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Foe Salon Media Group

Essay by   •  December 9, 2016  •  Case Study  •  5,703 Words (23 Pages)  •  1,230 Views

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  1. Company History

Origins 

In 1995, David Talbot founded one of the first digital media content sites, www.salon.com. Talbot, using his background as an Editor, recognized an opportunity to exploit a new content distribution channel in the internet. Along with a few former colleagues from The Examiner, Salon began publishing articles on its site well before other major news organizations understood the value of providing content online. Salon’s writers focused on politics, culture, and breaking news from a liberal perspective.

In meeting with investors, Salon marketed itself as a leading internet media company. The firm’s business model was very simple. Salon would produce content and host it on its website. Readers would visit the site to access its content, and once on the site, readers would be shown ads. Salon was one of the first web-only publishing sites, so it possessed some first-mover advantages. Salon did an IPO in 1999, raising $25 million, despite never showing an ability to make positive earnings. The value was in the growth of the business, and Salon’s strategy was to grow as fast as possible.

2002 – 2009

A few short years after going public Salon was on the brink of bankruptcy. The continued losses had eaten away at its capital base and the cash burn rate was unsustainable. By the beginning of 2003 the auditors of Salon Media Group expressed their belief that the company’s ability to continue as a going concern was in jeopardy. Unable to pay rent, Salon would need cash infusions and new capital to continue operating. The company turned to board member John Warnock and William Hambrecht for additional equity.

Between 2003 – 2005 Salon underwent executive shake ups and Talbot, the founder, was forced out of the company. With additional capital and a new leadership team, the company felt revitalized to compete. In 2004, Salon entered into a partnership agreement with Rolling Stone Magazine to co-author six articles. This partnership, along with its coverage of the 2004 election, led to Salon’s best year in revenue to date. It certainly felt like the company was headed in the right direction. Yet, Salon could not continue this success into the future as the election season was over and the content created did not keep pace with the demands of readers.

Salon, once again, found itself in the all too common pattern of losing money, announcing budget constraints and doing layoffs. Its new leadership created a new plan to increase revenues, and in 2007 Salon began offering a subscription service.

The 2010’s

The 2010’s found Salon playing catch up. It eventually closed its subscription business as it cannibalized its advertising dollars and never caught on with readers. As a result, it was back to its original strategy of producing content and selling ad space. Yet, in the meantime, Salon struggled to stay ahead of changing technology. Social media and smart phones had shifted the market place, and Salon was not quick enough to embrace these changes. Like most in the industry, Salon had not created a viable solution to generating ad revenue from its growing mobile segment. By the end of 2015, ad revenue declined and costs were increasing and Salon is struggling to stay alive.

  1. Business Plan Assessment

Current Strategy

In 2016, Salon operates as an online media company. At this point in the life of the company, Salon has divested all other activities apart from running and publishing content on www.salon.com. The site covers a variety of topics, but has the best draw in breaking news, politics, and culture. To generate revenue, Salon offers an assortment of advertisement products that it sells directly to ad buyers, as well as through programmatic advertisement marketplaces. These products include: homepage spotlight, advertiser-sponsored articles, content verticals, and custom site skins than will appear when a user accesses its site. Additionally, over the past few years, Salon has made forays into creating video, which advertisers can sponsor or run ads before a user accesses a video. Users access Salon’s content through desktops, smart phones, and social networking platforms.

To attract users to its site, Salon produces and publishes original and independent content, both in written and video formats. Its mission in creating content is summarized in two main tenets. First, it produces original and “proactive” content that is not typically covered by mainstream media. Second, it sorts through the “clutter of the internet” to report on stories its audiences want. This content has tended to come from a liberal, left leaning point of view. To date, this strategy has not produced a single year of positive operating income or earnings for the company (See Exhibit 1 for Income Statement).

Target Market

Salon’s target market is described as a reader who is “highly educated” and “affluent”. It believes that readers who are attracted to its site are people likely to be influential in their communities and thought leaders. As a result of this targeted demographic, Salon believes advertisers will find its user base very attractive, which should lead to a higher price point it can charge advertisers.

However, this strategy has not materialized. The industry sells advertising space based on a cost per thousand “CPM” impression metric. As a result, a media company can increase its revenues by growing the number of visitors to its site, which forces a buyer to purchase a larger quantity of ad space, or it can look to create a differentiated product that commands a higher CPM. Competition for these scarce advertising dollars is extremely fierce in the digital media sector, and ad buyers largely favor sites that drive in a high number of unique visitors.

Historical data shows buyers have been reluctant to pay up for Salon’s demographic, and are more likely to pay a higher rate for premium products like video or mobile, two areas where Salon has been a laggard. To be competitive in the future, Salon may have to evaluate if its target market has enough breadth to grow its number of unique visitors. In a 2015 Gallup poll, only twenty-four percent of Americans identified as liberal (See Exhibit 2), and its focus on writing for the liberal audiences could be alienating a large portion of readers, which is one of many possible reasons Salon has not shown strong visitor growth throughout its twenty-year history.  

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