The next miracle: Technology and the Business Environment, October 1994

Chicago Tribune Editorial Department Seminar,
October 14, 1994:
"Technology and the Business Environment"
Owen Youngman, features editor

Introduction

This series of seminars and demonstrations is intended to introduce you to what is happening, in terms of technology, in the news business today, and what might well happen tomorrow.

Oh-oh, I did it. I said the word. "Technology." I read in the New York Times last week that, in the 1994 version of a poll that the Harris Organization has taken every year since 1978, for the first time Americans agree that technology is "out of control." Maybe you're here because you think it's out of control in the newspaper business, too. Or in Tribune Company. Or in the Chicago Tribune. Or even just in the editorial department.

Well, guess what. I'm not going to tell you that it's not, because if you feel that way, it probably is out of control for you. What we're going to be doing here for the next four weeks is to show you that you can take control of it, for yourself and for the newspaper, and wind up better off as a result.

Today's presentation is on the competitive business environment, and why the newspaper industry has to take advantage of changing technology to survive. I'm going to throw in a little history, a little bit of current events, and maybe even some crystal-ball gazing. But I hope that at the end maybe you'll have heard something interesting and want to come back to see how a lot of this stuff actually works.

In succeeding weeks, we'll have discussions and demonstrations of the online world; on CD-ROMs; and on computer-assisted reporting. Come to as many of them as you like, and encourage other people to come, too.

The point is not to beat you into submission with the company line. Nor is it to make you feel either smug because the people who pay you have figured out how to survive until you retire, or to feel overwhelmed because it seems like just zeroes and ones to you.

The point is to say, hey, this is interesting, and it can help you do your job better, and it can make the newspaper better, too.

That's right, the newspaper. That ink-on-paper thing that we still all read every morning. This stuff can make the newspaper better.

Not incidentally, it's also going to change the business you're working in--and it's going to change the way you work.

Okay. Here are a couple of things to get you started thinking.

If you're thinking we're talking about a niche market here, think again. Last year, 50 million personal computers were sold in the world, compared to 35 million cars and 100 million color TV sets. That's a $74 billion market. There were 176 million PCs in use at the end of last year, and the potential market could be 700 million. Four dollars of every five spent on computers last year was spent on personal computers. And by the end of the decade, it's expected that more than half of these PCs--54 percent--will be in the hands of consumers, up from 34 percent at the end of the 1980s. Doesn't sound like a niche market to me.

Time Magazine takes in about $500 million a year and reaches 4 million readers. The Internet reaches 20 million people and generates no revenue. The question is, which model is more relevant for companies that provide information?

So far, it almost seems like the second. I heard a European newspaper executive say earlier this year that, for newspapers, the information superhighway is evolving from a zero-million-dollar business to a zero-billion- dollar business.

In any case, the key word is "evolving.'' So let's take a look at how we got here.

I. A brief history of the information business

The history of the dissemination of information is an interesting one, one in which the numbers of people with access to any given individual piece of information has grown exponentially with each new advance in technology.

Not that they all took advantage of having that access, of course. Some developments have been more successful than others.

You know most of the obvious examples, of course. Anybody want to deliver three minutes on the printing press? But the printing press alone doesn't get the whole job done; that kind of technological advance needed to be linked with advances in methods of delivery--from horses to trains to trucks--to effect societal change, and that's really what we're watching today.

Two hundred years ago, members of the Committees of Correspondence rode around New England with their hand-printed broadsides. Today, members of America Online do the same by posting messages in chat rooms and electronic bulletin boards.

We have jobs because our particular evolution, the newspaper, occupied a niche that has proven of value even while other change has occurred around it, and has proven possible to distribute in an efficient manner. And at this company, we've also benefited because Col. McCormick, at times when other newspaper magnates saw radio and then TV as threats to the viability of newspapers, instead embraced them, enhancing this company's ability to stay in the information business.

Along the way, of course, there have been plenty of failed experiments in coupling new, often electronic, delivery methods to older, more successful business models. Videotex, for instance--words crawling across and down a TV screen. Knight-Ridder had a notable failure called Viewtron; Field Enterprises tried it for a while when it still owned the Sun-Times; and although we didn't do much with it commercially, we tried that, too.

