July/August 2000 | Contents

GET BIG, SELL OUT, OR DIE

BY FRANK HOUSTON

Salon.com was born as an online magazine in 1995, when the Web was young and getting noticed was easier. A lot has changed in five years. Although it has earned a place as one of online journalism's most recognizable names, Salon now finds itself competing in a crowded field, operating under the pressures that come with being a public company in the digital economy. In early June, in fact, c.e.o Michael O'Donnell announced that Salon.com had cut its operating budget for fiscal 2001 by about 20 percent. Cost cuts included laying off thirteen people, seven of them journalists, representing 15 percent of the editorial staff.

At the same time, Salon.com is under pressure to get large enough to survive in the new economy. Its choices seem to be: get big, get gobbled up, or get out of the game. So even as it shrinks its operating expenses, Salon it is trying to build up its brand of independent journalism with a literate flair. The new media content company is pushing into old media.

Salon Radio, a venture with the Dial, an online radio site was launched last year. Salon also recently acquired MP3LiT, which offers a literary twist on downloadable audio files -- readings by and interviews with famous authors. "Most people have never heard the sound of James Joyce reading his work," says Salon founder, chairman, and editor David Talbot. Talbot splits his time between Silicon Alley in Manhattan and the site's home office in San Francisco. Salon, he explains, is trying to capitalize on the faster connectivity that is beginning to reach many wired households that can handle audio and video content. "Broadband is the way the medium is developing," he says.

Talbot's independent media empire changed its name from Salon Magazine to Salon.com last year. He has emphasized that online content is just one of a panoply of Salon businesses. Broadband is another, as is electronic commerce: at Salon's revamped gift shop, readers are enticed to buy everything from books to movies to night-vision goggles. And Salon's own paperback compilations, like Mothers Who Think. The Salon.com Reader's Guide to Contemporary Authors, a Penguin publication due in August, will be available on the site as well as in bookstores.

Born in1995, Salon took aim at what one of its executives recently classified as "the market that watches Seinfeld." It built a loyal audience. After the site unveiled a new design this spring, a deluge of criticism from passionate readers forced a re-redesign.

Salon.com's online content now falls into a dozen categories (Salon calls them sites), from Books to News to the recently added Sex, Politics2000, and Business, which focuses on technology companies.

All of the site's content will figure into SalonTV, in development. Salon's chief online rival, Slate, also reportedly has a TV show in development. Slate, too, is trying to grow. But since it's owned by Microsoft, the online magazine may have less to fear from stock valuations than Salon, which rose to $15 shortly after going public in June 1999, but was around $2 early this June.

"We get all these stories about 'Oh, their stock is down, David Talbot is not a zillionaire any more,' and the truth is we could give a shit about that," Talbot says. "We got into this to get more mastery of our work and to get more creative satisfaction out of it."

But other financial issues are vital for Salon, especially its revenue model, which, like that of most of the Web, is evolving. "Perhaps they are building a brand that will morph over time, but I have no idea how they're going to make money," says Lisa Napoli, MSNBC's Internet correspondent.

Talbot seems to have a plan. Salon.com now gets 90 percent of its revenue from advertising and sponsorships (long-term advertising tied to specific editorial material). Talbot wants to reduce the site's dependence on that income by increasing such revenue streams as syndication (especially overseas) and licensing of Salon content, as well as personal ads (including romantic matchmaking) and audio downloads like those from MP3LiT. Still, the cost of doing business online is going up, at least by one significant measure. When Salon rented space on an AOL channel in 1999, the fee ran to $250,000. Talbot confirms reports that the price rose to the "mid-seven-figures" for a new two-year deal. It was not renewed. "A lot of companies will be hurt by these excessive fees," Talbot says.

Will Salon preserve its treasured independence in this evolving universe? Talbot says yes, but with a caveat. Although he has referred to AOL Time Warner three times during our conversation as an 800-pound gorilla, he decides to change his metaphor. "If the whales displace so much of the water" that it alters the ecosystem of the Web, he says, Salon "may have to sell out." He quickly adds, "but only to survive."

— Frank Houston