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annals of communications
The New Yorker - June 11, 2001

inside out

How Inside.com was born, grew, and met an uncertain fate.

by ken auletta

The idea came to Kurt Andersen and Michael Hirschorn in early 1999, at the height of what has come to look like the Internet gold rush. Print was doomed, it was said; revolutionary forms of online journalism were at hand, and would also make you rich. As they remember it, Hirschorn telephoned Andersen, his former boss at New York, and excitedly proposed an online magazine devoted to the media and entertainment industries. Hirschorn had just been fired as the editor of Spin, and was in search of something new.

Andersen was finishing a novel, "Turn of the Century," and had suggested a similar idea to the hedge-fund manager James Cramer, a former Harvard acquaintance, and the co-founder of TheStreet.com, whose stock price had risen more than two hundred per cent on its first day of trading. Hirschorn's call to Andersen led to dinner with Cramer, who arranged for them to meet venture capitalists at Flatiron Partners. Flatiron then took the lead in providing capital. On the business side, Hirschorn, who had been an editor at Esquire, enlisted Deanna Brown, a former ad-sales director he had worked with there.

The three became equal partners, and in the summer of 1999 went to work producing a business plan for what was then called InsideDope.com. The plan bemoaned the lack of what it called a "must-read online site for members of the cultural elite." InsideDope was to fill that lack: to be a place where insiders could get inside information and data that had never been easily obtained. It would provide a way to keep track of book and movie deals, music-industry sales, and advertising spending. It would watch for personnel shifts and gossip in what the partners called "the new entertainment economy." Unlike other online content providers (the Wall Street Journal being one notable exception), InsideDope expected to make money by charging for subscriptions, and it was widely reported that the partners anticipated a hundred thousand paid subscribers within three years. Subscriptions would account for about forty per cent of revenues, with another forty per cent coming from advertising and the rest from conferences and the sale of exclusive information. The stakes held by Andersen, Hirschorn, and Brown at the start would eventually be reduced to five per cent apiece. To recruit good journalists, they would set aside twenty-five per cent of the ownership for the staff.

Flatiron agreed to put up two-thirds of the initial five-million-dollar startup cost for the company, which would be called Powerful Media; its online name would be changed from InsideDope to Inside.com. The "name journalists" who were hired, Brown boasted, would bring "brand awareness" to the enterprise. Had Andersen still been the editor of Spy, which he co-founded in 1986, he might have smirked at the language: Andersen, a forty-six-year-old who favors black jackets and open-necked shirts, and who displayed a cool wit in columns for Time and for The New Yorker and as the editor of New York, was now described without evident irony by his partner Hirschorn as Inside's "ambassador, building relationships in New York and Los Angeles." "Ambassador" is not a word that springs to mind as a description of Andersen, for he tends to look off into the distance when he speaks; he is more astringent observer than cheerleader. The thirty-seven-year-old Hirschorn, who has a considerable girth and wears polo shirts and sneakers, would run the operation from the inside. He had served as editor of Spin, executive editor of New York, and features editor at Esquire, and he brought an inclusive management style.

Prior to Inside.com's electronic debut, in the spring of 2000, Andersen and Hirschorn E-mailed to the staff a sixpage, single-spaced "first installment of our editorial playbook." Inside.com, they said, must be both "fresh and definitive":

This is a great opportunity to really help invent a form, not unlike magazines at the beginning of the 20th century, or even newspapers and the novel in the 18th and 19th.... Our key journalistic goals: Correctness. Insiderness. Juiciness. Utility. Honesty. Smartness. Go kill.

The partners rented loft space alongside other dot-coms in an old warehouse in West Chelsea and hired a staff of about ninety, the majority of them journalists. Inside held a media launch party attended by Courtney Love, among others, at a New York nightspot, Eugene, and a kickoff party in Los Angeles attended by the director Curtis Hanson, who was planning to direct a movie of Andersen's novel, for which Andersen would write the screenplay.

