Stormy Weather: Why Salon deserves to die, and why it will

It is sorely tempting just to leave it at that, although I'm not sure that my editor would agree that one quote from their latest 10Q filing constitutes an article. I don't know; he'd probably allow it for the 'humour' value, however the truth is that I am just too weak to hold back: Salon is such an irresistible target.

In certain respects, here lies the problem for any commentators wishing to cover their progress/demise; how on earth does one launch an original attack on an operation that has so shamelessly flirted with criticism. Is there anything new to say?

I've read a huge amount of commentary about their struggle; any time online publishing is discussed, their name is dragged into the affray. One thing that I've noticed, however, is that when analysing Salon's fate, the majority refer to the competitive environment, their business model, online publishing, the advertising industry etc., but few, if any, deal with what I consider to be the absolute crux of the matter: Leadership.

Modern business thinking suggests that focus should be put on nurturing core competence, and that if possible, non-core activities should be wholly or partially outsourced.

However, if you examine Salon closely it becomes increasingly apparent that its leadership brought almost every aspect of the business entirely in-house. This includes the development of proprietary publishing software and the creation of an almost fully functional sales/marketing operation (36 employees at its height). The latter never paid for itself, which by definition is total idiocy. In fact, as bizarre as this may seem, if they had never even attempted to earn any revenue (subtract all revenue and all marketing and sales expenses from their accounts for the last 5/6 years) they would have been $7,264,000 better off.

This is bad stuff: their operational structure screams of both poor design and a paranoid need for total control. In terms of strategic planning, Salon seems more akin to a 1970's state-owned entity than a cutting edge dotcom.

What I am attempting to highlight is that the $225,000 wage and $75,000 bonus CEO Michael O'Donnell received in the last financial year, bought Salon extremely average leadership. There is nothing to suggest that the company was well run, or that it was blessed with innovative or inspirational management. On the contrary, his leadership contained the worst characteristics of all worlds: it was both bad and dull.

Unfortunately for Salon, O'Donnell's run of the mill effort appears to have been coupled with Il Duce like visions of grandeur from its founder and editor, David Talbot.

Salon could have been anything, but Talbot insisted on going for broke. He wanted the best, the biggest, and he wanted it delivered on a daily basis, regardless of whether his vision was viable or not.

After IPO things went from bad to almost funny. The relationship between costs and revenue became so distant, that they could've legally slept together. This was kid in a sweet shop time; Talbot waved his magic wand and somehow found work for over 70 people on the content production side alone. In the 2 years directly after IPO, his department single handily scribbled its way through $20 million.

One could excuse this excess by suggesting that it was born from over confidence in the online advertising market, but I think there is more to it than that. The truth is that Talbot wanted his slice of history, and everything else, including a responsible consideration of business viability, came a distant second.

Their combined leadership could be summed up as control freakishness mixed with inexperience and lack of strategic imagination that was driven by a wanton desire for fame. They were handed a pot of gold and by god they were going to spend it. In business terms, this was amateur hour at the most obvious. Do not be fooled, ignore industry or economic based excuses, the reality is that a catalogue of Booish type errors were made long before the ad market ever disappeared.

When I last wrote about them, I honestly thought that there were no mistakes left for them to make. I didn't like the basis on which they had introduced Premium subscription, without adding any real value to the proposition, but at least they had refrained from cordoning off all the 'best' content.

However, at the beginning of October both their News and Politics sections were ripped mercilessly from the mainstream, and are now the exclusive property of 15,000 'Premium' subscribes. That leaves the peasants (3 million +) with very little to distract them from revolting, and limited reason to stay loyal. In the plainest sense, this is mass bribery; subscribe to Salon, or lump it.

This move must signal a dramatic shift of emphasis by Salon towards subscription and away from advertising as their primary target revenue stream. Assuming that this is the case, I'd suggest that it made very little sense. By their own admission, their most ambitious prediction for 1st year subscription is around 60,000 (which would put them on a similar level to The Wall Street Journal's rare subscription success.) Even this unlikely coup would only equate to $1.8 million in revenue.

Fair enough, they are earning very little from advertising at present ($300,000 in the last quarter), but this is not necessarily a true reflection of the potential. For the same period last year they secured $1.9 million from advertising.

This move appears to be a knee jerk reaction designed to grab additional revenue whilst the ad market sleeps, and to hell with the long-term interests of the company.

As part of the subscription deal, lucky takers get to read all the content free of advertising. What this means, when considering the viability of Salon as a marketing medium, is that marketers can no longer place ads in the political or news section of the site. This is very bad business thinking; could you see such a policy being adopted by a traditional publication? Imagine Time magazine barring adverts from their inside cover. Such things don't happen in the real world, you just don't prevent marketers from purchasing ads in your prime space. Are things really that different online?

As damaging as this may seem, remember this shot in the foot is only one part of their problem. The reality is, because they have chosen to restrict access to their News and Politics sections, they are now likely to see a massive loss of audience over the next 6 months. Salon appears to be wandering aimlessly around in no mans land; it has a Premium service that isn't a Premium service and a marketing medium that is now seriously compromised. This can't be described as anything other than a nothing strategy.

To all intents and purposes, their revenue possibilities are now extremely limited. Say they get $1.8 million yearly from subscription (up from the $600,000 that they are currently running at) and a generous $2 million from advertising; that still only gives them $3.8 million in annual earnings. Let's give this some context, operational expenses for the last quarter were $3 million.

