Corante

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Vin Crosbie Vin Crosbie
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Dorian Benkoil Dorian Benkoil
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Bob Cauthorn Bob Cauthorn
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Ben Compaine Ben Compaine
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Dorian Benkoil senior consultant at Teeming Media. An award-winning journalist and editor, he was a foreign correspondent for AP and Newsweek, and international and managing editor for ABCNews.com. At ABC News he moved to the business side, handling sales integration and business development, before joining Fairchild Publications as General Manager for their Internet division, becoming editorial director for mediabistro.com, then a consultant for Teeming Media in New York. He graduates this year with an MBA from Baruch's Zicklin school of business. Learn more about him at Benkoil.com or his blog - MediaFlect.com.

Robert Cauthorn is a journalist, former vice president of digital media at the San Francisco Chronicle, and was the third recipient of the Newspaper Association of America's prestigious Digital Pioneer Award. He launched one of the first five newspapers web sites in the world and is generally considered to have delivered the first profitable newspaper web site in 1995. Cauthorn has been in the middle of the transition from old media to new and is recognized as frank-talking critic when he believes newspapers stray for their mission. In mid-2004 he became the president of CityTools, LLC a new media startup based in San Francisco.

Ben Compaine has divided his career between the academic world and private business. He was a journalist when manual typewriters were considered state of the art, but also led the conversion of his college newspaper to cold type. He has started and managed weekly newspapers. His dissertation at Temple University in 1977 was about the changing technologies that were going to unsettle the landscape of the staid and low profit newspaper industry. Since then he has focused his research and consulting on examining the forces and trends at work in the information industries. Among his most well-known works (and the name of his blog) is "Who Owns the Media?".

Vin Crosbie has been called "the Practical Futurist" by Folio, the trade journal of the American magazine industry. Editor & Publisher magazine, the trade journal of the American newspaper industry, devoted the Overview chapter of executive research report Digital Delivery of News: A How-to Guide for Publishers to his work. His speech to the National Association of Broadcasters annual conference was one of 24 orations selected by a team of speech professors for publication in the reference book Representative American Speeches 2004-2005. He has keynoted the Seybold Publishing Strategies conference in 2000; co-chaired and co-moderated last year's annual Beyond the Printed Word the digital publishing conference in Vienna; and regularly speaks at most major online news media conferences. He is currently in residence as adjunct professor of visual and interactive communications and senior consultant on executive education in new media at Syracuse University's S.I. Newhouse School of Public Communications, and meanwhile is managing partner of the media consulting firm of Digital Deliverance LLC in Greenwich, Connecticut.
About this blog
Two forces have shattered the news media. Technology is the first. Although media technology is undergoing its greatest change since the day in 1440 when Johannes Gutenberg first inked type, for more than ten years now the news industry has mistaken new technologies merely as electronic ways to distribute otherwise printed or analog products. Estrangement is the second. The news media has lost touch with people's needs and interests during the past 30 years, as demonstrated by rapidly declining readerships of newspapers and audiences of broadcast news. How we rebuild news media appropriate to the 21st Century from the growing rubble of this industry is the subject of this group weblog.

Rebuilding Media

Monthly Archives

November 29, 2005

Big Screen, small screen? Ad supported, user supported? Paper or plastic? The Agony and Ecstasy of choice.

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Posted by Ben Compaine

Has anyone besides me considered the apparent paradox of some of the recent innovations and announcements coming from the new and old media and their suppliers?

• For decades we have been lusting after larger television screens. In the 1950s, a 9" screen was common. By the 1990s, the 26" screen had become the standard living room set. It sort of stuck there until today, when the 42” plasma screen is evolving as the sweet spot of the living room media center, with 50" and 65" units widely available. So why is it that there is so much apparent excitement about announcements from Apple and Sprint and others that we can now get video on 3" screens?

