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Aug 16, 2001

Exclusive Interview:'s COO Reveals Behind-the-Scenes Business Details

SUMMARY: "EXCELLENT interview. I just had to write and tell you that." wrote one MarketingSherpa reader when we published this article last Thursday. There's been a lot of negative press about over the years. We grilled COO Patrick Hurley to find out why. His honest and open replies will probably surprise you.Check at the interview at the link below.(Note: It's jam-packed with details and runs about eight pages long, so you may want to print it out to read it.)
Many worrisome or outright negative stories have been written about Salon by the general business press this year, featuring questions such as: Are they crazy to try the subscription model? Are they another bloated dot-com that should be put to rest? Will their stock price ever recover? You know the drill.

However, it's seemed to us here at MarketingSherpa that much of this coverage has been more reactionary and knee-jerk, than realistic and knowledgeable. We wanted to know the true story behind Salon's various revenue models. So, we contacted COO Patrick Hurley for an in-depth interview this week.

Even before Hurley joined Salon initially as VP Marketing in March 1999, he was a big Salon fan. He says, "Like a lot of people here I could have done other things, but I chose to work here because of passion. I was a Salon reader who wouldn't let them not hire me! I think I just wore down our CEO with my persistence."

1. Salon Premium Subscription Sales

Q: How did you decide how to price your premium subscription? That's one of the hardest decisions for most publishers.

Hurley: In early February we surveyed a couple of thousand readers randomly using a pop-up survey to every nth name. We tried to get an idea for the types of benefits they were looking for, and also get into a price point. $75 was the highest and $25 was the lowest.

About 40% of respondents indicated they would be willing to pay for a Salon subscription. This helped validate our belief that the concept of a subscription plan was essentially sound and doable. But we didn't believe for a second that 40% of our readers actually would do so. The streets are paved with good intentions.

Our judgment -- tempered by some fundamental direct marketing response rates and the novelty of a subscription service in a medium that has conditioned readers to expect everything for free -- told us that conversion rate goal of 1% to 2% of our audience was more reasonable and achievable.

We also benchmarked other media and looked at the entire landscape of choices people had not only online but offline, such as the New Yorker, Atlantic Monthly, the Symphony, cable TV, and different music subscription sites. People are not purely linear about subscriptions online. They look at it as expenditure and say, is it worth it? You've got to make choices.

So we got a big enough landscape, together with our survey information and put those two together, layered with our best judgment.

Quite honestly, because we were able to retrofit the billing engine from the WELL [One of Salon's two online communities] and use for the most part existing content services, and not incur any variable costs, we would have made money after about the fourth hour the service was live. We could have gone to a dollar and made money. It was a matter of maximizing our revenue. We concluded the $30 annual offer, while lower than what some people would pay, would make up the difference in volume.

Q: What was initial response to the subscription offer? Did you get any flames?

Hurley: We announced our intentions to launch the Premium service about 6 weeks before it actually went live. We pre-announced, in part, because we were in the midst of deploying new, larger IAB ad units and wanted to pre-empt those readers who were disgruntled with the new sizes from complaining to us. Instead we thought it better to announce that we were soon going to be rolling out a service that would provide them the option, for a fee, to avoid exposure to banners and pop-ups.

We allowed interested readers to forward us their e-mail addresses and queue up and we would alert them when the subscription service went live.

The unexpected benefit to pre-announcing was that many of those who queued up also asked myriad questions (Will the subscription prices account for fluctuating foreign currency? Will you be offering senior discounts? Etc.). As such, we were able to get a sense for the questions and concerns of potential subscribers ahead of time, fine tune the enrollment page and FAQ prior to launch and really hit the ground running.

The overall response has been very good, both from people who've chosen to subscribe and those who have chosen not to. They understand this is an endeavor that requires money. We all have to pay our rent and eat and Salon isn't a charity.

We were one of the first to launch a program like this. As the reality of this Internet swoon has continued, more and more people understand to get things of premium value they're going to have to pay. Being one of the first is always a little bit treacherous waters. If your strategy can be validated, and people understand you're not the only one, that this is a trend, it gives us a lift.