In its first year, Inside scored some scoops on the media beat: Stephen Battaglio's account of how Jeff Zucker would become the new president of NBC Entertainment, replacing Garth Ancier; David Carr and Lorne Manly's account of the closing of George; Sara Nelson's "real time" account of the eight-million-dollar auction of Hillary Clinton's book; Roger Parloff's early dissection of Napster's weak legal case. In addition, Andersen, especially, proved masterly in attracting publicity for Inside, and for a while he and his partners were ubiquitous in the media. But, even as it found its footing as a presence in the increasingly crowded journalism world, Inside failed as a business. "The partners figured if they were out there and visible, Inside would go public and they'd make money," an investor who studied their books says. "They never had a business plan." And their timing was off, unlike such Web-content companies as GeoCities. "If all the meetings to raise money had occurred in 1996," James Cramer says, "they would have gotten a one-and-a-half-billion-dollar offer from Yahoo! a year and a half later."

Andersen, Hirschorn, and Brown designed a vast, non-partitioned space, part newsroom and part commune, with views of the Hudson River. The new staff included David Carr, who moved up from Washington, where he had been the editor of the City Paper. "I was afraid of missing out on something cool," he says. "I was mostly attracted to the cult of personality around these two guys"--Andersen and Hirschorn. "No one who worked for them ever came out for the worst." Stephen Battaglio, who had been the New York bureau chief of The Hollywood Reporter, says, "My sources knew who I was, but my publication had no visibility in New York. These two guys were New York media guys, and I knew that if I went with them my work would get attention. And it did." Michael Cieply, who had covered Hollywood for the Los Angeles Times and the Wall Street Journal before becoming a film producer, joined as the West Coast editorial director, because "I was unexpectedly swept away by the charisma of the thing."

The Insiders shared a pioneer spirit, a desire to break out, and maybe even get rich on the day they went public or sold the company. The trade publications they tended to admire were those which approached their industries broadly, and with some skepticism, such as The American Lawyer, which appeared in the late seventies, and The Industry Standard, which appeared in the late nineties. They had respect for Brill's Content but thought that it suffered from what one recruit called a pious, "church-lady tone." (Andersen, in his novel, set in the near future, described a cocktail party where among the guests were "people with no interest in discussing... the thirty-one-page pundits' roundtable critique of pundit-on-pundit punditry that appeared in the final issue of Brill's Content.")

Few seemed to be troubled by the fact that online magazines like Slate had abandoned paid subscriptions, or that advertisers disdained the kind of banner advertising that Inside banked on selling. In the euphoric milieu in which Inside was born, those who questioned the dot-com rage were treated as old-media fogies--brick-and-mortar types who just didn't get it. Jonathan Weber, the editor of The Industry Standard, suspended his skepticism when it came to what he called the "revolution"--a "struggle" between "the Eastern establishment," or "old order," and "the renegades of the West."

By the time Inside appeared, in May of 2000, the signs of decline were everywhere. Dot-com stocks were beginning to collapse. Venture-capital money was drying up. And yet the downturn in the stock market did not immediately have an impact on Inside. It raised twenty-three million more dollars in April, bringing its total to twenty-eight million. Raising money was "as easy as getting laid in 1969," Andersen famously joked.

Andersen and Hirschorn were ecstatic. They were bucking the trend, and their staff, caught up in the spirit of the endeavor, concentrated on the sheer fun of almost instant reporting on the Web and of writing in a conversational style. "We were ebullient," Sara Nelson, who had written book reviews for Glamour, worked on an AOL consumer book site, and now covered the book industry, remembers. "People were calling me back who never called me before. People were calling me that I used to be afraid to call." When Inside broke a story, or was credited in the Times or elsewhere, a flashing red police light that was kept on David Carr's desk would be turned on. Hirschorn, often the first to arrive at the office and the last to leave, edited most of the pieces and was much loved by the staff. Andersen's presence was more complicated. Staffers were surprised at his accessibility and his modesty, but they also found him to be elusive. "Writers were always eager to have him edit their stories, because it was a compliment," the managing editor, Chris Peacock, recalls. "There was an eagerness on everyone's part to perform for him."

