Build it and they will come. Four years ago the Washington Post Co. built a website version of its world-famous newspaper and people did come. By the hundreds of thousands each day, and the tens of millions each month.

But as popular as its online newspaper is, the company hasn't found a way to make money with it.

In fact, it has sunk at least $100 million into WashingtonPost.com, as well as other online ventures, Post insiders say, and it's still not profitable. That means the parent company has lost an eye-popping one-tenth of a billion dollars so far in cyberspace.

And the Internet site's losses are acting as a drag on the company's profitable newspaper, which enjoys a virtual monopoly in the Washington market. The company's overall earnings growth in 1999 was flat, despite fat retailer ad budgets and lower newsprint prices. Its stock, traded on the New York Stock Exchange, is testing earlier lows.

And in another blow, Alan Spoon, the company's long-time president and chief operating officer, announced Friday that he's quitting.

The news comes as a shock, insiders say. Spoon, an 18-year veteran, has been Post Chairman Donald Graham's right hand for the past seven years.

The company hasn't named anyone to replace Spoon, 47, credited with helping launch the Post's Internet venture.

His exit comes on the heels of several other recent high-level departures. Last month, WashingtonPost.com's publisher left. And the Internet paper's editor and managing editor left before him. They've all since been replaced.

Analysts say the Post's woes serve as an example of how hard and costly it is to run a traditional newspaper while at the same time starting up an electronic edition, which begs for separate operations, buildings and staff.

But the old press has no choice but to make such forays, they say. Publishers can see that the Internet is on its way to becoming the top medium for distributing news and information.

"So many people already are accessing information that way; you have to be a part of it," said Kevin Lavalla, managing director of Veronis Suhler & Associates, a New York-based consulting firm for the communications industry. "If you aren't a part of it, you'll lose out."

John Morton of Silver Spring, Md.-based Morton Research Inc. says that newspapers in general, and not just the Post, are losing money on their Internet sites.

"It's very early on," Morton said, "and there's a lot of investment involved."

Still, the size of the Post's losses are alarming -- and puzzling.

WashingtonPost.com, which like other news sites bears no printing or delivery costs, at the same time boasts more traffic than any other netpaper, according to PCDataOnline, a website traffic tracker that's viewed as one of several Nielsen-style ratings services for the Internet.

In February, the Post attracted more eyeballs to its site -- and kept them there longer -- than any other newspaper.

Readers viewed a total of more than 108 million pages on washingtonpost.com last month, each sticking on the site an average of more than two hours, according to PCDataOnline. (See table.) Also, 1.5 million people visited the site for the first time in February. Advertisers watch such unique-visitor traffic very closely.

But at the same time, two newspaper sites with less traffic (in terms of total page views per month) -- USAToday.com and RealCities.com, Knight Ridder's network of regional news sites -- have managed to turn a profit, Morton says.

Some analysts say the Post is finding out the hard way that its long-held local monopoly -- the venerable newspaper's market penetration figures are higher than those of any metro paper in the country -- doesn't transfer to cyberspace.

On the Internet, which has no boundaries, the Post has to fight for audience and advertisers with hundreds of other news sites, run by both print and broadcast corporations, as well as a new breed of independent competitors, such as DrudgeReport.com (No. 9 in traffic) and WorldNetDaily.com (No. 17).

In addition, Washington.Sidewalk.com, a recent joint venture of Microsoft Corp. and Ticketmaster, has been cutting into the Post's online advertising, especially among area restaurants and theaters.

Over-investing
WashingtonPost.com was launched June 19, 1996. After nearly four years of scaring up new advertising, the site, which is free to users, is generating revenue seen by some weekly newspapers. Last year, it posted $17 million in sales.

"Pretty small potatoes," Morton said. "But even the biggest companies are estimating this year that web revenues may run in the $30 million or $40 million range -- which is what you can get at a 30,000-circulation newspaper. It's not very much money so far."

That's within the range of what the WashingtonPost.com is projecting for its 2000 sales, insiders say. But even if it can double sales to about $35 million, it's a drop in the bucket for a $2.2 billion-in-sales company like the Post, which also owns Newsweek and cable TV and educational-services properties.

Both analysts and company insiders agree that, low as they are for such a media giant, the Post news site's sales aren't really the cause of its massive losses. It's runaway spending.

"They are investing at a more rapid rate than either Gannett (which owns USAToday.com) or Knight Ridder," Morton said. (Gannett's site is basically a carbon copy of its USA Today newspaper, and is run by a staff about a quarter of the size of WashingtonPost.com's.)

Some say the Post broke the cardinal rule of starting a new business: Don't try to look successful before you are successful.

The company poured money into stylish offices across the Potomac in Rosslyn, Va., for the news site operation. The new digs, decorated to look hip and high-tech, take up two floors.

Cha-ching.

In 1996, roughly 50 staffers worked there. The company's since doubled the payroll.

Cha-ching.

It also hasn't spared outlays on the website itself. It's well designed and offers an impressive archive that includes speech transcripts, government reports and other documents.

Cha-ching.

