Part 1: Throwing spaghetti, and 50 million subscribers

Tell us the story behind Penn-Media's success.
Well, we started out marketing videocassettes on television, like Riverdance, Lord of the Dance, The Honeymooners. We tried every kind of advertising online you could imagine. Audio online, video online, rich media, targeted banners, everything. The only thing that worked for us, that was cost effective, was ads inside e-mail newsletters. Daily joke newsletters.

And is that what you expected to work?
No, we were just trying anything we could think of. We were just throwing spaghetti against the wall, seeing what would stick. But once we found what worked, we bought one of the newsletters and that's how we got into the newsletter business. We were advertising in sixteen newsletters and we owned one of them. And then we tried to getting Double-Click and at that time Flycast and 24by7 to sell advertising for us. They said, "We sell banners. What are newsletter ads?" And they wouldn't do it.

Nobody was doing it. So we got all the newsletters we were advertising in and we connected them into a network. That was on November 30, 1998 - and the network was born. We had 610,000 subscribers across sixteen newsletters. Today we have 912 newsletters and over 50 million subscribers.

That's amazing. Did you forecast that? And how many of those people have come back to you and said you were right?
No, we didn't forecast it at all. We were thinking that we would be doing well, if by the end of 2000 we had 12 million subscribers. Every single one of those people have come back and said we were right.

What do you say when they tell you that?
I say, "thank you", and they ask me if I want to advertise with them. And I suggest that they don't know how to advertise, because they're too hooked on banners.

You're not pro-banners - why?
Banners are the absolute worst advertising medium in the history of advertising. We've done billboards, radio, and television. The only advertising medium I think that could be worse than banners is underneath your welcome mat on your doorstep. Underneath, not on top.

All these companies that have grown up around the banner, they will not survive. Let me say that again: if the banner is any part of the essential quality of your business, you will not be alive. Because it isn't sustainable. If you sell banners, it's not a business. If you require revenue from banners to be a publisher you will not stay in business.

Why did Go.com go out of business? Why did petopia.com and pets.com go out of business? You could say, "Well, their acquisition costs were too high." But what you have to really look at is: what was their main mode of advertising?

Banner ads. But then why are so many people still so pro-banner ads?
It's the syndrome of building a house you can't live in. You spent a lot of money building that house, yet the foundation is rotting and the roof is leaking. But you've spent so much money building that house that you can't see that the house needs to be demolished. The model doesn't work and it will not work.

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