In the summer of 2000, despite the problems in the Web economy--other dot-com content sites were laying off personnel and folding--the staff of Inside seems not to have been worried. "It's amazing how strong denial can be," Sara Nelson says. Nor was the business side yet alarmed. Deanna Brown had worked for startups, including that of Brill's Content, where she had been president. By the fall of 2000, she had raised seven million dollars more for Inside, bringing the total to just under thirty-five million. "We raised enough to carry us through 2001," she says, "which would get us in striking distance of profitability."

In retrospect, Fred Wilson, the managing partner at Flatiron, says, "the critical mistake" was to start a biweekly print magazine in December, 2000, on the cusp of what turned out to be an advertising recession. It consumed, according to various estimates, between eight and fifteen million dollars of capital. And although the editors proclaimed that Inside was an anti-spin publication, the partners were not always forthcoming--and not always in agreement--about some of Inside's own business data. A senior Inside executive told me that Inside had about twenty thousand paid subscribers. In an E-mail exchange, I mentioned to Andersen that press accounts had put the number at ten thousand. Andersen replied, "I can live with that." When I asked if the number was lower, Andersen said, "I'm afraid I'm not going to comment." Was ten thousand an accurate number? "No, it isn't," he finally conceded. One person who knows Inside's finances intimately says that the highest number of subscribers at any point was approximately twelve hundred. Confronted with this low number, one of the partners admitted that the peak subscriber base "was closer to five thousand," and has now fallen to about half that.

By the end of 2000, Kurt Andersen knew that Inside would not become profitable in the foreseeable future and would need to find a partner or a buyer sooner than anticipated. In the commentary he offers during a weekly public-radio show he has ("Studio 360"), Andersen said of the Presidential campaign, "I am a sucker for the fantastic surprise ending. I like O. Henry stories.... I like twist endings."

He got one. In early January of this year, Steven Brill, the chairman of Brill Media Holdings, and Brill's friend Tom Rogers, the chairman of the media company Primedia, announced that they were merging. Brill would continue to run, independently, the monthly Brill's Content, and also Contentville.com, an E-commerce venture he owns. The two companies would acquire a substantial minority interest in one another, and Primedia would place a hundred and seventy-two of its Web sites, newsletters, magazines, databases, conferences, and other products that cover the media industry in a subsidiary, Media Central, which Brill would run; these outlets reach around sixty thousand subscribers, who pay an average of about six hundred dollars per year. Later that week, Brill phoned Kurt Andersen and invited him to lunch to discuss how their two companies could work together.

Brill is Andersen's temperamental opposite--a hot personality. He is barrel-chested, wears ties and suspenders and cufflinks, and chomps on cigars. He had a baseball diamond constructed behind his house in Westchester, where he plays softball and doesn't hide his hatred for losing. He phoned James Cramer, who had invested in Brill's company as well as in Andersen's, and recruited him to lobby Andersen. "I don't believe that anyone is going to give the company more money," Cramer remembers telling Andersen.

Brill recalls that at lunch he told Andersen that Media Central "had a lot of paying customers but not enough talent, and he had talent and not enough customers." Brill said that he wanted to establish a central hub for his various media Web sites, and Inside.com could be it. Andersen did not say yes or no, but agreed to talk again. (Andersen and I were colleagues for a few years at The New Yorker, although we rarely intersected. I know Brill better, having worked with him at New York in the seventies.)

Andersen, Hirschorn, and Brown caucused and agreed to survey other prospective partners or buyers. Andersen or Brown spoke with executives from NBC, Advance Publications (which owns Conde Nast), AOL Time Warner, Ziff Davis, Cahners (a division of Reed Elsevier, which publishes Variety and Publishers Weekly), and the Washington Post Company, but these organizations either were not interested or would not move quickly enough. Powerful Media had an in-depth conversation with one of its own investors, Standard Media International, which owns The Industry Standard. Throughout these negotiations, Brill kept in close touch with Andersen, Cramer, and the venture capitalists, particularly Fred Wilson, at Flatiron.