• Second, the media is full of the apparent sudden wisdom that advertising revenue is a workable model for media. Google has shown the way, we are informed. Microsoft is at work revamping a version of Office as a Web-based application that will be free—except for advertising. Advertising supported media is all the rage. But wait! The traditional television networks and their radio predecessors, invented the advertiser-supported free-to-the-consumer model 70 years ago. But while the pundits herald the Google model, the broadcasters have suddenly found religion in user-revenue. As if discovering a new lode of gold, they proclaim, “Let’s sell yesterday’s show for $1.99”—to view on those 3” screens.

A digression. In 1994, Tony Oettinger, my former colleague at the Program on Information Resources Policy at Harvard, described the coming of the “agony and the ecstasy” in the age of digital media. “There’s ecstasy,” he wrote, “among the sellers of information products and services because huge markets have developed that didn’t exist fifty, ten or even five years ago…. There is agony…among these same sellers because, as their markets have become huge, they have tended to become both highly competitive and increasingly fragmented.”

This observation from more than a decade ago explains these apparent contradictory trends, as you no doubt have already started thinking about. They are a factor in the phenomenon that I wrote about last week, that the media must get used to being in a permanent state (for now) of discomfort. But the small screen/big screen and advertiser/consumer support dichotomies also illustrate the opportunity available for media players. Broadcasters have been beholden to a single revenue stream since day one (although now programming they own also have a life as DVDs). Today, the Internet and broadband and on-demand technologies being implemented by their one time cable operator nemeses have provided an avenue for more options.

Meanwhile, although small screens may seem like a step backward, combined with extreme portability and increasingly with wireless connectivity, they actually expand the market for video: on the bus, the beach, waiting at the doctor’s office—the possibilities are endless. Maybe the folks who should worry are the magazine publishers who paper those offices with free magazines and the newspaper publishers who have held on to the portability of print as being a benefit that, until now, wasn’t possible with television.

Oettinger concluded in his 1994 essay: “There’s ecstasy in contemplating the many attractive new and open roads ahead. There is agony in choosing among them.” Large screen, small screen? Ad supported, customer supported? Paper or plastic? Choices for consumer, high stakes options for players.

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November 22, 2005

Is Destination Dead?

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Posted by Dorian Benkoil

The old new way of looking at a Web site used to be that the homepage wasn't king, that every page was now the homepage. Meaning, with Google and Yahoo and a lot of other ways to get someone to look at your content on your site, you had to be mindful that someone could come in on any page, and every page had to have the things you wanted folks to see – and navigate to. Maybe top stories, or "best-of" or the latest Special Report or e-commerce applications. Whatever.

Now, a newer way of looking at the world is that folks will be viewing your content without even having to come to your site. Syndication technologies, most notably RSS –which sends some chunk of your material out to whoever takes the feed – mean folks essentially scrape a portion of your site into their reader and may or may not click back in. The good news is that you get your stuff in front of them. The difficult part for traditional media operators to swallow is that your content could appear in any number of configurations next to any mix of content over which you have no control.

Try to control it, and in the long run you'll probably lose. Very little content is so compelling time after time that folks will go through hassle to get it over something else that's easier. Or they'll find a way to get it the way they want, anyway (witness TiVO).

And now, the syndication model is, it seems, moving to video, as well. A sizeable chunk of seed money is going for a new video venture called Brightcove, with a lot of big names like Jeremy Allaire and Barry Diller involved. Brightcove plans to let people – most likely independents rather than Hollywood types -- syndicate their content to the many minions, supported by advertising.

This is a little different than JD Lasica's Ourmedia http://ourmedia.org/ , which is providing hosting space in a non-profit forum for people to place their videos online. Maybe there's room for both models.

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Media must get used to being in a permanent state of discomfort

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Posted by Ben Compaine

With a dizzying display of daily details about new channels and formats for video coming from broadcasters, movie studios, hardware providers and distribution channels, it may be quite useful to heed the advise that a highly regarded Madison Ave. media strategist has offered to advertisers: “They must get used to being in a permanent state of discomfort.” This can be applied equally to the traditional media companies.

