Re: Newspapers are doomed?

From: Michael Hiles <mhiles_at_mailhat.reachusa.com>
Date: Wed 27 Sep 2000 21:49:01 -0500

Of the naysayers out there who think that newspapers
are going to die because of the web...I have to tell
you just how dead wrong you are. There is one single
reason that will keep them thriving for a long time to
come. They have a well entrenched brand with powerful
sales rep networks in place. So do the broadcast
stations. So do the Yellow Pages. So do the coupon
direct marketers. Not to burst the bubbles of any local
dotcom marketing dreamers out there, but you have got a
long long long way to go.

As much a dotcommer evangelist as anyone, at times it
is difficult to not buy into our own hype. In
Cincinnati, we are fortunate to have competing
broadband carriers and a very high household
connectivity base. In fact, one of the highest in the
country. But our local market research shows only 3% of
all households getting their news exclusively from the
Internet. And 100% of those get it from the Internet
versions of the local media channels. The fact is, as
much as we would like to believe differently, the
traditional media folks make way more money offline and
will continue to do so for a very very long time.

In case I have dashed anyones hopes and dreams here
thus far, there does exist a significant market
opportunity. The first problem with the newspapers,
radio stations, and phone companies are that they are
looking to the web as a purely defensive marketing
positioning. As such, they are not focusing on how it
can be a local revenue generator, as opposed to a
value-add to support the core business. Even though
they have big sales forces, they still don't know how
to sell it well. Most of the existing print reps aren't
even aware of the ways to combine the two. They don't
know how to integrate it with offline media to create
an effective, converged campaign. They don't know how
to measure the synergies between their own web efforts
and traditional efforts. And they simply don't care
enough to figure it out since it is a value-add.

For example, Cincinnati Bell (Broadwing) is giving away
advertising on www.cincinnatiexchange.com as a
value-add. Buy a 2 year yellow pages contract and they
will put you on the directory for free. But who is
going to the directory, why are they going there, and
why is it of value? It's a weak effort with a weak
business model. I get more uniques a day on one local
vertical site than they get all week. It is a rolodex
with NO value-add to the visitor. It is what you would
expect from the Yellow Pages people....once again
proving that mirroring your offline business model in
an online fashion is the surest path to dot com demise.

At least the papers have strong content to keep you
coming back. They have the news, forums, classifieds,
and a big sales force with a big client base to start
with. They are the local portal leaders. Like me, they
use the profits from the offline side to get the online
side happening.....and those are some margins people. I
can attest.

I can speak confidently about local direct marketing
efforts since I am a board member and equity holder in
the nation's largest Val-Pak franchise group. In June
of 1999, I merged my eCommerce dev. company with the
publishing company.We have 5,700 advertisers in
Cincinnati alone. We also own Reach Publishing Systems
where we are market share leaders in coupon and direct
marketing in 12 other cities, from Pitsburgh to Denver.
In all markets, we have a penetration rate at least 2-3
times the local Sunday paper. In Cincinnati (corporate
HQ), we drop to 650,000 households where The Cincinnati
Enquirer hits 175,000 on Sundays. I have 75 reps in 12
cities selling this stuff for me. We're on target to be
in 210 cities by start of 2003. I can already hit
57,000,000 households every six weeks. And we are
already profitable.

CitySearch recently pulled out of of most domestic 'B'
markets. It is too expensive to build and maintain a
successful direct sales force at the local level.
Cincinnati escaped the axe because they were one 'B'
that was turning in some numbers...and in return for
that success, they get to manage 4 other cities
remotely from the hub. So how successful are they? As a
successful city operation, they will be $15-20 million
in cash-burn for the first year ending in October. They
have turned on about 300 clients for that much money.
One factor was missed before launch. Local people
aren't as ready and willing to change their usual media
habits. In Cincinnati, if you want arts &
entertainment, you read CityBeat (www.citybeat.com)
...it's free...its everywhere...and it has been here
for a long time.

CitySearch client recitivism is already kicking in. I
know this because most of them end up with me. Since
the local folks didn't flock to
cincinnati.citysearch.com as speculated, many local
advertisers aren't thrilled with the return that they
are seeing on their investment. With expensive local
media co-op's and outright buys to advertise the site,
I think that they are hitting about 10,000 uniques a
week now. Cincinnati is supposed to be a model city for
CitySearch. Clients are disappointed and are seeking
cheaper alternatives. I see a time when Diller will
pull the plug for all domestic 'B' markets and focus on
international 'A' markets....with wireless support. I
said it a year and a half ago.

With the anti-successes of CitySearch coming into a
geographic area, is Yahoo! or AOL ever going to put
sales reps on the street to call on the mom and pop's?
HELL NO!!!! Direct sales efforts in the local trench
are going to be directed by the local media sales rep
networks already in place. Even Yahoo! doesn't have the
resources, the experience, the relationships, or the
capability to build and manage a local, direct effort
to penetrate Main Street. There are four business
groups who do though - local newspapers, the local
radio/tv broadcasters, the yellow pages/phone company,
and direct marketing coupon entities like Val-Pak (me).
We have a head start on the pure dotcommers (and
remember - I started as one).

I don't care how good you are, for local, B2C media and
ad sales, you will end up partnering with one of the
existing media companies as a channel. And that is why
the paper "ain't goin' nowhere baby."

My $.02 worth.

Michael Hiles
Exec. VP.
Reach Publishing Systems/ReachUSA.com
513-699-3421 (direct)
mhiles_at_reachusa.com





Received on Wed Sep 27 2000 - 21:49:01 CDT