STARTUP LAUNCHING 'AUDIO' NEWSPAPERS

By: Joe Nicholson Company Invests More Than $20 Million In Auto Audio Device



An Atlanta-based startup is preparing to offer an automobile audio
device that will read your local newspaper to you on the commute
between home and work.



American Autocast Corp. (AAC) has invested more than $20 million
over the last 31/2 years to develop software and hardware in the
belief the new system will generate millions in global advertising
revenue, said Jerry Hoffman, the startup's president.



Before being given presentations, some 50 large U.S. newspapers
signed four-page confidentiality agreements that protected AAC from
a risk that proprietary information would be passed on to potential competitors, Hoffman said.



The next step is getting newspapers to sign financial agreements to
pay for feasibility studies, which determine the cost of setting up
the Autocast system in each market. A newspaper must then make the
pivotal decision to provide financing.



The system would cost about $100 a car, which means that a large
metro newspaper that seeks to equip a million vehicles would face
$100 million in initial costs, estimated Hoffman, who plans to
split the cost with his newspaper partners.



In addition, a newspaper partner probably would have to provide
eight to 10 staffers to operate a data center where files of
newspaper content would be transmitted to automobiles' audio devices.



'We have reached a financial agreement with a newspaper to roll
this out, and we are now doing the feasibility study,' said Hoffman.
He declined to identify the newspaper, but said the size of its
market indicated AAC and the newspaper would have to split a
commitment of about $50 million.



Autocast will be browseable and searchable, said Hoffman. Hoffman
conceded the system is untested. He also declined to identify the
50 papers that have signed confidentiality agreements, citing the confidentiality agreement itself.



Hoffman's system does have the outspoken backing of a prominent
newspaper industry executive who has been serving as a Hoffman
consultant. 'It is revolutionary,' said S.W. 'Sammy' Papert III,
chairman and CEO of Dallas-based Belden Associates, the well-known
newspaper market research firm.



Papert, whose family operated a newspaper rep firm for decades,
has been advising Hoffman on a daily basis for several months.
Papert said he doesn't know the likelihood of success for the
system, adding, 'If it doesn't succeed, [the reason might] be a
technology problem or a culture problem, [such as] newspapers'
reluctance to change. My belief is some newspapers will jump all
over this and succeed enormously while others won't recognize the
potential.'



After E&P asked the Newspaper Association of America (NAA) for a
comment on the AAC concept, NAA President and CEO John F. Sturm
replied with a statement: 'Instead of looking interesting, this
idea sounds interesting.'



Vin Crosbie, president and chairman of Greenwich, Conn.-based
Digital Deliverance LLC, an online circulation consulting firm,
said AAC's concept was 'all doable now' and 'not particularly'
difficult to achieve technically.



Further, Crosbie said the Microsoft and General Motors corporations
have been working on products that could browse such content as
e-mail and provide audio presentation. Neither of those companies
has indicated it planned to use newspaper content.



But Crosbie, a former business journalist, doubted whether enough
commuters would tune into AAC broadcasts 'to make a business of it,'
adding, 'I would be betting against this company.'



Hoffman said that a newspaper ought to be able to recoup its
investment within three to five years. He anticipates a local
newspaper will sell local ads and AAC will sell national ads. He
hoped the system would be operating in at least one city by the
end of the year.



David B. Bonfield, publisher of The Trentonian in New Jersey, told
E&P he has spoken to Hoffman twice and passed on his proposal to
executives at his paper's parent Journal Register Co.



While Bonfield did not attempt to assess the likelihood of AAC
technology's viability, he estimated successful Autocastlike systems
could help newspapers take as much as $5 billion of radio's projected $20-billion local and national ad haul annually.



'One of the things you would want to understand is the barriers to
radio coming in and doing the same thing,' said Bonfield. 'So the
questions are, 'How good is the proprietary technology?' and 'How
easy would it be to duplicate?''



Bonfield, a 27-year veteran of the newspaper business, added that
even if radio stations began competing with Autocast, 'They would
face the problem of cannibalizing their own broadcast signal.'



Newspaper consultant and economist Miles E. Groves said AAC is
correct in assuming newspapers are seeking to expand reach and
would especially like to grow it in a way that might give them
greater leverage in competing for advertising with radio.



'It's a very interesting model,' said Groves, senior vice president
and chief economist of the Bethesda, Md.-based Barry Group, a
newspaper marketing consulting firm. 'But I'm intrigued by newspapers
having to put up so much labor and capital. I'm not sure that part
of the business model will work.' Groves said that newspapers
probably wouldn't mind providing existing content, but are likely
to think twice about the substantial startup costs. Hoffman's plan
could help newspapers compete with radio in a way that would make
the cross-ownership issue moot, observed Groves.



Newspapers are ideal AAC partners because they are 'media factories'
with storehouses of content, said Hoffman, who has hedged his bets
by signing confidentiality agreements with about 15 TV companies
and 15 radio companies. Hoffman, who is in his late 50s, grew up
in St. Louis and graduated from the city's Washington University
with a degree in business. He later spent 20 years as director of
new business development with Coastal Offshore, an Austin, Texas-based
firm that did business for decades before discontinuing operations
about six years ago.



Hoffman, who has a stake in the new firm, said he has obtained most
of his financing from the Telecommunications Fund, a Nassau,
Bahamas-based international venture capital fund, which he said
'funds a lot of startups.' Hoffman has traveled to 'probably 20'
other countries to stir up interest in his project, he said.





Joe Nicholson (jnicholson@editorandpublisher.com) is an associate
editor for Editor & Publisher magazine.