If start-ups ran on journalism awards rather than venture capital, APB Online would have been a business success. But they don’t and it wasn’t. Instead, one of the most respected news organizations to launch on the Internet went bankrupt. Shareholders wiped out. Creditors largely unpaid. Employees laid off. Millions of dollars lost. A poster child for the dot-com crash.

Some in the press have called the trials of APB a test of whether quality journalism can survive on the Internet. They’re missing the point. The real issue is not about the quality of journalism, but the business of media. At hand is whether the Internet can midwife significant, stand-alone journalistic institutions. The Web—the best medium ever invented for the transmission of news and information—already offers plenty of fine journalism and always will, from niche “zines” to the online extensions of major networks and newspapers. But can new mass media players—companies started outside of and in competition with the old media’s giants—be born online? Can and will the future equivalents of today’s CNN’s, ESPN’s and Wall Street Journals gallop in from the digital frontier, rising as true national brands above the flotsam and cacophony of the million-channel medium?

In the spring and summer of 1998, my two cofounders (both ex-investment bankers) and I set out to join the army of online pioneers trying to answer those questions in the affirmative. Marshall Davidson, our CEO, had been trying to launch a television network for crime, justice and safety—a sort of ESPN for this hugely popular genre—on cable. But the Internet’s emergence as a popular medium suggested such an endeavor might now be possible without the interference (and onerous financial demands) of the cable operators, networks, newspaper chains, and other traditional gatekeepers. We decided to forsake cable, at least for the time being, and strike out on the Web.

Our plan was simple and consistent with the launch of many earlier media brands: develop popular content, use it to obtain distribution, win a large audience, and then “monetize” our visitors (in APB’s case, through sponsorships, e-commerce, syndication and other revenue lines). At the same time, we would work to spread APB offline, into television, magazines and other media outlets, using them to acquire revenue and drive traffic back to the Web site. As with the launch of many well-known cable networks and magazines, this plan assumed a multi-year “burn to break even,” in which investors would fund APB until the company turned profitable. But unlike those earlier launches, often paid for in large part by parent media companies of some financial patience, APB had no parent. We turned instead to other sources of capital.

Back in 1998 and 1999, many venture capitalists and fund managers were taking a new interest in journalism. Some of these investors might never have considered backing the launch of old media properties, with their long waits for profitability, relatively modest valuations, and expensive hordes of pesky journalists (or “content creators,” as they’re now sometimes known). In contrast, the new wave of online media companies seemed capable of going public fast at substantial valuations. Part of it was due to business efficiencies the Web appeared to offer, from reducing the cost of “publishing” to providing an immediate worldwide audience. The rest of the attraction was simpler—no matter the underlying logic. The stock market was assigning unprecedented valuations to Internet companies. The bigger the “space” (the niche or potential market), the better.

All of this attracted many sophisticated investors eager to participate in the APB business plan. One well-regarded firm—one of the best run and most responsible we encountered—invested more than one million dollars in APB without meeting anyone from the company in person. In the end, we were offered more money than we could accept under our business plan.

And off we went. No wild parties, fancy offices or lavish salaries—just a detailed business plan and plenty of seven-day weeks. From the beginning, APB was built upon a bedrock of journalist excellence, not because the cofounders believed in its social value (although we did), but because strong journalism was necessary for business reasons. APB’s content had to be of unquestioned quality for us to make deals with the major Internet portals, television networks, and print publications. This was especially true given our genre, which was prone to sensationalism, and our launch medium, which was viewed with suspicion by many in old media.

We proceeded to hire (in the early days at the local Starbucks, since we had no office) a superb team of journalists with experience everywhere from CNN to The New York Times. They included: Hoag Levins, former executive editor of Editor & Publisher magazine and its Web site; Karl Idsvoog, television investigative journalist and 1983 Nieman Fellow; Syd Schanberg, legendary reporter and columnist; Bob Port, former AP investigative editor; Michele Riordon-Read, ex-ABC News producer, and many more.

With ink in their blood and keyboards at their fingers, the APB crew set out to apply the ethics of the old media to the technological promise of the new, taking advantage of the breadth, depth and interactivity of the Web to pursue enterprise journalism in new ways. For example, the day Frank Sinatra’s voluminous FBI file was released, APB put it online live in its entirety, along with numerous stories outlining its context and significance. We rated the crime risk around the campuses of all 1,497 American four-year colleges, supported by our reporting, and the full, unexpurgated responses of all colleges that offered them. We sued the federal judiciary to get financial disclosure reports for judges onto the Internet—part of APB’s unique public records effort, which involved thousands of Freedom of Information Act and other data requests.

This sort of work won numerous awards for APB Online, including the first Society of Professional Journalists SDX Award to a stand-alone Web site, the first Scripps Howard Foundation award to an Internet news company, an Investigative Reporters and Editors special citation, and the National Press Club Award for best journalism site. Brill’s Content called us one of the top news sites on the Web.

