Still waiting to unlock the magic code

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Web publishers have invested millions, but key to success remains elusive

They've invested tens of millions in people, equipment and marketing and haven't turned a profit. But the media companies that entered the Web early say spending is more important now than before.

"Anybody who is profitable now is not building a business for the long term," said Andrew Anker, president-CEO of HotWired.

HotWired, along with Time Inc.'s Pathfinder site and Knight Ridder's Mercury Center, an offshoot of the San Jose Mercury News, were the Web publishing pioneers. All three opened ambitious operations in late 1994, when most consumers had never heard of the World Wide Web.

Some of the sites employ hundreds of people, with millions of dollars in payroll alone. Others share resources with the print side. Which model works best still hasn't been determined.


"A huge amount of money needs to be poured into brand building, marketing and content," said Mr. Anker, noting that HotWired's five-year business plan calls for the venture to be profitable in 1998.

"Every time a user sits in front of a Web browser, they need to make a decision about where to go. The better the brand, the more likely it is to pop up in the brain."

With 150 full-time people, HotWired has one of the Web's largest staffs. Mr. Anker declined to discuss how much HotWired has spent since it launched, but a conservative estimate would put payroll (by far the biggest expense) at about $6 million alone.

The site is now attracting about 20 advertisers per month; there are no plans to charge users a subscription fee.

If the site could double its business it might be able to cover payroll this year, but that doesn't account for equipment, overhead and other expenses.


It's much the same story at Pathfinder, which has at least 100 full-time staffers and payroll expenses of at least $6 million, according to salary estimates.

The site generated approximately $2 million in ad revenues last year, industry executives say; Time Inc. says it expects to triple revenues this year.

If that happens, Pathfinder could conceivably cover payroll, but that's just part of the equation.

Time Inc. expects subscriptions to account for 50% of revenues eventually. It also hopes to make money distributing its content to other entities; this week, the company will announce an international distribution deal, with Hong Kong Telecom.

"It's another step in the process of developing multiple ways of supporting quality branded content on the Web. It's another way of going beyond ad revenues," said Paul Sagan, president and editor of new media at Time Inc.


The San Jose Mercury News was one of the first media entities to charge for content on its Web site, which it expects will break even this year.

Mercury Center employs only seven full-time people and shares many resources with the newspaper, including marketing, technical support and editorial.

It has about 9,000 subscribers, split almost evenly between those who pay a monthly rate of $4.95 and those who pay $1. Adding it up, subscriptions bring in roughly $26,000 per month.

"We've done a pretty good job having multiple revenue streams, our overhead is relatively low and we don't have a huge staff putting the product out," said Barry Parr, product development manager for Mercury Center.


Web newcomers like the Chicago Tribune fall into the smaller-is-better category when it comes to staff. The Tribune hired just 15 people to work on its Web site, which launched in March.

"We are aggressively sharing resources not only with the newspaper, but with other Tribune business units on both the print and broadcast sides," said Owen Youngman, director of interactive media for the Tribune. "We are as lean as we can be while still creating original content for the Web."

Still, the site will eat up much of the paper's $10 million budget this year for interactive projects.


What all these publishing entities are trying to do is delicate business. While ad revenues aren't coming close to covering expenses now, they could grow substantially in coming years.

And although common wisdom has been that consumers won't pay extra for online content, several initiatives this year will give that theory a big test.

For now, everyone's still looking for that magic formula.

Said Mr. Sagan: "In reality, nobody has the models and can say they have unlocked the code and the money is going to start flowing."

Copyright May 1996 Crain Communications Inc.

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