THE COLE PAPERS, In-or-out, May 2000

Inside or outside: for papers, that's the new media question

The most obvious feature of the Internet is interactivity. What's not so immediately obvious is that it's more than being able to play Word Finder or Scrabble courtesy of your favorite portal, much more than the challenge and excitement of tracking down the information you need, whether it's the e-mail address of an old classmate from high school, new studies about health concerns or social trends, or most challenging of all, gathering details about the corporate activities of the various entities that comprise the newspaper industry. And that's where the real, high-stakes interactive Internet games are being played.

The trend seems to have begun with newspapers morphing themselves into previously non-extant, and occasionally derisively referenced entities known as "information companies." Whether the creative energy this trend has engendered reflects the power of rhetoric or the depth of thought that precedes any newly coined moniker, it's clear that the conversations about shovelware and content can obscure the larger issues at hand.

Redux: Business models
After nearly a decade of the industrywide struggle to define useful Internet business models, several newspaper companies have made some decisive strides by shifting the Internet-oriented aspect of their business out of the safety of the newspaper company and into stand-alone entities.

Jim Moroney, president of Belo Interactive in Dallas, believes that the user experience for local news and information is evolving as users become more sophisticated and expect more than "shoveled" content. And as publishing tools improve and the industry invests more human resources in Internet operations, the content experience will improve daily. The Internet and wireless device opportunities provide incentive for newspapers to embrace new business models as part of an aggressive effort to "lead rather than follow or play catch up," according to Moroney.

Dan Finnigan, the president of the newly formed KnightRidder.com, agreed, but noted that the industry itself has become more sophisticated. "Our models have changed as we learned the medium."

"Originally, we borrowed our circulation and advertising models from print," said Finnigan. "We learned that the circulation/subscription model largely wouldn't work; people expect stuff on the Web to be free. We did learn that the advertising model could work, though a graduated, niche-oriented cost-per-thousand model applies more on the Web than in print."

He expects models to continue to change as advertisers and sellers demand more pay for performance. "Overall, it's still about connecting buyers and sellers, but we need to understand the unique transactional and tracking capabilities the medium provides, and price accordingly."

On the consumer side, however, Finnigan believes that the business model is still about attracting consumers with compelling content and interaction that creates transactions for advertising customers, whether that's accomplished through banner ads, sponsorships, selling ads, or actually filling transactions. Advertising- and transaction-based business models both bring buyers and sellers together. "The only issues are in certain categories of business it makes sense for that to happen on-line at that moment, and in other categories of business it makes sense for that to happen over a longer drawn-out period. But the bottom line is to bring buyers and sellers together."

The outsider
Why have your Internet business "inside the newspaper" versus "outside the newspaper?" Jeff Jarvis, president of Advance.net, the on-line arm of Advance Publications (Newhouse Newspapers, which include Newark N.J.'s Star-Ledger), operates both Advance Internet and CondeNet, says that new companies often serve a new audience in new ways with new revenue streams and are charged with creating new value on-line. "We begin with the tremendous benefit of having a license to newspapers' content and a relationship to their trusted brands and community and advertiser relationships."

But it is important to keep the Internet ball rolling by creating products that are "right" for on-line, he says. Being a separate company gave Advance, which has 10 local sites, "the freedom to create extremely interactive web services," said Jarvis. "We get a great deal of traffic and growth out of the audience's content (in forums, chat, community pages) and their marketing." He reports that last year, traffic in local services tripled over the previous year.

Nonetheless, being outside the paper's structure may require additional effort to build and maintain good relations with the newsroom, said Jarvis. "What we build together [is] based on merit instead of fiat. In other words, when we find a good joint advertising sale, it's because it benefits both the newspaper and the on-line service and their clients. Similarly, when we do things together on content, it's on merit."

From the beginning, Advance was an "outsider." Jarvis believes that choosing this direction from the outset has enabled Advance to build "strong products, audiences, and businesses with real value on-line."

