As reported Tuesday, Salon is now mining cryptocurrencies in browsers of visitors as an alternative to seeing ads.
Does this latest effort by the 23-year-old progressive site reveal the tough market media companies find themselves or is it a gimmick by a small-cap company looking to lure investors with cryptocurrency cred?
Modern Consensus spoke with Salon CEO Jordan Hoffner.
He doesn’t have the easiest job in media. The company Hoffner has been running for the past couple of years is overshadowed by its own past as it struggles to shine.
When it went public in June 1999, Salon raised $25 million and was valued at $107 million. That IPO shook up media at the time; the internet as we know it today was still in its infancy and months away from its first crash. Here was this fledgling company valued by Wall Street at a level that made many established brands green with envy. It was at the forefront of delivering news and opinion in a new way and doing so with a stable of top quality writers. Even its choice to go public with a Dutch auction was cutting edge (Google adopted that method five years later for its own IPO).
Time hasn’t been kind to Salon. In the nearly two decades since its shares began trading, the company has suffered through the internet bubble bursting, getting delisted by NASDAQ in 2002, and a series of management and staff changes that left many contemplating Salon’s survival. Meanwhile, competition for left-leaning eyeballs has grown fiercer. Salon’s most recent quarter reported an average of 13.1 million unique monthly visitors, down from 20 million just three years ago. Yet, despite recent layoffs and scale-backs, younger properties like Vox Media (with 87 million monthly unique visitors, according to comScore) and Buzzfeed (67 million) are eating Salon’s breakfast and lunch while older names like the New Yorker (30 million) and The Atlantic (36 million) are eating its dinner, albeit catching the early bird special.
Still, Hoffner doesn’t anticipate the landscape to get more competitive over the next three to five years and he expects Salon’s name continuing to hold sway with its fan.
“I don’t think we’re going to see more progressive sites,” he predicted. “That model is too challenging in both the economics but also in terms of the users’ time. We have a loyal core audience and a brand and a lot of people don’t. And, to me, brands always win.”
During its biggest fiscal year, April 1999 to March 2000, Salon took in $8 million in revenue but ended up losing $33.4 million, according to SEC filings. In the past four reported quarters, Salon’s revenue was under $5 million but expenses were nearly twice as much, causing losses of $4.5 million. Salon’s losses have been shrinking in recent quarters but they’re still losses. It had several rounds of post-IPO funding, including $1 million last year from Spear Point Capital Management, which specializes in “special situations” (read: problem companies) and reportedly wanted to use Salon to buy out fellow late-‘90s darling, finance site TheStreet though that never panned out.
As of Thursday, Salon Media’s entire market cap is just shy of $13 million. Its shares trade around 8 pennies each.
Hoffner refused to answer questions about the company’s financial future, insisting our discussion stick to product questions.
When Hoffner took over as CEO in 2016, roughly three quarters of the company’s revenues came from advertising; the rest were from referrals. He needed a plan to increase the top line, which he’s trying to do through subscription products like an app and increasing premium content such as video.
And then there’s the money left on the table by site visitors who are using ad blockers. Hoffner refused to specify to Modern Consensus how many of the site’s visitors have them turned on but said it’s “roughly anywhere between 20 to 30 percent.”
Since they’re not seeing ads, those visitors can’t be monetized. Salon turned to Coinhive to get some money out of visitors hitching a free ride on the site.
Those who have ad blockers are greeted with two choices when they visit Salon: they can either turn the blockers off or they can permit the Coinhive app to use their central processing unit (CPU) to mine the cryptocurrency Monero. Essentially, the app borrows computing power to make the necessary calculations that earn fractions of Monero for the website. At $4.6 billion, Monero is the 13th most-valuable cryptocurrency according to data site CoinMarketCap but it’s also the largest one that can be mined using the CPUs—the computer’s brains—found on everyone’s laptops and desktops.
“We had to make some modifications to it and build proprietary code and logic around it to help it work better,” Hoffner said.
Coinhive is not without controversy. While Salon’s version requires permission, Coinhive is also the top choice for criminals. Security software firm CheckPoint ranked it January’s No. 1 malware on the internet.
