Can Salon Make It?   

With rapid-response news instincts, provocative (if predictably liberal) political commentary and lots of sex, Salon.com is the Web's preeminent independent venue for journalism. But is there a business model to keep it alive?

DAVID TALBOT, SALON.COM'S founding editor and chairman, turns to the computer in his San Francisco office to answer his own rhetorical questions. "Where are the independent news voices on the Internet?" he asks. "Where's the great, flourishing media democracy?" He clicks on his list of bookmarked sites, turning up, among others, CNN.com, Matt Drudge, Slate, NPR.org. "Most of these are extensions of bigger media organizations," he says somewhat dismissively, adding, "There's got to be room for a few independent voices."
Five years after he and a group of fellow refugees from the San Francisco Examiner started Salon.com, the colorful and, yes, independent online newsmagazine, Talbot knows he still needs to make the case for his brainchild's continued existence. Certainly, Salon has gotten the journalism part right, with its cheeky attitude and a clutch of buzz-generating stories. But what about becoming a viable business? That's less clear.
The week before Christmas, Salon dismissed 25 employees, or 20 percent of its workforce. While the news staff was largely spared in that cutback, the budget knife has been nicking Salon's editorial resources for months. The site's daily news budget has been pared from between 25 and 30 stories a day to about 20. An earlier round of layoffs forced Salon to shutter its health and travel sections. This year, the budget for freelance articles will be half of last year's. Sales offices in Seattle, Atlanta and Chicago have been closed. Plans for a European expansion have been put on indefinite hold.
Up in Salon's 16th-floor, view-of-the-waterfront offices, the belt-tightening has taken its toll. "We went right from doing all this great Florida election coverage," says Joan Walsh, Salon's news editor. "We were getting record traffic! And then we find out we need to trim our staff. I'd be lying if I said that wasn't briefly demoralizing." Virtually every senior editor offers some variation on Managing Editor Scott Rosenberg's sentiment: "There's never been a moment in the past five years when you could say, ŒGee, this is getting easy.' "
Salon's odyssey--from struggling newborn to struggling 5-year-old--raises a fundamental question: Can the Internet support a purely journalistic enterprise? So far, the answer appears to be no, or at least, not yet. Like Salon, almost every news or "content" site remains in the red (Salon lost $8 million in the first half of its current fiscal year, on just under $4 million in revenue. For most, there's no urgency; big media companies seem unlikely to abandon their dotcom operations anytime soon. But as Talbot points out, Salon isn't CNN or even Slate, which can fall back on the vast resources of its parent, Microsoft. Salon is a small company owned by its employees and public shareholders--an independent. For Salon and a handful of other Web stand-alones, it's sink or swim now.
The bad news is that it figures to get harder before it gets any easier. During the third quarter of 2000, Internet advertising spending declined 6.5 percent, the first time revenues have fallen since the Internet Advertising Bureau started keeping statistics in 1996. The downturn has triggered a massive wave of layoffs and closings across the Net. Salon's cutbacks were hardly unique among news-oriented sites (see "Downsized Dotcoms"). Internetwide, 12,828 dotcom workers lost their jobs in January, a record by far, according to the employment-recruiting firm Challenger, Gray & Christmas. For much of the business, 2001 looks still more depressing. "The riotous [Internet] ad spending of a year ago is officially over," declared Advertising Age in its January 1 edition.
The dotcarnage looks particularly ominous to Salon's managers and journalists because about 85 percent of Salon's revenue comes from advertising, and about half of that comes from Internet-related companies. As they fade, Salon's revenue base shrinks a little more. A year ago, some 50 "e-tailers" advertised on Salon; during the final three months of last year, only one did, says Michael O'Donnell, Salon's chief executive. The situation has gotten so shaky that Salon recently asked dotcom advertisers to pay up front.
An optimist by nature, O'Donnell sees silver linings amid the gathering clouds. The December cuts reduced Salon's operating losses to less than $1 million per quarter, he says. With $6 million still in the bank, Salon has enough reserves to muddle through the slowdown, he believes. With luck, O'Donnell even thinks his company could start showing a profit by the middle of the year, though such predictions have failed to pan out before at Salon.