"We've redesigned two or three times," said WashingtonPost.com editor Doug Feaver.

Cha-ching, cha-ching, cha-ching.

In September, the Post added a mid-day online edition, which updates news that's posted on the site in the morning. That of course required more staffing.

Cha-ching.

Total? Insiders who wish to go unnamed say spending on the site, combined with spending on other online ventures, has climbed to at least $100 million over the past four years.

The Post's front office refuses to break out financial results for the news site operation separately.

(Even though his company is publicly traded, CEO Graham can get away with keeping such numbers close to his vest. He and his family own all of the Class A shares of the company stock, which insulates them from stockholder pressure. Even a Wall Street analyst found that "they're not very open and can be evasive" about sharing sensitive data.)

Officers did cough up some numbers at a recent investors conference in New York, though. They said the company -- in 1999 alone -- made about $85 million in investments in WashingtonPost.com and Newsweek.com, as well as its education-and-career services segment -- which includes kaplan.com, a test-prep website, and eScore!com, a resource for parents to help kids with their schooling.

At the same December event, which was sponsored by Donaldson Lufkin & Jenrette, the officers noted that ad revenue for both the Post newspaper and Newsweek magazine were up in 1999. And the newspaper unit benefited from a 19 percent drop in newsprint costs, which helped boost operating income (earnings before depreciation, interest, taxes and nonrecurring items) by 13 percent. The magazine unit's operating income jumped an even stronger 39 percent.

Only, the gains were offset by increased spending for "Internet-related operations" in 1999. How much of an increase? A whopping $34 million over 1998's investment.

Meanwhile, all the Post's "Internet-related operations" have lost money.

So is Graham pouring money down a digital black hole?

"Some would argue they're over-investing," one former Post executive said. "But if you're the Washington Post and you have 60 percent market share as a newspaper, you better over-invest and own the Internet, because you've got something pretty big to protect."

He expects the company to be in the black by 2002, although he thinks it could be profitable this year -- if it wanted to grow the new business that way.

"There are a number of ways to turn a profit. If you wanted that division to be profitable, you could rescale it and be profitable by the end of the year," said the former officer who requested his name be withheld. "It's really the company's decision on how it gets there. Does it want to be profitable at $30 million in revenue, or $100 million?"

He adds that the company is less worried about making profits in the near term than it is about dominating the local market for the long haul. It also wants to "build a national and world brand position," he said.

Among all news sites, WashingtonPost.com ranks No. 6 in so-called Internet "reach," PCDataOnline says. In February, it had a 2.2 percent rating, behind USAToday.com and NYTimes.com, meaning that over 2 percent of the total estimated population surfing the Internet in February landed at least once on the Post's site.

Signs Of Trouble
Though the company won't put a total figure on its Internet loss, Graham has never hidden the fact it's losing money.

"While WashingtonPost.com has exceeded our wildest expectations in terms of audience, its future profitability continues to look murky," he admitted in the Post's 1996 annual report.

It's anyone's guess what he'll say in 1999's annual report, which isn't out yet. But three years later, the profit picture is still murky -- and not just for the Internet unit. Losses are starting to eat into the parent company's bottom line.

Last year the Washington Post Co. earned $22.30 a share, down 46 percent from $41.10 a share in 1998. The 1998 results, however, reflect a one-time gain of $194 million, or $19.20 a share, from the sale of a media property.

So if you back that out, the restated per-share profit for 1998 was $21.90. Which means the Post actually reported a slight gain in 1999 of 1.8 percent (reversing a 16 percent drop in 1998).

Even so, the growth is anemic, especially given the booming economy.

"Most of the other media companies had very strong earnings growth in 1999, and they (the Post) of course didn't," Morton said. "A lot of it is because of these investments in these websites."

The Post's stock has been reflecting the poor results. It had a healthy run in 1997 and the first half of 1998. But shares have been limping along ever since. And even though the company bought back 744,000 Class B shares last year, its stock has cratered this year and recently undercut its previous low reached in late 1998.

But there are signs the company is starting to rein in spending and control costs.

• WashingtonPost.com recently hooked up with MSNBC.com, the No. 1 news site overall. The deal lets MSNBC.com display the Post's lead story in exchange for MSNBC's content, namely video of live events like White House news conferences. Besides the co-branding benefits, the move will save the Post money.

• Last month the company installed Christopher Schroeder as CEO and publisher of WashingtonPost.com. Schroeder, who used to work in the Post's Washington headquarters as treasurer and head of cash management, will be looking for fat to trim in the operation.

• Instead of hiring new staffers for the news site, the Post is cannibalizing its main newsroom. It's brought over several veterans to help run the site.

Also, the Post's ad sales force has recently been deputized to sell ads for the Internet site, insiders say. That should help the site reach its goal of doubling ad sales this year, and thereby slow the flow of red ink.

It's no doubt a good move for the Internet site, but maybe not so great for the newspaper, as sales reps spend less time on their old accounts.

Are newspaper ad sales slipping? Hard to know. Just in the last two months, the company has stopped providing Post ad linage figures to Wall Street.