An Unpopular Message About the Need for Alliances

By: Steve Outing

Last week I gave a presentation at the convention of the Association of Alternative Newsweeklies in Salt Lake City, Utah. The message I gave was not well received, to say the least. In fact, I received a scathing email note from AAN director Richard Karpel (who invited me to speak), suggesting that what I said was "damaging and needs to be refuted." He published on the AAN Web site an editorial critical of my message that publishers need to seriously consider alliances with major competitors who are headed their way in cyberspace, suggesting that a consulting relationship that I have with Microsoft influenced what I presented. I'd like to use today's column to clear the air and explain the reasoning behind my opinions. (Also, this gives me an opportunity to deal with an interesting online publishing issue that should be discussed).

In a nutshell, what I told this audience of alternative newsweeklies publishers was that some serious competition is headed their way in the form of localized online community guides being engineered by well-funded companies like Microsoft, America Online, CitySearch and others, and national online personal ads services like Electric Classifieds' These ventures, which are gearing up in a big way this year, pose a potential threat to the core business of alternative newsweeklies.

In the case of online entertainment guides, for instance, as more people come to use the Internet, they will turn first to a local online entertainment guide to search for movie or concert times (and probably order tickets). Over time, greater numbers of people will go online for this information rather than pick up their local alternative newspaper (which traditionally has offered the most complete entertainment guide of any local media). Whether they turn to an online service of their local alternative newsweekly or to a service by Microsoft, CitySearch or America Online and its Digital Cities arm is up for debate. (In some cases, either choice may lead the consumer to the brand name of the alternative newspaper, since these companies are courting local media as information providers).

Responding to these trends is imperative for alternative newsweeklies, obviously. I suggested the following:

* Alternative papers can't afford to sit quietly as major competitive forces online are at work that could chip away at two core pieces of their franchise: local entertainment and personal ads. They have to do something significant to respond, in order to protect their franchise. The time when inaction -- and even simply experimenting without making a serious commitment -- is an acceptable strategy is past. Inaction or inadequate action in creating online services that respond to these threats puts an alternative paper's livelihood at risk.

* I did suggest that a small alternative paper would have a difficult time competing against larger national competitors who enter their local market to set up local online entertainment/community guides. (This particularly offended Karpel) In my view, the alternative paper's brand name will not be enough to effectively compete unless it can create a truly compelling and competitive offering. Brands in cyberspace are tenuous (as evidenced by the way Web users have switched allegiances to Web browsers and Web search engines as new and better technologies are introduced), so a local Digital City or CitySearch has as much chance of establishing a local consumer foothold as the established alternative newspaper.

* Alternative papers should seriously consider allying with the coming competition. It is my belief that for small-newspaper publishers, multiple revenue streams are vital for a paper's overall new media efforts. So, allying with the large companies that are entering their local markets can bring in additional revenues. And it has the added benefit of presenting the paper's brand name in an additional online venue. Whether a consumer chooses to visit the newspaper's own Web site or a localized AOL Web metro guide, for instance, the newspaper brand name is visible. I would suggest that this is preferrable to choosing not to ally and having those consumers who visit the competition miss out on the newspaper's offerings (and advertisements).

The concept behind projects like AOL's Digital Cities is somewhat akin to, the Web service created by the Boston Globe which attempts to bring all local media under one roof. For a local media outlet in New England, the "eyeballs" that brings to its partners' local content outweigh the rationale for keeping the media outlet's Web service totally independent of larger "competitors." The same argument can be made for alliances with companies like Microsoft or AOL.

The flip side of this, of course, is that by allying with the competition you may be damaging your independent online efforts. But look at it this way: These alliances -- if you negotiate a good deal -- can help fund your independent efforts. After all, everyone knows how difficult it is to make a profit with independent online newspaper services at this point in the evolution of the Internet. And, the local online guides are not likely to go away just because some publishers refuse to offer their content as part of the new service.

* Ideally, an alternative newspaper faced with national competition coming into its market in the online entertainment/community guide area should do two things: 1) Identify the best partner(s) and negotiate good non-exclusive deals to provide content to the service(s). And 2) make a serious commitment to building its home-grown online ventures, funded in part by ancillary revenue from its alliance deals. Remember, the companies that are entering your market if you are an alternative newspaper publisher are creating services that serve a niche: local entertainment, community information and listings, personal ads. While these may be components of what a newspaper publishes on the Web, the paper's Web service is likely to offer a broader service. Even Digital Cities, which includes a news component in its city services, can't match what a local newspaper can offer.