But now the electronic delivery systems are showing more promise. They're that zero-billion-dollar business.

II. A brief history of the computer business

The computer age is about my age. Over the last 40 years, it has evolved substantially, which should be of as little surprise to you as the existence of Gutenberg. An article published last month in The Economist divided that period into three eras.

The first age was that of mass production, in which IBM figured out it could get rich by making about 50 huge machines and got even richer by making a couple thousand.
The second was of ubiquity, in which IBM figured out it could keep others from getting rich just by bringing out the IBM PC, then failed to stay rich itself by letting those others clone that machine and make it better.
The third age is the age of multimedia, which is bringing together the telephone, the television, and the computer.

That's happening because there are more computers, and because they're cheaper. That means that more and more people have access to multimedia means of delivery--and that is the critical reason newspapers like the Tribune have to be available to be delivered that way.

III. A brief history of the information superhighway

Which brings us to our favorite, or least favorite, cliché of the day--the information superhighway, or information highway. Whether it's super, perhaps, is up to you. As a metaphor, it does seem to work:

It has its driver's ed class--the computer-game machines like Nintendo, which have put computers into millions of households where people would never think of buying a "real'' computer.
It has its toll collectors--the telephone companies and cable TV companies, say, who want to meter your use.
At every interchange, it has its franchised fast-food vendors--the online services like CompuServe and America Online who serve up safe but not necessarily nutritious fare for the masses.
It has its CB radio--that would be E-mail.
It has its highway patrol, people out to try to limit how fast we go--the legislators and regulators who think they know what's best for businesses and consumers and the good old U.S.A.
And it has its filling stations, without which nobody would go very far. I say those are the content providers--you, me, and anybody else who has information to barter, give away, or sell.

The momentous phrase ``electronic highway'' first cropped up in the Tribune in a story by Jon Van on Oct. 24, 1990. He was also the first to use ``electronic superhighway,'' on March 17, 1991. But those two stories were the only two that appeared in the paper with either phrase during both those years. (It's now generally agreed that the phrase was coined in the late 1960s by a free-lancer named Robert Smith, writing about cable TV in the New York Times.)

The pace, needless to say, has picked up. After only 6 mentions in 1992, one or the other showed up in 88 stories in 1993; through the end of September, the count is 265.

Great, we're all writing about it. But what is it?

To some degree, that depends on where you sit...

To the Baby Bells, or regional Bell operating companies, or RBOCs, it's a way to increase revenue by allowing customers to transmit and receive voice, data and fax information over their switched network. Because they've been heavily regulated, they're only starting to think about content in the way that we do here at the newspaper. They tend to see the entrance ramp to the superhighway as a telephone.
For cable and broadcast TV companies, it's a way to deliver old content in a new form, and undoubtedly more content as well. With technologies like fiber optics and digital compression, the "more'' part gets easier. They see that ol' entrance ramp as a TV set.
The computer industry sees the superhighway as a connection of personal computer users going online to link up with one another and with various databases. It's a technological model, too, one depending on hardware and software and telecommunications advances to become more widespread. And guess what: they see the entrance ramp as a computer.

Then there's the newspaper business. How do we see the electronic superhighway? Because we're not--here comes some tech talk--"platform dependent," because we don't have our identities tied up in a phone or a TV or a computer; because we have always been focused on the information we want to deliver more than the printing press that makes it happen, we see the superhighway more abstractly. We think about the information first. At least I hope we do.

With some exceptions, we see it as a means first to GATHER information more efficiently, EXAMINE it more deeply, and only then DISTRIBUTE it to the people who want and need it. It's a model driven by the material we work with, not the material we work on it with. That's the way it was when the Fort Worth Star-Telegram became the first newspaper to go seriously online, back in 1982--they've been making money since 1986, they say--and it's the model that we try to follow around here.

