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Politics sites sink
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November 7, 2000: 1:51 p.m. ET
Politics.com, other sites struggle with advertising shortfall, lack of traffic
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SAN FRANCISCO (RedHerring.com) - The outcome of the presidential election may still be in doubt, but you don't need to check the exit polls to learn the fate of publicly traded political Web sites. Just take a look at the stock charts and it's clear that investors have clearly voted against companies like Politics.com.
Politics.com recently put its URL on the selling block. Howard Baer, Politics.com's president, says he wants to sell the rest of his company's political assets and is looking to form a different company using Politics.com's publicly traded status.
"I want to be as far away from politics as I can," Baer said. "We went through about $5 million and have nothing to show for it. The majority of that investment was mine. The rest, of course, was individual stockholders'."
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We went through about $5 million and have nothing to show for it. The majority of that investment was mine. The rest, of course, was individual stockholders'.
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Howard Baer
President, Politics.com |
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And did they ever lose. The stock began trading in August 1999 at $7.75, following a complicated transaction known as a reverse merger. Politics.com transferred its assets to publicly traded Loan Oak in exchange for 7 million shares of stock. Loan Oak then changed its name to Politics.com. The stock hit a peak of $10.38 in September 1999, but the company's valuation has declined steadily since. It currently trades at 31 cents per share.
It's no secret that investors have scorned online content companies. Most Net companies with ad-based business models have struggled as the effectiveness of banner ads has been called into question and the prices for these ads have dropped. But all-purpose political news sites are suffering from an additional problem: lack of traffic. Politics.com couldn't even attract political advertising. The company generated just $3,604 in revenue during the first six months of this year, and lost $1.9 million.
Can't compete with big media
Not too long ago, political pundits were unable to contain their excitement over the possible changes that startup political news sites would bring to the election process. Detached from major media conglomerates and the biases that many perceive those organizations to have, the startups held hopes for a new kind of democracy. But they couldn't compete with the news portals of major media stalwarts like Fox and NBC. At its height, Politics.com had only 16 reporters.
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Wall Street found K Street, but investors didn't understand how people get involved in politics. We are now seeing the fallout of this.
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Pam Fielding
Principal at E-advocates.com |
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"How do you compete with a CNN and an ABC?" Baer lamented. "Besides, nobody is going to sit at a computer all night and watch election results. They are going to be flipping through TV channels."
Old habits are hard to break. And Politics.com discovered that more people are politically involved on a local level or on an issue-by-issue basis. That left only a small group of political junkies for Politics.com to try to attract as readers.
"The shakeout that we have been expecting in the Net politics space has been interesting and breathtaking to watch," says Pam Fielding, principal at privately held E-advocates.com, which runs online campaigns and consults around advocacy issues. "Wall Street found K Street [where many lobbyists have offices in Washington, D.C.], but investors didn't understand how people get involved in politics. We are now seeing the fallout of this. Some [political news sites] are going under. Others are revamping their strategies."
Market woes force restructuring
Indeed, Politics.com's failure has sparked other publicly traded companies that had focused on the business of politics to reorient their strategies. One company that tried unsuccessfully to sell its political business is Medinex Systems (MDNX: Research, Estimates), formerly known as Netivation.com. Medinex changed its name and restructured its business model to focus on health care. The company separated its politics division, named it Votenet, and agreed in July to sell Votenet to Politics.com in exchange for 80 percent of Politics.com's stock, or 40.1 million shares.
But last month, the two companies mutually decided to void the transaction. Medinex is not yet profitable and is currently trading at 75 cents, or 93 percent below its 52-week high of $10.
Votenet, an Internet business software company and Web-based consulting service, is still a wholly owned subsidiary of Medinex. According to Votenet President and CEO Glen Hughlette, more than 1,000 customers license Votenet's software on an annual subscription basis.
The company also publishes a U.S. Congress handbook, a mainstay for lobbying and advocacy groups, as well as an opt-in e-mail newsletter, which Microsoft helps distribute. The company still plans to have some political news sites, but they are expected to account for just 10 to 15 percent of Votenet's overall revenue.
Polling for profit
Political news clearly is not the key to a successful business model, but other companies are broadening their offerings to include polling and other opinion research, for which they can charge. During the Democratic national convention in Philadelphia, privately held Speakout.com partnered with MSNBC, and the company teamed up with Fox for the presidential debates.
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We are counting on the elections this year to solidify the efficacy of Net polling.
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Dan Hucko
Vice president, Harris Interactive |
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Indeed, polling companies that offer online political surveys are both competitors of and providers to large media organizations. "These organizations come to companies that are on the cutting edge," argues Josh King, VP of national affairs for Speakout.com. "This isn't the sort of thing for which Fox or NBC has a large staff."
Technology research firm Forrester Research (FORR: Research, Estimates) also performs online political polling, as does Harris Interactive (HPOL: Research, Estimates). But while such companies are banking on the fact that political polling is faster and cheaper, it currently is not a huge generator of revenue for either of them.
Online political polling is just a small portion of Harris Interactive's business, said Dan Hucko, vice president of marketing communications. Most of the company's revenue comes from market research surveys. "We are counting on the elections this year to solidify the efficacy of Net polling," Hucko said. But so far, investors have not been impressed. The stock is currently trading at $4 -- 83 percent off its 52-week high of $24. Harris Interactive went public last December.
Even though many say the fusion of politics and the Net is inevitable, companies flooding into the space are still struggling for viable business models. 
© 1997-2000 Red Herring Communications. All Rights Reserved
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