The news that TheStreet.com is discussing a merger with MarketWatch.com was paired today with the equally interesting information that Paul Allen, the co-founder of Microsoft, had bought the Sporting News from Times Mirror for $100 million. On the surface, these things would seem to be unrelated, but they are, in a big way.
For the last five years, media companies have been flailing around in a mostly unsuccessful effort to achieve some kind of prominence in the online world. It's interesting to note that of the media company sites that show up in a major way in Media Metrix, most were built by an outside entity. For example, ESPN.com, a definite success, was built in Seattle by Starwave, and CBS SportsLine, also popular, was built in Florida and not by CBS. TheSportingNews.com, built by Times Mirror, is not even close to these in traffic numbers. Even MSNBC, the most popular news site, was built in Seattle on the Microsoft campus, not in a New York newsroom.
William Savoy, president of Vulcan Ventures, noted in a statement: "As we further develop the comprehensive portal and channel offerings for our cable customers, we will look for precisely these type of branded, established vertical content offerings." This has a curious ring to it, because at Time Warner, the idea that it would be relatively simple to translate a bunch of magazine brands into an online portal led to the disastrous Pathfinder debacle, in which it was simply assumed that magazine and TV brand names, grouped together under a common banner, would attract a preponderance of Web users, without bothering to acquire any of the elements that makes portal sites work-such as Web search, chat, e-mail, home page production, and other community elements.
So what does Paul Allen know that the rest of us don't? I think that Allen, in his methodical way, is making the same bet that Steve Case made -- that these offline brands, if properly promoted and put into a Web context by people who understand the Web, can soar. That seems to be what happened with ESPN.com, right?
The MarketWatch/Street.com talks are also in this context. The biggest problem for dotcoms now is promotion -- why else would so many desperate companies buy ads on the Super Bowl? One such company gleefully revealed that it was blowing more than half of the funding it had achieved on one Super Bowl ad. The differences between TheStreet.com and MarketWatch are striking in this respect. In fourth-quarter earnings, MarketWatch.com had net revenues of $10 million and a loss of $8.9 million, while TheStreet.com had net revenues of $5.1 million and a loss of $9.1 million. In other words, TheStreet managed to lose more than MarketWatch on half the revenue.
What's the difference? Promotion, which CBS threw in a swap for the 38 percent equity it holds in MarketWatch.com. TheStreet.com, which foolishly stuck to a subscription model well after it was obvious this was a wrong strategy, has to buy most of its promotion on the open market, and it's way expensive. Sure, TheStreet gets some promotion from minority partners The New York Times and News Corp., but this hardly equals what MarketWatch is getting from CBS. Indeed, in its most recent filing with the SEC, TheStreet reveals that it spent $10.2 million on marketing expenses for the first nine months of last year, while it brought in only $9.1 million in net revenue.
In any normal company, this would have to raise red flags, especially when the net loss for the period was $21 million. It's pretty obvious that if TheStreet.com had a deal like MarketWatch had, its losses would be drastically reduced and its reach would be greatly enhanced.
All of which makes pairings between powerful promotion vehicles like broadcast networks, and promotion-hungry dotcoms, all the more attractive. Which is why TheStreet.com wants to merge with MarketWatch, and is one of the reasons why AOL merged with Time Warner. And why Paul Allen, who is the fourth-largest cable operator in the country (For full disclosure, I'm a subscriber of his Charter Communications cable operation), thinks he holds the key to the future, if he can combine online and offline in a powerful way. Certainly, for many of the magazine entities he is said to be eyeing, there is nowhere to go but up. The Sporting News lost money bigtime for Times Mirror, and clearly Mark Willes' bottom-line oriented company is glad to get rid of it. Time will tell if Paul Allen can turn it into something else.