Rishad Tobaccowala is the “chief innovation officer” for ad agency Starcom MediaVest Group. As a media strategist, his role is to steer advertisers to the most appropriate media for their offerings. With a successful track record of spotting trends, his advice is acted on by the biggest of big advertisers. And from that fixed pot of advertising dollars, he and colleagues at other agencies are steering more of the booty away from traditional media.

"Blogs and podcasting have gone from 'What are those?' to mainstream in less than two years. Rupert Murdoch paid $580 million to acquire a social-networking business and Google's market cap is higher than Viacom's," he says. "So where is the steady state?"

Such “accepted wisdom” as meeting the challenge by moving advertising to product placement meets with his scorn. It’s old wine in new bottles. What is he telling clients? In short, to understand how consumers are increasingly using the media, particularly video. The undeniable direction is to greater user control of both when and where we consume video. This has always been a characteristic of print: read it at your own pace, at the time you want and where you want. Television has been supplier controlled: we had to watch it at a fixed location and at the time we were told. Turn it on four minutes after the hour and those four minutes of programming were lost in the ether.

The VCR was born to help with the timing part, but quickly become primarily a playback of recorded entertainment. Not a bad start, but just a start. Tobaccowala predicts that 30% of U.S. homes will have DVRs in less than two years. Pair this with the increased availability the cable folks are providing us with on-demand content, the ability to search for video on Google or Yahoo, download it over ever wider broadband links, and zip it to the living room TV or the iPod, and traditional TV schedules will be largely marginalized.

Tobaccowala isn’t ready to write off traditional media, which he expects will continue to be plenty important. But they will have to provide their content in a greater variety of forms and help advertisers target consumers more preciselythan the usual demographic slices. "We are hungry for information and will value those who do a superior job of editing the ocean of material there is," he says.

The big bucks flowing to context-sensitive text ads, banners and interstitials do not happen in a vacuum. It requires the push of influential strategists such as Tobaccowala to convince the big advertisers to divert their budgets there. From that point the old saw I’ve repeated for decades from 19th century merchant John Wanamaker disappears. Speaking of his advertising budget, Wanamaker observed that “Half my advertising dollars are wasted. I just don’t know which half.” In the new media world any wasted dollars are immediately flagged and converted to the half that works. The legacy media buys are just not going to be efficient much longer.

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November 15, 2005

A Perspective: The Myth of The Owned Readers

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Posted by Vin Crosbie

Traditional publishers and broadcasters aren't the only faction whose perspective creates an illusion.

Today at Corante's Symposium on Social Architecture, I've heard speakers state as fact that 'newspaper publishers think they own their readers.'.

I've been working in the newspaper industry since 1978. My family has been publishing a daily newspaper in New England since 1877. I've known dozens, maybe hundreds, of newspaper publishers. I've never met or heard of one who thinks he owns his readers.

Sure, most, if not all, hold an attitude that 'we the newspaper staff write it and they the consumers read it', so the publishers don't think that 'news is a conversation.' Yet, no publisher thinks he owns his readers.

My blog compatriot Dorian Benkoil reminds me that traditional broadcasters do think they own their viewers, and I agree. Traditional TV broadcasters' attitude towards viewers is 'will the dogs eat the dog food' that broadcasters are doling out.

However, I know of no newspaper publisher who thinks he owns his readers. Newspaper circulation has been eroding since the late 1960s, when most of today's newspaper publishers were still in elementary school. Ever since they began working in the newspaper industry, all of today's publishers have known is how shaky their circulation is; how they've been experienced annual circulation churn of 25 to 60 percent for decades; how they've desperately tried to keep or find readers who are at least slightly loyal.

New-media pundits who claim that 'newspaper publishers think they own their readers.' haven't a clue. They've grabbed a meme from the 1950s, an illusive perspective as out-of-date as the publishers' and broadcasters' illusion that audiences are fragmenting. Two conflicting illusions.

