AOL's Digital Cities: Threat, Opportunity or Both?

By: Steve Outing

America Online is ramping up its Digital Cities local-content areas, and they look to pose not only a competitive threat to newspapers operating their own online services, but a potential opportunity as well (particularly for smaller papers), as AOL actively seeks out relationships with newspapers and other media to supply much of the local Digital Cities content.

Digital Cities are online community guidebooks, news sources, and discussion forums being produced for a number of U.S., Canadian and European cities. AOL clearly recognizes that the next big trend in the online world is in serving local markets with community-specific content such as community events and entertainment listings, local news, weather and sports, and local discussion forums. A local Digital City performs much the same function as many locally oriented online newspaper services. In fact, the concept is somewhat akin to Boston.com, the Boston Globe's Web service which brings multiple local media partners together under one virtual "roof." (At this early stage, however, even the formerly launched Digital Cities areas aren't nearly as complete in coverage or compelling in presentation as Boston.com).

Certainly, newspapers should consider this a potential threat to their own ventures. Right now Digital Cities is only available on the AOL proprietary service, but later this year all the Digital Cities ventures also will be available on the World Wide Web as free, advertiser-supported services, according to the vice president and general manager of Digital Cities in North America, Bob Smith. While the first Digital Cities are relying on usage fees, Smith says that in a short time the model for the entire business unit will be to rely on advertising and earn revenues from merchandising online.

Expect to see AOL partner with other companies to provide online sales and ticketing. Smith says the focus of the Digital Cities unit is primarily on content and programming. "This is not a technology play," he says, though that could change at some later date.

The game plan

The first Digital Cities areas to be launched were Washington, D.C., and Boston, with Philadelphia and Atlanta due for roll-out soon. If you visit the Digital Cities central area on AOL (KEYWORD: DIGITAL CITIES), you'll find early versions of not-yet-built-out Digital Cities for these U.S. and Canadian cities:

Cleveland, Dallas/Fort Worth, Denver, Detroit, Houston, Los Angeles, Miami/Fort Lauderdale, Minneapolis/St. Paul, San Francisco, Seattle/Tacoma, Tampa/St. Petersburg and Toronto.

AOL further promises "dozens" more Digital Cities across the U.S. in the "coming months." A separate Digital Cities unit in Europe is implementing the concept in major cities such as London and Paris. The European unit is operating independently of Smith and his crew, and is headed by AOL's Jonathan Bulkeley, who while stationed in the U.S. at one point headed AOL's relationships with the newspaper industry.

For now, cities with newspapers that do business with AOL do not have a competing Digital City service for their market. Within the Digital Cities directory area of AOL, clicking on Chicago brings up the Tribune's Chicago Online area; New York brings up the New York Times' @times service; Orlando brings up Orlando Sentinel Online; Phoenix brings up Phoenix Newspapers' Arizona Central; and San Jose brings up the San Jose Mercury News' Mercury Center. Smith says that these cities likely will have something labeled as a "Digital City" at some point, but it probably will be created in partnership with these newspapers -- bringing other local media partners into the mix as well.

Local staffs plus local media partners

Each Digital City will have a locally based staff coordinating the venture. Smith declines to say how many people AOL will base in each city, but it will be "sufficient to manage our IP (information provider) relationships." That means more than one person in a field office, but not a huge staff, he says. (Hint to job-seekers: AOL-Digital Cities is in the process of hiring some city staffs).

Thus far, media partners have included TV and radio stations, specialty print publications, and alternative and community newspapers -- but few daily papers. "I like the alternative and community papers," Smith says. "They're not thinking monopolistically about the market" the way that many metro dailies do, and seem more willing to join forces with Digital Cities. Also, the smaller papers tend to cover niche markets and can bring to the table specialized content not easily duplicated by others. In the Boston Digital City, for example, AOL has carved out a relationship with the Boston Phoenix, an alternative weekly, which provides entertainment and dining listings. (The Phoenix, by the way, has its own Web site which offers some of the same information. Relationships with Digital Cities are non-exclusive, Smith says, although there are some limits in terms of working with other online content aggregators -- which could include the commercial online services and possibly competitors of Digital Cities on the Web).

Smith says he still would like to work with big-city dailies, but has found them more difficult to negotiate with. Also, because the newspaper industry is now so dedicated to the World Wide Web and has stepped back from relationships with the proprietary online services, publishers have been reluctant to enter discussions with AOL. (But, as mentioned above, Digital Cities too is heading to the Web shortly).

The Digital Cities approach to media partnerships, Smith says, is to find several local media organizations to participate, allowing each to provide content in its niche area. Because there can be friction between newspapers -- for instance, an alternative newspaper and a daily serving the same market -- Smith looks for partners to serve specific areas of coverage. "We try to build fences between them so they can co-exist," he says.

Terms of individual deals are not available, but Smith says they vary wildly. Some of the Digital Cities-media deals are strictly cross-promotional, while some media partners merely exchange content for AOL hosting facilities. While usage fees are still paying the freight, media partners may negotiate a revenue split for time AOL subscribers spend in the media areas. Smith won't reveal a figure, but sources outside the company say a 85/15 to 80/20 split (favoring AOL) for online usage fees and a 20/80 split for publisher-generated advertising (favoring the publisher) is a typical deal being offered by AOL. In talking with publishers who have been approached to join up with Digital Cities, I've been hearing grumbling that the offer isn't good enough.

The coming competition

Digital Cities aims to compete with newspaper online services in some critical areas, including community events and entertainment listings. But Digital Cities is only one of newspapers' major competitors (or, possibly, partners) in local-market online services that are coming down the pike. Well-funded efforts seemingly in a model similar to Digital Cities include Microsoft with its upcoming CityScape service, and CitySearch, a California start-up. A number of smaller non-news companies are working on similar projects for local markets.

For newspapers, this means that their area of greatest vulnerability is in continuing to be their communities' primary entertainment and community information sources in the online world. With such powerful competitors heading their way, some papers may choose to join in ventures like Digital Cities as partners. Like the Boston Phoenix, they may choose to create a presence on these online community guides as well as operate their own Web services.

For those papers that choose to tackle the new services head-on, look for some serious competition from companies with a lot of money to burn. This may be one of those "if you can't beat 'em, join 'em" situations where a newspaper must maintain a presence on the dominant local online community guide sites, while simultaneously operating its own independent online service. The key will be to get your paper's brand name in front of as many computer users as possible -- and that may mean spending some of your time "consorting with the enemy."

Update: New York Times on the Web

June will be a big month for the New York Times on the Web, with introductions of its new personalized news clipping service and the opening of its archives on the Web, according to editorial director Kevin McKenna. The Clipper service will cost $9.98 per month, which gives subscribers up to five personalized news profiles; the results can be sent to the subscriber by email or viewed on a personalized Web page. The New York Times archives will be searchable for free, with a $1.95 charge per article downloaded. Free searches will return the headline, byline and a synopsis of the article.

Next week the Times site will launch a major online photo essay area and discussion forum on Bosnia, featuring pictures from a photo assignment in the war-torn country which have not yet appeared in print. Again in June, the site will introduce a Business section featuring the addition of real-time financial data. (This area is in addition to the CyberTimes technology/business news section).

Contact: Kevin McKenna, kevin@nytimes.com

No column on Monday

Due to the Memorial Day holiday in the U.S., there will be no Stop The Presses! column on Monday, May 27. The column will return on Wednesday, May 29.

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This column is written by Steve Outing and underwritten by Editor & Publisher magazine. Tips, letters and feedback can be sent to Steve at outings@netcom.com