turmoil has brought to the fore is the strategic decision of whether media companies should spin off their Internet efforts into separate business units.
“For some time there have been two schools of thought on this,” Morton points out. “One school says that Internet sites are extensions of newspaper or broadcast operations and all you need are folks who’ll massage and repurpose information to make it suitable for the online medium. The other philosophy suggests you have to create original material from scratch with your own staff and your own resources, and that may be the model falling by the wayside here.”
In his revealing Jan. 17 memo to CNN employees (subsequently released to the public) that announced 400 company-wide layoffs and the elimination of CNN Interactive as a separate business unit, Newsgathering President Eason Jordan makes a strong case for integrating the network’s television, radio and interactive divisions.
“The days of thinking of each of the dozens of CNN services and units as a separate silo are over. We are all on the same team,” he writes. “… No longer will a newsgatherer work only for TV or Radio or Interactive. Correspondents whose expertise is TV reporting must know how to write for Interactive and provide tracks for Radio — and deliver for them as needed.”
The decision, triggered by the official merger of AOL and Time Warner less than a week earlier, combines the television and Web operations at CNN, CNNfn and CNN/Sports Illustrated. Each network general manager will be responsible for both broadcast and interactive programming, with a senior executive heading up the online operation at each network.
”The interactive landscape has changed,” says Jim Walton, a CNN group president. “We looked at what we were doing and decided we needed to have a single voice for CNN going across multiple platforms.” CNN executives underscored that consumers will see the same Web sites and have access to the same wireless services as before.
Only 13 days earlier, News Corp. announced it was shuttering its online division and returning control of its Web sites to the Fox networks. Jon Richmond, president of News Digital Media, says, “We thought the time was right to move these functions back into the news operation. Our goal here is integrated programming.”
Under the new setup, Richmond says, coverage and content will improve because the Web operation will have direct access to news-gatherers in the television operation. “It appears to be part of a trend,” he says, pointing to CNN’s similar restructuring.
Looking to the future, Richmond says, “We’re continuing to forge ahead in broadband and wireless. The key here is integrated programming. That means tying television, Web, broadband, wireless and interactive TV.” The result, he believes, will be “certainly a better experience than any single medium could deliver.”
Doctor says that KnightRidder.com stands firmly behind its decision to spin off the online business from its parent newspaper chain last April. “It made sense for us to put our digital assets together in one place, with one central organization, one strategy and one set of goals,” he says. “Everyone’s looking for the best model that’s going to work to grow a set of businesses and find the real synergies between online and legacy businesses.”
KR.com, which suffered an operating loss of $29.6 million on revenues of $33.4 million through the first nine months of 2000, said its goal is to be profitable by the end of 2002. New York Times Digital is also shooting for profitability by late 2002.
Other long-term outlooks
Here are snapshots of how other major players in the online news business are faring:
• At WSJ.com, the online edition of the Wall Street Journal, spokesman Richard Tofel says, “We don’t think we’re headed into a general recession, and our outlook is that the advertising environment will improve in general later in the year.”
The Web site, with 535,000 paying subscribers, is focused on growth rather than immediate profitability. “Our strategic objective is to grow subscriptions and usage,” he adds, “and it’s not our intention to cut our way to profitability.” Tofel says he hopes other sites summon up the courage to dabble with paid subscriptions and multiple revenue flows. “I don’t for a minute think we’re the only site with valuable content.”
With a staff of just under 300 — 100 of them in news — WSJ.com operates out of a newsroom one floor away from the print edition. “We’ve been in the electronic news business since 1897 with the Dow Jones News Wire,” Tofel says, “so we have a long history of dealing with both print and real-time news. We think it’s essential to have a constant close working relationship.”
• At MSNBC.com, editor in chief Merrill Brown remains bullish on Net news. As more consumers go online and get high-speed connections, he says, “news delivered on the Internet probably will be the principal way in which people get the news delivered. If you think about the intersection of news delivered at home and especially at work, it’s a huge new marketplace that a lot of people are going to get rich from. Companies that can weather the short-term downturn will have profitable businesses by the middle of this decade.”
MSNBC, with a staff of just under 200, attracts 2 million to 3 million daily visitors — more readers than any newspaper in the country.
“Online newspaper sites are still in a very bullish mode,” Brown says. “We believe the local Internet advertising marketplace will be very robust in the coming years. As long as PC penetration continues to grow and people shop online, there’s going to be a great tussle for those dollars.”
• On Tuesday AOL Time Warner laid off some 2,000 people, just under 2 percent of the total workforce, from its America Online Internet unit, Time Inc. magazine company, Warner Music Group and other properties, but Time.com was completely spared. “We’re an incredibly lean operation,” says managing editor Rick Stengel. Time.com has a staff of 15 editors, writers, designers, programmers and tech people.
Stengel says the site’s page views have doubled in the past six months. And indeed, Time.com (91,000 unique visitors a day) blasted past both Slate (88,000) and Salon (83,000) during the first week of January, according to ratings firm Media Metrix.
“We’re getting more people from the magazine to write for the Web site,” with an emphasis on original content that’s “chattier, breezier, shorter,” he says. Time.com plans to increasingly integrate services and share stories with AOL and Netscape in the months ahead.
Rough going in the short run
Madeline Baro, the reporter who was laid off from the Miami Herald’s online edition, recalls what she was told when she was hired away from the Associated Press last April: “They said they want to be a competitive site with fresh, breaking news, and they didn’t want to rely just on what was printed in the newspaper.”
She updated the site throughout the day and filed original reports on Elian Gonzalez, the presidential recount and other breaking news in Miami’s crowded media arena. “Now, the site is updated less often, it’s less visually appealing because they’re using fewer photos, and the commitment they made to make the news site competitive and fresh-looking isn’t there anymore,” says Baro, who’s still job hunting. “Absolutely, it’s a loss for online readers.”
Jeordan Legun, managing editor of KnightRidder.com in Miami, says, “It’s a challenge to figure out how we’re going to update the site seven days a week and give people the quality they’ve come to expect from elherald.com and miamiherald.com and miami.com. We’re having to do more with less. But through technology and innovative thinking we can produce a very high-quality product.”
Legun acknowledges that the site was cutting back on photos but pointed to research suggesting that users tend to look at text more than images on Web sites. He also says the newsroom was cooperating in providing the Web staff with breaking-news content seven days a week, that a major redesign was in the works, and that the newspapers’ archives were a treasure trove that the online staff was continuing to plumb for special packages. “The key here is to continue to think outside the box,” he says.
Thinking outside the box, instead of riding with the herd — now there’s a refreshing concept.
— OJR staffer Eugene Tong contributed to this story.
