Can Newspapers Find Their Niche in the Internet Age?

With public opinion polls consistently showing reduced respect for the traditional news media, the Internet now looms as potentially the gravest threat to survival that these media--and newspapers in particular--have ever faced.

Newspapers long ago lost out to television as the place most people get most of their news. Nowadays, many people do not even have to wait for the TV news to come on. They can get headline stories, sports scores and stock reports instantly on their computer terminals.

As Internet access becomes increasingly common, many people who are attracted by its unique features--and who are fed up with what they see as the bias, inaccuracy, sensationalism and arrogance of the traditional media--may migrate to the Internet in such large numbers that today’s primary providers of news and information will become tomorrow’s journalistic ghost towns.

Or--and this is the hope of establishment media moguls from coast to digitally monitored coast--the Internet could prove to be the greatest opportunity for salvation their business has ever had.

“We see the Internet as the best opportunity to create real economic value in the media over the next 75 years,” says Peter Winter, president of Cox Interactive Media, a division of Cox Newspapers, based in Atlanta.

If newspapers can improve their print publications to take advantage of what the Internet can’t do and, at the same time, create their own Web sites to capitalize on what the Internet can do, they could thrive both journalistically and financially--and reclaim the media dominance they once enjoyed.

“Paper is very valuable for certain kinds of uses, and electrons are very valuable for other kinds of uses,” says Paul Steiger, managing editor of the Wall Street Journal. “They’re going to coexist and mix and match, but over time, electronic transmission is going to be more important.”

Marshall McLuhan argued 30 years ago that “The medium is the message,” but Steiger and other print editors who see the Internet as more opportunity than threat insist that newspapers will continue to be newspapers--news, information, insight and entertainment--no matter what the format or transmission mechanism is.

The Internet, after all, is just a delivery system--electrons and wires rather than ink and paper.

“It doesn’t change the nature of what we do. It just changes the tools we use,” says Owen Youngman, director of interactive media for Tribune Co. in Chicago.

But print journalists must avoid the shortsighted approach that fatally afflicted the railroad and typewriter businesses. Railroad executives saw themselves as being in the railroad business rather than the transportation business, and failed to meet the challenge of airplanes and automobiles.

Companies such as Remington and Underwood saw themselves as being in the typewriter business rather than the word processing business, and were buried by IBM, Apple and Microsoft.

Newspaper executives and the people who work for them must see themselves as being in the information and communications business, not the newspaper business.

The heart and soul of any serious news organization is its newsroom--the men and women who report and edit the news. Newspapers not only have the experienced staffs necessary to gather the news, but they also have the editorial standards, the connection to their communities and the record of public service that would seem to give them a head start in any race to establish a journalistic beachhead in cyberspace.

Moreover, a newspaper on the Internet can publish the sort of “extra” (as in “Extra! Extra! Read all about it!”) that big-city newspapers routinely published when news broke in the days before television; on the Internet, a newspaper can update itself constantly, reclaiming from television the role of being most people’s first source of news.

If a newspaper can provide good, traditional journalism--updated during the day and augmented by the graphic, personalized and interactive features of online publishing--will it really make any difference if the consumer downloads the material to his home or office computer and prints it there rather than having the newspaper print it and deliver it?

“As long as we can get the news to people . . . I don’t think the trade-off from print to electronic is intrinsically bad,” says Neil Budde, a former reporter and editor at the Louisville Courier-Journal and USA Today and now editor of the Wall Street Journal Interactive Edition.

But there is a significant difference between the two media: The Internet effectively shifts the decision-making process from the publisher / broadcaster to the consumer / user.

No Guarantees on Reliability

Historically, a relative handful of news media elites have served as gatekeepers and agenda-setters for a large and increasingly diverse society. Guided by their own standards of newsworthiness, relevance, taste and public interest--and severely limited by the available space and time (a certain number of columns or pages per issue, a certain number of minutes per newscast)--major newspaper and magazine editors and top radio and television news directors have long decided what (and how much) their audience will be exposed to every day.

There are no time or space limits--and ultimately no gatekeepers--on the Internet. Cyberspace is infinite. Anyone can disseminate information instantly, throughout the world.

This tidal wave of unfiltered information imposes “more responsibility on the . . . news consumer,” says Brock Meeks, editor and publisher of Cyberwire Dispatch, an online news service, and chief Washington correspondent for MSNBC, the cyberspace alliance of Microsoft and NBC News.

