The Red and the BlackAmid many dotcom layoffs, ABCNews.com, CNN Interactive, USAToday.com, WSJIE, MSNBC.com near profitability 1/21/2001 07:00:00 PM Eastern
If it's not porno or spam, it's not making money," lamented a newspaper Webmaster in early 2000. It's a great quote, but despite layoffs in some sectors, the profit picture for news sites is not nearly that bleak.
Many news organizations pragmatically approach the Internet realizing that there could be a three-to-five year window before they will realize an online profit. While companies tend to closely guard information on the financial performance of their Web operations, it's generally acknowledged that when red ink turns to black, it tends to do so in a trickle, not a gusher. But the slightest shift in the market or something as simple as an advertising campaign can shift a site from profitable to not.
By the end of 2000, for five major Internet news organizations affiliated with cable television news networks or major newspapers, profitability was either in hand or within reach. CNN Interactive (even before recently reported cutbacks within CNN), USAToday.com and the Wall Street Journal Interactive Edition have all reported profits during their brief histories. MSNBC.com and ABCNews.com have yet to break into the black, but are on course to do so within the next year. Each has chosen a different path to profits, but there's one constant: multiple revenue streams.
"Advertising is still going to be the lion's share of revenue for a news provider, but a pure advertising model can leave a site susceptible to market downturns," explained Tim Hanlon, director of emerging contacts for Starcom Worldwide, a part of the B|Com3
advertising group. "In order to sustain profitability over the long haul, you've got to develop a healthy mix of alternative revenue sources."
While advertising is the leading money-maker for each of these organizations, it is not the sole source of revenue. In addition to advertising, CNN Interactive and MSNBC.com license their content and are expanding into international markets; USAToday.com relies on a healthy contribution from e-commerce; and the Wall Street Journal Interactive Edition has advertising and subscriptions.
Profitability can be as tricky to define as it is to achieve. While operational profitability (Is the company taking in more money than it is spending?) is the measure by which most companies define profitability, it can be misleading.
About two years ago, Granite Broadcasting President Stuart J. Beck announced at a major industry conference that his company was making money online. Aside from the general announcement, Beck was reluctant to talk about it either publicly or privately.
It was discovered that Granite was indeed profitable online, but largely because all of the Web revenues were attributed to the online operation but all of the operating expenses were attributed to the company's broadcast operations. The Webmasters, sales representatives, server costs and other costs were all carried on the television stations' books. If these expenses had been attributed to Granite's Web operation, it would not have been even close to profitability.
Much the same has been true for the five major news sites mentioned above. Although each site has its own reporters and producers who create and repackage material, the major portion of the underlying content, which includes video clips, text articles and news audio, is produced at substantial cost by the parent news organizations. But fortunately for the dotcoms, the material is provided free to their sites. In some cases, the advertisements appearing on the site are sold by representatives from the parent organizations, saving the site the expense of an ad sales staff. In short, none would be profitable on a stand-alone basis.
Even though the major news sites' claims about profitability are predicated on a tremendous amount of support from their parent news companies, they are nonetheless operating in ways that will effectively deliver revenues.
In 1999, the Advanced Interactive Media Group, a consulting company based in Orlando, Fla., directed a survey of more than 700 media companies about online profitability at media sites.
The survey's findings suggested that all profitable sites share three critical components: balanced content, proper user measurement and savvy marketing. Additionally the survey indicated there are four activities that showed a high correlation to profitability: developing original editorial content; providing advertisers with demographic measurement of users; providing advertisers with click-through data measurement; and providing advertisers with page-view data. If you look at the strategies of ABCNews.com, CNN Interactive, MSNBC.com, USAToday.com and the Wall Street Journal Online Edition, you will see that each utilizes all or most of these elements.
For Bernie Gershon, senior vice president and general manager of ABCNews.com and his team, located right off Central Park and next door to Peter Jennings and ABC News, the goal is to be more than just a complementary aspect of the on-air content. Helping reach this goal is the traffic of unique visitors ABCNews.com attracts, roughly 800,000 a day and four to five million a month. This traffic is the major reason ABCNews.com will be able to make money as its own entity.
"Those numbers are as big as big-circulation newspapers, and those are the kind of numbers you need to make money," he explained. "Whereas for a local station the Web site is more in the business of supporting the on-air broadcast and providing some local news, weather and traffic info."
Of course, given the recent downturn in the economy, and being that it is still primarily an advertiser supported business, Gershon added that if advertising dollars are being diminished, other ways will have to be found to generate revenue.
"It's affecting TV networks, it's affecting magazines, and this is potentially a tough economic time," he noted. "Also, this industry is nascent. We've been around for four years in May, so we're still babies, and we're trying to navigate this difficult financial time and generate a profitable business and concentrate on the core assets of ABCNews."
