Typos and IPOs
Snobs that we are, we like to pretend that we don't think much about Salon, the only roughly comparable magazine on the Web. But the truth is that it does cross our radar screens from time to time. Do we regard Salon as our competition? Yes and no. We are somewhat direct competitors for advertising dollars, but for readership the question is more complicated. The real competition for any publication in any medium is the clock: There are only 24 hours in a day. Strangely, the least competitive rival claimant for those hours is likely to be a similar publication. Print magazines, which depend on direct mail for generating subscriptions, usually find that their best prospects are subscribers to magazines they most closely resemble. Harper's does best with the mailing list of the Atlantic Monthly, and so on. This isn't because people are persuaded to switch, but because someone who has already eaten a blueberry bagel is more likely to eat a strawberry bagel than the average person is to eat a fruit bagel of any sort.
In a fledgling medium, similar publications are even more interdependent since the viability of this sort of enterprise is unproved. The cold, hard fact is that we need Salon to prosper and vice versa. The warm, throbbing fact, however, is that we are only human. And rumor has it that they are as well. Human emotions like Schadenfreude--and there must be a German word for reverse Schadenfreude: distress at other people's happiness--inevitably complicate rational business judgment.
Despite our best efforts, we couldn't help noticing lately that Salon has announced an IPO. That stands for international poetry Oktoberfest. Just the thing for a political-cultural magazine. No, actually, IPO stands for initial public offering. That is, they're selling stock, a more unusual enterprise for a political-cultural magazine. Two and a half million shares will be offered at about $12 a share. That will raise $30 million, if they pull it off (minus a few million for the midwives). And this is for less than a quarter of the company. At $12 a share, the value of the whole enterprise would be almost $130 million. The editor in chief's shares would be worth more than $6 million.
That $130 million would be an astonishing figure for a political-cultural magazine even if it made money. It's about what the queen of the genre, The New Yorker, went for in 1985, when it was still profitable. But Salon is losing money at a rate of $6 million a year and admits that this figure will probably increase. (Salon also claims to be much, much more than a political-cultural magazine, and we intend no insult by describing it as such.) Martin Peretz, the owner of the New Republic, has joked for two decades that he'll only sell TNR for "20 times losses." The owners of Salon are asking even more, and it's no joke. Or at least, it's not only a joke.
(Marty Peretz, meanwhile, is seeing his own joke come almost precisely true as co-owner of TheStreet.com, which is losing $16 million a year and is going public at a price that would value the whole company at $300 million.)
And what do we at Slate think about this? If we had any sense, we'd be delighted. After all, if Salon is worth $130 million, Slate must be worth ... well, a lot. Maybe more, maybe less, but same ballpark. As a division of a big company, we can't go public ourselves. But a successful Salon IPO certainly will help when it's time to ask Dad for our allowance. Also, our goal is to become profitable. If the Salon IPO works, "the market"--America's answer to the Oracle at Delphi--will have declared its judgment that this sort of thing can become a real, profit-making business.
Trouble is, Slate has been ridiculing the Internet bubble all along. (See almost any random Moneybox item for the past six months, or Bruce Gottlieb's recent piece on "Internet eyeballs.") How can we convince ourselves that this one particular IPO is a rational reflection of actual economic potential if all the rest are a reflection of something closer to clinical insanity? The truth is that we can't. The deeper human truth is that we don't especially want to. The good fortune of other people is annoying enough (however good your own fortune may be). At least let us cling to the belief that it is unjustified.
Now that we've made our general attitude toward Salon and its IPO perfectly unclear, let us take a look at that IPO prospectus. We were alarmed to discover that it is riddled with typographical errors! Typos are an athema to any high-qualidy publcation. Careless proofreading is a shure sign of inner wroght. Although we certainly do not wish to discourage anyone from investing in Salon, we feel an obligation to inform our readers about these troublesome lapses. They are especially shocking in a formal government filing, vetted by lawyers, in which inaccuracy can result in disastrous lawsuits. And yet:
- The prospectus reports revenues of $2,058,000 in the nine months ending Dec. 31, 1998. (And $300,000 of that in advertising barter--an ad for an ad--leaving cash revenues of about $1.7 million.) This cannot be right. It is clearly far too low, since David Talbot, Salon's "chairman of the board, editor-in-chief and director," told Newsweek last September that revenues "this year" were $6 million. It might be mathematically possible that Salon had $4 million in revenue during the first three months of 1998 and $2 million in the last nine months, thus $6 million for the year--except that the prospectus also reports revenues of $1.1 million for all 12 months ending March 31, 1998. It is unthinkable, of course, that Talbot--a journalist, as well as commander, grand high executioner, and maximum leader--would have lied to Newsweek. Especially when Salon "executives" gave the same $6 million figure to the Los Angeles Times in June. So, clearly the $2 million figure is a typo.