“When you pick up the New York Times or the Los Angeles Times, there is an unspoken guarantee that what you pick up will be factual--it’s been vetted by lawyers and editors,” Meeks says. “There isn’t that kind of unspoken guarantee [on the Web]. The news consumer has to be smarter, do his own filtering . . . ferret out the people who are good and responsible as opposed to those who are sloppy or wacko.”

But most people have neither the time nor the skill to find, sort and evaluate all the information they find on the Net. Thus, for all the talk in some quarters of a process that has come to be called “disintermediation”--the elimination of intermediaries and middlemen--the Internet is unlikely to render obsolete the reporters and editors who serve as journalistic middlemen.

“The more material there is, the more need there is for filters,” says Howard Rheingold, an Internet pioneer who was the first editor of hotwired.com, the Web site for Wired magazine, and has since created the provocative Web site Electronic Minds. “You don’t need a printing press anymore, but you do need people who know how to cultivate sources, double-check information and put the brand of legitimacy on it.”

Because the Web is so informal and errors are so easily and quickly corrected, many people writing for the Web are “less concerned” with accuracy than are most traditional journalists, says David Weir, vice president for content management at HotWired.

A reporter who makes a mistake in an online story can correct it almost instantly, rather than having to live with it until the next news cycle, as traditional journalists must do. That has made some online reporters lazy about verifying original source material, Weir says. As a result, he says, early online reporting has often been “sloppy and careless.”

When that problem is combined with the tendency of some conspiracy-minded Net buffs to turn the Web into a hotbed of rumor and speculation, it becomes clear why proven reliability and brand-name credibility may be even more important to wanderers in cyberspace than to readers and viewers of more conventional media.

To illustrate this point, many critics cite the reports that circulated on the Internet that a U.S. Navy missile downed TWA Flight 800, which plunged into the Atlantic Ocean last year, killing all 230 aboard. The rumor--resoundingly denied by federal investigators--originated in a speculative e-mail scenario sent by a retired airline pilot, and it was widely picked up on the Net.

But it was the mainstream media that brought the story to the attention of most people, after Pierre Salinger reported what he had seen on the Internet.

Because Salinger is a “brand name”--former presidential press secretary, former U.S. senator and former ABC news correspondent--the story received more attention in the traditional media than it otherwise would have. Indeed, many people on the Internet had debunked it before it surfaced in the mainstream media.

The story won’t go away, though, and the Internet continues to be disconcertingly fertile ground for crackpots and conspiracy theorists, as well as for responsible purveyors of legitimate information.

Many Web sites have “competently written . . . frequently updated pages [that] look as professional as those of brand-name news media sites,” as Kurt Anderson wrote in the New Yorker this year. “Thanks to the Web, amateurism and spuriousness no longer need look amateurish or spurious.”

Will New Media Replace Old Media?

Even though the ethos of cyberspace is freedom, sophisticated Internet users recognize the need for “a filter that can help the public separate the bunk . . . from mostly accurate news sources,” as Brooke Shelby Biggs wrote in Slate, the online magazine published by Microsoft.

Responsible news organizations, online and in print, can provide that filter, and that is why many people in the forefront of Web journalism hope (and believe) that traditional media will survive in the Digital Age.

“I love my daily newspaper, and I don’t think it will die. I don’t think TV news will die,” says Meeks.

Not only is a newspaper cheap, but it is much easier than a computer to take into the bathroom or to bed or on the bus. It’s also possible to throw away when you’re finished. Computers will certainly become smaller and cheaper in the years ahead--after all, 30 years ago, a computer cost $18,000 and weighed 250 pounds--but not even the most optimistic soul in cyberspace suggests that computers will ever sell for a quarter and be completely disposable.

“With every new medium, the question arises, ‘Will it replace the old media?’ ” says Mark Pincus, chief executive officer of Freeloader, a customized Internet news delivery system based in San Francisco. “The correct answer is always ‘No!’ ”

In 1927, an editorial in Editor & Publisher magazine warned: “If news is known by the public through radio broadcasts, there is no logical incentive to buy a newspaper to get the news.” Twenty-five years later, many “experts” also predicted that television would kill newspapers.

Television has certainly hurt newspapers in many ways--cutting into the circulation and advertising and helping to kill many afternoon papers. But the better newspapers have adapted and improved in response to the challenge from television--no longer simply reporting what happened yesterday but explaining how and why it happened and what might happen tomorrow and next week and next year.