From an advertising standpoint, being part of the Walt Disney Internet Group (DIG) helps Gershon's sales team gain leverage with what the company calls "The Big Impression." A visit to ABCNews.com, ESPN.com, ABC.com, or other DIG properties makes it clear what that means.
"The goal is to provide an advertiser a bigger impression than a banner on the home page of one of the independent sites so it gives a better branding opportunity," said Gershon.
What will the winning advertising formula be? Gershon shied away from concepts like the killer app, but he does believe it will be something "more intrusive" than a banner ad. "Big Impression is part of the answer because it catches your eye but doesn't get in the way of the content," he continued. "We've also experimented with pre-stream ads so you see a short video ad before the content, and that also gives the advertiser some bang for the buck."
CNN.com's staff includes more than 400 employees. Even though the site had recorded operational profitability in two of its five years, it did not escape the recent corporate wide cutbacks. Its staff will be cut by approximately one-third as the division (formerly known as CNN Interactive) is rolled into the company's integrated Newsgathering division.
The new entity, CNN.com, is responsible for producing 14 sites, including CNN.com, CNNSI.com, CNNfn.com and sites in Europe, Asia and Latin America. The group was born five years ago with the launch of its main site, CNN.com, and had been headed by President and Editor-in-Chief Scott Wuelfel, who just resigned. Before leaving, Wuelfel told BROADCASTING & CABLE, "We were in the black last year, but we've made some major investments in the international markets."
In terms of traffic, CNN.com is the second most-visited general news site worldwide, behind MSNBC.com. However, during certain events such as election week in November, CNN.com outdrew MSNBC.com. Now that the AOL and Time Warner merger is complete, CNN.com will be able to take advantage of synergies with AOL and its 25 million users, which may push it to the top on a regular basis.
Advertising comprises between two-thirds and three-fourths of CNN.com's overall revenue. It's reported that advertisers pay $20 and up for every 1,000 people who view pages containing their ads. According to Wuelfel, the company realized early on that there was good revenue potential for CNN.com in selling its content beyond Web sites. CNN Mobile, one of its primary products, is now available to more than 61 million subscribers worldwide, and is still growing.
CNN.com also licenses its material to other Web sites for use. "It's an uncertain source of revenue and it doesn't come anywhere close to what we're producing in advertising revenue," added Wuelfel. "In a lot of cases it's there just to increase reach and drive more traffic back to our site where we can monetize it through advertising. It's not a major source of revenue and, if anything, it's going to get smaller as it gets more and more competitive."
CNN.com is banking on the international expansion to present its biggest revenue opportunities in the future. "If you look at North America right now, it makes up a little less than half of the total Internet population," said Wuelfel. "In just three years it will be down to less than a third. All that growth is coming from overseas, primarily in Europe and Asia, but also in Latin America. To expand there on the Web fits very well with our television strategy which has been to regionalize networks for those areas as well."
Not long after CNN.com launched five years ago, Microsoft offered to buy a 50% stake for $1 billion. When the offer was shot down by Ted Turner, Microsoft decided to find another partner. The resulting Web site, launched simultaneously in 1996 with the MSNBC cable news channel, now consistently ranks No. 1 among online news sites, according to Media Metrix. MSNBC.com, which brought together Microsoft's technological expertise and Internet distribution, and NBC's content, news expertise and editorial independence, achieves peak-day traffic estimated at more than 3 million unique users.
MSNBC.com focuses a lot of its efforts on interactivity, creating packages out of its vast supply of video and audio content. John Nicol, MSNBC.com's general manager, said visitors are attracted to his site because it has more of a television feel than even CNN.com. "The majority of people come in and look at text, but there's a rapidly growing number of people with broadband capabilities looking for richer content. When you come to MSNBC.com, you expect to see color and action and streaming video."
MSNBC.com has continued to grow in traffic and size, but has yet to realize a profit. Nonetheless, even in the face of staff cutbacks at NBC corporate and the MSNBC cable channel, a representative said there are no plans to reduce the staff for the Web site. While MSNBC.com will not disclose the precise size of its staff, Nicol said it numbers "in the hundreds."
While MSNBC.com has never paid its network partners for content, it did for a time pay fees to local stations for their participation. "In the beginning it was a tough sell to the local stations to convince them that the Internet is important," said Nicol. "We paid a fee to every station and we'd go out and give them a computer and all the software and train their people. Now the market has changed pretty dramatically and MSNBC no longer pays a fee to the stations."