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A Perspective: The Myth of Audience Fragmentation

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Posted by Vin Crosbie

'Our audience is fragmenting!' I hear that again and again from traditional publishers and broadcasters. They lament their ‘fragmenting’ readership, listenership, or viewership. But it’s untrue, merely a figment of their traditional perspective.

Viewership, readership, and listenership, have always been fragmented.

Each individual listener, viewer, or reader is, and has always been, a unique mix of generic interests and specific interests. Although many of these individuals might share some generic interests, such as the weather, most, if not all of them, each have very different specific interests. And each individual is a truly unique mix of generic and specific interests.

Until about 30 years ago, the average American hadn’t access to any medium that could satisfy each of their specific interests. All they had was the mass medium, which could somewhat successfully satisfy many of their generic (i.e., 'mass') interests.

Then media technologies evolved in ways that started to satisfy their specific interests. During the 1970s, improvements in offset lithography led to a bloom of specialty magazines; no longer were there a dozen or two magazines on newsstands, but hundreds, most about only specific topics. Proliferations of first analog cable television systems during the 1980s, then digital ones during the late 1990s, increased the average American’s number of accessible TV stations from four to hundreds, mostly specialty channels (Home & Garden TV, the Golf Channel, the Military Channel, etc.) Then the Internet because publicly accessible during the 1990s and the average individual quickly had access to millions of websites, most of those sites about very specific topics.

The result was that more and more individuals, who had been using only (the generic) mass medium because that's all they had, have gravitated to these speciality publications, channels, or websites rather than continue to use only mass medium publications, channels, or websites. More and more use the mass medium less and less. And more and more will soon be most.

The individual's haven't changed, they've always been fragmented. What's changing is their media habits. They're now simply satisfying the fragmented interests that they've always had. There are as many fragments as there are individuals. Always has been and always will be.

So, the audience hasn't fragmented. Traditional publishers' and broadcasters' illusion has.

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November 12, 2005

November 10, 2005

The Difference Between Microsoft and Media

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Posted by Dorian Benkoil

The Internet is a disruptive technology. Business and lives are being changed by it. It will throw millions out of work, create millions of jobs, and be seen as the push that transformed whatever future historians end up calling this era.

Many newspapers, and to some extent their brethren in other mainstream media, try to ignore it. I am stunned by conversations I have had recently with execs at small-to-medium sized newspapers in which they talk about having to really start paying attention to what's going on in the Web. If they're starting now, they're already behind. And some of these papers belong to larger chains. A top executive at chain that's been in the news recently told me his company has finally gotten religion and realizes change is afoot – that people who didn't know Craigslist six months ago do now. Again, I was shocked they wouldn't have known by last April of the iconic application that is destroying or will destroy their classified revenue streams. Many broadcast companies are trying to squeeze their current model into digital technology – and are hamstrung by the needs of affiliates who complain mightily over anything that even appears to jeopardize a penny of revenue.

Then I look at how Microsoft – a behemoth – deals with this disruption. It doesn't ignore it or try to ignore its validity or pooh-pooh the skills of those rising to challenge its dominance. No, Bill Gates himself writes a memo to his deputies about it, and the company launches Web-based versions of its core products, and other execs go on record with what they think all the change is about for a service company like theirs.

Yes, NY Times chairman Arthur Sulzberger talks of the need to do good journalism while embracing the new technologies. But what leading media execs are talking about the real disruptions they're threatening, the possible competition they face, the ways they're going to be attacked and how they can defend themselves, especially in a business sense?

I think media companies have to acknowledge that while they play a special role under the First Amendment, as businesses they have no guarantee of any longevity. They've had a sweat run as near- or total monopolies but now they have new competition. Can they even deal with it? Those that don't will eventually cease to exist. (Who ever thought RCA or Mutual of Omaha Broadcasting would cease to be household names?) That's disruption.

