Cramer offers other view of Net media world

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Two weeks ago, I called several Internet content sites and new economy magazines "houses of cards" that lacked distinctive value propositions ("Tough times for magazines in tough times for Web zines," Viewpoint, AA, June 19). Reaction was immediate. The magazines said circulation figures I borrowed from Fortune misstated the size of their quality audiences; the dot-commies said I misread the volume and loyalty of their traffic. All said my attack on their content was unfair. They're right: It was. The column initiated an exchange with James J. Cramer, noted hedge fund manager, financial writer and co-founder of TheStreet.com. I thought it valuable to publish, with permission, an edited version of his analysis of Web content business models.

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From: James Cramer
To: Randall Rothenberg
Hey man, a little too negative. We have 3 million unique readers, a new format that is getting us big numbers and $107 million in the bank. Premature obit, my man.
jjcramer

From: Randall Rothenberg
To: James Cramer
Clearly, the Web improves publishing economics but it makes barriers to entry so low it upends competitive dynamics. The problem seems to be largely the hunger of capital markets for quick, killer returns. That seems to have forced publicly held dot-coms into a position of perform or die where a privately held company, especially one backed by patient capital, can find time to bring itself to profitability, satisfy investors and gain the access to capital that will allow it to grow.
r2

To: Randall Rothenberg
Let's just say you are spot on, from the ridiculously low barriers to entry to the need to pay Yahoo! and AOL to get read to the incredible need to sacrifice everything, especially quality, on the altar of growth. I am a commercially driven guy, but what passed as commercially driven in 1999--no revenue but ads, a belief in selling sponsorships no matter what the compromise--created whole industries that must fail. I have never seen a process so antithetical to longer-term success in my life. It sickens me.
We have a group of caring, hard-working people determined to make the reader the true customer and to provide skeptical, balanced journalism as an antidote to on-the-take research and second-rate promotion. It does, however, take time. And that is the one thing we can't buy any more.
jjc

To: James Cramer
So how do you hang on? You have shareholder demands to satisfy. Is there a business model that can support the equivalent of newsletter publishing? Can you foresee a model that makes a Salon not merely profitable (clearly that's possible) but wildly profitable--20%-plus earnings growth per year for the foreseeable future, as a standalone publication?
r2

To: Randall Rothenberg
The answer, of course, is that as standalones nobody functions. It is just too darned expensive to run and brand these sites. It can work in finance because (a) we are in a long-term bull market; (b) a whole cohort of people don't trust current media, so we have a real opening; and (c) it is real-time so it can make you money. If we could link with someone who has tech figured out and has a promotion machine at the ready (TV, radio or cable) then we would be profitable right now because our "software," our newsroom, is a natural generator of high quality page views that can't be replicated. But there can only be one! To be that one is very much our goal.
jjc

To: James Cramer
But what about the commoditization problem? The top dozen financial sites have equivalent data and equivalent news. The difference is in the analysis. And analysis is a subjectively defined quality.
I think marketplaces of ideas can and do gradually coalesce around an agreed-on "best"--a pull marketing model. But God knows, that process can be aided immeasurably by distribution clout--the push model. Vanity Fair succeeded because Tina Brown's programming was better. But could it have become what it became without Conde Nast's distribution clout? I doubt it.
r2

To: Randall Rothenberg
Here we get to subjectives. But the wonder of the Web is that I know [TheStreet.com contributors] Gary B. Smith, Jim Seymour, Herb Greenberg, Adam Lashinsky and Helene Meisler will generate 10,000 page views every time they touch a keyboard, and 20,000 if they hit it out of the park. Commodity stuff is 2,500, no matter what. In other words, we know bylines can be proprietary. That's what you are missing. We have voices.
jjc

Copyright June 2000, Crain Communications Inc.

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