Flight or Fight?

Brandweek, Oct 23, 2000 by Jennifer Owens

Content sites have realized that layoffs are one strategy to finding the road to profitability. But will dot-coms take the bottom line too far?

So what do you know? Content on the Web may have a viable business model after all. It's sorting through the contenders and the wannabes that has proven to be the tricky part of cracking the code of what's real and what's hype.

While the dot-com shakeout of 2000 continues apace, content sites are the target du jour for the pink slip brigade. Each week seems to bring news of yet more layoffs at various content sites--30 at Hollywood.com, 105 at MTVi.com, 170 at NBCi--as well as the hue and cry; and possible glee, from traditional media outlets that the commercial world of Internet content is crumbling.

OLD MEDIA WAYS

It's easy to take the reflexive response that downsizing staff is merely a prelude to a company-wide implosion. But ask those companies left standing after such layoffs and they'll argue that the alarm is overblown. Instead, they say, job cuts are just a necessary step "on the path to profitability."

Yes, after years of eschewing all things traditional, Internet content sites seem to be taking a thing or two from the business practices of old media, including the need to slash costs, reduce redundancies and, perhaps most importantly, find the path to profitability more quickly and more efficiently.

"It generally takes between five to 10 years to establish a successful media brand," says David Talbot, founder, chairman and editor in chief of Salon.com, a five-year-old news site that cut 13 employees last June. Talbot cites now-successful print titles that had less than auspicious starts. "Entertainment Weekly took more than five years to turn a profit, Vanity Fair took more than 10 years. USA Today took even longer."

Speaking at the Internet Content East conference in New York earlier this month, Talbot was one of a number of wounded Web publishers now pointing to traditional media timelines and practices. "As an editorial delivery system, the Web is less than five years old," argues Talbot. "None of the most significant general news sites was delivered before 1995 ... so we're talking a very early stage here.

"Does this mean that all or most Web content sites will succeed? Of course not. Web publishing is a business subject to the same economic laws that cover all businesses. But I think the best-managed, highest-quality Web media operations will be making money within the next year or two," including, he claims, Salon.

Such an embrace of old-world ways is not surprising to Rob Lancaster, an analyst in the Internet Market Strategies group at Boston-based Yankee Group. According to Lancaster, cost cutting is the latest Web mantra.

"What we're starting to see is that [content sites] are consolidating their marketing departments," he says. "I think it's creating a lot more work for some people because they're all laying off large percentages of their staffs."

But, he adds, "it's just a reflection of the Internet market in general going through a life cycle. It's reached sort of an adolescence during which it is really beginning to learn what works and what doesn't, and what it's supposed to look like."

Which will likely mean more layoffs. Says Lancaster, "I think executives see layoffs as a quick and easy fix."

CENTRALIZING ASSETS

For MTVi Group-part of MTV Networks and home to MTV.com, VH1.com, Sonicnet.com and now, Country.com--last month's layoffs were meant to fix redundancies such as having individual music news staffs for each site. Following the cuts, says the group's president and CEO Nicholas Butterworth, MTVi's news coverage will be much more centralized.

"Like any business, we're focusing on two components to get to profitability," he says. The first is aggressive revenue growth, something that MTVi claims it is succeeding at, considering that it generated nearly $20 million in revenue in 1999 and is on track to double that figure this year. Now, says Butterworth, "I think it's fair to say that we're focusing on the other side of the equation, which is controlling our costs so that [we] can manage our growth."

Simply translated, that means there's no need for four reporters to cover the same music news event. "We've found now that we can deliver great award-winning journalism," he says, "but we can do it more efficiently by sharing content better between our sites."

In the meantime, much like print publishers who use centralized back-shop services, such as circulation and distribution, to serve multiple titles, MTVi is using a shared technology platform to serve each of its sites in areas such as ad insertion, rich media delivery and hosting.

"That reduces our support costs and means that we can be more efficient with our application development dollars," says Buttervorth. "We can create applications that service all our Web sites rather than reinvent the wheel for each one."

JOINING FORCES

Integrating technology platforms and sharing content works for online networks like MTVi.com, but what if you have only one site? To that end, Salon's Talbot espouses a variation of an old idea currently keeping many newspapers rolling: having independent sites join forces in areas such as marketing, sales and technology.