That is why, when a major news event is heavily covered on television--whether it’s the Oklahoma City bombing or the Super Bowl--newspaper circulation goes up as people look for more detail, for analysis and for a confirmation of their own observations.

Many newspapers have also become much more like television in recent years, though, “dumbing down . . . aping TV rather than challenging it,” in the words of Lincoln Millstein, vice president of new media for the Boston Globe.

In an effort to retain their dwindling and increasingly distracted audience, newspapers are emphasizing celebrity, sensationalism and “sound bite journalism” more than ever before.

Some critics worry that newspapers will misread the true appeal of the Internet and focus only on its bells and whistles--flashy graphics, constant updates, interactivity and instant links to other sites--and dumb down even further to try to compete with this medium as well. That, Millstein says, would be “the death knell” for many papers.

Competing to Deliver the News

The Internet is a bigger threat than television. It is growing faster than television did and it offers far more services than television does--and it has come along at a time when newspapers are in a weaker competitive position than they were when television began making its inroads. In fact, when a big news story breaks, many people already turn first not to newspapers or television but to the Internet.

On the day the jury returned its verdict in the wrongful death suit against O.J. Simpson, “we set a new record . . . 550,000 people visited our [Web] site,” says Boots Rykiel, editor of the online edition of USA Today.

Many of the daily newspaper’s longtime staples--sports scores, stock market tables, entertainment listings, the daily TV schedule, the weather report--can all be provided more efficiently (and updated more frequently) on the Internet.

“Newspapers are the medium most threatened by [the] personalization” of local news and information, says Norman Lehoullier, managing director of the interactive arm of Grey Advertising in New York. A newspaper is “the most local, most relevant piece of content you put your hands on,” he says, and Internet companies are “going after that newspaper franchise.”

The Internet, with its infinite “news hole,” can--at least in theory--provide more detailed local news and information than even the best local newspapers. Online services could list every home sale, every school lunch and standardized test ranking, every police blotter entry, every high school and youth league sports score, every service club speaker and PTA meeting agenda, the minutes of every school board and city council and planning commission meeting--anything and everything that could conceivably be of interest to the residents of a given community.

There is no reason newspaper sites can’t do this themselves--if they are willing to embrace what Terry Schwadron, deputy managing editor of the Los Angeles Times and supervisor of the paper’s Web site, calls “a new definition of ‘journalism.’ ”

“Much of the useful, practical information we’ll be able to give on the Web is more straight facts than what we think of as traditional news coverage,” Schwadron says, “but that kind of information has a higher profile in the electronic world, where people tend to look at everything from a standpoint of personal utility. Can we help you get a building permit online . . . and do other things that aren’t classic journalism but will make your life more convenient?”

Some online sites have started tentatively down that path, offering a variety of services built around guides to local entertainment and recreation.

The Internet is competing with newspapers for more than news, though. It is also competing for advertising, which provides about 80% of the income for a typical newspaper.

Online ad expenditures skyrocketed from $12 million in 1994 to $55 million in 1995 to $300 million last year, according to Jupiter Communications in New York, a research and consulting firm that specializes in interactive technologies.

That is still a tiny fraction (less than 1%) of the $38 billion spent on newspaper advertising in 1996, but the figure is continuing to grow. Jupiter forecasts $5 billion in annual online advertising by 2000.

Meanwhile, many of the primary newspaper advertisers--retailers, grocery stores and financial institutions--have been merging, liquidating and turning to direct mail and other advertising venues at an alarming rate in recent years. If advertisers start spending significant portions of their budget on the Internet, they will probably reduce further what they spend in newspapers.

That is what they did when television began to make inroads against newspapers. Although newspapers still draw a larger share of the total advertising dollar than television, the margin grows smaller almost every year.

Newspaper advertising increased 8.9% in the first quarter of this year, the best quarterly performance in 10 years, but it has increased only 17.6% over the last seven years--compared with a 40% increase in the gross domestic product in that time--and much of the advertising increase was attributable to increased advertising rates, not increased linage.

Aggressive cost-cutting and the declining cost of newsprint have spurred newspaper stocks to strong performances on Wall Street in the last year after several years in the doldrums, but a revitalized financial performance, even if it continues, may not be sufficient to respond to the challenge of the Internet, especially if the Internet continues to aggressively seek local advertising.