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November 9, 2005

November 8, 2005

November 7, 2005

Predicting is a hazardous occupation—especially when it deals with the future

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Posted by Ben Compaine

I’ve heard the saying in the headline attributed to Confucius and legendary former New York Yankee’s manager Casey Stengel. No matter. It rings true.

Weather forecasters are far from perfect in predicting the weather for the next day here in Boston, even with all their data and computer models. Expecting that us social prognosticators can predict winning products, technologies and business models five years down the road has proven as inaccurate as you would expect—probably worse than chance.

I bring this up because among those of us immersed in thinking about the shape of an institution like the media there is a tendency to sometimes believe that we have insights beyond the bare outlines of where the technology is taking us. And we thus are frustrated that the incumbent players, who we know are protecting their turf and who we exhort to think more strategically do not seem to take us seriously. Perhaps there is good reason.

On the one hand it is fairly easy to predict the overall trends and outlines: We can be very certain that information has become digitally stored and processed and will be even more so. We can be comfortable that wireless will become more a mainstream piece of the distribution channels of that information. But it turns dicer to predict what the exact products will look like, which, if any, of multiple wireless technologies will emerge as the “winner” and even less possible to predict the social and cultural outcomes of the inevitable changes. As a result, we really can’t say with even the certainly of a 24 hour weather forecaster who and what will be the winners and losers 10 years—even five years—from today.

Let me give you an example of how hard predicting technology winners can be—and the stakes involved. In the early 1980s a well regarded market research firm called Predicasts (now buried deep within Gale Thomson ) issued a report on the market for home video five years out. It looked at the market for the still new videocassette recorders and the even more nascent video disc player market. The latter, if you are too young to recall, consisted of a model just hitting the market from RCA (remember that consumer electronics juggernaut?) that used a stylus on a platter that looked like a 33 rpm record as well as a new optical laser version from Phillips that also used a 12” disc that held one hour of video.

Predicasts had a graph that I’ve approximately recreated below that showed the total number of video players they predicted would be sold annually by 1987 (I believe my original notes are buried in a folder deep inside a storage locker). With the accuracy of hindsight, Predicast’s forecast of the number of home video devices that would be sold about five years out was pretty close to the actual—in the 800,000 plus range. But what a disaster was their breakdown of the market: They expected VCRs to quickly peak while the video disc format, which was barely on the market when they made their prediction, was hailed to be the winning technology.
predicasts_video.jpg

From an academic perspective one might say “So what?” They got the general outlines right. But making actual business and investment decisions based on their miscalculation could have been very expensive for manufacturers of the hardware, the tapes, investors, Hollywood studios, retailers or even some consumers.

If one took a very long perspective one could say that the Predicast’s analysis was sound: optical disks, in the form of much smaller, high capacity and far less expensive DVDs in the middle of this decade have supplanted VCRs as the pre-eminent home video device—for the time being. But Predicasts was more than 15 years off in their timing.

We could pursue a similar analysis about videotext. Knight Ridder and Times Mirror Co. both newspaper publishers, invested in early on line information services that were very much a forerunner of what the Internet has wrought in terms of types of content and services: news, sports, email, electronic banking, shopping. But those services were expensive nonstarters. The technology (2400 baud modems, pricey set-top boxes as adjuncts to a TV screen display) wasn’t ready, the architecture was costly (circuit switched dial-up) and the business model wrong (user subscription proprietary closed systems ). Expensive when predications are off by about 20 years.

More recently the telephone companies—more specifically the cell phone providers—made an expensive and huge bet on 3G—the third generation cell phone spectrum capable of digital broadband transmission. They believed in the prediction of the future of wireless and bet billions to obtain the bandwidth. But they didn’t account for other wireless technologies like 80211.x—Wi-Fi. Now there’s Wi-MAX. Other pieces of spectrum, such as 700 MHz that will become available when broadcasters return UHF spectrum to the FCC in three or four years, may be used. So while wireless is in our future, it would be difficult if not foolhardy to predict who might be the winners and losers a decade hence.