"We know we'll survive," O'Donnell assures. "The moves we've made guarantee we'll be around." The Great Web Shakeout could even work to Salon's advantage, he thinks, if it discourages new competitors and eliminates existing ones. "All we have to do is make it through this bottleneck."

JOURNALISTS, IF PERHAPS not businesspeople, probably should be rooting for it. Salon embodies what's best about what was once called the New Media--lightning-quick news reflexes, strong and provocative points of view, and an irreverent tone absent from most of the Old Media.
Founded during the Internet's Jurassic period, Salon was its own little rebellion against the Old Media. The core group of reporters, critics and editors--including Talbot, Rosenberg, Executive Editor Gary Kamiya and former Managing Editor Andrew Ross (who resigned in December)--had all worked at the Examiner, and had felt stifled by or burned out from traditional newspaper work. When the San Francisco Newspaper Guild struck the Chronicle and Examiner in late 1994, the future Salonistas briefly put out an online strike paper called the San Francisco Free Press. "We learned how to put up a Web site," says Rosenberg, 41, who led that effort. "It turns out it was easy, and it was fun."
Talbot (the son of actor Lyle Talbot, "Ozzie & Harriet's" next-door neighbor, and the brother of Steve, who played Gilbert on "Leave It to Beaver") believed the emerging World Wide Web offered opportunity for another new kind of publication. Talbot's notion was to create a biweekly, Web-based magazine of arts criticism and cultural and political commentary--a sort of liberal-libertarian salon in which erudite writers would dissect Great Ideas, and plugged-in readers would offer their own thoughts via electronic discussion groups.
It was a stroke of visionary thought in the grand San Francisco tradition. William Randolph Hearst started his newspaper empire in the city with the Examiner. Magazines such as Rolling Stone and Mother Jones (where Talbot was once a senior editor) got started in town, too. In the past decade, the Bay Area tech boom has spawned new news media like Red Herring, The Industry Standard, CBS MarketWatch and CNET.
Talbot, now 49, was able to round up $60,000 in seed money from Apple Computer, enough to put Salon online (more money came later from the software firm Adobe Systems, venture capitalists Hambrecht & Quist and TV producer Norman Lear, among others). An early manifesto declared that Salon was "an interactive magazine of books, arts and ideas. Salon is not a techno-cult. Salon stands for Œmilitant centrism.' The Internet, which breaks down the distinction between readers and writers, is the most democratic medium in history. Salon hopes to employ this electronic forum to advance the cause of civic discourse."
Within five months of its November 1995 debut, Salon went from biweekly to weekly, a recognition of the need for speed on the Internet. Its editorial approach was evolving, too. "We started out more cultural, and softer," says Kamiya, 47. By February 1997, Salon began posting new content daily--becoming, in effect, the Internet's first general-interest newspaper. In addition to the commentary and criticism, and columns on family life, technology and the media, it began adding original reporting. The big eye-opener for Talbot was the death of Princess Diana in late August of that year. Salon posted original, staff-written news stories on her life and death every day for almost two weeks, drawing huge traffic flows in the process.
It was finding its tone, too. Talbot frequently calls Salon "a smart tabloid," by which he means a blend of reporting and opinionated writing in the British mold. Hence, Salon began running bomb-throwing columns by Camille Paglia and a quirky advice column from Garrison Keillor. There were pieces of high-brow writing from Anne Rice, Joyce Carol Oates and John le Carre.
And there was (and is) sex. Talbot, who coauthored a book on American sexual habits and mores, knows not only that sex sells (Salon has the traffic records to prove it), but also that mainstream newspapers largely ignore the subject. He says he thinks it's important for Salon "to cover sex in an intellectual way." Over the years, Salon has run work that would never make it into the typical American newspaper. A sex column by Susie Bright (since discontinued) once advised lonely female travelers on how to score with the hotel staff. "Unzipped," a column by Courtney Weaver, unblinkingly surveyed the dating scene. Salon also ran a fictionalized yearlong serial called "Nancy Chan: Diary of a Manhattan Call Girl," by Tracy Quan, a freelance writer whom Salon described as a "working girl." "Sex is part of the essential Salon formula," says Talbot. "We certainly are explicit. We're writing for grown-ups! Sex is a huge part of a grown-up's life. How could we not write about it?"
