Thestreet.Com Inc

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THESTREET.COM INC.

TheStreet.com Inc. is an online financial news source with roughly 75,000 subscribers. Access to the site is free, although the firm does operate a subscription-based sister site, RealMoney.com, which offers more in-depth information for stock trading professionals. Sales grew 63 percent in 2000 to reach $23 million. However, TheStreet.com lost $62 million that year. In an effort to attain profitability, the firm launched a series of cost cutting measures, including a 20-percent reduction in workforce, in 2001.

TheStreet.com was founded in November of 1996 by James J. Cramer, a well known money manager and writer for New York magazine, and Martin Peretz, the editor-in-chief and chairman of New Republic. Andrew Drake was named president and CEO of the new Web site and Dave Kansas, a reporter for The Wall Street Journal, was hired as executive editor. For $12.95 per month, users were granted access to performance reports profiling Wall Street analysts, and other articles written by Cramer himself, as well as by Michael Lewis, the senior editor of New Republic. Subscribers also received a daily newsletter via e-mail that offered both news and commentary on current trading activity. Cramer and Peretz began marketing their service to the 1.5 million U.S. residents engaged in some form of electronic trading by the end of 1996. According to a Forrester Research report published shortly after TheStreet.com was launched, the number of U.S. households trading stocks electronically would double within a year and exceed 10 million by 2001. Cramer and Peretz believed that many of these individuals would be willing to pay for immediate market information, despite many predictions to the contrary.

By the end of 1997, the new company had signed up 15,000 subscribers. Growth brought with it bandwidth problems, prompting TheStreet.com to hire Seattle, Washington-based StarWave to oversee the management of its servers. The increased capacity allowed TheStreet.com to put an online system in place that allowed clients to track their mutual fund and stock portfolios in real time. In 1998, the site published roughly 30 articles per day. Content was organized into four major categories: Fund Watch, which covered mutual fund activity; Company Watch, which offered breaking news about various firms, as well as company profiles; Truth Serum, which dealt with the causes and effects of conditions in various industries; and Market Facts, which analyzed current market conditions. Most articles totaled 800 to 1,000 words, compared to the 1,500 to 2,000 words typical of articles in most businesses publications. While TheStreet's 18 writers were free to express their opinions about things like the activities of fund managers and the performance of stock, U.S. Securities and Exchange Commission (SEC) regulations prohibited the firm from making explicit buy and sell recommendations. Subscriptions accounted for roughly 70 percent of total sales, while advertising from Charles Schwab, Ameritrade, Fidelity, and other brokerages accounted for the additional 30 percent. Despite continued growth, the firm lost $16.3 million in 1998.

The young company began gearing up for its initial public offering (IPO) in 1999. The New York Times Co. invested $15 million in TheStreet.com in February, and the two firms' Web sites began offering links to each other's online headlines. By then, subscribers had reached 37,000. In April, News Corp. invested $7.5 million in the firm. Goldman Sachs agreed to underwrite the IPO, which actually took place in May. TheStreet.com 's share price of $19 jumped to $75 in the first day of trading. The New York Times Co. and TheStreet.com agreed to launch a joint online newsroom in November. Sales that year reached $14.3 million, and the firm posted a loss of $28.4 million.

The online personal finance arm of Microsoft Corp., MSN MoneyCentral, agreed to license content to TheStreet.com in February of 2000. That month, the firm decided to make its site available for free in an effort to gain a mass market. According to Electronic Information Report, TheStreet.com "completed a refocusing of its services in an effort to meet the needs of the entire gamut of investors. . .the change was an effort to accommodate the average retail investor who doesn't need the level of service professionals require and who doesn't want to pay a subscription fee for information." However, to meet the needs of its more active individual investors, as well as those of its professional clients, TheStreet.com eventually moved a portion of its more intensive stock analysis content to a new site, RealMoney.com, which charged a monthly fee of $20 or an annual fee of $200. RealMoney.com users were able to interact with the TheStreet.com 's writers. A third site, TheStreetPros.com, was designed solely for industry professionals. Accordingly, subscription rates were double those of RealMoney.com.

Although sales in 2000 jumped to $23.3 million, losses mounted to $61.9 million. When investors began questioning the firm's ability to earn a profit, TheStreet.com decided to undertake several cost cutting moves. Roughly 40 employees—nearly 20 percent of its total workforce—were laid off, and the firm pulled out of its joint newsroom venture with the New York Times Co. Also, operations in the United Kingdom were halted. Management estimated that the cutbacks would save roughly $18 million per year. In addition, TheStreet.com acquired SmartPortfolio.com, an online publisher of financial newsletters, believing that SmartPorfolio's base of 10,000 paying subscribers would help TheStreet.com achieve critical mass, something many industry pundits viewed as crucial to profitability.

Cost cutting efforts continued into 2001, when TheStreet.com laid off another 20 percent of its work-force in April. The firm also began looking into ventures that were unrelated to the Internet. According to an August 2001 article in The Financial Times, "it may be surprising to discover that this proto-typical dotcom's latest business initiatives have nothing to do with the Internet at all. Among these is TheStreet-View, a daily bulletin for hedge fund managers, which is delivered to subscribers through fax machines. The Street's latest venture is even more 'old media.' In July, the company began broadcasting Real Money Talk with Jim Cramer, co-founder of the The-Street, on radio stations in 14 U.S. markets." Some analysts believe that using the Internet as one of many distribution vehicles will likely emerge as a characteristic of the most successful online content providers.