As an aside, some naysayers contacted me originally to say in effect we were violating the idea of the free press. That's a gross misunderstanding of the concept of free press. To my knowledge the Detroit Free Press still charges! It's about freedom of expression, not freedom to consume. I think that was really humorous.

Q: What are your exact subscription sales figures now, and what are your expectations for this year?

Hurley: We launched the Salon Premium on April 25th and as of July 25th we had about 12,000 paid subscribers. We're going on at about the same clip -- 4,000 a month.

We would like to get another one-to-two percent to subscribe in year one. We originally set that goal when unique visitors were at 3.5 million a month. So that would bring in anywhere from 35,000-70,000 subscribers in year one. That objective may seem modest to some, but that would still generate a million on the low end to two million on the high end, which is pretty substantial to us. Also given this is the embryonic stage we're in, we should set obtainable goals and not overreach until the model has started to prove itself.

Q: Some sites like Hoovers put a little "subscribers only" symbol like a golden key next to things that only paids can access. You do it differently, you allow people to click on the headline not knowing if it's premium or not, and view a solid opening chunk of the article before you say, "Subscribers Only!" How is that working, and what types of articles tend to get the best conversion rates from clicks to subscribers?

Hurley: I know a few readers here and there have been rankled by the fact that we don't flag it up front. My response to them is, this is a work in progress. We do take their comments to heart in where we go with this. Also we're in a catch 22. If people don't click and sample the content, they'll never have a sense for the value of what they are missing.

Thus far it does generate a lot of subscriptions, especially when we do it with cover stories, so it's working.

We haven't done enough at this point for me to get a conclusive sense for what actual subject matter does the best. We're tracking that as well. We're building a spreadsheet, going here's the subject matter and here's the number of conversions for it.

Q: How are you driving traffic to the site so you can convert them to paying subscribers?

Hurley: Our audience continues to grow on its own. In May and July we had our highest and second highest months, and historically the summer months have been bad months for us. That gives me confidence -- our audience is not only sticking, it's growing and that's through no advertising. The only ad we have out there is through a strategic relationship with Rainbow who owns Bravo. It's a non-cash thing.

However, we are talking to some partners about an affiliate program. They have to be like-minded sites. Obviously Salon appeals to particular attitudes and tastes. I don't know if we could go just anywhere. We have one relationship with Powell's Books, and now we are casting a little wider net to like-minded sites.

Q: How are you deciding what content is free and what's premium? And how have you covered the increased editorial load, while cutting back staff?

Hurley: Our intention is to largely keep what has been free as free. I'm sure there are instances where that's not true, but largely that's the case. When we add new things now, a new columnist, a new piece of content, we'll probably add that to the subscription service.

Thus far we've done it [handling editorial load] through sheer moxie. We'll probably continue to do it that way.

2. Community Membership Sales

Q: A couple of weeks ago, Salon switched its popular Table Talk community discussion boards over to a paid subscription service that's separate from Salon Premium. There's a lot of useful info on the switch at the site [link to specific info below], but can you tell us more in your own words about this decision?

Hurley: We're running a limited time offer for $6.95 a month, it will go up to $10 a month in two-three months. We've essentially done this to retain the TT environment many people came to know and enjoy. The billing system is on shared platform with the WELL, which made a whole lot of sense.

Also, they are not only paying for access to TT, they'll also get access to the WELL. Several thousand people already pay $10-15 a month to the WELL. So, if you're giving them access to that in addition, you have to have equitable pricing between the two.

Q: Yes, but when you do the math, it means people are being asked to pay $120 a year for community where they essentially create their own content, and just a quarter of that amount a year for Premium which is professionally created content. Does that make sense?

Hurley: That is a question that comes up a lot. But there is a price that we incur to provide people a forum for this user- generated content. It costs money and we're going to have to cover our costs.