Salon's sex stuff may have been eye-opening, but so is its original news reporting. Early last year, freelancer Dan Forbes landed a major scoop about the White House drug-control office's unusual ties to the major television networks. In a piece called "Prime-Time Propaganda," Forbes reported that the Office of National Drug Control Policy had reviewed scripts of shows like "ER" and "Chicago Hope," and had suggested anti-drug messages. In exchange for incorporating the White House-approved themes, the networks were relieved of a government obligation to air public-service commercials, Forbes wrote. The story was followed by dozens of newspapers, and won Salon one of its two Online Journalism Awards in 2000 (the other was for general excellence).
Salon ended the year with another big scoop. Amid the Florida election confusion, British journalist Gregory Palast and a team of Salon researchers found that the office of Florida Secretary of State Katherine Harris had mistakenly purged thousands of blacks from the voting rolls and turned them away from the polls. The story focused on a database company called ChoicePoint that had ties to several big Republican contributors. The story's obvious implication: that Harris' office had looked the other way as likely voters for Al Gore were disenfranchised.
Salon has been a reliably skeptical--cynics would say "predictably liberal"--voice during the various Clinton scandals. The magazine found flaws in Ken Starr's investigation into Whitewater and the Monica Lewinsky affair. Freelancer Murray Waas and then-staffer Jonathan Broder offered illuminating details on conservative efforts to investigate and undermine the Clintons in Arkansas.
Salon's most controversial story was its revelation in late 1998 that Rep. Henry Hyde of Illinois had had an extramarital affair 33 years earlier. The story, under Talbot's byline, was published just as Hyde, the Republican chairman of the House Judiciary Committee, was about to lead the Clinton impeachment inquiry. Many Republicans, and many in the media, denounced the Salon story (although Hyde himself never denied it). In the story's aftermath, some conservatives tried to start an advertiser boycott.
Although nothing came of that, the repercussions were still enormous: Salon's office received bomb threats. Talbot's decision to go with the Hyde story prompted the resignation of Broder, Salon's Washington bureau chief, who argued against publication. Once again, however, Salon's reporting was widely cited, often by the very media outlets that had known about the affair and had passed on reporting it.
Talbot gets agitated at the suggestion that Salon has been consistently pro-Clinton. "We found angles the rest of the media missed," he protests one afternoon in his small office, a poster of "Citizen Kane" hanging on the wall behind his desk. "The way the rest of the media went into those stories, it gave us an opportunity.... In hindsight, I think our political coverage has held up very well."
"There's no party line here," insists Managing Editor Rosenberg. "David's a big advocate of 'let's publish it, even if we disagree with it.' " So Salon runs commentaries like one in January from novelist Caleb Carr advocating government regulation of Internet content ("Regulation is desperately needed to prevent widespread, even general, mental and intellectual poisoning of the public.") It also publishes work by conservatives David Horowitz (a regular columnist) and Andrew Sullivan, and during the recent presidential campaign Salon ran articles speculating about the merits of a Bush presidency.
Talbot even defends an infamous piece published in January 2000 by Dan Savage, a gay journalist. Savage posed as a volunteer in conservative Republican presidential candidate Gary Bauer's campaign in Iowa. While stricken with the flu, Savage wrote that he tried to infect Bauer and his staff by licking doorknobs, pens and coffee cups--apparently as a protest against Bauer's opposition to gay rights.
Once more, the Savage article drew plenty of attention to Salon--and plenty of charges that the site had once again taken its in-your-face schtick to irresponsible extremes. Salon acknowledged that some of the criticism was on target. Shortly after the piece appeared, Talbot posted what surely ranks as one of the strangest editor's notes ever: "We still believe publishing the article was the right choice, but we also feel compelled to say: We didn't assign Savage to infect Bauer. We don't condone or endorse what he says he did."
Today, the brouhaha blown over, Talbot sounds less apologetic: "We could have been clear about what was an exaggeration and what wasn't. The fact is, it was very Hunter Thompson-like. It was gonzo-style with an outrageous social point--that gays are fair game for whatever conservative political figure wants to beat up on them." If that sounds like an endorsement of the dubious, Talbot says, so be it. "It's part of why we started Salon in the first place," he says. "If the Web doesn't take risks, if it isn't over the top at times, what are we here for? Yes, I'll defend that piece."