Competition for Ad Dollars

Except for a few major national newspapers--the Wall Street Journal, New York Times and USA Today--most newspapers get the vast majority of that revenue locally.

The most local advertising of all--and the one most vulnerable to the Internet--is classified advertising, a $15-billion-a-year business that accounts for about 35% to 40% of a typical newspaper’s advertising revenue.

Cox Interactive Media and two Internet search engines, Yahoo! and Excite, are among several services that offer classified ads on their local Web sites, and many others are sure to follow. Even the most dedicated newspaper executive will admit that people looking for jobs or homes or virtually anything else sold through classified ads can search far more efficiently online than they can by flipping through newspaper pages filled with tiny print.

An Internet user just types in a precise preference--”a four-bedroom house with three baths, a large backyard and a swimming pool in the Pasadena area,” and--click!--the computer screen instantly fills with information and pictures on all the houses that fit the description within the price range requested.

Because many people resent the face-to-face haggling and high-pressure tactics so often encountered at automobile dealerships, Irvine-based Auto-by-Tel is one of the most popular of the online services that are challenging traditional newspaper classified ads.

Through Auto-by-Tel, customers can go online and specify the make, model and features they want in a new or used car, get a price quote from the nearest participating dealer, “link” to other sites that will provide the dealer’s invoice price, arrange financing and buy insurance, all without leaving home.

There are several similar online automotive services, including a joint venture announced in May by USA Today Online and AutoWeb Interactive.

In addition to the obvious savings in time and effort that online shopping affords the customer, it also enables the seller to save a great deal of money by eliminating various middlemen, from wholesalers to sales personnel. At least some of this savings is passed on to the consumer, providing yet another incentive for online shopping.

Fear over the potential loss of classified advertising revenue is the single most important force driving most newspapers to create not only their own Web sites but other online classified services as well.

“Classified will go [to the Internet],” says Richard T. Schlosberg III, publisher of the Los Angeles Times, “and we have to be there to catch it on the other end” or someone else will.

Thus, until The Times Web site was redesigned in April, the largest type on the first screen a user saw was not a reference to the day’s biggest news story but Classified Sources, under which appeared links to the HomeSource, AutoSource and JobSource classified ad listings. Those headings and links are still there, albeit less prominently, and The Times Web site also provides other real estate information--including mortgage calculators, sales records and neighborhood profiles.

The interactive edition of the Houston Chronicle has created Directory Center, which combines classified ads with community information and residential and business telephone directories.

Although he declines to provide specific figures, Gene Wiley, director of Houston Chronicle Interactive, says Directory Center has been “extraordinarily profitable” and may turn out to be “the magic bullet for making a buck” on the Web.

Some newspapers charge a relatively small extra fee to people who want their classified ads in both the printed paper and online. Others have instituted slightly larger than usual rate increases for the printed paper and then include all printed ads in the online edition at no additional charge. At present, virtually all papers refuse to sell classified ads exclusively for their online editions; a customer has to buy an ad in the printed edition as well.

Some Internet experts believe newspapers are doomed to lose most of their classified ads no matter what they do.

Most big-city newspapers have become local monopolies--and have been charging the high advertising rates that monopolies make possible, says Bill Bass, senior analyst in media and technology strategies for Forrester Research in Cambridge, Mass. There will be too many online competitors for most newspapers to sustain either their monopolies or their high rates on classified ads, Bass says.

Typically, an online classified ad will cost about 30% of what the same ad would cost in print, and Bass predicts that large alliances such as National Job Bank, CareerMosaic, Auto-by-Tel, Monster Board and the Realtor Information Network of the National Assn. of Realtors will ultimately take about 70% of the total classified market with their online services.

That is a frightening forecast for the nation’s newspapers. Miles E. Groves, chief economist for the Newspaper Assn. of America, estimates that if newspapers lose “only” 50% of their classified revenue, the profit margin for the average paper would plummet from 14% to 3%. If they lost 70% of their classified ad revenue, “they’d basically be losing money.”

In an effort to prevent that scenario from becoming a reality, many newspapers are creating their own classified advertising networks. Times Mirror, parent company of The Times, has invested in Listing Link, one of the largest online real estate sites, with more than 200,000 listings nationwide, including most properties in California.

The Times has also joined the New York Times, Washington Post and more than 25 other newspapers in creating CareerPath, an online site that links employers and job seekers. More than 400 small- to medium-size newspapers have similarly joined forces in the AdOne Classified Network.

