(FORTUNE Magazine) – In the heady days just before the new millennium--and what proved to be the giddy last days of the dot-com bubble--Primedia's new CEO, Tom Rogers, stood before a group of analysts and fund managers at the Paine Webber Media Conference to explain his vision for the company. Basking in the glow of the Internet's as yet untarnished promise, Rogers outlined how Primedia was going to employ the new medium to transform itself from a staid magazine publisher into a multimedia powerhouse. At the end of his presentation, Rogers put up a final PowerPoint slide. Under the heading "The Most Important Credential," Primedia's logo stood beside the logo of NBCi--the NBC Internet property Rogers had helped create before he joined Primedia in the fall of '99. NBCi had recently gone public and was trading near $80 a share. Rogers' message was clear: Like NBC, Primedia had the potential to leverage its content across multiple channels--and boost its share price in the process.

That was Dec. 9, 1999. Sixteen months later NBC announced that it was buying back the outstanding shares of NBCi, which have been languishing at $1.50; a shutdown is expected soon. Primedia's stock is down to $7, from a high last spring of $32. Yet Tom Rogers has not altered his battle plan.

Rather than scaling back his Internet initiatives in the wake of last year's dot-com meltdown, Rogers has stubbornly pressed ahead with an aggressive Internet strategy, placing bet after costly bet on his vision of a fully integrated new-media company. In April he welcomed Powerful Media, the operator of media industry Website Inside.com, into the Primedia family. The previous month Primedia had completed a $690 million merger with Internet portal About.com. In the past year Primedia has also exchanged more than $100 million of ad space in its print and broadcast properties for now worthless equity in several fledgling dot-coms and invested tens of millions more in two now faltering tech companies. Of even greater concern to investors is that Rogers has built all these initiatives on the shaky, debt-laden foundation he inherited from his predecessor, Primedia founder William Reilly. "This is a company in transition," says Rogers, defending the potential of his grand strategic plan. "Our story is good, but it hasn't happened yet. It's still in the process of happening."

The story of Primedia's growth into a $1.7 billion niche media company--with myriad magazine, broadcast, satellite, and online holdings--began in 1988. That year a takeover battle raged between two of the decade's most infamous corporate players: leveraged-buyout behemoth Kohlberg Kravis Roberts and British media baron Robert Maxwell, who would make headlines three years later when his corpse bobbed up in the waters off the Canary Islands. KKR had backed William Reilly, an executive at Macmillan, in a management-led LBO of the publishing company, only to watch Maxwell swoop in and seize it. Reilly departed, taking more than 40 of his top executives with him. With financing from KKR, they founded K-III Communications Corp., later renamed Primedia.

To build Primedia, Reilly & Co. went on a $2 billion shopping spree. Between 1989 and 1995, when Primedia had its IPO, their acquisitions included trade magazine group Intertec Publishing; New York, Soap Opera Digest, and seven other consumer magazines from Murdoch's News Corp.; and Channel One, the Chris Whittle-founded company that produces and distributes newscasts in schools. Grouping all the businesses under one corporate structure--creating a mishmash of glossy consumer pubs like Modern Bride and Seventeen and enthusiast titles like Beef, Bowhunter, and Lowrider--enabled Primedia to reduce its operating costs and negotiate better contracts with printers.

Reilly was not a media tycoon in the mold of Henry Luce or Ted Turner. He was a financier who applied the same numbers-driven approach to each acquisition. He left just enough cash in the coffers to keep the new addition running and pulled out the rest to service Primedia's growing debt load and to fund subsequent acquisitions. By 1996 the company's total debt had grown to $1.6 billion, on operating profits, or Ebitda (earnings before interest, taxes, depreciation, and amortization), of just $276 million.

Given all that leverage, every new acquisition had to generate enough cash to both cover operating expenses and pay its share of the debt. But several of the company's biggest mid-1990s acquisitions have failed to do so. For example, in 1996 Primedia paid $422 million for Westcott Communications (later renamed Primedia Workplace Learning), which delivers workplace training to subscribers via satellite. But so many subscribers deserted that the company was forced to take a $261 million write-down in 1999. "Bad acquisitions made the cash position at the company unbearably tight," says one former executive, who estimates Workplace Learning's current value at only $75 million.

Primedia's chronic cash shortage left little, if anything, to reinvest in its newly acquired businesses. "Operating managers were under enormous pressure to deliver the cash, with no hope of reinvestment," says another former executive. "So there were no seedlings in the forest, and after you chopped down every tree, your numbers would drop, and you would get fired...There was never any greater vision. They never saw themselves as a media company. They were a financial-engineering company that happened to have a bunch of media assets."