"I think in general that Salon had a sort of very brainy side and a tabloid side," says James Poniewozik, a former Salon staffer who's now Time magazine's television critic. "I don't mean that in a bad way. It's a publication that recognizes the need for a certain amount of show biz. In this media culture, you need to entertain and provoke and get in readers' and viewers' faces if you want to engage them.... You need to present strong opinions. You need to publish a certain amount of stuff that's going to cause people to e-mail each other and comment, 'You won't believe this.' You do it even if it pisses a large amount of them off. Pissing people off is a large part of the strategy."

ALL THE RISK-TAKING, buzz-creating and solid investigative work won't mean much, however, if Salon can't continue to pay its bills. Barry Parr, director of e-commerce research at IDC, says Internet advertising has a future, but Salon probably does not. "The real challenge for small publications like Salon is that they have neither the [broad] reach of a Yahoo! nor the specialized audience of a CNET," he says. In other words, Salon is betwixt and between. Its readers aren't sufficiently numerous (even with a peak of roughly 3 million "unique visitors" per month), nor are they the sort of homogenous group (all car enthusiasts, for example) that can make Salon a category killer among advertisers. In addition to finding new revenue streams, Parr thinks Salon will have to "rethink its cost structure in some way other than layoffs" in order to survive. Short of turning its readers into unpaid journalists, Parr isn't sure how Salon can do that.
That appears to be Wall Street's judgment as well. Salon sold its stock to the public in June 1999, raising $25 million. While it was minuscule by high-finance standards, Salon's public offering got widespread coverage, probably because it represented something rare and astonishing: a chance for a group of journalists to become rich. It was a wildly risky stock to begin with--the company had less than $3 million in revenue at the time. Still, it was the peak of Internet mania, and within a month of going public, Salon's shares were bid up as high as $15.13, a 44 percent gain. And then, like so many other Internet Icaruses, it began its descent. By mid-January, it was selling for under 94 cents a share.
Salon's editorial officers are acutely aware of these swings. All of Salon's employees ("from the receptionist on up," goes the common refrain around the office) own stock or stock options. Theoretically, it was one of the perks that Salon would use to attract new talent (in addition to salaries ranging from $50,000 to $80,000 per year for editors). But none of Salon's senior editors has been able to cash in yet, and a few have actually lost money on the tax bills accrued from vested options. In the meantime, the stock's crash has meant that all of the options in employees' hands are "under water," which is to say worthless. "No one cashed out and moved to Tahiti," says Talbot. "Maybe we'll never get rich, but my hope is that the stock will someday get in a range where someone could buy a house or send their kid to college." (Talbot himself earned $175,000 last year, plus a $50,000 bonus, and has stock equal to about 4 percent of the company, according to Salon's last proxy statement.)
Indeed, Salon's continued survival might be reward enough at this point. Toward that end, Salon's management is trying to develop new revenue flows (a weekly Salon radio show, for example, has just debuted). The most formidable idea is to transform Salon from a free site into a paid one. O'Donnell, the money man, figures it this way: If just 300,000, or less than 10 percent of Salon's 3.4 million "unique visitors," spent $50 per year on a subscription, Salon's revenue would increase 50 percent overnight. "People write to us all the time and tell us, 'We'll pay for you, don't go away,' " says Joan Walsh.
But Salon's inner circle also knows that the Web is about freeloading, and that the only "content" sites that earn subscription fees are those selling pornography or financial news and advice. They know that Slate's readership fell dramatically after the site introduced a $19.95 annual subscription fee in the spring of 1998. (Slate abandoned that effort and returned to a free-content approach early the following year--see Free Press, March 1999.)
"The whole idea is fraught with peril," says Gary Kamiya. "Whatever we do, we're not contemplating gating off all of our content at once. That could be catastrophic. But this downturn has brought home the fundamental truth that it's risky to be tied to advertising alone."
All Salon really has to sell, he says, "is high-quality, interesting journalism. That's a real business model."
On the Internet, as in real life, there are no guarantees. But as Salon slowly fades, it's worth wondering: Shouldn't good journalism be enough?