'Where Are The Cowboys?' p. 10

By: JOHN CONSOLI &HOAG LEVINS NEWSPAPERS have the opportunity to dominate the online information distribution market if they would just get more aggressive, according to Bob Cauthorn, director of new technology at the Arizona Daily Star.
But instead, Cauthorn laments, many are sitting around allowing Microsoft and America Online to enter into dominant partnerships that will eventually spell doom for newspapers.
"We're at the beginning of a brand new industry folks," Cauthorn told attendees at Interactive Newspapers '97 in Houston. "These are the best times to be involved in newspapers since World War II, when every day was a good news day. So where are our Hearsts? Where are our Joe Pulitzers? Where are the cowboys of our industry?"
Cauthorn said most newspapers are too timid, have a fear of investment, fear competition and are bound to one-way delivery.
"This is an industry that anguished over the addition of color to newspapers," he said, chiding the newspaper execs who debated for years whether USA Today, which debuted with daily color throughout its pages in the early '80s, would succeed.
"The dairy industry spends more on R&D [research and development] than the newspaper industry does," he said. "We want an ROI [return on investment] on everything. We are bound to these incredibly fat profit margins.
"Companies are investing risk capital to do business with us and we are investing almost nothing in risk capital. We need to change that as an industry."
Cauthorn said newspapers have been "so fat and slow," that they don't know how to compete anymore.
"We're like an RBOC [regional Bell operating company] in that respect. With very few exceptions, newspapers ignore TV . . . and with very few exceptions, none of us are doing business in intense, competitive markets.
"I yearn for the newspaper wars of yesteryear. Take me there. I want to be there. That was fun. And it was good newspapering. If other industries were to look at us, they would laugh. I mean grocery stores are fighting over a 1% profit margin. That creates a seeming inability to create, so then we want partnership, partnership, partnership."

"They mean us ill"
Partnerships, he said, are not bad, but newspapers should enter partnerships as the dominant partner, not as the subservient partner.
Why? "The reality of it is, and some people may dispute this, the folks at America Online and Mircrosoft are nice people and they are doing smart business, but they mean us ill," Cauthorn said. "There are two kinds of people out there. There's a competitor ? and that's OK. You can compete. And then there's an enemy. And the enemy is the kind who wants to be your friend and then destroy you.
"They [AOL and Microsoft] mean to destroy us," Cauthorn said. "They mean to reduce us to the importance of a wire bureau serving them. You all know this. You know it in your hearts. I don't know how some people are starting relationships with them."

Take the RBOC's business
Cauthorn said the Star, beginning April 1, will start going after new business in Tucson.
On April 1, the company is planning to launch StarNet ISDN, which will enable residents to buy ISDN lines from the newspaper as an alternative to US West.
On April 15, StarNet is scheduled to launch two megabit wireless bandwidth services to the home. And on April 30, StarNet will launch what Cauthorn believes to be the first ADSL on the market.
Cauthorn said all of this means that StarNet will be providing six megabits downstream to the home, round the clock, to deliver both information and broadcast quality video to the home computer.
"It's better than having a T1 line into the home," he said. "It's part of our campaign to get you to throw out your modem, and to throw out your phone company while you're at it.
"So rather than sit back and worry about whether US West wants to encroach on me, I'm going to encroach on them a little bit."
Cauthorn urged newspapers around the country to watch what he is doing very carefully. "It could be a model for every single one of you. I don't care how big your market is or how small it is."

Idea is put into action
Cauthorn said he first approached a community access provider, in this case, Brooks Fiber, which operates in about 23 U.S. cities, including Tucson, where it had installed lines to get the phone service for a local hospital.
"I said, 'Do you want the entire market' and they said 'yeah,' and I said, 'Here's the deal, I own the market because I'm a newspaper. I can give you the market but this is what I want in exchange ? I want contractual language that you will never enter the content business. I want a revenue split on this. I want to be the dominant person in the branding. I handle all the Internet services, you just handle the telephony, but you pay for all the other pieces and I run the server."
Cauthorn said Brooks agreed to all of this.
"You know why? Because they realize if this works, in the next four years probably they can take the top 35% of the market away from US West and if they take the top 35% of the market way from US West, US West is no longer profitable in the market," Cauthorn said.
He stressed that he is the dominant partner in the relationship with Brooks Fiber.
"I set the terms. Define the terms. And now we'll launch StarNet/Brooks ISDN service," he said. Residents will now be able to buy their phone, with ISDN line from the newspaper for $62 per month including Internet access. Competing RBOCs, he said, charge $130 for similar service.
Pacific Bell was used as a model for setting the low ball price, Cauthorn said. "We wanted to get underneath them and we knew we would kill US West."
The StarNet two megabit service will cost residents $50 per month, while the ADSL service will cost them $80 a month.
While he would not reveal his revenue splits on those fees, Cauthorn said they are "mind-boggling."
Cauthorn hopes to get 5,000 businesses signed up within the first 18 months for the ADSL service. The installation cost will be about $1,200 and StarNet will provide all the equipment.
Cauthorn has also arranged deals with several of the largest home builders in Arizona under which StarNet/Brooks will network 400 homes in Tucson and 400 homes in Phoenix by the summer.

Going after the pager business
Cauthorn said he has also cut a deal with an alphanumeric pager company in which StarNet is also the dominant partner.
Currently, StarNet is running an e-mail to pager gateway and is providing such information as horoscopes, sports scores, lottery numbers and stock quotes.
He said StarNet is testing in-house a service that can beep a person's pager if that person's stock reaches a certain price and said StarNet is also planning to roll out pager coupons.
Arizona Daily Star tech exec says newspapers need to take risks to ensure their online future
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?(The Houston Hyatt Regency was the site for the main sessions of Interactive Newspapers '97, attended by media people from the U.S. and 22 other countries.) [Photo & Caption]