"We had this quiet moment," Brown recalls, "the three of us, where we asked, 'Do we take the bird in hand?'" The Brill deal was their sole firm offer, and thus "the best decision for the legacy of the brand and the staff." On the other hand, Brown says, "Personally, it was tough for me, because I knew there was no role for me at the new company." Like Brill, she was the C.E.O. And Brill was openly critical of Brown.

By March, rumors of a possible sale had begun to appear in print. The revenues the partners had been counting on from conferences organized by Andersen were not materializing. That month, they were down to approximately nine million dollars; the venture capitalists were growing impatient. Deanna Brown says she knew that another round of financing was needed, which was probably out of the question.

An announcement of the sale to Brill was made on April 2nd. Around a small table at a press conference at the Palace Hotel, Brill extolled Inside's journalistic product, and vowed that his own magazine, under a relatively new editor, David Kuhn, would become more like Inside, with greater emphasis on the business side of the media. Flanking Brill at the table, Andersen, Hirschorn, Rogers, and Kuhn talked about what a good deal this was. Certainly, Brill Media could now claim the talent assembled by Powerful Media, and the Inside.com brand name, Web site, and magazine. It also got what Fred Wilson says was approximately eight million dollars in wire transfers. Deanna Brown said that she would leave, and Andersen and Hirschorn said that they would sign contracts to stay for at least two years, but these had escape clauses. David Carr, who covered the press conference for Inside, asked the core question in his dispatch: "Is this a return of synergy or just an amassing of crippled assets?"

The staff at Inside took some comfort in Brill's career as a fiercely independent journalist. It soon became clear, however, that the two cultures did not easily fit. Inside moved from Chelsea to a warren of offices in Rockefeller Center. Almost fifty Inside employees were laid off. Staff members worried that Andersen and Hirschorn would not stay, and that Brill, who was known for yelling at employees and fellow softball players, would be his usual combative self. When Andersen invited Brill to address the staff, Brill told them that Inside would become a marketing and delivery vehicle for his other trade sites, and when questions were raised he said bluntly, "You are in the trade business." David Carr says, "We didn't want to hear that. People acted like he was the Antichrist."

On the day the remaining staff of Inside moved uptown, Sara Nelson invited the old gang to a party at her apartment, in SoHo. About fifty people, including Andersen, Hirschorn, and Brown, drank wine and beer and ate a six-foot-long hero from Katz's Delicatessen. David Carr, with help from Whitney Joiner, a young reporter at Inside, performed a puppet show. The puppets were Andersen dressed as a king; Hirschorn as a lovable Teddy bear; Brown as a lady; and Brill as a lamb. The show opened, Carr recounts, with Inside's launch party and its high hopes, and this scene ended with Hirschorn knocking over Andersen when he spots Courtney Love and races to greet her. The second scene takes place ten months later and reveals Andersen at his desk, taking a phone call and talking in a hushed tone. "Who was that?" Hirschorn asks.

"Steve Brill," Andersen says. "He wants to buy the business."

They look at each other and say, in unison, "He's not cool enough."

In another scene, Sara Nelson recalls, Hirschorn reassures the staff about the sale to Brill: "It's cool. It's cool." Andersen says, "This is a way to keep the DNA of Inside alive." Then Andersen escorts the lamb--Brill--to meet the staff, and he begins by saying, "I love what you guys do. This is what I want in my company." Brill says that Inside will become a successful trade publication because the only way to guarantee revenue streams is to have a trade publication.

"What Steve really means," Andersen explains, "is that we will report on the media and entertainment."

Nonsense. Brill yanks off his sheep costume to reveal that he is a wolf.

The final scene features Hirschorn asking Andersen what he's doing. "I'm the vice-chairman and I'm in charge of strategic initiatives," Andersen says.As he speaks, he morphs into a grasshopper and hops away.

