THE DECLINE OF ONLINE NEWS
By Dennis Wolverton

The online news, media and journalism industry gave birth to itself sometime in the mid 1990s. By the spring of 2000, its foundation was already quivering. Many investors, industry executives and employees were on the run.

As early as June 2000, Media Watch reported tremors within the news/media dot-coms. Internet stalwart Salon.com announced a 10 percent staff layoff that accompanied a 20 percent budget reduction and millions of dollars in red ink.

That same June CBS's Web site let a quarter of its staff go and industry regular APBNews.com was exhibiting pre-bankruptcy denial. While announcing the firing of all 140 employees and debts of $7 million, APBNews.com spokesman Joe Krakoviak said, "We continue to believe that we have such a good product that the investors will come on board this week."

Investors, however, were rightfully afraid of a business that couldn't turn a profit, and fresh money did not come.

In September, vowing to bring the defunct APBNews.com back to life, SafetyTips.com purchased it for $575,000 at a bankruptcy court auction. Proceeds went toward the $7 million debt, and creditors got only a few cents on the dollar.

In August of 2000 Pseudo.com, one of the industry's supposed top dogs, garnered honors and rave reviews for its Republican National Convention coverage. In September Pseudo laid off all 175 employees and filed bankruptcy.

NBC Interactive also fell on hard times in August and sent 170 employees, 20 percent of its workforce, into unemployment lines.

The online news/media industry fared no better over the next few months:

December 2000:
Despite receiving an Online News Association award for general excellence, Salon.com's stock hung below $2, down from a $15.13 per share high last year. It made its second set of layoffs since June, this time 20 percent of the remaining workforce.

Employees of SafetyTip.com-owned APBNews did not receive paychecks for several weeks, and Managing Editor Ed Levine sent his staff e-mail saying, "Sadly, APBNews ceased operation today."

Later, Executive Editor Hoag Levins contradicted Levine and proclaimed APBNews was still in business. Levine then said, "We're like the head of the terminator, we're crawling forward by our teeth, and we have a history of this wild and crazy thing."

January 2001:
The New York Times Company, owner of the New York Times and Boston Globe newspapers, reported that its NY Times Digital (online) division lost $46.2 million during the first nine months of 2000. Seventeen percent of Times Digital's 400-member Web workforce at NYTimes.com and Boston.com got pink slips.

Rupert Murdoch's media conglomerate News Corp. dissolved its online division, News Digital Media (Fox.com, FoxNews.com and FoxSports.com). In a cost-cutting move, remaining Internet activities were merged with various TV entities, and sources say that layoffs affected 200 of News Corp.'s 450 Web employees.

Reportedly, News Corp. spent $60 million annually keeping News Digital Media afloat but finally lost faith in the economic model on which news Web sites are based.

Even as the online news/media industry declined, claims of "rapid and unparalleled" growth, "award-winning" news coverage and "high levels" of reader traffic rang in our ears. So, how does an industry earn success and failure simultaneously? Because reality struck, and reality often bites.

The news/media sites on the World Wide Web fall into two categories: (1) the stand-alone sites that depend on advertising income, subscription revenue or a combination of the two, (2) sites affiliated with established print newspapers that operate as extensions or as separate divisions of the parent news company.

As a group, stand-alone sites seemed to have fared the poorest. It seems that none has succeeded in generating enough advertising and subscription sales to become profitable. It turns out that their "unparalleled growth" refers to a continual infusion of new investment money. After years of never achieving profitability, disenchantment and fear overtook investors and the money well dried up.

Affiliated sites also sell advertising and subscriptions. But they enjoy subsidies from their parent companies that can keep them afloat, even if they are not profitable. On the surface these affiliated sites seem healthier, but most now find their parent organizations wearily backing off on their support payments.

We've all - and that includes the Internet news, media and journalism operations - accepted as fact things that now don't seem true. These involve assumptions that just about everyone will embrace the Internet for every conceivable need, including the consumption of news.

Advocates claimed that the Internet gets into 40 percent of American homes. In light of that, those that bought advertising on Web news sites could not understand why results were so poor. What they found was that half of that claimed 40 percent were people using the Internet for e-mail only.

J.D. Lasica is a media columnist for Online Journalism Review, an Internet journal produced by USC's Annenberg School of Communication. He was recently interviewed on PBS's Online NewsHour. "To many people," he said, "the Web is Short Attention Span Theater."

Lasica cited a study that revealed the typical user spends a total of seven seconds on any given Web page. Does that mean the Internet is so efficient a user can digest the front page and sports, business, metro, national, travel and entertainment pages in just 49 seconds? I don't think so, but even if it did, that gives users little if any meaningful exposure to advertisers' messages.

Lasica suggests that the Internet sites serve best as a source for quick reference, summaries and condensations. But that, he points out, can also be a weakness.

"Today, headline news services are a dime a dozen," he says, "[some] draw no distinctions between trustworthy news providers, tabloid stories, and thinly disguised PR material masquerading as journalism."

"The grandiose visions [of the Internet] of a few years ago ... are giving way to the realization that producing high-quality [Web] publications is both really expensive and really hard to pull off," Lasica says.

Lasica also questions how much news consumers actually want. "Early indications suggest," he says, "that there may not be as much demand as originally thought."

As to the future, Lasica says, "We're likely to see more online news layoffs and cutbacks," and notes that the Miami Herald, for example, laid off its last Web reporter.

During a recent PBS Online NewsHour interview, moderator Terrence Smith asked Wallstreetjournal.com Editor and Publisher Neil Budde when the online version of the Wall Street Journal might at least compete with the print version. "Very far out into the future," Budde said. "A lot has to happen to bridge the gap."

Budde believes online news truly has a long way to go before it's to become as "useful and accessible as the printed newspaper."

In its rush to embrace a new and glamorous technology, the online news industry gleefully abandoned basic business realities and myopically accepted false assumptions. It ignored the fact that sooner or later all businesses must show a profit, and when profits don't come in a reasonable time, investors flee. It forgot that no matter how new, innovative and technologically fun your product might be, if consumers and advertisers won't buy, the business fails. It overlooked the reality that even large and strong parent companies won't keep pumping money into unprofitable subsidiaries.

Industry analysts maintain that to become a viable avenue for either local or national advertisers - and the Wall Street Journal agrees - news Web sites must reach 60 percent of the homes in their target area, not the present 20 percent.

PBS's NewsHour with Jim Lehrer reports that only three sites in the industry are in the black, and none of those by much. The industry's financial profile is grim. Some of the seemingly successful sites experienced only two profitable months within the last 48, and those aren't the most recent months of operation.

With investors pulling out and subscribers uninterested in buying, the online news industry's future is very much in question. Presently it's running the gauntlet of business reality.
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