It is nearing completion of a new production facility at its Redmond, Wash., location. "Our goal at the onset was to be profitable in the next fiscal year ," said Nicol, interviewed before the announced cutbacks. "We've been on track throughout. We tend to flirt with [profitability] now, month to month. Certainly this is a tighter market than it once was, but we're going great and I see no reason why we won't achieve it."
Nicol noted advertising is the biggest revenue generator, representing up to 85% of the overall income. Most of the advertising involves traditional banners and sponsorships. Nicol said that MSNBC.com maintains a small ad sales staff of its own, but relies heavily on MSN's sales staff for most advertising. Local stations can also sell advertising on their co-branded pages and MSNBC.com shares in those revenues.
Unlike CNN.com, MSNBC.com features an electronic mall in which visitors can buy goods and services from advertisers. Depending on the relationship with the advertiser, MSNBC.com earns a commission on click-throughs and/or sales originating from the mall.
MSNBC.com, like CNN Interactive, sees great economic potential in the international marketplace. The company co-produces sites in Germany, Turkey, Mexico, Latin America, India, Taiwan and Russia. Said Nicol, "Our international sites are generating revenue and some of them are already profitable."
Important among secondary sources of revenue is the licensing of mobile content. MSNBC.com is also aggressively moving into distribution via the next generation of wireless devices.
Fantasy-sports leagues provide another minor revenue stream for the site.
The Wall Street Journal Interactive Edition proves at least two bits of conventional wisdom about online news sites are merely myths: "No one will pay for content" and "You can't make money with an online newspaper."
More than 500,000 subscribers have exploded the first myth. And while it's not consistently profitable, WSJIE has had some months in the black.
The Journal launched the WSJIE in late 1996. By this September, it reached more than a half-million paying subscribers, and it continues to add paying customers. It had a few profitable months last year, but kicked up marketing spending to keep the subscription numbers climbing. The Journal interactive edition took in $12.7 million in revenue in the third quarter, about 60% from advertising and 40% from subscriptions. Journal executives won't give more specific details on the site's revenue, such as how much comes from classified advertising vs. banners and sponsorships, but they project the online edition will ultimately reach or exceed the print Journal's circulation total of 1.8 million copies daily.
"We don't discuss profitability in any detail other than to admit that we are not yet profitable," said Neil Budde, editor and publisher of WSJ.com in an interview late last year. "Profitability is something we can achieve at any time by regulating our marketing and technology spending.
"But.we believe we should keep investing a bit more to grow our customer base today."
The Journal interactive edition is produced by a staff of about 250, including 80 reporters and editors. A Dow Jones representative said there are no plans to cut the size of the staff. The site relies extensively on Dow Jones' and the Journal's global news resources. In addition to the Web edition, Journal electronic editions are available on several wireless feeds, and the Journal sends personalized e-mail reports to more than 150,000 recipients daily.
At USAToday.com, questions about red and black ink are met with a straightforward answer:
"Dotcom has, in fact, been profitable since August, 1998," said Steve Anderson, spokesman for the Gannett-owned site.
Anderson wouldn't discuss revenues in more detail, or address other financial data. But several sources said that unlike many news Web sites, where the accounting may be questionable, Gannett is "a stickler" about counting every penny spent by the dotcom and comparing it with the revenues.
Before she left the site in March, then-Senior Vice President and publisher Lorraine Cichowski said USAToday.com was earning substantial revenue from extensive sponsorship deals, both with dotcoms and traditional bricks-and-mortar business. In addition, she said, e-commerce revenues from product sales were a significant portion of the site's revenue. (Neither current publisher Jeffrey A. Webber nor Cichowski was available to comment for this article.)
USAToday.com's definition of "e-commerce" revenue is different from many sites' because at most sites, e-commerce revenue refers to direct-sale commissions. At USAT, the term is used to refer to ad sales in close contextual relationship to editorial content. At last report, about 55% of the site's revenue came from advertising, 40% from e-commerce and sponsorships, and 5% from "other" sources, including fantasy-sports leagues, archive-content sales and content syndication.
The site, which is produced by a staff of more than 170, has consistently been setting traffic records-in August, September and October it reported traffic was up at least 50% from year-earlier figures. It served 13.6 million page views on Election Day, Nov. 7, and topped that with 15.8 million the following day.
More than 50 online retailers are represented in the USAT retail sales area, which recently changed its name to Shop.USAToday.com from Marketplace. It was one of the first newspaper-affiliated online "malls," and as a result advertising on the site as a whole is geared more toward merchandise sales than on many sites.
USAT has also been willing to experiment with new forms of advertising, even those that led to widespread criticism.
Peter M. Zollman and Steve Sullivan are co-founders of the Advanced Interactive Media Group LLC (www.aimgroup.com).