Further alliances--and more experimentation--will be necessary for newspapers to survive, and “the ones who will do well are those who innovate, who look at the Internet in a positive way, not purely defensively,” says Pete Higgins, vice president in charge of interactive media at Microsoft.

That won’t be easy.

“As an industry,” says Robert Brisco, vice president for marketing and new business development at the Los Angeles Times, “newspapers are not used to the competition out there for niches, large and small, which require a much greater speed to market and tolerance for risk and need for innovation than the core business historically required.”

So far, most newspapers have been unwilling to invest huge amounts of money in their online ventures. Even the biggest papers--most of which have annual revenues of several hundred million dollars apiece--are spending less than 1% of that on their online papers this year; almost all are investing far less. They are reluctant to be left behind, but equally reluctant to commit too much money to so new and unproven a medium.

That reluctance could be dangerous.

“We want an ROI [return on investment] on everything,” Bob Cauthorn, director of new technology at the Arizona Daily Star, said at an interactive newspaper conference in Houston in February. “We are bound to these incredibly fat profit margins. . . . We are investing almost nothing in risk capital. We need to change that.”

Because a newspaper’s online start-up costs are so low--no trucks, no newsprint, no presses and relatively small staffs--most online newspaper executives say profitability for them is ultimately inevitable. Many predict a profit as soon as 1998 or 1999.

The real profit question, however, is neither if nor when but how much; a small profit on a small investment may look nice on the balance sheet, but if newspapers lose significant amounts of their classified advertising revenue, that small online stream may represent a pyrrhic victory in a war that could be nasty and brutal and not necessarily short.

David Shaw’s e-mail address is david.shaw@latimes.com

Jacci Cenacveira and Rebecca Andrade of The Times editorial library assisted with the research for this series.

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Internet Advertising

Advertising Expenditures (in millions of dollars)

1994: $12

1995: $55

1996: $300

2000: $5 billion

Source: Jupiter Communications

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Web Sites

These are the names and Internet addresses for Web sites mentioned in today’s stories:

The Arizona Daily Star

https://www.azstarnet.com

*

Auto-by-Tel

https://www.autobytel.com

*

Boston Globe

https://www.boston.com

*

CareerMosaic

https://www.careermosaic.com

*

Career Path

https://www.careerpath.com

*

Chicago Tribune

https://www.chicago.tribune.com

*

Cox Interactive Media

https://www.cimedia.com

*

CyberWireDispatch

https://www.cyberwerks.com/cyberwire

*

Electronic Minds

https://www.electronicminds.com

*

ESPN SportsZone

https://www.espn.sportszone.com

*

Forrester Research

https://www.forrester.com

*

Freeloader

https://www.freeloader.com

*

Houston Chronicle Interactive

https://www.chron.com

*

Instant Sports

https://www.instantsports.com

*

Jupiter Communications

https://www.jupiter.com

*

Los Angeles Times

https://www.latimes.com

*

Monster Board

https://www.monsterboard.com

*

MSNBC

https://www.msnbc.com

*

National Job Bank

https://www.nationaljobbank.com

*

New York Times on the Web

https://www.nytimes.com

*

Real Audio

https://www.realaudio.com

*

Realtor Information Network

https://www.reinfonet.com

*

Slate magazine

https://www.slate.com

*

USA Today

https://www.usatoday.com

*

Wall Street Journal Interactive Edition

https://www.wsj.com

*

Washington Post

https://www.washingtonpost.com

*

Wired magazine

https://www.hotwired.com

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About This Series

Sunday: A Times reporter--an admitted “technological idiot”--gropes his way through cyberspace, trying to come to terms with the Internet and its potential to revolutionize virtually everything we do.

Today: Will the Internet ultimately replace newspapers and other traditional media--or will it give them an opportunity to reclaim the dominance they once enjoyed?

Tuesday: Different strokes for different newspaper folks--a look at the strikingly divergent paths that various newspapers are taking in transferring their journalism to the World Wide Web.

Wednesday: Online magazines, online city guides and Microsoft’s drive for hegemony in cyberspace. But does WWW stand for “World Wide Web” or “World Wide Wait”?

Thursday: Can anyone make any money on the Internet? Will readers (and writers) like the computer screen as much as the printed page?

The entire series will be available Thursday on The Times Web site at https://www.latimes.com/media

Traditional Advertising Revenue Lost to Internet Advertising / Los Angeles Times