High expectations for online news operations are, well, yesterdays news for many big media companies.
The New York Times Co., Industry Standard and News Corp. are among the latest to announce cost-cutting moves, due largely to the softening advertising market and decreased expectations for audience growth.
New York Times Digital, the Internet unit of The New York Times Co., will release 69 employees, about 17 percent of its workforce. The cuts will likely affect NYTimes.com, as well as the online site of the Boston Globe, called Boston.com, and the discussion sites of the Abuzz network.
Standard Media International, parent of the Industry Standard, is eliminating 36 positions in its marketing and online divisions.
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News Corp. is taking the more dramatic measure of dissolving most of its online unit, News Digital Media, to reduce costs and create more integrated advertising opportunities. Foxnews.com, Foxsports.com and FOX.com will be housed within their respective television divisions, Fox News Channel, Fox Sports Television Group and the Fox Broadcasting Co.
"Its now becoming clear theres no advantage to having an independent structure," said Jon Richmond, president of News Digital Media. He says News Corp. can now better integrate programming and ad sales.
Creating a digital subsidiary had advantages once, though. Richmond said the properties couldnt have "gotten a fair shake" in their respective operating units years back, since many divisions either downplayed the importance of the Web or felt threatened by the new medium.
Also, separate units had the potential to go public a year ago, Richmond said, but hopes faded with the downturn in the financial markets. New York Times Digital opted not to go public last fall. Meanwhile, shares of the Internet spin-offs of Disney and NBC are nearing 52-week lows.
"Im not surprised [media companies] are reducing their expectations," said David Marks, Internet media analyst at GartnerGroup. "The Internet is still a sound model for distributing content theyve already created, but expectations are going to have to get reduced about the audience growth rate."
Its still not clear how news sites will reach profitability. Dow Jones & Co. found 500,000 people willing to pay subscription fees to read the Wall Street Journal online, which helped WSJ.com bring in $12.1 million in revenue in the third quarter, but the unit still isnt making money. TheStreet.com said its subscription revenue increased in the third of quarter 2000 from the third of quarter 1999, but rolling out free sites caused its subscriber base to decline over the quarter. The company expects the decline to continue through 2001.
Peter M. Zollman, principal at Advanced Interactive Media Group, said many interactive units have at times reached profitability, but have gone into the red to invest in areas like international expansion or marketing.
"The smartest traditional media companies are the ones who are not making money yet [on their online operations], but are growing substantially, investing rationally . . . and creating long-term viable businesses that operate in conjunction with their existing businesses," Zollman said. Tribune and the Washington Post Co., he said, are following this strategy particularly well.
