The Biz: Salon, Slate grope for lifeline online

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Can an online magazine, a favorite among the cognoscenti and irreverent hipsters, hook enough of them as paying subscribers to survive in such a tepid economy? The answer is likely to come this week as Salon Media Group, the Internet company that produces Salon.com, seeks a capital infusion to stay afloat.

Media pundits have already written Salon's obit, a missive laced with more than a little schadenfreude. Salon's quarterly 10-Q filing last month with the Securities and Exchange Commission revealed the publication's dire straits-it posted a net loss of $1.3 million for the quarter ending Dec. 31, 2002 and net revenue of $1.1 million. Salon needs additional funding pronto.

Salon's shaky future raises the question of whether an online publisher that charges readers for content can grow and eventually become profitable. Can readers find equally unique content elsewhere, gratis? And can a publisher of "chattering class" fare, on- or offline, survive without the deep pockets of a corporate parent?

Some are on the road to success. The New York Times Co.'s New York Times Digital and CBS MarketWatch are profitable; CNET recently became cash-flow positive. Dow Jones & Co.'s Wall Street Journal Online is the largest paid-subscription site on the Web with more than 664,000 subscribers as of the third quarter 2002.

Salon's erstwhile rival Slate, part of Microsoft Corp., has yet to reach profitability though it's racking up 4 million unique visitors a month, according to Nielsen/NetRatings. "We're close," said Scott Moore, general manager-news and information, MSNBC and Slate. Close, maybe, but Slate Publisher Cyrus Krohn said profitability isn't likely this year despite a bevy of high-profile ad deals that include Absolut, British Airways and Celebrity Cruises.

Salon has 3.4 million unique monthly visitors, 52,000 of which are subscribers to Salon Premium for $25 annually. "We think the best business model for us is a paid-subscription model with ads, like The Wall Street Journal Online," said Michael O'Donnell, president-CEO, Salon. "Salon has been on life support for the past couple of years, we're public, we have to disclose everything, we need a couple of million dollars," O'Donnell said.

Slate tried to charge $19.95 a year for a 10-month period from 1998-1999 but found subscription marketing to be a costly endeavor. In early 1999, it became clear that an ad-supported model was the way to go, said Moore, who had recently become Slate's publisher.

Salon went public in 1999 and has spent more than $50 million over the last seven years. O'Donnell said the company never indulged in the excesses of the dot-com era. A staff of 150 is now down to 60. Plans to launch a weekly radio show were shelved. Once valued at $120 million, the company is now at $1.5 million. Salon has lost a few advertisers, but he won't name them: "We're doing everything humanly possible to stay in business, secure additional funding and get our ad sales moving again." O'Donnell noted that his $190,000 salary is equivalent to Salon founder and Editor David Talbot's. "No raise in three years, no bonuses, no stock sales, no insider sale, no shareholder action."

many models

"[Salon has] had about eight business models and all have failed," said Russ Smith, the founder of New York Press and whose readers named Salon "Best Web Magazine" in 2000. "With so much free information on the Web, no one is going to pay for a content-oriented Web site, as Slate found out," Smith wrote in e-mail to Ad Age. He called Salon "one of the more offensive publications on the Web" in a Feb. 21 column in The Wall Street Journal.

Slate, Smith said, "survives because it's backed by Microsoft, just as The Weekly Standard has [Rupert] Murdoch writing the checks, The Nation has wealthy backers, The New Republic the same, as well as National Review."

"I'm still bullish on an advertising-supported model if you can deliver the qualified audience with the appropriate demographics. ... You have to have something pretty compelling to justify a payment plan," Slate's Krohn said.

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