IV. A brief prehistory of the next world

A. You won't be alone (networked computers)
As recently as five years ago, 9 out of every 10 PCs were standalone word processors/number crunchers. Today, 30 million of the 100 million or so are connected--"networked." The long rumored, eagerly awaited CText editorial system is built around networked PCs.

This is a bigger deal than you might think. Used to be that most computer stations in companies couldn't do anything unless a central computer some where told them to. That's why they were called "dumb terminals"--not just because somebody didn't want to say "damn," but because they actually had no native intelligence. An Edit-5 terminal can't really work all by itself.

But the big deal really has little to do with trivial applications like putting out a newspaper, and a lot to do with where knowledge and expertise reside in an organization. It used to be that, if you needed some computing task done, you had to send it up to the computer department. But in the network model, people started to realize that they could perform many tasks themselves more quickly, more cheaply, and perhaps even better. This is what, in the computer world, is called "downsizing"--but in this version, the only people who lose their jobs are the ones in the computer department.

The applicability to what we do should be clear. When reporters and editors have real computers on their desks, they can start to look for information in ways and places that they only dreamed about before. The kind of work we did on the Medicaid series can be done on any number of topics, in a hurry, with a high degree of accuracy. This is one of the things you'll hear about three weeks from now in our computer-assisted reporting seminar. For now, let's just leave it by saying that the more time you spend learning to control the beasts that we'll be putting on your desk to replace the Edit-5, the more control you'll have over the kind of content you have to put into the newspaper, whether you're a reporter or an editor.

B. You won't be restricted (video dial tone)
Networked computing is already here, in a big way. Not so, at least not widely so, for a kind of service that is being called "video dial tone." It's just what it sounds like: Just as it is theoretically possible to call anyone in the world from your home phone, it will be possible to dial up from a video dial-tone any program that has been put into a digital video format.

Under this scenario, the phone company would provide the lines and technology, while numerous others would supply the programming.

With video dial-tone, once a program is selected, the viewer has the same control over it that a VCR offers. The viewer can stop the program, back it up or skip ahead. The implications for news and information content are profound. Why watch Larry Mendte just at 6 o'clock when you can watch him at 6, 7, 8, and 10?

There's a problem with video dial tone that is not trivial, however: the cost of the infrastructure needed to support it. The phone companies say they can do a good job with the twisted copper wires already leading into your home, but they really need fiber-optic cable to make it efficient enough to carry lots of traffic. Cable TV companies are installing a lot of fiber-optic cable, but they're still not close to being in every home.

"People talk about video-on-demand because it's one of the few things in multimedia for which you can predict a revenue stream," says Bill Gates of Microsoft. "But it won't generate enough revenue to pay for the infrastructure." One estimate is that the revenue needed to support the capital investment is $20 per subscriber per week over 10 years.

And let's not forget our state troopers of the information superhighway, the legislators and regulators. The Telecommunications Act of 1994 died a painful death earlier this month. Because telephone service and cable TV are both essentially regulated monopolies, much of the cyberfuture must wait a while to be determined, and this leaves something of an opening for content providers like us.

C. You won't be bored (interactive TV)
A variation on video dial tone is one that Tribune Co. has several different ways of approaching. It's interactive television, and the highest profile experiment going is the Full Service Network down in Orlando.

Today, as we sit here in the lovely Medill Room, Time Warner is allegedly demonstrating the news component of the Full Service Network out in Los Angeles at the Radio and TV News Directors Association meeting. NBC, ABC, CNN, Time Inc. magazines, and the Orlando Sentinel all are contributing content to The News Exchange, which will allow viewers to watch programs, stories, and background reports whenever they want on subjects of their choice.

Several problems here, although the idea might be a good one. Expense, of course, is one: rumor has it that the set-top boxes in Orlando cost several thousand dollars each. No one in the industry expects people to pay more than $250 each for these in the real world. Technology is another problem; the system was supposed to be running by now with 4,000 test households, and the Wall Street Journal reports they're up to 2 so far and may reach as few as 5 by year's end. At that rate, the industry wisdom that truly interactive may not arrive for a decade seems not too far off the mark.

