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Credit crunch latest: LKL reports record deficit

pnlLKL this week joined the ever-growing list of prestigious organisations reporting record losses. In an announcement made on Friday, LKL’s CEO confirmed the disappointing results. “We had record advertising revenues, but unfortunately investment in infrastructure more than outweighed this success. We could save on technology, but only at the expense of performance and innovation. We could boost revenues further, but only at the cost of going relentlessly down market. Our commitment to our core readership will not permit that.”

1 Revenues

Adsense Revenues vs Page ViewsAnalysts noted an increase in Google advertising revenues, despite flat readership, signifying a more efficient and targeted positioning of advertising panels, including selective advertising in some of the more popular articles. But revenues still were insufficient to cover increased monthly webhosting costs. And analysts were disappointed that there seemed to be no correlation between page views and revenues. YesAsia delivered revenues for the first time, though industry experts noted that the affiliate programme was more likely to convert into future subsidies against content purchases (see note 5), rather than into hard cash.

2 Webhosting and domain registration

note-2Analysts noted that 2008 saw further evidence that LKL was suffering from that perennial bloggers’ disease – the need constantly to move webhosts. LKL’s Chief Technology Officer commented: “While we had excellent service at Bluehost, they couldn’t provide the power that we needed to meet the requirements of our enhanced platform needs and the increasing demands of our readership, so we needed to move to VPS technology. We have moved to Knownhost and have not looked back. Except that we have kept a toehold at Bluehost as a contingency site just in case.” Experts questioned this indecisive strategy, but LKL’s CTO insisted that the flexibility of a VPS platform was imperative to support future enhancements to LKL’s design. “Shared hosting, or hosting at, seriously restricts your ability to tailor your site”. But experts questioned whether the CTO had the ability to build the necessary enhancements to support the editor-in-chief’s vision for the site.

3 Software and other services

note-3In fact, the same experts noted that LKL needed for the first time to spend money this year on software books to help the CTO do his job properly – simple books on SQL and webhost software. Other costs incurred in 2008 was the purchase of software to convert DVDs into flash video – in order to upload non-copyrighted content provided by Korean government agencies and other bodies, the results of which have been seen in the occasional post, and other software to take screen grabs from DVDs in order to illustrate film reviews – first seen in the article on Lee Young-ae’s first film, Inshalla. Unfortunately that particular article had as much success as the film, and failed to generate any interest at all.

4 Marketing

More business cards, for the editor-in-chief and various loyal correspondents.

5 Investment in content

Book, CD and DVD purchasesAnalysts noted that the disclosed costs were only a fraction of those needed to keep LKL going. Investment in content — purchase of books, DVDs, CDs; attendance at conferences, performances and exhibitions; network-building through entertaining and travel — represented an Enron-like amount of hidden off-balance-sheet costs. The mysterious oligarch behind LKL declined to disclose the full extent to which he bankrolled this investment in content. Through his interpreter he explained that without this investment LKL would be unable to plough its unique if lonely furrow.

Analysts managed to obtain details of LKL’s profligate spending on cultural content, and noted that the spend at YesAsia alone exceeded LKL’s total revenues. It didn’t take too much investigation to realise that in addition costs had been incurred traveling to Cambridge, Brussels, Seoul and Busan; and that for the first time in 2008 some of the images on the site had been scanned from hard copy documents, implying some capital expenditure financed via an off-balance-sheet structure.

LKL’s international correspondent, at least, recognised that the travel budget would be slashed in 2009. But LKL’s CEO remained bullish about the future. “Even though the editor-in-chief seems to be running out of steam every now and then, there’s a talented team of voluntary contributors who always seem to bail him out with fantastic content. We couldn’t manage without them, and they keep getting better.”

Asked about his plans for 2009, the CEO played his cards close to his chest. “But what I’d really like is to secure the funding to bring LKL’s Indie Music correspondent over from Sweden to London, to coincide with a few cool bands coming over from Korea, and then we’ll all have a great party.”

Any takers?

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