Salon Magazine is about to go out of business, and I'm writing its obituary in advance.
The Early Days
Salon was launched in November 1995 under the URL www.salon1999.com (the salon.com URL was controlled by a group of beauty salons at the time). They established themselves early as a source of mid- to high-brow social commentary, literary review, and other articles. The politics of the magazine were slightly left of center, and it seemed a bit like an online version of Harper's Magazine or The Atlantic Monthly. Early investors included Adobe and Hambrecht & Quist.
The founding Editor and CEO was David Talbot. In December 1996 he brought on board Michael O'Donnell as President and Publisher. O'Donnell came from a software marketing background, and would later take Talbot's job. In the same month, the magazine was named "Best Web Site of 1996" by Time Magazine. They were generating 1.4 million page views per month at the time.
In early 1997, sex columnists Camille Paglia and Susie Bright began writing for Salon, increasing the focus on smut that distinguishes Salon from, for example, Slate.
They signed deals with other websites and other media channels, publishing their content through AOL, CNET, Netscape Communications Corporation, Desktop News, WebTV™ and Match.com. Salon also set up a channel on the shortlived PointCast network, and others. It is not clear to me who was paying whom in these deals but I suspect that Salon paid cash up-front in exchange for a cut of the banner advertising that ran over their articles on the other services. They also syndicated their content through the United Feature Syndicate.
They completed another round of private financing in December 1997, bringing in money from ASCII Corporation, one of Japan's largest publishing companies, and Borders Group Inc., the nation's second largest bookseller. Adobe Ventures and Hambrecht & Quist, Salon's initial investors, also participated. Page views were up to 6 million per month.
The Best of Times
In early 1998, Salon had what were probably its greatest political coups. They broke a number of stories in connection with the Bill Clinton blowjob and whitewater stories. In particular, the fact that key Whitewater witness David Hale received secret cash payments from Clinton-hating billionaire Richard Mellon Scaife. Salon also broke news about the marital infidelities of congressmen attacking Clinton for his intern-blowjobs.
In the summer of 1998, I was featured prominently in a Salon article. Perhaps I feel fondly towards the magazine as a result.
Anticipating an IPO, Salon bulked up their executive team in 1998. However, despite the heat in the online market at the time, investment bankers were more tentative about Salon, recognizing it to be basically a traditional magazine property, not worthy of the same jubilation occassioned by, for example, eToys.
The company expanded its content, continued to win awards (its third Webby in a row in 1999), did business development deals with DrKoop.com, TheStreet.com and others. In March 1999, Salon acquired the ancient online community The Well. This was the first Salon property to charge its participants a monthly subscription fee. In May, they jumped on the MP3 bandwagon by acquiring MP3Lit.com, a Web site that offered spoken word and audio literature recordings in the MP3 format. In April of 1999 Salon filed what was, I think, the first "open IPO" managed by W. R. Hambrecht & Co. They had hoped to sell 2,500,000 shares at a proposed price range of $10.50 to $13.50. The offering went off in June at the bottom of that range. The stock actually shot up to $15 or so for a few weeks before dropping to half that, in its long monotonic slide to nothingness.
Shortly before the IPO, they changed their name from Salon Magazine to Salon.com. In a year, when dotcoms tanked, they would change the name again, to Salon Media Group. However, at the end of 1999 that was still eons away. Salon had $27 million in the bank, and did a big deal with Cablevision whereby they gave stock to Cablevision and got a pile of advertising time in exchange.
However, the cash flow picture remained grim. The money coming in from banner advertising was nowhere near enough to cover their expenses, and the gap grew larger with every passing quarter. Their most direct competitor, Slate, tried charging for subscriptions and, when that failed, sold out to Microsoft.
In fiscal 1996 (which ended in March 1997), Salon had lost $2 million. In 1997, the number climbed to $3.9 million. In 1998, $6.3 million. In 1999, flush with proceeds from the IPO, they lost $23 million on operations. Worse still, they had issued convertible bonds to some early investors, and the dividends on those bonds came to over $11 million dollars in the 1999 fiscal year. It didn't take a rocket scientist to see that, with $27 million in assets and losses of $23 million a year, big changes were needed. (The convertible dividends were triggered by the IPO and were paid in stock; smaller payments of this sort were to continue).