One criterion I hope we have gleaned from the plight of the many technological innovations that have come and gone is that those that rely on expensive infrastructure and/or governmental regulation (or deregulation) are much slower to happen—if at all—than the existence of the technology itself would suggest. Wi-Fi, which relies on unregulated spectrum, snuck in under the tent while the big telco providers and other players waited, sued, appealed and waited some more for various regulations, auctions and court decisions, and then required an investment of many billions of dollars. The Internet bloomed where videotext system languished in part because it did not require much in the way of new investment or expensive equipment at start-up. It used the existing switched telephone infrastructure and the PC’s that were already widespread on home and office desktops.

I know—and you know—that the shape of the media is changing. We know that many pieces of the future are going to get smaller, faster, cheaper or better. We know that current media players need to adjust or wither. But we can’t very well predict the timing (ask Knight Ridder) of which technologies will be part of the mix at any time beyond a few years, other than in broad strokes.

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November 4, 2005

The media revolution in your pocket: wireless broadband inches forward

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Posted by Bob Cauthorn

Over at Techworld, they're reporting on an astonishing wireless broadband product.

The magazine's reporters attended a demonstration of a wireless product capable of delivering blistering throughput -- better than 3Mbits -- over an 18-mile wide area using little power and unregulated frequencies.

On an apples-to-apples basis, the techonology claims to deliver 1,000 times more bandwidth than existing WiMax approaches.

Furthermore, the company that produces the product -- xG Technology in Florida -- says it can also deliver several megabits of bandwidth over short distances (40 feet) powered by as little as two nanowatts.

And from all appearances, the technology is able to deliver bandwidth to end-users at very low costs.

The company's claims are sufficiently astonishing to invite suspicions of a hoax. But if it is not a hoax and if there is no significant gotcha -- a big if -- what xG Technology is poised to deliver will revolutionize media. The company claims to have a deliverable product by the middle of next year.

Under any circumstances, eventually, we'll see widescale deployment of broadband wireless at affordable prices.

When that happens it will enable a generation of media products unlike any we've yet seen. It will transform television, publishing, movies and games. In terms of new ways of imagining content, it will be as big as the leap from radio to television.

Nearly all of our current thinking on media revolves around the notion of an audience in a fixed location and in fixed circumstances -- at home on the couch, at the office on the computer, in the movie theater, or in front of the game console, etc. Even radio, because it is not random access, assumes a fixed-circumstance listener -- in the car or, say, listening to internet radio

Broadband wireless -- once deployed and cheap enough to be widely adopted -- requires a radical rethinking for existing media even as it ushers in a host of new players. It invites us to conceive content products that are delivered just-in-time or that are geo-specific or circumstance-specific -- or a mashup of all three. Because you will be reaching people on the move and in varying circumstances, local knowledge bases will be king.

Media companies will have to ask themselves not just how many viewers or readers they have, but they will need to measure the footprint in their lives. Media companies will live and die by relevance rather than subsisting on habit as they do today.

None of these new approaches will usurp many traditional modes of media consumption. Certainly some functions today ill-served in today's static-circumstance model will migrate to broadband wireless. However, for the most part, this is a process of addition rather than subtraction on the content side.

Even though this change is coming at us with all the sublety of a freight train in a tunnel, almost no media company is preparing for the day. A hint on the first baby step: start getting your archives of content ready to present in a new form.

And there's this: while it will be a process of addition on the content side, the implications for advertising and commerce are a different matter.

A personal terminal connected to wireless broadband networks will permit the arrival of the ultimate advertising product. All existing advertising models will be turned upside down.

Movie sold out and can't decide what to do next? Check the listings on the move, listen to an MP3 of the artist performing in the jazz club down the street, make a choice and go.... And in point of fact, when the revolution arrives you will seldom encounter a sold-out movie -- you'll either have tickets waiting for you or be notified long before you hit the theater.