This matters to us because in a second Harris poll that the New York Times reported on last week, 74 percent of respondents said they were interested in choosing the kinds of news and features they want daily. Only 32 percent, the lowest level of 12 possible applications, said they were interested in shopping for and buying goods and services--and home shopping has been widely regarded as a second important revenue stream for interactive services.

Industry gurus say that interactive marketing, targeted to individuals, is a third wave of advertising, following mass marketing, which relies on high volume, and direct marketing, which essentially targets goods instead of buyers.

That's a model that also can apply to the information we provide. The newspaper industry was late in responding to the introduction of the second wave, the direct marketing that is represented by competitors like ADVO, which is out to steal away our coupon business. Although we are studying how to target consumers with projects like the Tailored Newspaper Taskforce, interactive projects in electronic media also need to command our attention.

D. You won't be isolated (the Internet)
So what's the fastest way for us to tinker around with these interactive, networked models of the new world? More and more, it looks like something that has been around in one form or another since the 1970s: the Internet.

Newspaper people actually should like the Internet. First of all, it's anarchic. Nobody runs it and it runs nobody. It's really not a network at all, it's just a bunch of computers hooked up phone lines that can be easily accessed from one another in the world we call "cyberspace"--the conceptual space where words, relationships, data, wealth, and power show up, all linked by what is sometimes called "computer-mediated communications technology."

In other words, by E-mail.

I could have spent this whole time talking about the Internet, and actually Jim Coates is going to talk about it next week during the seminar on online services and telecommunications. But to me it seems clear that the powerful, universal access to information that the Internet provides, and the new tools that are available for navigating it, means that traditional online services have a shrinking window of viability.

Of course, I said that about fax machines in 1984, so what do I know.

The problems in the land of the Internet are not really the problems of cost and of technology that we saw in some of the other applications I've been talking about. They have more to do with people's attitudes toward the issues of commercialization; of security and privacy; and, as one writer calls it, "hyper-reality"--the illusion that things on the net actually have substance beyond the bits and bytes that represent them.

Each of these also presents challenges for people who want to disseminate information. Up to now, as I said earlier, the Internet has not been a commercial venture, but in the future it clearly will be, in order for it to draw the development dollars needed to become more widely and easily used. But its roots as a tax-dollar- and university-supported network mean that its existing base of users is highly suspicious of those who would sell through it, whether they're selling tangible products or less tangible ones like information. This makes our reputation of integrity and independence even more important online than it is in the paper-and-ink world.

Privacy and security continue to gain importance as people begin to understand just how much information strangers can get about them. In one of those Harris polls I have already mentioned, three-quarters of those surveyed said privacy protections needed to be in place before they would use an interactive system. While we know that, in the real world, people often exchange pieces of their privacy for convenience, we are going to have to reassure people who dial in to get Tribune information that we're not going to turn around and use their habits and interests against them.

The hyper-reality challenge is a little bit fuzzier, but it works like this: Telephones, TVs, radios, and computer networks are potent political tools, because their function is not to manufacture or transport physical goods, but to influence beliefs and perceptions. The most radical hyper-realist critics say that communications technology will camouflage and then replace democracy, and anything else that is "authentic," with a simulated, commercial version. This is the argument against Ross Perot's electronic town halls, for example, and that is the danger of so-called virtual reality. The role of a newspaper in combating this problem ought to be evidence to all of us.

E. You won't be confused (convergence)
Oh, by the way, in case you're wondering which of these scenarios, technologies, and sets of technological gobbledygook will be most important, I have a word of advice: Don't. That's because the most important technological trend right now goes by the name "convergence."

The individual media are likely to coalesce into a very small number of information-delivery systems. That is, computers and TVs and phones and video-game machines and so on will grow together--converge--so as to be indistinguishable from one another. Same for all those networks of computers, and even the networks of networks like the Internet. And the same for home entertainment, and perhaps even for commerce.

While the pace at which technology changes and its price drops will influence this trend, it seems clear that if delivery systems start to merge, it's the material that is being delivered that will be the point of differentiation. Another argument for what Charlie Brumback calls "content creation and control," and another argument for protecting what we already do by investing our brainpower--and our dollars.