The reality is we've heard people say, 'I'm not going to pay for this, I'm going to go somewhere else.' Sometimes a group of people will try to go someplace else. But usually the environment is different, and not enough people come to make it robust. It always seems easy to replicate elsewhere on paper, but there's proof in the pudding that it usually isn't. People are deriving enough from TT to pay the price we're asking.

Q: How many are paying so far?

Hurley: I can't tell you. My response is that we'll be providing numbers soon.

3. "Gear," Classifieds, and Book Sales

Q: How are your "Gear" sales going? Phil Kaplan over at F--- dCompany has been quoted saying he's pulling in $10-15k a month, net from his CafePress account.

Hurley: We don't do anything like that. We're probably making closer to $20-50,000 a year.

We've been doing it since fall of 2000. It's an affinity initiative for people who are so loyal to the site that they clamor for a Salon t-shirt or coffee cup. We had a lot of people in the past write in requesting it. We didn't want to get into a situation investing in wearables and accessories and, no pun intended, lose our shirt on it. So we partnered with CafePress, they do print on demand and we don't stick our neck out.

The kind of tchotchkes that worked best for us were election- related merchandise. It's very time sensitive. Somebody's gonna wear that 'Elect Gore' shirt for like a month, and you're gonna paint the house with it after that. Those kind of things only manifest themselves a couple of times a year, something that's topical on everyone's tongue.

Q: Maybe one of the reasons you don't do as well is because the site pages you market Gear on are not exactly designed for optimum e-retail. If a visitor is using low resolution, they can't even see product without scrolling. It's below the fold!

Hurley: It's become a matter of what we marshal our resources on, especially with recent staff cuts. We're concentrating on the Premium over moving coffee cups.

Q: How about your other ancillary sales? How are classifieds and book sales going?

Hurley: We partnered with Nerve on classifieds. We felt many parts of our audience were like minds, and we liked their attitude. Plus the fact that they had the back end and the engine and the database already established. It was a bonus that we didn't have to start from square one. It's a revenue share deal and I think it's fantastic.

I was asked [about book sales] a few months ago, but I can't remember my response. I know for 'Mothers Who Think' -- which we published first a few years back -- it's in its third or fourth print run and has also been published in paperback. I'd say it's probably sold in the range of 40-50,000 copies by now. 'Wanderlust' and 'The Reader's Guide to Contemporary Authors' were published within the last year or so. I'd have to guess both have sold in the area of 10-15,000 copies each.

Q: What about book sales through your relationship with Powells? When people click on the "buy this book" link next to your book reviews, we assume you get a piece of that.

Hurley: It's a blended relationship. It's ad-buy driven and then there's a revenue component to it as well. I don't know the exact sales numbers, and the person who I would get that info from is on vacation until Monday. Sorry.

Q: Have you considered creating another revenue stream by repurposing your audio content into audiocassettes you could sell?

Hurley: The money for Salon Audio is ad sponsorships. The Intel sponsorship is largely tied into Audio. You get into issues that might not seem obvious on the surface. You may secure rights to put content onto Salon Audio for a specific amount of time, but when you take that and repackage it, you often run aground.

Believe me, we've looked at all the obvious things, almost every possible concept of how to repackage or repurpose content and derive additional revenue. Usually we haven't been persuaded for very good reasons. Oftentimes it's rights issues; oftentimes it's that the outlay of money to pursue it without any guaranteed back end. We go forward only if it's a slam-dunk, or if someone else is willing to put down the money to test their hypothesis and share in the back end.

A lot of people write us, 'You're a natural, why don't you start a magazine?' Well, it costs about $30 million to launch a magazine and there's no guarantee. I'm looking at how all the others have fallen by the wayside -- eBay, Motley Fool, Yahoo magazines -- proving unsuccessful.

Q: Are you doing anything else to gain ancillary revenues?

Hurley: We're currently negotiating a partnership with a well- known classifieds site to create a co-branded service similar to our personals site with Nerve. Can't mention the partner or pricing structure at this point as we're still in negotiations.