On the plus side, they were up to 72 million monthly pageviews.
The Crash
2000 was a hard year for the online industry. NASDAQ began its crash in April of that year, and online advertising, which was substantially Salon's only revenue source, was hit hard. By the end of fiscal 2000, the magazine was down to $3.7 million in liquid assets. Liabilities were $3.4 million. Revenues had dropped 10% from the previous year ($8 million to $7.2 million). Expenses had been cut too, but they still lost $19 million for the year. With less than $4 million remaining, and a burn rate of over $1 million per month, death knells were sounding.
They fired a lot of people and started charging for more content. They launched Salon Premium, a paid subscription service, in April 2001. This cost $6 for a one-month subscription or $30 for one year. Subscribers got access to exclusive content and the option to view normal Salon content without advertising. Revenue from this and from The Well amounted to $1.2 million by the end of the year. Many of the marquee columnists had to go. Advertising was slashed. Many of their advertisers cut their ad budgets or went out of business. Revenues plummeted, but expenses dropped faster. Salon tried to make some money selling website management software, but the effort yielded little and was soon killed. For the 2001 fiscal year, they brought in $3.6 million and spent $11.6 million. They raised $3.5 million in outside money in August and September so they were able to finish the year with $1.5 million in liquid assets.
Adobe kicked in another $500,000 investment in March of 2002. The company followed this with a $715,000 bridge loan in July. By their burn rate at the time, each of these represented about a month's life. Salon generated a spike in readership in June when they promised they would reveal the true identity of Watergate informant Deep Throat, but they couldn't deliver. In November 2002, they warned investors that bankruptcy was likely, and were delisted from NASDAQ.
Death Spiral
In their most recent financial filings (December 31, 2002), Salon reports liquid assets of only $169,000. Thanks to increased subscriptions, revenue is up slightly and expenses down slightly from the year before, but nowhere near enough to close the gap. Advertising revenue has all but disappeared, as advertisers are afraid that Salon will soon go out of business. The company has refused to pay rent to its landlord, saying that it would destroy them to do so.
They continue to fight. Starting January 22, 2003, Salon began restricting access to substantially all of its content to either Salon Premium subscribers, or shows full-page advertisements to non-subscribers. They own about $5.5 million in prepaid advertising rights, which they could sell for some fraction of that amount. This might keep them running for another six months or so. They raise additional funds in dribs and drabs; the most recent round was $400,000 from people including the website's president's father. (That's about a month's burn rate.) The investors providing this "life saving financing" now own 84% of the company's stock.
As of this writing (April 2004), the stock is down to $0.14 per share. Could anything save them? Looking at the firm's income statement, advertising sales were flat from December 2002 to December 2003. Let's be generous and assume they increase it 10% in the next year; if so they'll make $4.5 million. With continued shaving of expenses, they'll spend $9 million in the same year. How do these expenses break down?
- Production and content make up about half of it.
- Sales and marketing make up about a third of it.
- General and administrative expenses are about 10%
- Research and development are about 5% of it.
A buyer who has access to less expensive content could save there. However, I don't know that a firm with an established salesforce would be able to save on sales and marketing. If salespeople are successfully selling other products, they will demand comparable compensation to sell Salon's advertising space instead. Salon believes that advertisers have abandoned them in part because they fear Salon is about to go out of business. If they are right, and they are acquired by a more stable company, advertising revenue would jump.
Imagine a fantasy world where production and content expenses get cut in half, sales and marketing expenses stay flat, and advertising revenues triple due to increased advertiser confidence in the brand's survival. They end up making $5.5 million in revenues while spending almost $7 million.
For Salon to survive, they are going to have to be purchased by somebody who is willing to lose millions of dollars a year on the brand indefinitely until there is a sharp improvement in the online advertising market. They have very little time to set this up, and I expect that they will fail.
It will be a shame when they go; the magazine was often fun to read. Lots of my high school and college friends had their first professional writing published in Salon. However, in its short lifetime, Salon has lost almost $100 million. They've certainly had a fair chance at success.
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Sources:
Salon Media Group Press Releases, 1996-2003
Salon Media Group SEC filings, 1998-2003.
The San Francisco Chronicle, February 15, 2003
The San Francisco Chronicle, June 18, 2002
The San Francisco Chronicle, July 25, 2001