"What Inside had, more than any place I ever worked at, was a camaraderie," Lorne Manly, Inside's media editor, says. "We really felt we were doing something that was new and that had impact." Although Inside.com failed as a business and the staff feared for their livelihood, few of them had a bad word to say about Andersen, Hirschorn, or Brown. They thought that the nice guys had lost.

There are many reasons for the defeat, including some beyond the reach of the partners. But one reason was that the differences between Andersen and Brown, who wanted to restrict how much information they gave away for free, and Hirschorn, who wanted to attract a bigger audience, were never resolved--the tension between building a business and building a brand. Nor was there a dominant business leader. Andersen genuinely admires Deanna Brown, but, he says, she "is not a strong numbers person." As a result, in October, 1999, the partners hired "a strong chief financial officer." One senior staff member of Inside, speaking anonymously, says that Andersen is "fabulously charismatic," and that "people naturally want to follow him," but "the flip side of this" is that he lacked the "next step" of leadership: a take-charge personality that gets in the trenches. "We had a three-headed leadership," this person says. "In crunches, Kurt tended to disappear. Michael thus became the dominant operating presence." Michael was good, and Deanna Brown was good. But "what they were trying to pull off required brilliance," he says.

On May 2nd, Brill called a meeting, which he chaired, and which was attended by Andersen and Hirschorn, among others. Brill's starting premise, he said, was that Inside.com had to be thought of as a newsstand, one that displayed and sold an array of Media Central's publications.

Implicit in Brill's comments was a hope that Inside would produce revenues not just from pay-per-view or monthly subscriptions but by luring subscribers to his other trade publications. An annual subscription to a Media Central newsletter called Inside Book Publishing Report, for example, is nearly seven hundred dollars, and some newsletters cost a thousand dollars, so this is a potentially lucrative source of revenue for Brill. Tom Rogers, Brill's partner and Primedia's C.E.O., explains in the language of the business world: "The point of Inside was to give Brill an online vehicle... through which to drive subscription revenue... which is what we think in the business-to-business space is the biggest opportunity for business-to-business information." That was not what the people at Inside had set out to do.

Mostly through layoffs, there has been a forty-per-cent decrease in Inside's editorial staff, according to Hirschorn, from fifty-three to thirty-three; David Carr, Michael Cieply, Kyle Pope, and Richard Siklos are among those who chose to leave. Steve Brill "has to woo people," Hirschorn says. But Brill does not woo people in the accustomed manner. He says that part of his job "is figuring out how to keep good people," and he has awarded broader responsibilities to some Inside staff members, including Sara Nelson, Lorne Manly, Stephen Battaglio and Scott Collins. Nevertheless, he admits, "I have a style that is different." As an executive, he is abrasive. "Sometimes paying attention to them is asking, 'How come you didn't call this person before writing this story?' Some people think that's bad for morale. What about the morale of the person they're writing about?" Andersen, on the other hand, cautions that one thing he learned from his experience at Spy is that good people "are not replaceable."

Brill's Content, meanwhile, has gone from a monthly to a quarterly, and Brill has announced that he plans to reduce its circulation from "about three hundred and seventy-five thousand if it were audited today"--not four hundred thousand, as is usually proclaimed--to about two hundred and twenty-five thousand. By cutting back, Brill says, he will break even. Gone are the plans to merge its editorial mission with Inside's. Gone as well is Brill's Content's projected December deficit of $1.7 million, which Brill says he feared would swell to twice that, thus prompting him to seek outside financing.

Brill has involved Andersen and Hirschorn in decision-making (the two, along with Kuhn, have been named vice-chairmen of Brill Media). Andersen says that Brill is "intellectually nimble" and has praised him for acting with "mind-bending speed, which is great." He and Hirschorn agree with the decisions Brill made about charging three dollars and ninety-five cents for a monthly subscription to Inside and forty cents per article. "I don't think we could have made them," Andersen graciously says of these decisions. "We would have temporized." Hirschorn is staying on as the editor of Inside, and Brill says of Andersen, "I think he'll end up staying." Andersen himself says he won't. "There's relatively little for me to do," he says. He wants to concentrate on a second novel, screenplays, and his weekly radio program.

