Web publishers warn of shakeout

Two years after the Internet became part of the everyday lexicon, the euphoria is wearing off and that's forcing Web content producers to make hard choices -- in some cases, earlier then they anticipated.

The first couple of years of the Web's growth witnessed an explosion of content and produced everything from interactive serials such as The Spot to magazine formats such as Slate which imitated the printed page. Innovation continues, but only a few content-centric ventures still attract the kind of funding needed to keep the businesses afloat until they turn profitable, according to industry watchers.

"It's been a real year of consolidation and retrenchment," said Josh Quittner, executive producer of Time's Netly News, itself a product of the Web's first wave of expansion. "You had 1,000 flowers blooming, and 900 died. Everyone's still looking for a business model that works on the Web."

As some of the more adventurous Web experiments die, the torch is being passed primarily to sites that enjoy better financial backing, often thanks to relationships with non-virtual partners. Where The Spot, a soap-opera style serial that shut down earlier this year, tried to go it alone, Salon partners with the Borders bookstore chain; Suck.com with Wired Ventures; and Slate with Microsoft.

The investors supporting new media startups are starting to get a dose of reality, according to Jim Balderston, an analyst at Zona Research Inc., in Redwood City, Calif. "There's this belief within the context of all the hype that's thrown out, that all the rules are off, the Internet's a whole new set of rules, and we'll make them up as we go along," he said. "Businesses ranging from software houses to publishing houses have assumed that somehow the Internet removes things like the law of gravity or the laws of thermodynamics or the laws of physics.

"But the enthusiasm may be getting tempered here. They now have to ask themselves, 'Where's the revenue?' There has to be a revenue model that's valid," said Balderston.

Quittner, who started The Netly News two years ago as a way to explore what he saw as a whole new world of online journalism, echoed Balderston's downbeat sentiments. "All the feisty little independent sites that wanted to do journalism couldn't survive. And that's an unfortunate unforeseen byproduct of what went on in the first couple of years on the Web.

"I still thing [the Web] has incredible possibilities and potential, but I'm a little bitter that technology hasn't delivered everything I think it can," said Quittner.

As a way of pleasing their bank managers, many Web content providers -- and particularly the influential Microsoft -- are turning away from editorial ideas and toward practical services.

Microsoft raised eyebrows earlier this year when, after investing heavily in editorial and entertainment programming for its Microsoft Network, it shifted its focus to services like CarPoint -- an auto-buying service -- and Computing Central, which offers computer-shopping information. Slate, which has postponed plans to charge subscriptions for its service, has itself moved to a more service-oriented approach, with features like a summary of the day's papers and the week's magazines.

"We have been evolving Slate to be more information-oriented over the last few months," said Slate publisher Rogers Weed. "Our focus has been on refining our product and building traffic; we've been spending as much as we have in our budget to drive traffic."

The real future for innovative Web content might have to wait for the arrival of a larger and more diverse audience, according to Patrick Keane, an analyst at Jupiter Communications, in New York. He pointed out that once the medium grows from 22 million households to 56 million households, as it is expected to in the next three or four years, there will be more room for Web-zines to make a profit. "That will be a different matter," said Keane. "That's closer to cable, and there are real ad dollars there. That's important because we know you really can't charge subscriptions."

Keane added that Web-zines that manage to stick around until that time could find prosperity. "You've got to be a little bit open to waiting there," he said.