Playing With the Competition vs. Fighting It

By: Steve Outing

That was an interesting piece in the Wall Street Journal on Monday about Microsoft's "CityScape" online community guide project, entitled "Microsoft's On-Line Plan Puts Newspapers in Highanxiety.com." (And that's a great headline!) Reporter G. Bruce Knecht painted the CityScape project, and competing endeavors like CitySearch and America Online's Digital Cities, as mortal threats to the newspaper industry.

(If you missed the story, you'll need to go to the Journal Web site and do a Search for "CityScape.")

I've been saying for several months that this trend of technology companies entering the online community guide business is something that must be dealt with by the newspaper industry. Knecht's story focused on CityScape, but Microsoft is only one of the well-funded players going into this business. In addition to CitySearch and Digital Cities, AT&T is quietly working on something called The Hometown Network; most of the RBOCs (regional telephone companies in the U.S.) are working on similar local online community guides, including USWest with a project currently under development called CityFocus; and cable companies also are entering the game, most notably @Home and TCI.

Knecht is right, newspapers should be worried -- and many of them are. He quoted The Associated Press' James Kennedy as saying, "When Microsoft can come to their towns and post city council agendas, it's no wonder than every newspaper in America is terrified by CityScape." And newspaper industry analyst John Morton told Knecht, "Newspapers are not going to be supplanted by the new group of (online) competitors, but they will make the newspaper business less profitable."

What to do, what to do?

If you're a newspaper executive, you've probably had one of these companies knocking at your door. What should you do?

It will take more than this single column to answer that question, but here are a few thoughts and some advice on how you might come to your own conclusions:

* As the Journal article points out, the information that projects like CityScape intend to put online are the "crown jewels" of the newspaper industry: local entertainment and community event listings, reviews, weather, local sports stats and coverage, and eventually news, local retail advertising and classifieds. Publishers cannot afford to ignore the coming competition. You either fight 'em or join 'em.

* As reported in my Monday column, one way to fight 'em is to corral the full resources of your company to create competitive online community guide services independently. That's what media conglomerate Cox Enterprises is doing with creation of its Cox Interactive Media unit, which combines Cox's print and broadcast properties' new media talent under one roof. CIM will create local city online ventures that will be competitive in scope and depth with what's coming from Microsoft, CitySearch, et al. Of course, only the largest media companies -- those that have properties across different media -- can effectively mimmick this strategy.

* The competition is coming fast and furious. Local online community guide ventures are starting to appear in major U.S. cities; within a year, most major U.S. metro markets will have one or more community online ventures in operation. Cox's Peter Winter estimates that each of these individual projects could have a start-up budget of $2 million or more. That means that a newspaper in a major city where the big players all want to enter -- say a Boston or a San Francisco -- could see at least $6 million (and probably more) of competition aimed at its home-grown online ventures. Let's face it, publishers in this situation can't get by with a tiny staff and tiny budget, expecting the newspaper brand name to carry the day. Consider that Microsoft has a rumored budget for CityScape in the hundreds of millions of dollars (according to the Journal article); AT&T's Hometown Network is rumored to be a $100 million project; and entrepreneurial CityScape has about $15 million in venture funding so far. If a newspaper company wants to be a player in this market space and wants to go it alone, it must make a serious commitment to creating online ventures that are competitive with what's barreling toward them.

I got in trouble a couple months ago when in a presentation before alternative newsweekly publishers I suggested that they must either partner with ventures like Microsoft CityScape, CitySearch or Digital Cities, or spend significant resources creating competitive online services on their own. The individual who invited me to give that talk thought that advising publishers to spend lots of money on a medium that has not yet made money for newspapers was poor advice. But as I watch the development of the online city guide services, I am more convinced that I was correct in that line of thinking. Don't just throw money at the problem, of course, but invest wisely for the future, confident that Internet publishing will be a profit center in a few years. (You can be certain that Microsoft, CitySearch and AOL Digital Cities are not expecting to turn a profit in the short term. Fall victim to the short-term desire to make money in interactive publishing and Microsoft, et al just may eat your lunch soon enough.)

* If you're in a metro market that's being targeted by these companies and you aren't a media conglomerate and don't have money enough to create a competitive local online offering, then partnering with one of these ventures may be your best option. The issue is how to get the best deal out of one of these companies for providing your content for their online venue.

The heavy competition should work to publishers' favor. I've had a number of newspaper new media executives tell me that the deal they've been offered by one of the online guide companies was inadequate, offering little opportunity for significant profits and weak branding of the newspaper name within the local service. (A couple publishers I spoke with who had been approached by this company said they felt like the company was trying to take advantage of them.) This company is likely to have trouble signing up newspapers until it sweetens its offering, which is likely. What we're likely to see in large metro markets is Microsoft, CitySearch and AOL (and probably the telcos, too) competing to sign up the first-tier newspapers as content providers. If you don't like the deal one of these companies offers and are unable to reach a fair agreement, you have other options.

Dave Chase, partnership marketing manager for Microsoft's Interactive Media Division, who is in charge of media relationships for the CityScape project, says he's working hard to understand the needs of potential CityScape media partners. If the community guide ventures don't offer the chance to make a fair profit and don't reinforce a newspaper's credibility in its local market, they are unlikely to get the cooperation of first-tier media, Chase says, which is something that all the online guide companies say they want badly.

Chase says that Microsoft is not offering one cookie-cutter deal in trying to lure content partners. That should tell publishers to send in their best negotiators when trying to do business with the online community guide companies.

* The deals that newspapers are doing with these companies are different than those being cut a couple years ago by publishers with the proprietary online services. In many cases, those online service-newspaper partnerships were the only online presence for the newspaper. Today it's a different game, with a newspaper alliance with an online city guide being complementary to the paper's own Web site. In some cases, the paper's contributions to one of these city guides can help drive traffic to the paper's independent Web site.

My advice is not to shy away from such deals unless you would be furthering a site that is directly competitive with your independent efforts. If you are committed to creating the best online community guide for your city, and have the resources and commitment to create a local service on a par with what's being developed by Microsoft, CitySearch and AOL, then you'll want to steer clear. ... And may the best local online guide win.

(Disclaimer: Besides writing this column and acting as an interactive publishing industry observer, I don another hat as a consultant. Microsoft and its CityScape project are an occasional consulting client; I've done a modest amount of work for the company. I try to keep my two potentially conflicting roles separate and trust that I have not introduced any Microsoft bias into this column. You can be the judge.)

Movin' On

Linda Stelzner is the new vice president/general manager of Times Information Services, a subsidiary of the Seattle Times Co. In this position, Stelzner oversees the development, sales and operations of new media products for the Seattle Times Co. Stelzner has been in an acting capacity for this position since last September. She has been with the company since 1988.

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