A more likely scenario would be for their combined forward revenue to be about half that, which at the present burn rate would give them approximately 3 to 4 months to live.

At the press conference following their most recent filings, their key executives continued to suggest that Salon could become profitable in the medium future. I personally don't see how. They have cut costs in half over the last year, so one can infer that they are now close to base for their present level of operation, and they are still running at $12 million per annum, on a pro rata basis. Now compare this to Salon's highest ever annual revenue, $8,002,000, that was achieved in the year ended 31 march 2000 (dotcom bubble time.)

So why on earth do they think that their now dubious advertising offering will ever provide them with the $10.2 million per annum (I've generously given them $1.8 million in subscription) that they need to break-even?

The truth is that there is no easy way out of this self-inflicted hell. However, prior to October they were still in the position to argue, with at least a vague amount of conviction, that when online advertising finally came of age, Salon could benefit substantially. If they had not ruined their potential as a marketing medium, and had instead concentrated on further cost cutting, say another 30-40%, they would have then been in a position to go to potential investors and present a reasonable case for 'one day' reaching profitability.

However, by tying in News and Politics to their subscription model, they have not only greatly ruined their site's marketing capabilities, but have also created a significant barrier to cost cutting, as they are now forced to retain a staffing ability/level capable of delivering on this commitment.

Salon could have had a plausible case to put to investor, but now they don't. They desperately need an influx of cash to survive, but their latest business model offers no prospects that justify anyone bailing them out, even the most optimistic.

In a certain respect, I am glad that they have made this further error, otherwise, I think that they might have been able to beg their way out of this immediate mess. That would have been one lifeline too many for this energetic lemming. Don't get me wrong, I will put my heart, soul and prayers behind any entity that attempts, against all the odds, to fight its way up from the gutter. However, Salon was never some poor street urchin, it was a fat cat of the dotcom era, that wandered around with a platinum IPO spoon arrogantly inserted in its mouth. There was no inspiration born of poverty, no necessity driven maverick innovation; this was just your standard suit brigade, pompously preaching old as if it were new.

Personally, I just do not see any brilliance, any half decent hack could have produce a rocking publication with such a vast amount of IPO cash available to burn. What a farce, what a waste of money, what a waste of talent and more to the point, what a waste of an incredible investor funded opportunity. I, for one, will not mourn their passing.

Robert Loch is the Associate Editor of Dotcom Scoop. Robert is a business development executive and new media consultant. He works with companies to help map out online marketing and business strategies. He has spent extensive time working with international companies in the Middle East. Robert currently lives in the United Kingdom, his native land.

When Salon made most of their site subscription-only a couple months ago, they lost the most important thing they still had left: their buzz. Whether you loved or hated Salon, in the past anything they published that was interesting or provocative was linked around, posted here on FR and a thousand other places, and got talked about ... which, of course, led to lots of hits on Salon's site. But now nobody mentions them at all. Even the few truly newsworthy items they break get ignored, because 99% of the potential audience out there can't access the stories at all, and the 1% that can know it's not worth wasting their time telling anyone else about the stories because they can't link to them.

I'd guess it's been over a month since I actually visited a Salon page, and that's not because I'm intentionally boycotting them; they've simply fallen off the radar screen.

hey andrew. thanks for posting the yahoo cite. I went to the message board and posted a note using my Yahoo handle that I registered for when I got the YahooClubFreeRepublic membership (I;m spald_fr).

Regardless of political or ideological orientation, only TWO on-line publications have developed a sucessfull paid subscription model..the Wall Street Journal, and oddly enough, Consumer Reports...each has over 650,000 paid subscribers...( the article says 60,000 for the WSJ..it must be a typo)..the major media are pouring hundreds of millions into the black holes of their websites....no way out, but they feel they have to maintain their identity and presense on the web.....but the advertising model doesn't work....

This article explains in part why FR does not desire to go to a membership operating condition. Traffic would fall 50-75%. One of the aspects that makes FR so successfull and vital is it is free to all. No advertising makes the site user friendly and a breath of fresh air. As long as it can survive on the patronage of it's admirers, I say keep it that way.

The question is, can Talbot and his minions possibly be investigated by the SEC for fraud? Piss-poor management is one thing, but I'd like to see what his personal balance sheet is like.

For a MUST read in Sloan check out this thread:
http://www.freerepublic.com/focus/fr/583976/posts

When they sink to a more than worthless financial level (ie negative)I suggest we collect some funds here and buy 'em. That would be sweeeeeeeeeet justice.

Good grief - 73 million in the tank and no visible assets? Well, lemmesee...that works out to about $5000 a subscriber. To break even. That thumping at the door isn't shareholders trying to get in, it's the wolf.

I'd guess it's been over a month since I actually visited a Salon page, and that's not because I'm intentionally boycotting them; they've simply fallen off the radar screen.

Har Har, I recall when Whorealdo used to shill for them during the year of Monica.
Whorealdo: "This just in from that fine online magazine Salon at www.salon.com"

But now, Whorealdo has fallen off the radar screen as well. And since Salon no longer has the DNC, the White House and Sid the Squid for a research department, the stories aren't even interesting.

In terms of strategic planning, Salon seems more akin to a 1970's state-owned entity than a cutting edge dotcom.

That's because they are owned and operated by Socialists. They are just being true to their ideals.

Send them to history's unmarked graveyard of discarded lies.

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