Monero also has some debate around it. Unlike, say, bitcoin where encrypted addresses are made public on distributed ledger, Monero prides itself on being untraceable and obfuscates “the origins, amounts, and destinations of all transactions.” So if one is laundering money, Monero makes bitcoin look like a billboard with the senders’ and receivers’ names on it. It’s also a favorite coin of at least one group of North Korean “university students”.
For Salon, any upside it provided was too good to pass up.
“We knew that Monero has some advantages and that it has some disadvantages,” said Hoffner. “We wanted to start somewhere. We’re going to build a portfolio. We’re probably going to settle on a couple currencies—they’re all correlated—just to make sure that there is a liquidity option…. There was there was a decision tree that got us to that point. It’s new so it’s obviously…We made the best decisions given the information we had in front of us.”
It’s not just the software or the currency but the very act of crypto mining that may rub Salon’s readership the wrong way. Mining is a very energy-intensive process. Salon’s partner, Grist, posted a highly shared piece titled, “Bitcoin could cost us our clean-energy future,” which lamented the world’s most valuable cryptocurrency’s resource consumption to keep it going. It noted, among other things, that bitcoin mining now uses more energy than 150 countries.
Hoffner pushed back when it was noted that crypto mining is energy intensive.
“So is ad serving,” he emphatically stated. “There is energy extended in the serving of ads. It may not be as much. I don’t know what the net is all, but I do know that if you believe in Moore’s Law, if you believe in the general progression of technology, these things become more efficient over time.”
“Look we’re environmentalist at heart and we don’t want to screw up the environment,” Hoffner added. “But what we do want to do is start to advance help advance this potentially groundbreaking technology that could create a new paradigm within the media space and we’re not really apologetic for that…. We love the Earth. We don’t want to screw anything up. But on the flip side, we have to figure this out.”
Besides, the amount of a CPU’s capacity used by Salon’s version of Coinhive may be minuscule, asserted Hoffner. He cited a tweet by Silicon Valley CEO Roger Kibbe that stated the app only used 3 percent to 5 percent of his CPU.
Salon attempting micropayments via Monero mining if you use an ad-blocker. Flawed as @salon should explain better but an interesting experiment. Tried on my Macbook Pro and it only used a 3-5% of overall CPU. https://t.co/aVTsV5NeAq
— Roger Kibbe (@rogerkibbe) February 14, 2018
“I did it myself many times and my engineer was running it while writing code for us,” Hoffner said. “We’ve been trying to do this with our normal bit of workflow on things as consumers and we didn’t really see any sort of discernible difference. I didn’t see our energy bill spike up. I’m the CEO so I’m on Salon like a hundred times a day. I didn’t see anything happen.”
Thus Salon’s version of the Coinhive app uses a small fraction of computing power from a about a quarter of its 13 million monthly users. The amount of Monero that they can mine in a year may be very miniscule; Hoffner said he couldn’t model for it anyway because of how volatile cryptocurrency prices are.
That raises the question of why a company with a small market cap would go through the trouble at all. The way Hoffner tells it, it’s to be at the vanguard of how media companies get paid when more hands are grabbing for online advertising dollars.
“I put in place a potential disruptor to what’s going on in the digital media space,” he said. “It’s a new way of looking at things.”
Later, he said, “I’m building a portfolio of monetization opportunities for us…. The crypto piece is just one piece of the larger puzzle…. We’re making something out of nothing now. At least that provides an opportunity.”
There’s one additional opportunity. Some troubled companies with small capitalizations have found that associating themselves with cryptocurrencies and blockchain technologies have given them a boost in stock price. Kodak, now a shadow of its former self, gave its name to something called KodakCoin and saw its stock price triple several weeks ago. In December, money-losing Long Island Iced Tea experienced a comparable buying frenzy of its shares after it changed its name to Long Blockchain; it had been trying to raise equity when it announced its alleged pivot.
When asked if he expected a similar positive impact in the capital markets by getting into the crypto mining business, though tangentially, Hoffner said, “Markets handle the way that they handle. There’s nothing I can do about that. All I know is that—and I can’t speak for these other companies and what their strategies are—my strategy is that this is part of our stack. This is a part of the business that will continue to go forward. It’s part of our strategy and whatever happens, happens.”
“For us, it’s long-term value creation and that’s really what we’ll focus on.”
If that value comes and if it will be what Salon needs remains to be seen. The company’s share price has barely budged since the story was first reported earlier this week.