This dual strategy, by the way, is exactly that of the Boston Phoenix alternative newsweekly, which operates an ambitious independent Web site and recently became an information provider to America Online's Digital Boston service. (AOL's various Digital Cities, which are being created for cities around the U.S. and Europe, will be free, advertiser-supported services on the World Wide Web within the year.)

Roll over and play dead?

Karpel in his editorial characterized my message this way:

"The gist of Outing's presentation on Thursday afternoon can be summarized as follows:
"1. Companies like Microsoft and AOL have a lot of money.
"2. Along with several smaller companies, they're getting into the business of online entertainment listings and personals.
"3. If you're an alternative newspaper publisher, you'll never be able to compete with them because they're bigger than you, so you should consider cutting the best deal you can get now.
"4. However, if you decide to compete with the big boys rather than cutting a deal (Mr. Outing appeared to believe this would be a foolish decision) you must SPEND A LOT OF MONEY IMMEDIATELY to build a fancy Web site, even though there's little hope of making money on the Web in the foreseeable future.

"Outing must have told us eight or nine times that 'Microsoft has a lot of resources' and generally followed that ground-breaking bit of news with a slight, nervous shrug that appeared to signal his belief that he thought alternative newspaper publishers should submit to the inevitable and cut a deal with the boys from Redmond before it's too late."

In my presentation, I offered the opinion that for many smaller newspapers, it will be difficult to compete unless you take your independent Web services very seriously. Actually, alternative newspapers can easily compete directly with the likes of Microsoft in their local markets if they band together and leverage their collective strengths and resources -- something I have seen little evidence of to date. (One exception is the largest U.S. alternative newspaper publisher, New Times Inc. of Phoenix, which publishes six U.S. newsweeklies. It has done this internally and is creating database-driven Web services that will be worthy competitors to anything that larger companies throw at them in their local markets.)

I do not propose that alternative newspapers -- or community papers or anyone else -- "roll over and play dead" because the competition is bigger than they are. Rather, I propose that publishers not dismiss alliances out of hand. If an alliance with a larger entity can bring in new revenues to fund other components of a paper's new media program, by all means consider it.

Is my advice slanted?

Karpel has suggested that my views as expressed to his association members may have been slanted by a relationship I have with Microsoft. Briefly, let me confirm that I do consulting for a number of companies, and have done a limited amount of work for Microsoft in recent months. It's a fact of life that the "industry observer" role I play with this column and my occasional public presentations don't pay enough for me to survive financially. My "other hat" is as a consultant to publishing and technology companies, and I find that work to be as rewarding as writing this column.

Balancing those two roles is a task I take seriously, and I attempt to keep the two sides of my career separate. If I ever cross the line, I would expect readers of this column to call me on it. I don't believe this to be the case with the advice to publishers expressed above; it's the same opinion I would have expressed if I didn't have a single consulting client. My goal continues to be to assist the newspaper industry in figuring out how to do business profitably in cyberspace. In today's environment, when publishers operating online are struggling to bring in revenues, alliances are a necessary component of an overall new media publishing strategy.

What do you think?

I would be most interested to hear from alternative newspaper publishers -- or anyone else -- on this issue. Am I suggesting that alternative papers "sleep with the enemy" and thus am far off base? Or is becoming an information provider to new (national) competitors in your local market a viable additional revenue stream to existing independent online efforts? I will be happy to publish your opinions here.

Contact: Richard Karpel,

New InfiNet affiliates

Norfolk, Virginia-based Internet service provider InfiNet added seven new Internet access and publishing affiliates to its network in May, bringing its affiliate base up to 66. The papers are the Miami Herald, Washington Times, Columbus (Ga.) Ledger-Enquirer, Wilkes-Barre (Pa.) Times Leader, Macon (Ga.) Telegraph, Biloxi (Miss.) Sun Herald, and Bloomington (Ill.) Pantagraph.

InfiNet is an ISP strategically focused on the newspaper industry. The company is owned by Knight-Ridder, Gannett and Landmark Communications.

Movin' On

Robert Seidman, editor and publisher of Seidman's Online Insider (a great weekly, free email newsletter covering the online services industry), has left his position with IBM to become editor-at-large for CMP Publications' NetGuide magazine and continue to write his column. The column can be found on the Web, also.

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