The Salt Lake Tribune in Salt Lake City, Utah (USA), has shaken up the local Internet community -- indeed, its strategy may have an impact nationally. Utah's largest newspaper has partnered with a local Internet provider and is offering access accounts for $5.95 per month for 30 hours of usage. That's about half what other local Internet providers offer as their best rate, and is much cheaper than rates charged by national Internet providers like Netcom.
While many newspapers are entering the access business hoping to make a quick profit before major players like the telephone companies enter the picture and make the market extremely competitive, the Tribune is not doing it for the money. Its strategy is to offer an inexpensive on-ramp to the Internet for Utah residents so that there will be more potential readers of its new Utah Online Web service. Utah Online will draw its revenues primarily from advertising and premium services. The share of access revenues the Tribune will receive from its access partner, Source Internet Services of Salt Lake City, will be modest.
Online editor John Jordan says the paper looked for an Internet partner that could provide access to most of Utah, since the Tribune is a statewide paper. Source Internet Services was chosen because it has POPs (points of presence) throughout Utah and in southern Idaho, eastern Nevada and western Wyoming, where the newspaper also is distributed. Source also agreed to go along with the cut-rate pricing.
Jordan says no one comes close to the Tribune's pricing today, although he expects competing Internet providers in the Utah market to react with price cuts of their own. The $5.95 rate is good only for subscribers to the newspaper, and additional hours beyond 30 hours are $1. For users for whom 30 hours is not enough, Source Internet Services will sell them an unlimited-time account for $19.95 a month. (All the above are for a PPP account -- i.e., a type of access account that allows the use of graphical-interface Internet tools such as Netscape, Mosaic and Eudora.)
Compare the new rates charged by the Tribune to that of national access providers:
Netcom: The largest Internet provider in the U.S. charges for a NetCruiser account $19.95 per month for 40 hours of peak time (M-F, 9 a.m.-midnight), unlimited time during off-peak, and $2 for additional hours. (You can save money by getting a shell (text-only interface) account with Netcom for $17.50 a month, unlimited access, and using a SLIP emulator like The Internet Adapter/TIA. This is the set-up that I use to access the Internet/World Wide Web.)
InfiNet: InfiNet, owned by Knight-Ridder and Landmark Communications, has partnered with a number of newspapers, offering co-branded Internet access for $9.95 per month for 10 hours ($2 per hour additional), or $24.95 a month for 100 hours.
The Tribune's low-price strategy is having an impact. The service was introduced a week and a half ago with 2 full page ads in the Sunday paper; another ran this last Sunday. Jordan says that Source Internet Services was swamped with orders for service and couldn't keep up with the phone calls. The $5.95 offer brought in around 1,000 new subscribers during the first week. (By comparison, the Arizona Daily Star in Tucson, which launched as an ISP in May 1995, had climbed to only 2,700 subscribers by October.)
Jordan says it didn't make sense to him to charge the going rate -- $20 to $25 per month -- for Internet access, when that business offers a short-term opportunity for profit. A better strategy, he says, is to facilitate getting people online and then drawing them to Utah Online. Tribune Internet access customers can purchase a custom version of Netscape that points to the Utah Online home page for $16.95. (The package also includes a suite of other Internet software for handling email, telnet, etc. -- basically, an Internet starter kit.)
The Tribune's strategy makes some sense, if you believe that Internet access is not a viable business for a publisher to be in and that you must make your money elsewhere. It serves as a way to prepare and "train" customers so that the potential audience for its online offerings is larger. The strategy could be a boon to newspaper print subscriptions, since you have to pay for the print paper in order to get the cut-rate Internet deal. It's too early to ascertain the success of that aspect of the plan, however.
What does this spell for the Internet access business? This is only one small blip on the radar screen, but obviously the overall trend is for prices to continue to fall. (I'm speaking here primarily of the U.S. market, though some of the same trends may apply elsewhere.) As more players enter the access business -- and as services by the regional telephone companies, AT&T, cable TV companies, @Home and others are introduced in 1996 -- opportunities for profit among smaller access providers (including newspaper publishers) diminish.
I have been one of the voices saying that there does still exist a short-term opportunity to use access revenues to fund the initial stages of a newspaper's interactive services. But the Salt Lake Tribune's move to cut-rate pricing may signal that the time already is nearing when it will be necessary to move on to other primary funding sources. Similar low-ball pricing is sure to spread throughout the U.S.
To be sure, there will be disparities in quality of service. @Home, the cable industry venture that will bring 10-megabit per second Internet access to U.S. homes via cable television wiring starting in 1996, will be higher priced -- $30 per month has been talked about by @Home representatives as a likely price point. Likewise, it's unlikely that the telcos will initially price access at rates to match the Tribune's. For those willing to settle for 28,800 baud modem access and who do not require access points throughout the U.S., a very low-priced local service like that offered by the Tribune will do well.
What the Tribune's strategy calls into question is the strategy of companies like InfiNet, which has turned a number of U.S. newspaper companies into Internet service providers (ISPs). For some of InfiNet's partner newspapers, access is the primary source of revenue today. I wasn't able to reach any of InfiNet's executives on the phone yesterday before the deadline for this column, so I will leave it for another day (probably tomorrow or the next day) to present their view of the future of the access business.
And here's one last tidbit about the access business: A knowledgeable source tells me that a North American newspaper will soon announce that it is giving away free Internet access accounts to customers who purchase a 1-year subscription to the print product. I'll report on this when I find out the name of the publication.
Salt Lake Tribune's BBS on the way out
The Salt Lake Tribune has been operating a BBS version of Utah Online since January 1994. The service is free to subscribers of the newspaper. Jordan says the BBS, which was revamped as a FirstClass BBS last summer, will continue to operate. However, he expects the service to be phased out over time in favor of the Web service. This mirrors a trend in the newspaper industry, reported in this column over recent months, of publishers abandoning dial-up BBS services.
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