We'll also be launching a Salon-branded credit card in a few months. Over and above a bounty derived for each activated card, it will also allow us to provide those who sign up with discounts on Salon-related goods and services, as well as select partners.

4. Ad Sales

Q: Let's talk about the big one, ad sales. Myers Reports just came out with a depressing forecast that the fall upswing everyone was hoping for may not happen. What's your take on that?

Hurley: It's been very difficult, we're largely in the same boat as a lot of other sites. But tenacity is in our favor. We have a tenacious group of ad sales people. And our ace in the hole is that our content is superior to most sites, and the loyalty and passion of our audience to our product.

There was this dry period, but we've started to see pick-up already. Just last week Lexus renewed to sponsor us for the fourth consecutive year, and we've got new business from Verizon, Discover and Morgan Stanley. And about two more are sending signed IOs in the next day or two.

I take all of those reports from the Jupiters and Forresters with a huge grain of salt, because most of them aren't held accountable for their projections. Internally here we cast a dubious eye on those. I treat the results from the street as being much more indicative.

Part of it is I'm an optimist. But I worked in advertising for 14 years before I started here. Enough to know it's cyclical.

5. Syndication

Q: What are you guys doing to encourage content syndication revenues?

Hurley: We're not using Screaming or iSyndicate anymore. We weren't seeing the revenue, and it might compete with our efforts to sell directly. We do sell [to print press] in concert with United Media who are this humongous syndicator. Hundreds of magazines and newspapers syndicate our content.

A month or so ago we launched SalonWire. It's kind of in its nascent stages. We're bundling content on a daily basis and distribute it to partners in much the same way they would subscribe to Reuters or Associated Press. Obviously we're pushing 15 articles daily, so it's on a more modest scale. We think for particular types of content sites, that demand is there.

Q: What's your pricing? Most publishers say the hardest thing in syndication is picking pricing.

Hurley: $200-$500 per month fee to receive the wire service, in part depending upon the size of property and how they will be using the content. For instance, there is a difference in the pricing between a small company who may want to syndicate some our content from SalonWire on its intranet versus a larger media property who wants to use SalonWire content. Over-and-above that wire fee, we charge $100 for each article that a SalonWire client reprints or reuses.

Also, we charge a slightly higher SalonWire monthly feed for those clients that require special customization like pre- translated content for foreign language properties or parsing and sending a SalonWire that only contains specific subject matter that a client has indicated.

Syndication at Salon also encompasses things like: - Providing Salon content to emerging companies that are planning to provide cached content to airlines so that passengers can surf the internet while in the air. Revenue-share deals.

- eBooks: We're going to be announcing in the next week or so that we'll be providing Salon content, bundled into eBooks, to a very large, well-known online retailer. Revenue-share deal. It's not an exclusive, so if it shows promise, we'll pursue with additional partners in that space.

Note that we don't syndicate any Premium content. Once you start to dilute that value, the wheel comes off.

Q: What about audio content syndication to radio stations online and offline?

Hurley: We're working on some deals we can't speak to. One deal did add audio as part of an ad package with Intel. They packaged some of our audio content onto an MP3 player, so it's preloaded, and our logo is on every one of their players. They're renewing so something must be going right!

6. Email Newsletters

Q: You are very unusual among online media in that you are not currently gathering opt-in names for an email list, or publishing any email newsletters. Yet, we keep on hearing advertisers in general are becoming more interested in sponsoring email than banners. What's up with your strategy there?

Hurley: We used to have that service. We had it in a looser fashion in our early days whereby a person could just type in his or her email and receive a couple of general, 'Here's what's happening' emails. Then we had a Mothers Who Think one that was more as a reader service and good for traffic.

Then we tried to codify it a bit, and actually tried to realize some revenue from it. So early December 2000 we launched a formalized program where people who wanted to subscribe had to provide us with more information than just their email. The rationale was the more data you have the higher you can charge advertisers.