- Talbot also told Newsweek that "profits won't come until 1999." This was barely three months before 1999 began. So, the prospectus is surely mistaken in saying that Salon lost $4.3 million from April through December of 1998, and "We expect these operating losses to increase for at least the foreseeable future." Of course, "profits won't come until 1999" doesn't necessarily mean that profits will come in 1999. It depends on what you mean by "until." But Salon told a trade publication called Link-Up in November 1998--just two months before the dawn of bliss--that "Salon is slated [sic] to turn a profit in 1999." It's a disgrace. How could Salon be so sloppy as to report large and growing losses in its prospectus when it actually is already profitable?
- The prospectus states: "Our revenues depend on a limited number of advertisers and sponsors who are not subject to long-term agreements." And, "We anticipate that our financial results ... will continue to significantly depend on revenues from a small number" of advertisers. The problem here is probably the classic misplaced "not." They mean to say: Our advertisers are subject to long-term agreements, and our financial results will not depend, etc. After all, the January/February Columbia Journalism Review cites Talbot as saying that Salon has "more than 120 advertisers, half long-term." Or maybe CJR is the sloppy one here. Did it omit Talbot's explanation that all those long-term advertisers will contribute insignificant revenues?
- Here's a real puzzler. Back in 1997, Salon told PC Week that it "gets $60 per 1,000 page views, compared with $20 to $30 for Yahoo" from advertisers because its readership is so classy. And yet Salon's 1999 prospectus refers to "Salon's average CPM [cost per-thousand] of $23"! Has Salon's advertising CPM actually sunk by two-thirds? More likely that $23 is supposed to be an $83 or a $123.
- On a subject of particular interest to Slate, the prospectus says this about Salon's paid membership program: "As of March 1999, there were approximately 1,050 members enrolled in the Salon Members program." One or two zeros probably were dropped here, as 1,000 members at $25 each would be merely $25,000, and yet Talbot told Columbia Journalism Review in January that revenues from the program were "above what our projections were." Were they projecting fewer than a thousand members? Unlikely. So the truth must be that they have 10,500 or even 105,000 members, since it goes without saying that Talbot could not have been trying to mislead the Columbia Journalism Review.
Let us, though, just for the heck of it, consider the possibility that perhaps the prospectus is accurate and all these quotations and citations from Talbot and others at Salon are in error. Is such a thing possible? Although highly unlikely, it's possible, we suppose, that all these distinguished publications repeatedly misheard the same individual in the same way, although he has no speech impediment that we know of. Surely, though, it is impossible to imagine that the Salon folks themselves have been lying, spinning, and covering up. Journalists, after all, expose these practices--we do not commit them.
David Talbot has had inspiring things to say about journalists and the truth. In particular, he has spoken of Salon's dedication to a mission of exposing important facts. And he has made pointed comparisons to other Webzines that are allegedly content to sit on their fannies and analyze or summarize. Last fall Salon published the important fact that Henry Hyde had an adulterous affair 30 years ago. Many could not see the importance of this fact, but Salon said it revealed President Clinton's chief congressional accuser as a hypocrite. Those who go around exposing unpleasant facts about other people had better be truth-tellers themselves. Buckling his swash on CNN, Talbot declared: "Fearless journalists, true journalists shouldn't be worried about perception or spin. They should be worried about the truth and concerned about the truth, and that was Salon's guiding principle here."
Let's not be sentimental. Let's consider this as a pure business matter. Here is a chairman of the board, editor in chief, and director who is marketing his company as what might be called a "truth play." Truth is his company's Unique Selling Proposition, its market niche, its core competency, its brand value. It would be sheer folly for such a company to invent preposterous lies and spins and feed them to the nation's most prominent publications. That's why the only logical explanation is typographical errors in the prospectus.
Thank goodness we don't hav these poblems at Slat.