"Making the move from inside the newspaper to outside the newspaper can change the nature of the newspaper operation -- a profound effect if you want," said Moroney, who also said you can also choose to ignore it. "If you choose to embrace the Internet then you must consider how you change your publication cycle to go from a once-a-day cycle to a 24/7 cycle. You need to be more like the AP and less like a traditional daily newspaper."

"The critical issue is execution and that must come from the newsroom, including news management, reporters and editors," he said.

"We're continuing to evolve the collaboration between the traditional newsrooms of our newspapers and our sites. I expect the relationship to be more integrated and collaborative in six months. Fortunately, we have supportive leadership and management from the top and throughout our newspaper division. They want this to work."

Moroney sees untapped potential in Internet registration and personalization, as well as the expanding world of wireless delivery. "When the WAP [wireless application protocol] wireless world hits critical mass, local news and information will be a killer op."

More outsiders
KnightRidder.com's Finnigan believes that moving the former Mercury Center operation (launched six years ago as the nation's first full-text newspaper on-line) from the building occupied by the newspaper to that which houses the corporate national new media operation, reflects a new learning curve: "Our new media operation will learn very quickly a whole lot more about what it takes to run a local operation. The Mercury Center operation will learn how to create synergies across the entire network."

The change is also expected to consolidate Knight Ridder's web presence, simplify reporting structures and facilitate decision-making for faster movement on multiple levels.

But he also sees a drawback in the change. Co-promotion opportunities and joint content development opportunities are less accessible. He believes that because the nucleus of the operation is local autonomy, local web site operations will have the same opportunities to meet with business partners inside the newspaper that they would with any other local business partner.

KnightRidder.com has taken its initial steps toward autonomy via a transition organization, led by key and senior members of the staff. From there, executives created specialty sub-teams that focus on the business, content, marketing, promotion, sales, human resources, technology and site operations. "Each has developed a transition work plan that we have been following to the letter," said Finnigan. "We are on schedule and the transition has been working smoothly."

Since the many facets of Knight Ridder New Media, now KnightRidder.com, had already functioned with considerable autonomy from the newsroom, Finnigan expects the new company, in the short term, to provide a unique formula that maximizes local autonomy, and local development of content, brand, community, sales and market, with national synergies in which each of the more than 45 web sites benefit from one another's strengths. "The change in the next six months will probably set the tone for the company's next four years," said Finnigan.

Another compelling business
The actual "spin-off" will occur sometime in the next few months, depending on the markets and the progress made in establishing KnightRidder.com as a true standalone. As Finnigan sees it, staying inside the larger newspaper operation means that the Internet is a tool to enhance and grow the newspaper business in which the Internet brand and sales efforts become services to the newspaper franchise. "At Knight Ridder, we believe the newspaper business is still a thriving standalone business," he said.

"Right now we have a compelling opportunity to create yet another thriving standalone business. ... Two businesses can ultimately create more value for Knight Ridder shareholders than the newspaper would alone with the Internet as a function inside the newspaper business."

Finnigan notes another functional difference: "Inside the newspaper business everyone wakes up in the morning wondering how to help the reader relationship through the Internet to deepen and extend relationships with advertisers. In a standalone Internet business, one wakes up in the morning to find new consumers and new advertisers to survive."

Moroney agrees that it can be healthy to get the Internet out of traditional newsrooms at the outset -- "or at least give them some autonomy for a period of time.

"They need to develop a new business that is built on the great reporting and journalistic standards of the newspaper, yet one which is sufficiently differentiated so that it has a compelling reason to exist along with the printed newspaper. Such a goal is probably easier to achieve internally with the web-site operator uncoupled from the traditional newspaper."

But ultimately, the Belo strategy is likely to differ from the Knight Ridder and Newhouse models: "Ultimately," said Moroney, "you'll produce a better content experience if you can get the newspaper newsroom fully engaged with the web site staff -- get them thinking about stories and how they can play in the newspaper and on-line -- and to do that, you need the newsroom staff and much of the web-site staff co-located, in fact, side-by-side."

-- L. Carol Christopher

Inside or outside: for papers, that's the new media question

See also Examples of how newspapers now organize new media

From THE COLE PAPERS, May 2000, Copyright © 2000, All Rights Reserved.