TheStreet.com's risky business

Summary:It could be "hedge fund guru" Jim Cramer's riskiest buy -- his plan this year to spend more than $10 million promoting stock tip site TheStreet.com.

It could be "hedge fund guru" Jim Cramer's riskiest buy -- his plan this year to spend more than $10 million promoting stock tip site TheStreet.com. Never mind widespread doubts about online subscriptions. The man once eulogized by GQ magazine for a "Shakespearean" range of emotion when sobbing and vomiting on his 40th birthday, swears he's onto something hot.

"I'm telling you this is probably the most exciting non-family thing I've seen in my life," Cramer says. "We're going to crush everyone."

To be sure, the barons of financial news and information aren't yet trembling at this challenge from a 36-person Web start-up.

Nonetheless, at least some influential Internet players say Cramer may be on to something. His mix of high-octane personality, high-profile marketing, and fast-money trading could someday become a solid new media publisher that goes public in a stock offering or is bought out by a larger media company like The Walt Disney Co., parent of ABC.

"We're very intrigued by what they've been doing, and by the success they have been getting in acquiring an audience," the head of a leading Internet venture capital fund acknowledges privately.

The venture capitalist adds that his firm has been thinking about making an investment in TheStreet.

FIRST OUTSIDE INVESTMENT
Such a buy could mark the first outside investment in a company that so far has been funded entirely by Cramer and his partner, Martin Peretz, a Harvard lecturer and owner of The New Republic.

Officials at TheStreet say the New York-based company is seriously working on just such a deal. Not because they need the money. Instead, the goal is to forge a strategic tie with a partner that could help the business. They won't name the possible backers. But they say they are considering selling about 25 percent of TheStreet to a team of investors lead by a venture capitalist.

And there could be even more news on the horizon.

Cramer, who's already become a media celebrity as a regular guest on CNBC, "Good Morning America" and in online chats on Yahoo!, may be about to become more visible. (TheStreet has a deal to supply market stories and columns to ABC News' Web site.)

Knowledgeable sources say he is in discussions to star in a regular business television show that could be featured on ABC. TheStreet also is eyeing opportunities to follow rival The Motley Fool into book publishing, with a series of books on investing, Peretz says.

That Cramer and his subscription Web site could be facing such opportunities is a remarkable development, given the stiff competition in online stock news and information.

All of the major business bibles, including The Wall Street Journal, Fortune, Forbes, BusinessWeek and CNBC (in partnership with MSNBC and The Wall Street Journal) are on the Web.

Online stock-talk areas like Silicon Investor and the Motley Fool are also proving popular. And a raft of subscription services also are available, ranging from Hoovers company profiles to Microsoft Investor, Briefing.com and Data Broadcasting Corp., which operates a free financial news site in partnership with CBS, and also offers subscription stock data.

A NICHE PLAY
Yet, in the face of such formidable names, TheStreet is carving out a niche.

It has got 12,000 subscribers paying $9.95 per month or $99.95 per year, to read what amounts to a mix of daily market commentary from Cramer and former San Francisco columnist Herb Greenberg, and stock-oriented stories from a staff of some 28 editors and reporters who previously worked for publications like SmartMoney magazine, The Wall Street Journal and the Dow Jones News Service.

That's still less than the more than 150,000 online subscribers to The Wall Street Journal, or the 25,000 subscribers to Microsoft Investor. But after growing at a snails pace for the first year to what company officials say was a total of about 1,500 subscribers in September, TheStreet's readership is surging.

Cramer says that at the current pace, TheStreet.com will have more than 35,000 subscribers by year-end.

One driver is clearly the partnership with ABC signed a year ago. In the deal, ABC obtains a handful of columns and market stories from TheStreet for its ABC News Web site, and ABC partner Starwave redesigned and hosts TheStreet's Web site. (ABC also obtained warrants, so far not yet exercised, to buy a small stake in TheStreet.)

Starwave transformed what had been a creaky online presence that regularly crashed when Cramer appeared on CNBC into a relatively stable performer.

But another factor has been Cramer's rising celebrity, and his exploitation of that in a startlingly expensive marketing campaign that includes three to four television spots a day on CNBC, about three spots daily on ESPN and numerous Web banner ads. That marks a sharp reversal from last year, when officials say TheStreet spent little on marketing, at least until launching the television campaign and redesign in the fall.

Cramer's fame begins with his hedge fund, started in 1987, after a brief career as a journalist and later a salesman for Goldman Sachs. The fund now has $360 million in assets. It's been closed to new investors for 1 1/2 years, but when you could get in, the minimum investment was $2 million. A source familiar with the fund's performance said it gained 47 percent last year. A published report has placed returns at between 2 percent and 60 percent each of the previous eight years.

Cramer parlayed his writing skills and investing success into a high-profile sideline as a financial columnist, with gigs as a contributor to SmartMoney magazine, and later, New York magazine.

The mix hasn't been without controversy. The Washington Post in 1995 ran a front-page story questioning the ethics of his dual role. Distraught after the article, Cramer was treated by his wife and friends to a surprise birthday party, where GQ said he was so overcome with gratitude, scotch and "love" that he was alternately sobbing and getting sick.

The Securities and Exchange Commission reportedly investigated, and found that Cramer had done nothing wrong. And Cramer's commitment to writing is stronger than ever. Indeed, he says he is thinking of some day leaving money management to focus on writing. Meanwhile, he's attacking online financial news.

Cramer says he pitched SmartMoney in 1995 on setting up a Web site much like TheStreet. He says he wanted equity in the venture and SmartMoney wouldn"t abide him. So he set off to develop his own service, bringing in Peretz as a partner.

To avoid credibility problems, Cramer says he has an agreement with the SEC not to tout stocks his fund trades in his Wrong! column in TheStreet or to edit what others write. Instead, his daily dispatches are a free-wheeling rumination on his trading day, and his take on the markets and the spin experts are giving to popular stocks.

THE SPIN: 'TO BUY OR NOT'
TheStreet's coverage features a newsy, stock-oriented spin they claim is different from the standard fare at the top business publications. "We don't tout stocks," says Peretz. "But the journalism is edited so as to create in the mind of the reader the quandary, 'should I buy this or not.'"

TheStreet's ads, with the "Blah Blah Blah Not!" tagline, push both stock talk and Cramer's high-octane personality.

His goateed, balding mug shot is all over the banner ads. In one TV spot, a woman slips into bed with a smile after going online, saying "Cramer, you bad, bad boy."

"They're basically building it around Jim's personality," says Larry Kramer, CEO of TheStreet rival CBS Marketwatch.

Kramer rates this an effective way to sell a publication, although one that's risky, since it rests so heavily on one personality.

But does the ad buy benefit the bottom line? TheStreet's results so far suggest not, at least in the near term. Company officials say revenues from ads and subscriptions are just about covering operating expenses, which recently were running around $350,000 per month.

But that's excluding an advertising budget that dwarfs the much more modest spending by more trafficked sites like the Motley Fool, Microsoft Investor and CBS Marketwatch.

Never mind. This is the Internet. Cramer thinks he should spend more. And some potential investors and allies say he's right.

"I think that he's on to something," says Starwave CEO Mike Slade. "The Net is about building new brands."

Topics: Start-Ups, Microsoft

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