By 1998, with Primedia's stock still lingering around its $10 initial offering price, KKR (which holds 82% of the stock) began to urge Reilly to take advantage of the Internet. But Reilly, whom former colleagues describe as hardly knowing how to turn on a computer, was not up to the task. (Reilly was unavailable for comment.) The board asked him to resign, and hired Tom Rogers in the fall of 1999 to lead Primedia into the Internet Age.

"Tom Rogers is the anti-Reilly," says David Adler, who ran Primedia's communications department from 1994 to 2000. "You couldn't have two more distinct, more opposite managing styles." Reilly rarely dirtied his hands in day-to-day operations of individual properties; Rogers is a micromanager whose eight-page-plus memos to his staff are already the stuff of legend. Reilly avoided the glare of the media spotlight; Rogers seeks it out, calling press conferences and issuing press releases at the slightest provocation. Finally, Reilly believed in decentralization, running Primedia like a holding company for an assortment of media brands; Rogers is intent on bringing the company together, running it like an operating company with its own distinct brand. "I knew if we could find a way to pull all those pieces together, there would be far more value there," says Rogers, a kinetic, self-confident 46-year-old who bears a striking resemblance to the comedian Robert Klein. "Integration...was one of the things that had to happen to take us to the next level."

From his office high above Manhattan's Fifth Avenue, Rogers has directed a total overhaul of the company. He realigned Primedia according to its core businesses, bringing in an impressive cast of operations managers to lead them. He consolidated offices, rearranged departments, sold several unprofitable business units, and streamlined the staff to 6,000 employees, which meant cutting more than 1,000 workers.

Still, the core of Primedia's business remains the same: to provide an outlet for so-called endemic advertisers, the small, private firms that constitute the vast majority of American business. Rogers believes that with people's media consumption moving from the general (newspapers, network television, general-interest magazines) to the specific, Primedia is well positioned to offer customers and advertisers content tailored to their individual enthusiasms--say, fly-fishing in northern Pennsylvania. If Rogers can take the content from an existing magazine and repackage it for a Website, a newsletter, and a trade show, he can offer advertisers greater choice, and boost the company's revenues, with little additional investment.

When he got to Primedia, Rogers realized that one of his properties already practiced this model: the American Baby Group. Since Primedia acquired American Baby in 1996, the magazine has been one of the company's biggest success stories. It has enjoyed steady increases in ad sales and circulation and has evolved into a multichannel brand. For example, American Baby started a consumer expo that last year attracted more than 120,000 expectant and new parents, and a Website offering greater depth of information and interactivity for readers. "The beauty of it is that we have been able to successfully drive traffic to the site from promotions in the magazine, resulting in great value for our advertisers," says American Baby Group President Darcy Miller, who was recently promoted to president of Primedia's integrated sales and marketing group. Miller credits Rogers with recognizing what she had and sharing it with the rest of the company. "This was all a dream come true for many of us, who really wanted to know what our brethren were doing," she says.

Last November, a year into his reign as CEO, Rogers put into place what he considered the last major piece of his strategy: He merged Primedia with Internet portal About.com. "If you really believe in your model, this is the time to build it," says Rogers, his calm delivery infused for a moment with passion. "Other than AOL Time Warner, we are the only major media company putting itself together with a new-media company and creating something very different than either of them ever could be by itself."

In many ways About was already Primedia's online doppelganger. The Website, which MediaMetrix rates as the fifth-most-visited site on the Internet, had a network of more than 700 human guides, each of whom compiled Websites on a specific topic. Many of the topic areas overlapped with Primedia publications. The About acquisition enabled Primedia to consolidate its more than 300 separate Internet initiatives into About and to combine the two companies' sales forces--all of which is expected to save the company $30 million. According to John Laughlin, president of Primedia's consumer magazine division, About has helped the company generate 130,000 new subscriptions to its magazines in the first quarter of 2001, vs. 50,000 in the first quarter of 2000. (By comparison, in the first quarter AOL has generated 300,000 new subscriptions to Time Inc. magazines, including FORTUNE. Time Inc.'s stable also includes Parenting and Teen People, which compete with Primedia's American Baby and Seventeen.)

While the About deal may have made sense on a structural level, it "was done at a rather inopportune time," says Lazard Freres media analyst Mandana Hormozi. "If you were to buy the same property today, you could get it for significantly less than it cost them to buy it last fall. The traffic may be the same, but the ability to generate revenues from that traffic is very different from where it was six months ago." Media buyers are also skeptical about how much more advertisers will pay for an integrated Primedia-About offering. "In theory it's a good idea," says Mediacom's Alan May. "But most companies are still not set up to buy advertising that way. Right now it's really not an easy thing to do." Primedia's first-quarter earnings report--the first since the merger--seems to bear this out. Although About's traffic increased 17%, the company reported just $23 million in new-media revenues (which includes About revenues), compared with About revenues of $34 million in the previous quarter.

