CAN WIRED GET WIRED AGAIN?To make money, the new-media company may have to get less hip
When Wired Ventures Inc. prepared to go public last year, even the most mundane details of the deal had to reflect the distinctiveness of the hip, San Francisco-based media company. The prospectus, usually a formulaic, dry document, could not be the typical black type on chintzy white paper. No, company executives demanded, their prospectus had to be as snazzy as Wired, the glitzy publication launched in 1993 that chronicles the issues and the spirit of the cybergeneration. Wired's prospectus featured bright colors, modern type, and odd page sizes.
Such gimmicks may sell magazines--but not equity. Wired's IPO failed not once but twice. Prospective investors were leery of the red ink being generated by the company's far-flung operations. In the first half of 1996 alone, the company lost $35 million. ''In the grand scheme of things, it didn't matter what the [prospectus'] color was,'' concedes Wired's 48-year-old co-founder and chief executive, Louis Rossetto.
FAR CRY. Indeed. By the time the humbled company found $21.5 million in badly needed private financing this January, it was valued at just $125 million, say sources familiar with the deal. That's a far cry from the $450 million valuation sought less than a year earlier. The culprit was, Rossetto says, a slump, which has since recovered, in the market for new tech stocks. ''Our value has tracked the movement of the market pretty directly,'' he says in his first interview in more than a year. ''You accept the good luck when you get it and the bad luck when you get it.''
But Wired's changed fortunes aren't solely the result of bad luck. The company got caught in an all-too-familiar quandary faced by young, cocky upstarts: how to manage growth without overstretching resources, overestimating financial returns, or overhyping market potential. As a hot property, Wired was expanding at a heady pace. It had a book-publishing unit. It produced a weekly TV show for the MSNBC cable network. It launched a separate Wired in Britain. And it invested heavily in online products. ''There were times when we were moving faster than I was comfortable with,'' admits co-founder and president Jane Metcalfe.
The company could not sustain all that on an eroding capital structure and overtaxed executives. By yearend, 1996, Wired employed 360 people and was burning through some $3 million a month. Explains Morgan Stanley & Co. analyst Mary Meeker: ''The company was overly ambitious. Louis and Jane started with a good idea that was very timely. But then they got way ahead of themselves about what they could do with the brand. Wired believed that its cash burn would be well-received in the market. But the market said no.''
So did the company's investors, which include Advance Publications, Providence Equity Partners, and CUC International. Some Wired investors have been pressing for an end to the red ink. ''The investors have been much more vocal,'' says a source close to the company. And Rossetto and Metcalfe, who also live together with their new son, have been listening. They are slashing staff, closing ventures, and aggressively cutting costs. No longer is growth the company's mantra. Today, it's profit.
That new agenda meant the end of the fledgling British version of Wired, which folded in January. HardWired, the company's book division, is now just a marketing vehicle for ideas developed at Wired. Television production has been put on hold indefinitely since their weekly MSNBC program was canceled after just four episodes because the network found it too esoteric for a mass audience. Wired's online business, which still employs about 150 people, has been streamlined. It now manages four brands, including HotWired and Wired News, instead of the 11 brands of 1996.
NEW TALENT. The retrenchment, while painful, seems to be paying off. The company says Wired made money for the first time ever in the first quarter of 1997 and has remained profitable. The November issue carries a record 174 pages of advertising. The company's digital offerings, which still lose money, have seen revenues climb so far this year to $8.4 million, from $4.3 million in all of 1996. And with total revenues expected to hit almost $50 million by the end of the year, Wired Ventures now says it will be in the black by the end of 1998.
Cutting costs, however, is only the beginning. Wired must also recruit some savvy managerial talent to stand any chance of becoming a major media player. To make way for that to happen, Rossetto is giving up his post as the company's chief executive. Investors and analysts applaud his stepping aside. ''Louis has taken this company from nothing to $50 million,'' says board member Paul Salem, managing director at investor Providence Equity Partners. ''Now the question is, can we find somebody to take it from $50 million to $300 million?'' Rossetto will remain the company's chairman and editor-in-chief of Wired, though he is bringing in a top editor to oversee day-to-day operations.
Some insiders say these key personnel shifts will loosen the tight control Rossetto has wielded at the company from its earliest days. He personally writes most of the magazine's headlines. ''Louis won't let go and he won't engage,'' says one insider. ''He's got to do one or the other.'' Rossetto dismisses such perceptions, saying flatly that he is not a micromanager.
The company has other key vacancies, after the departure of several high-level corporate and editorial staffers. ''Management is an issue,'' admits Lawrence Wilkinson, a Wired board member who is a co-founder of Global Business Network Inc., a consulting firm in Emeryville, Calif. ''If we're serious about growing, then we need to increase the breadth of our senior management.''
Whomever the company recruits to buttress its management ranks will face a thorny issue that Rossetto and Metcalfe already struggle with: How to keep Wired's hold on the elite digerati while broadening its appeal to garner more readers, advertisers, and financial stability. That won't be easy to do without alienating Wired's core readers. ''Wired can be kind of inaccessible for the general public to read with its cryptic text and intricate graphics,'' observes Peter Storck, an analyst at Jupiter Communications. ''But if it wants to extend its reach, it will have to get a little more mainstream.''
But to do so, Wired may need to tone down some of the edge that makes it so cherished by its core readership. Take the company's arrangement to have its content on a channel of PointCast Inc.'s World Wide Web business network. One of the first Wired stories broadcast on the PointCast site contained an obscenity, which offended some PointCast customers. The two companies now have an agreement that all profanity will be edited out of Wired stories. Wired has become one of PointCast's most popular features, and the arrangement brings Wired some $1 million a year in ad revenue.
The success of the venture underscores Wired's new commitment to taking on partners rather than going it alone. ''We don't have to invent everything here ourselves,'' says Metcalfe. Since the beginning of the year, Wired has inked deals with Reuters NewMedia, Merrill Lynch, and Nippon Telegraph & Telephone. ''There's a lot of room for this brand to grow,'' says Jeff Simon, the company's chief financial officer. ''We've only just scratched the surface.'' That may be, but Wired still has to prove that it can make money and be cool at the same time.
By Linda Himelstein in San Francisco
Updated Oct. 23, 1997 by bwwebmaster
Copyright 1997, Bloomberg L.P.