NEWSPAPERS RETHINK THEIR PLACE IN DOT-COM WORLD

By: Lucia Moses

Industry Watchers Say Bloodletting Isn’t Over


As the recent spate of online layoffs by several major newspaper
companies shows, marketplace realities are setting in fast.

Last week, the New York Times Co. announced it would cut 69
positions, or 17%, across its Web sites to meet its goal of
achieving profitability by 2002. In the past three months, two
other aggressive spenders on the Internet, Tribune Co. and Knight
Ridder, said they were trimming their online staffs by 80 and 34,
respectively.

And Rupert Murdoch’s News Corp. media conglomerate said it would
close its online subsidiary altogether, eliminating 200 jobs. In
addition, the economic downturn has put scores of people at other
news sites, including Salon.com, TheStreet.com, and
TheStandard.com, out of work.

“Newspapers are doing what everyone in Web land is doing:
rationalizing their business to get them closer to
profitability,” said Peter Appert, analyst at Deutsche Bank Alex.
Brown.

Industry watchers believe the bloodletting isn’t over, either.
The pressure to stanch red ink showed at a December conference
with financial analysts, where several newspaper companies
declared they would do what it takes to turn profitable online
this year or next. Said Robert Hertzberg, analyst with Jupiter
Research: “Any traditional print publisher who invested
aggressively two years ago or a year and a half ago in the
expectation that they would be able to take advantage of the
stock market’s love affair with the Internet is now a likely
company to be cutting back.”

These companies deny that they’ve lost any confidence in their
Internet businesses, and, in fact, several say they don’t plan to
cut staff or change direction in their online divisions.

Dow Jones & Co. Inc., which has successfully been charging for
online news subscriptions, said it continues to stay focused on
growth, not profit, in the short term. The same goes for the
Washington Post Co., which historically runs its business for the
long term, even though heavy spending online has taken a toll on
quarterly earnings.

That tack makes sense to Thomas Russo, a partner in Gardner Russo
Gardner, Lancaster, Pa., a stake-holder in the company. “After
all the dust settles, they have extremely valuable content they
can deliver in a variety of ways, and one of those ways is the
Internet,” he said.

While companies are getting more profit-conscious, organizational
models also are shifting. The New York Times Co. canceled its
planned initial public offering for its digital unit after Wall
Street soured on the dot-coms. Dallas-based Belo, after
separating its online unit, is now moving toward reintegrating it
with its newspaper and broadcast businesses, said Jim Morony,
president of Belo Interactive.

Investments in online companies are getting a second look, too.
The Times Co. sold most of its stake in TheStreet.com. At Belo,
Morony said, “We’re going to do a lot less investing in Internet
startups in the coming year.” Dow Jones spokesman Richard Tofel
predicted that some news sites, which now give away their
content, might start to imitate The Wall Street Journal
model and start charging for online news.

Once, it was acceptable to lose money on the Web. Wall Street
nodded in approval as newspaper companies, fearful of being seen
as dinosaurs, flung millions to build an online presence and
acquire stakes in fledgling Internet companies. Web operations
were separated into stand-alone divisions, lest they be dragged
down by the association with old ink-on-paper, with the goal of
going public. The prospect of an IPO gave traditional companies a
way to attract young, hip workers.

But the dot-coms lost their flavor as investors came to their
senses. Overinflated valuations tanked, and the virus quickly
spread to the rest of the business world. As fears of a recession
mount, the advertising outlook for this year is turning
increasingly grim. So newspaper companies, casting about for
places to make cuts – and realizing that the Internet hasn’t
turned out to be as big a threat to their core business as
initially feared – are landing on their online divisions.

Martha Stone, an online news consultant based in the Chicago
area, worries that the slimmed-down news sites will have less
original content and fewer multimedia features – the very
attractions that make them valuable. “Most news sites aren’t
innovating, and now they’re really not innovating,” she said. “I
think this medium has huge potential, and as more and more people
get broadband, this medium … will become extremely compelling.”



Lucia Moses (lmoses@editorandpublisher.com) is an associate editor covering business for E&P.



Copyright 2001, Editor & Publisher.

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