V. Follow the money

All of the things we've been saying about the ways that information will be disseminated in the future are going to be evaluated through a particular prism, of course: profitability. Who's going to make money, and how will that money be made? Here are three models, which will come into play in combinations of one kind or another.

The advertising model is very like what we're used to. It requires content providers to persuade advertisers that their audience both is worth reaching and will pay attention to advertising messages. As I noted before, it is widely assumed that there will be an interactive component to this that represents a degree of change, though its extent is being debated.

The transactional model is the one that interactive shopping relies on, as well as many other interactive applications. In this scheme, revenue is captured every time someone makes a decision to do something, primarily a purchase decision. This is extremely interactive, depends heavily on technological innovation, and could drive out mass marketing if--as in the world of 500-channel cable TV--niche marketplaces come to dominate the nation's commerce.

The informational model is more or less the content provider's dream. At least it's a dream I've heard people like Peter Kann of Dow Jones talk about, and that I'm sure we wouldn't mind, either: a model where consumers value our information, our editing, and our reputation enough that they'll pay enough for it to support us and allow us to make a profit.

So that puts the ball right back in our court as journalists, as we information providers call ourselves. Can we make our information that valuable? Or, if it's that valuable already, can we persuade consumers to pay for it? The answer must depend on how we use the tools available to us to, again, gather and disseminate it. That's why it's in our own economic interest, as people in the information business, to use these technological tools to make ourselves more valuable.

VI. How all this affects you

The changing nature of the information business will, by necessity, change the way that we journalists--information providers, whatever you want to call us--do our jobs.

The way we write stories will change. If you think nobody reads jumps in a newspaper, REALLY nobody scrolls all the way through a story on a computer screen, whether reading from a CD-ROM or while online. But surprise, surprise, we in the newspaper business already know how to deal with this--by writing sidebars.

In the electronic world, though, we can do something different with sidebars by using a tool called "hypertext." In hypertext, invisible links are created between individual words or phrases or documents; if someone wants more information, they can easily jump right to a sidebar or photo or graphic or definition, then jump right back again, much more easily than flipping to the jump page. In the future, we'll be writing more and more stories this way, helping us both with browsers and with people who want more and deeper information.

I've already noted that the way we report will change, too, because the tools at our disposal will make some time-consuming tasks easier, and open up time for tasks and ideas we never get to now. This is part of what you'll hear in the computer-assisted reporting seminar, but let me just stress the word after that hyphen: computer-ASSISTED. Your reporting skills will still be paramount.

Also, in the real-time electronic world, the idea of a "deadline" is going to change--again. When we had many newspapers in Chicago, each with many editions, the competitive need to get the latest news on the street was unrelenting. In the last few years, we've gotten used to a slower pace during most of the 24-hour cycle. No more! Wall Street Journal reporters already know they're not just filing for the audience that will pick up the paper the next day, but also for those who want to know what's happening right now--and that if they don't provide it right now, Reuters or Bloomberg will. So our competition is going to increase in number again, and we'll have a deadline every minute.

The audience we write for will change, too. Even as we retain a mass audience for the printed page, it is likely that the niche audiences that consume our information in new forms will have different demands and levels of sophistication. Someone who can go online to check your sources is going to be a demanding reader, don't you think? Many of you have heard me say that "98 percent of what we put in the newspaper is absolutely accurate. The exception is the 2 percent of which you have personal knowledge." The implications of a wired society for that equation are profound, and will hold us to account in a way we're not yet used to. And because we'll be more closely in touch with our interactive audience, it'll be harder to hide behind the institution of the newspaper when unhappy readers try to find us.

And that means the way we are structured also will change, in ways that it's still difficult to predict. At a minimum, we'll have to rethink the geographic boundaries in which we work; at a maximum, we might have to do away with the distinctions among CLTV, the Tribune, the online services, WGN, and what have you. We'll be structuring not around delivery systems, but around ideas and information. And that may be the most profound change of all.