The brief marriage has already had its share of spats. During the week of May 14th, for example, Deanna Brown and Fred Wilson, representing Powerful Media, exchanged E-mails and angry words with Brill, who says that he is being asked to come up with hundreds of thousands of dollars to cover unrecorded accounts payables and inflated accounts receivables. "It turns out that the people running the business side there never kept good books so they could pay writers." He also says that promised ad revenues turned out to be phantom. But he adds, "I don't think there will be litigation," because he and the Inside people are "working it out."

Deanna Brown says that it is "absolutely untrue" that Inside did not keep good books, but she wants to avoid a confrontation. These are the normal kinks of "two companies in transition," she says. As for Brill's assertion that he is suddenly burdened with hundreds of thousands of dollars in costs, she concedes that "the payables are probably higher than on the day the deal was signed, because we didn't have all the invoices in." At the same time, she says, Brill is "underestimating receivables" from advertising. Fred Wilson, like Brown, has implicitly acknowledged many of Brill's facts but places them in this context: "In the process of doing the deal at lightning speed, some things didn't get done that should have gotten done."

All this is taking place as the Web culture itself evolves--or doesn't. The Internet, Hirschorn says, "feels like a transitional medium." One can get possible glimpses of its future in more personalized Web models--in sites like the journalist Mickey Kaus's (Kausfiles.com). Daily, Kaus posts his quirky opinions on subjects ranging from welfare reform to journalistic conflicts of interest. "The imperative is to put it up even if it's a bit raw," he says. "The raw stuff is what people like best." Partly because he writes for Slate, he attracts what he says is up to six thousand visitors a day and up to twelve thousand visitors each week. He says his monthly costs are a hundred dollars for a server to store and send his newsletter; two hundred dollars for a subscription to Lexis-Nexis for research; and twenty dollars for Internet access. After an initial six-hundred-dollar payment for a software designer, his upgrade expenses have been small. He does not include the cost of his time, which he estimates at four hours a day. His revenue depends on "the tip jar," with people sending him about seventy-five dollars a week, and on advertisers, of which he has had one. A site like Jim Romenesko's poynter.org/medianews allows readers to see press-related stories each day, including the free stories that appear on Inside. But if you can do this for nothing, will anyone be willing to pay for Inside.com?

Yes, Brill says, because Inside's information has value and will not be available elsewhere. Bloomberg Professional Service has been able to charge twelve hundred and eighty-five dollars a month for electronic information it says cannot be replicated on the Web. As of March 31st, according to a Wall Street Journal spokeswoman, the Journal's online version had grown to five hundred and seventyfour thousand paid subscribers, with those who subscribe to the paper paying twenty-nine dollars per year and those who don't paying fifty-nine dollars. James Cramer believes that a second generation of Web users is less hostile to paying for content. "When I started, no one used a credit card on the Web,"Cramer says. "Now everyone does." The key ingredient, Steve Brill believes, is good content. "The business plan is the editorial plan," he says. Build it and, if it is good content, they will come. But perhaps they will not pay. Tom Phillips, an investor in Powerful Media who has had his share of victories and losses as an Internet entrepreneur, says, "Searching is the dominant mode of the Internet. So the mentality of the information seeker is: I can find it if I keep looking. Why should I pay for anything?"

In an Inside piece last December entitled "The Revolution Is Glorious, and the Sky Is Falling--Get Used to It," Kurt Andersen wrote that one could look at Christopher Columbus as a failure: "His business model did not pan out: no Western route to Asia, hardly any gold, abandonment by his investors, not much of an enduring first-mover advantage for Spain... but he fucking discovered America." Andersen, looking back, and forward, from the second floor of Wu Liang Ye, a bustling Chinese restaurant across the street from his temporary office, on West Forty-eighth Street, couldn't be sure what he had discovered. He didn't know whether Inside.com would be seen as a pioneer or as a failure. But of this he was certain: "People are making it up as they go along. There are no precedents, and no comparables." And, so far, few good business models. _

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