The result: APB constructed one of the best distribution networks of any Internet start-up. Our stories ran on AOL, MSNBC.com and Yahoo!. They were seen in Reader’s Digest and heard on radio stations across the country. We had pending agreements to air APB reports on network, local and syndicated television. An APB line of books from a major publisher was planned. Such deals helped APB capture a large and loyal audience, often more than one million unique users a month, in the top ranks of online news sites.

By early 2000, it was time to raise more money to continue pursuing the plan. Even a cable television network, the original impetus for the idea, seemed possible. But then came April 2000. They called it the Nasdaq crash, the hours when the bloated values of Internet stocks began to nosedive. Many inside the industry, including us, had always believed those valuations would come down sooner or later. But few imagined they would drop so far, so fast. Back in 1998 and 1999, APB’s founders anticipated that capital for our business might one day become more expensive. But we never conceived it would disappear altogether. Yet that’s what happened.

The fund managers, once raring to back new media brands, were now hunkered down, their portfolios tumbling. Two giant media companies that had once shown interest in being our partner backed away, their own Internet properties hemorrhaging value. In a few weeks, it all began to fall apart. Suddenly no one was interested in a long “burn to break even.” Instead they wanted a “clear and quick path to profitability.” APB did not have one. And the company was almost out of money.

As they say on the street, we were “undercapitalized” for this new market reality. Our plan to focus more on gaining audience than generating revenue in the early going was now out of favor and there wasn’t the time or cash to change gears. The summer of 2000 was the longest of my life. Unable to raise capital, we filed for bankruptcy. In early 2000, APB had been valued at $104 million. In September of that year, the company’s assets were sold for $575,000. Others can debate how much of APB’s fate was due to the decisions and skills of its management. But no one can dispute that in large part, what the market had given in 1998 and 1999, it took away in 2000.

Some of APB’s managers decided to stay on with the new owners (SafetyTips.com) hoping the financial climate would change and the site, its expenses slashed, could survive long enough to find funding, albeit as a much more modest business. “I’ve always believed that good journalism is good business. Wherever I’ve worked, delivering great content has built both the ratings and the brand. But you can’t build either quickly. If USA Today had had our budget, it would have been out of business in six months,” said Idsvoog, APB’s vice president.

Hoag Levins, APB’s executive editor, believes the online journalism model will be proved over the next several years, as increasing household access and usage take the Web to a “flash” point of consumer and advertiser acceptance. “Savvy investors are buying into the ownership of a piece of that ‘flash’ when it occurs. In the context of this unavoidable reality, Wall Street’s sudden demand for guaranteed Web site profits next quarter is as shortsighted as it is ridiculous,” Levins said.

As I write this in the fall of 2000, that “flash” seems far off as the valuations of online media companies continue to slip. CNET and SportsLine, two fine Internet brands that went public before the crash, have watched their market caps plunge. Salon, FOXNews.com and others have been laying off staff. TheStreet.com, according to Business Week Online, has seen its market capitalization drop to some $84 million, even though it has $88 million in cash on hand. In effect, the market is assigning no—or negative—value to the underlying business. Even The New York Times has withdrawn its plans for a tracking stock to cover its digital-media properties.

Hoag Levins is probably right. This drought won’t last forever. Online advertising continues to grow, with more and more major corporations spending large amounts of money on the Web. But most of that money is concentrated on the Internet’s top destinations, which among the news sites means those belonging to the offline media giants. Sooner or later, the stock market’s appetite for Internet companies, once ludicrously large and now nonsensically nonexistent, will achieve some sort of equilibrium—especially for the New York Timeses and MSNBC.coms of the world. But that turnaround will take time and may never fully reach the independent players.

I don’t have the heart to wait. When APB was sold, I declined an offer to stay on. I’m now the chief operating officer of Parlo Inc. and its Web site www.parlo.com, a multimedia e-learning company that provides language education and cultural information to customers around the world. Unlike APB, Parlo doesn’t have to prove the need for its services—the worldwide demand for language instruction is huge and growing among consumers, institutions and businesses. Unlike APB, Parlo need not demonstrate that customers will pay for these services—they already do. And importantly, unlike APB, Parlo can ignore the capital market’s current blind pessimism about online journalism.

Nowadays, I go to work happy. Certainly there are mornings when I miss the adrenaline of a breaking story, the fascination of going through a newly declassified FBI file, or the feedback from a visitor who was made safer by information on the APBnews.com site. Maybe I’ll try it again sometime.

Perhaps there will come a day when it makes sense to launch a major new journalism brand online. But for me at least, it probably won’t be anytime soon.

Mark Sauter spent most of his journalism career as an investigative reporter on national and local television and also worked in print, radio and books. He was cofounder, chief operating officer, and executive vice president/content of APB Online Inc.

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