So we marshaled resources and created this big initiative, and folded it three-to-four months later because it wasn't paying out, and given the ramp up time to reach critical mass, we didn't expect to be able to break even with it for awhile.

Q: Why didn't it work?

Hurley: Our timing was less than ideal. It dovetailed with the first signs that the online ad market was starting to deteriorate. Over and above that we weren't able to effectively persuade our clients to advertise, and it needed to pay for itself.

All of the talk on the street indicated that a lot of advertisers were very pleased with newsletters. But, until you get to a critical size, you don't have a product to sell. They'd say, 'We only advertise in 30,000 minimum circ that fit this profile.' We only had about 25,000 subs or thereabouts. We didn't have critical mass.

We probably would have had to go without ads for several more months to get to that and we weren't willing to take on those costs.

We may in future add a newsletter as a service to Salon Premium.

7. Wireless

Q: Salon is distributing content to PDAs through AvantGo. Do you have a lot of wireless readers? How is that making money for you?

Hurley: Approximately 55,000 AvantGo users read us. I've gotten a lot of anecdotal notes and letters from readers who have written to express gratitude, or the fact that they really like the service. Some people actually discovered us via AvantGo, and then came to the site.

The Salon sales team sells wireless ads generally bundled as a part of a larger sponsorship package; and, recently via WindWire, which has an ad network for wireless devices.

We're also going to be on as one of the charter content providers in their entertainment base. We're doing some other things through AT&T Wireless as well.

Q: But given Salon's current proclivity for avoiding risky investments, isn't this wireless stuff out of character for you?

Hurley: We're dipping our toe in the water. Part of 20/20 hindsight of producing Internet content companies is there are so many options and everyone's trying to pursue every one of them. You've got to prioritize and place your bet on a few horses using your best judgment.

When it comes to wireless, we're taking that approach. We see it has having untold opportunity at this point. So, let's partner with a few companies we think are credible, and could be leaders, and put together partnerships that won't deplete our time and resources. As it manifests itself, we'll see where it's going and keep an eye on it. We are not seeing it as a slam-dunk, or investing much. For instance, the deal is an automated feed. You set it up and walk away.


Q: Coming from you, Salon sounds like a sensible company that could certainly make it. And you just got $2.5 million from 11 investors who agree with that judgment. So why is the press frequently so negative about Salon?

Hurley: A large swathe of journalists jumped on the bandwagon and pumped the Internet beyond any rational expectation. When things started to go sour, they then had this irrational doom and gloom lens that they focused on everything. It's become a bit of a self-fulfilling prophecy.

If you look even look at the adjectives journalists use, if revenues fall a couple of percent, they use the word 'plummet' when you could just as easily say 'dropped' or 'declined.' I don't think I'm being paranoid about this. The coverage has led in part to further marketplace spiralling.

Q: What caused many journalists' scoffing coverage when you launched the subscription service in particular? Sometimes it feels like MarketingSherpa is the only publication that's remotely positive about this model.

Hurley: I think it's a lemming effect and I think it's lazy reporting. A lot of reporters out there will be sheepish and embarrassed in how they had this blanket response that it won't work. When anyone says something in an absolute way like that, you know they will be proven wrong. 'Subscriptions online won't work' is ridiculous. The reality is that some will and some won't.

[Also] Internet [journalists] aren't as familiar with the media industry, so their expectations are all out of whack. We've been in business for five years. Well let's look at a magazine at Conde Naste or USA Today, and see how long it took them to make a profit. It took 5-10 years. It's not as if we're this aberration.

Salon in its DNA is a survivor. We've been written off a lot. We're used to naysayers. I see Salon weathering the storm. I see us getting our footing and continuing to prosper. I don't think that's being a PollyAnna.

One of the reasons I'm still bullish is I look at our content as objectively as possible and feel it's best of breed. Were I trying to market a product that was me-too, I would be having reservations. But when I look at the landscape out there, we compare very well to the best out there. To HBO, the New York Times, the New Yorker.... We just have to get through this dry spell.
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