CNN, the pioneer of 24hour television news, is about to prove one of the adages of the media business: it is very difficult for a company that built its leadership on one technology to translate that to another medium. As part of the new AOL Time Warner, the company formed last week from the merger of old and new media companies, there is a heavy irony in this.
CNN's shortcomings in adapting to the Internet, where it has been overtaken by MSNBC, a rival news organisation - and the difficulties it has had in defending its traditional cable business against new rivals - are a testament to the sort of failings that the America Online merger is meant to solve. With an announcement due within days of widespread cuts affecting up to 1,000 of the 4,000 jobs at the company, its employees are about to pay the price.
While CNN may be one of the biggest victims of the shake-out that is sweeping the online media world and beginning to encroach on traditional media outlets, it is certainly in august company. With companies such as News Corporation and the New York Times acting this month to cut their Internet losses, 2001 is already shaping up to be a bloodbath for the online media business. The cutbacks reflect a belief that it could take years to develop profitable Internet businesses. Job cuts announcements have come from media companies of all types in recent weeks: global media conglomerates, television networks, newspaper groups and websites.
Only three years ago, many of these companies faced the same intense pressure as companies in other industries, from retailing to manufacturing, to develop Internet strategies - and quickly. They were told to spend heavily or risk being overtaken by aggressive rivals emerging in the online world whose stock prices had quickly grown to dwarf their own.
Today, these digital units are facing the same sweeping cutbacks as their dotcom counterparts. Some of the traditional companies, which had hoped to compete by issuing a lucrative spin-off of their digital properties into the public markets, are now dealing instead with the grim reality of cutting jobs and consolidating operations.
The push for profits comes at a difficult time. The advertising market generally appears to be slowing and the online advertising market is set to show very little growth in at least the first half of this year. Even without the millions in losses that piled up from dotcom investments, times would be still be tougher for media companies. Signs of the new austerity at US media groups began with the television networks. NBC restructured its online unit, NBCi, last summer, and CBS cut many jobs at its Internet division. In August, Viacom decided to abandon the centrepiece of its Internet strategy, a public flotation of MTVi. Job cuts at the music network's online division quickly followed.
The job loss announcements have become more frequent this year, however. The New York Times's Digital division cut 69 jobs, or 17 per cent of its workforce, following a decision to pull its plans for an initial public offering. The company has also severed its relationship with TheStreet.com, the financial website, by ending a joint newsroom and selling most of its shares in the company. Rupert Murdoch's News Corp dramatically scaled back its involvement in the Internet, ending a relationship with WebMD and integ rating production of its Fox websites with the television group. Industry Standard, one of the "new economy" magazines, also cut jobs in January. NBC, reacting to a slowing advertising climate, acted last week to cut up to 600 jobs.
Taken together, these moves appear to indicate that the traditional media's brief fling with the Internet has ended. Indeed, the pressure to spend heavily to secure a place in the new medium is off for now, given the fact that many Internet media companies, once considered threats, now desperately need to conserve cash. The possibility of suddenly being "Amazon-ed" - confronted by a powerful online upstart seems less likely.
In addition, net users' behaviour is changing in ways that favour the top sites. According to Nielsen/ NetRatings, which monitors online traffic, the trend is toward more focused, purposeful web use as opposed to random surfing. Analysts say that the retrenchment that is happening at traditional media companies was needed, and over the longer term should be healthy. Many tried to do too much, they suggest, and needed to streamline their efforts.
"I don't think anyone is throwing in the towel on the Internet," says David Londoner, an analyst at ABN Amro. "Most (big media companies) went in with very ambitious programmes. The attitude was, we have to be in this space, and we're going to develop portals and content of our own." That has given way to more modest goals, he adds: most are now limiting themselves to promoting their existing brands and content over the Internet rather than trying to expand into entirely new businesses. There are some concerns that the pullback could go too far, however.
"The traditional media businesses are more profitable and are better economic bets right now, but that's not going to be the case forever," says Robert Herzberg, an analyst at Jupiter Research. Traditional media companies are, he believes, feeling intense pressure from Wall Street to cut losses and there is a risk of cutting back too much.
"This is not the time to get whipsawed by what is happening in the stock market and throw away your plans altogether."
The expected moves by CNN reflect more than just the changing fortunes in the Internet sector, since the group has been losing market share to rivals at Fox and NBC. Yet the greatest impact is likely to be felt in the online division.
As the dotcom shakeout continues, it appears that the traditional media companies have less to fear from pure web-based rivals as it once appeared. The question now is whether they can find the proper balance between cutting the boomtime excesses and maintaining the level of investment needed to prosper from the web.
"I would argue that the pressure now is to disinvest as wantonly as they invested before," Mr Herzberg says.
