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Quasi-annual Salon update


I have a certain vested interest in the question of whether an online publication (other than the Wall Street Journal's online edition) can turn a profit, so I've been watching Salon's financial results intermittently for a while.

Back in October of 2001, I discussed their then-new subscription model. In March 2002, I noted that they had 30,000 paid subscribers, and that they would consider the subscription model a success if/when they reached 100,000 paid subscribers.

In August 2002, I found out that they had 44,000 paid subscribers, and were losing about a million dollars a quarter.

In August 2003, I noted that they had reached 62,000 paid subscribers, but were still losing about a million dollars a quarter. I also noted that I had once read that a new print magazine is expected to take about ten years to reach profitability, and suggested that Salon might be on track to be profitable by their tenth anniversary in 2006.

I wasn't paying attention last August, so I didn't post about it. But a couple days ago I found out that Salon is selling The Well (an online forum system/community that Salon bought in 1999). That article mentions in passing that Salon now has 15,300 paid subscribers, down from 20,900 a year ago. Yikes.

Except, stop the presses: that article appears to be in direct contradiction to Salon's press release from February 2005, about the quarter ending in December 2004, which says that they had 89,100 Salon Premium subscribers, "compared to approximately 73,700 a year ago." I have no idea how to reconcile those two statements. In reaction to the article I cited in my previous paragraph, I initially wrote a kind of downbeat couple of paragraphs about how it's too bad the subscription model isn't working for them; but if I'm understanding their press release, it's working extremely well, so I've deleted those paragraphs.

The article also says that their quarterly loss is down to $100,000, down from $1.2 million a year ago, but another Salon press release says they reported their first-ever "pro forma net profit" in November 2004, even though by GAAP standards they had a net loss of $1.2 million. So I suppose it could be argued that they're profitable already, depending on which standards you go by.

So I'm suddenly reversing my downbeat ending. It looks to me like Salon is finally doing well, and could even reach their 100,000-subscriber target relatively soon. Cool beans!


I don't know any details, but I believe that for a while they were giving a gift subscription with each premium. That is, a friend paid for a subscription, and I got a free year. That might possibly account for a discrepancy between subscribers and paid subscriptions, although not a five-fold discrepancy.
Unfortunately, there isn't much way to tell whether Salon is being deceptive, or whether CNET is misinformed, or what combination of those two correlates with reality. Actually, looking at the numbers, I'd guess that the CNET number (15,300) is for that quarter's renewals and new subscriptions. That might imply that there are more or less, say, 4*15K or 60,000 paid subscriptions a year, which with the buy-one-get-one might bring us up to the 89K from the press release. Particularly, I suppose, if 15,300 is lower than the previous three quarters (as it is lower than the one four quarters previous), so the paid-in-the-last-year number is between 4*20K=80K and 60K, say, 70K or so paid, with 19K comps.
Now, how many of August 2003's 62K "paid subscribers" were comps, I have no idea. I also don't know how long the gifty deal lasted, or if it's still going on. I didn't renew at the end of the free year, myself, but that doesn't tell me much.
A last point: whether or no Salon is going to turn a decent profit and provide a good return on the investor's dollars, the site is clearly Read. Not reading Salon is a trifle like not having cable tv; you will miss references. To me, that means that Salon will be likely to keep its head above the proverbial water for a few years, anyway.

I wonder if the article got confused. The ~15,000 sounds like what I remember seeing for The Well.

15,300 paid subscribers is almost exactly the increase from a year ago, rather than the total, and 20,900 sounds like the previous year's increase.

If Salon is using the print magazine model, then comps are not paid subscribers. They could be qualified subscribers if Salon qualified them -- counting qualified subscribers is important for print magazines that are given away, which is why they require you to fill out a little form every year. (And that's to keep advertisers happy, not the SEC -- since Salon can provide actual counts of viewers, their advertisers shouldn't care. Though it's got to be a slightly odd choice now to advertise on Salon, when you know that the wealthiest customers have subscribed and aren't seeing your ad -- I don't know an equivalent to that in the print world.)

I read an article about 6 months ago saying that Salon had its first profitable quarter. Don't know if it has been profitable since then, but I know they did well for at least that one.

I should note that I've been assuming "paid subscriber" and "Premium subscriber" are synonymous; I'm not sure which articles and press releases have used which terms. I apologize if it turns out they mean different things.

A few specific (but speculative) numbers: even if they had 100K subscribers, each paying $35/year, that's only $3.5M in annual revenue. Before this year, that wouldn't cover their quarterly losses. So I would assume that the return of online advertising as a viable revenue source has been really good for them. (Aside: I see that you can get a one-year "Premium subscription with ads" for only $22.50, so the numbers aren't quite as straightforward as I'm making them sound.)

Anyway, if they can keep their quarterly loss down to its current $100K level, then they only need another ten or twenty thousand Premium subscribers to break even.

Jeff: Various articles indicated that the Well currently has about 4000 subscribers; that number seems to fit with the amount of revenue that the articles said the Well has been bringing in. (4000 subscribers x $10/month/subscriber x 12 months/year = $480K/year, and the article says "about $500,000 in revenue")

Michael: Aha! That's probably the answer. The CNET article I pointed to says "Paid subscriptions ... fell to 15,300 from approximately 20,900," which I read as "paid subscribers" but which probably meant "the increase in paid subscriptions" or "new paid subscriptions." Thank you for clearing that up!

Simon: Yeah, the idea is that if you go by non-GAAP pro forma accounting, they're profitable, whereas if you go by GAAP standards, they're not. Both numbers are probably useful measures, but I suspect that it would be considered a little misleading to say that they're profitable without qualifying that by adding "by their pro forma standards." But I could be wrong.

There's also the (rather cynical?) position that with big businesses, "profitable" (wherther GAAP or pro forma) means very little, and what you really care about is the change in free cash flow...

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