Nor has it been easy to integrate the two companies. There have been glitches, like the continued delays in relaunching New York's Website. And ever since the merger, Yahoo's message boards have overflowed with vitriolic complaints from Primedia employees, prompting vice chairman Beverly Chell to send out a memo threatening companywide electronic surveillance--hardly a tactic to make free-speech types feel better about their employer. "I think of [corporate] culture as a spore dropped in a petri dish," says About founder and CEO Scott Kurnit, who now serves as Primedia's chief Internet officer. "If you put two spores in the dish, they're going to try to kill each other. I'm well aware that we are putting two spores in a petri dish."

While About was his largest gamble, Rogers spun the Internet roulette wheel several more times in 2000. In March, just before the Nasdaq implosion, Primedia traded a 5% stake in its own company for 1.53 million shares of Internet operating and development company CMGI. At the time, CMGI shares were trading at $136. They have since dropped to $3. Primedia also invested $25 million in broadband provider Liberty Digital, whose shares have since plummeted more than 90%. As a result, Primedia announced last month that it would be forced to take a $188 million impairment charge against those investments--essentially admitting that it had given up hope of ever recouping anything from them.

Rogers also made a series of costly ad-for-equity swaps with nascent dot-coms. Last year Primedia pumped out press releases touting the deals, in which cash-poor firms such as CarsDirect and eStyle swapped equity stakes in their companies for advertising. Now CFO Lawrence Rutkowski talks euphemistically about the company's "limited exposure" and insists that the deals never exceeded 3% of Primedia's revenues. Yet CableWorld, one of Primedia's own publications, reported that the company did 41 of the deals, to the tune of $150 million--which would represent closer to 10% of its 2000 revenues. One former Primedia executive ups the ante further, estimating that his old division will lose as much as 20% of its expected 2000 revenues to phantom dot-com equity sitting on its books.

Primedia now finds itself in the precarious position of having to cope with all these new-media losses on top of its already cumbersome debt. Despite paying off more than $500 million in the past 12 months, and excluding Internet investments, the company's debt is still five times greater than its $335 million in Ebitda--an exponentially greater debt load than any of its competitors' (see chart). "In the short term, [the About acquisition] puts pressure on the company from a leverage point of view," says Christina Padgett, an analyst at Moody's Investor Service, which gives Primedia's debt junk-bond status. "Even over the long term, the financial benefits are difficult to measure."

The timing of Rogers' Internet losses couldn't be worse. Increases in postage rates and paper prices have put pressure on all media companies. And though Primedia's endemic-advertising revenues for the first quarter are up 9%, that's not enough to offset the damage. Wall Street analysts, who fervently supported Rogers' early integration efforts at Primedia--and helped push the stock to a record high of $32 last spring--have grown unenthusiastic about his Internet agenda. The stock had already declined 50% before the About merger was announced. In the months since, it has dropped another 30%. "Tom Rogers hitched his wagon to a star that burst," says Paul Hale, a managing director at media merchant bank Veronis Suhler. "I think the marketplace is saying, 'You didn't get the message, Tom. The consumer side of the Internet is nowhere. Where are you going?' "

On April 2, in a conference room in Manhattan's Palace Hotel, Tom Rogers stood before a group of reporters to speak once again about the promise of Primedia. As the media horde looked on, Rogers announced that Primedia had bought a stake in yet another money-losing Internet company: Powerful Media, which owns Inside.com and its print sibling Inside. As with all deals involving Primedia, the details were achingly complex. Primedia was not really acquiring Powerful Media, Rogers explained. Instead, Brill Media Holdings, the private company controlled by media impresario Steven Brill, was acquiring Powerful Media. Three months earlier Primedia had purchased a 49% stake in Brill Media Holdings (which includes the magazine Brill's Content and the Website Contentville) and had appointed Brill CEO of Media Central, an agglomeration of Primedia's 170-odd magazines, newsletters, Websites, and other properties focused on the media industry.

The deal's circuitousness raises the question, Why didn't Primedia just acquire the properties outright? Insiders suggest that Primedia didn't want more new-media losses on its balance sheet--losses conveniently hidden in the privately owned Brill Media Holdings. Rogers flatly denies that, saying, "Steve didn't want to give up control of his company without getting a fair economic return, and we weren't prepared to use any cash in the deal." But that doesn't answer the more important question: Given that Inside.com is a marginal startup that has fallen short of its own expectations, and given the demolition of Net stocks on Wall Street, and given that Primedia's stock has been flattened, why is he making this deal at all? Actually, the answer is quite simple. After all this time, Tom Rogers is still a true believer. For his sake, let's hope KKR continues to be a true believer in him.

RESEARCH ASSOCIATE Doris Burke; feedback: nstein@fortunemail.com