Checking out one car and want to compare it with a competitor's model instantly? Want to check the latest prices for a washing machine you're considering while you're in the store? See an attractive camcorder on sale but want to check what other owners say about it? You have two restaurants in front of you, which one has the better review? Done. Done. Done. And done.

If the xG Technology short-range approach works as promised, it will offer exciting prospects for narrow-casting location-specific broadband ads. Walking through a store, one might be able to browse through all kinds of enhanced content about the offerings for sale.

Plus there will be new presentation modes as well -- a publisher might well have wireless terminals installed around cities like ATMs. And the visual noise of billboards will reach a whole new level as they learn to shake their booty and animate themselves with internet content. The branding (and migraine inducing) potential is breathtaking for advertisers.

Of course, more advanced personal data terminal technology -- likely some form of electronic ink or flexible LCD -- will be important too. However, even the existing personal data terminals such as PDAs, Blackberries, laptops and cell phones will be good enough to start. Inevitably, Apple will dream up the iPod Communicator -- the uber chic design in personal data terminal -- and this will cement the transition.

So while presentation is important, it isn't the core issue here. Transport is. The media transformation can't begin without the efficient, inexpensive delivery of significant wireless bandwidth.

That's the big magilla. And no matter what, it's a problem that will be solved in the next couple of years. WiMax is OK, and if the xG Technology works, it's even better because it means the revolution starts next year.

Current wireless broadband options are fairly feeble. Technology with truly wide coverage barely provides real bandwidth. Existing high-bandwidth solutions have range issues and a host of practical impediments. That's why what's happening in Florida is so interesting. Even if xG winds up being vapor, affordable broadband wireless is coming. Bank on it.

Google gets this. The company clearly recognizes this will be the platform for advertising products to trump all others. That's why Google is so interested in providing municipal wireless. Magazines, radio, television and newspapers will see an exodus of advertisers in this direction once widely deployed.

And yet, almost anyone can play and prosper here if they are smart. It is by no means apparent that Google will win in this space, although clearly if you look at their product mix everything they're doing is getting ready for this day and the will be a power player.

The question for existing and new media companies is this: will they be ready when the revolution hits? History will be unkind to those asleep when this change arrives.

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November 3, 2005

November 2, 2005

November 1, 2005

Having Managed Its Decline, Knight Ridder Begins to Reap the Whirlwind

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Posted by Vin Crosbie

You can manage decline only so far before your company crumbles. Case in point: Knight-Ridder, Inc, the second largest newspaper chain in the U.S.

Is Knight Ridder crumbling? Look how the crumbs are starting to fall.

The crumb was today's announcement by Private Capital Management, Knight Ridder's the largest institutional shareholder, urging the newspaper company's board of directors to put the company up for sale..

Private Capital Management said a sale should be pursued, "in light of limited revenue growth across the newspaper industry and the difficulties the company has faced in realizing the fair value" for its shareholders.

Like most newspaper corporations, Knight Ridder has been cutting both staff and expenses, squeezing higher profit margins out of its newspapers even as their circulations declined. Something had to give, and what gave today was the confidence of Knight Ridder's largest shareholder.

Ten years ago, in an essay in American Journalism Review, Philip Meyer, who holds the Knight Chair in Journalism at the University of North Carolina at Chapel Hill and had spent 23 years working for Knight Ridder, most recently as the company’s director of news and circulation research, warned this would happen if the company continued squeezing its newspapers:

"Which scenario are we moving toward – squeezing the goose or nurturing it? While the signals are mixed, most of the decisions making business page headlines point to the squeeze scenario. Layoffs, closing bureaus, shrinking news holes are the order of the day. On the other hand, the public journalism movement represents an effort to build civic spirit in a way that will emotionally bind citizens to the newspaper. Whether very many newspapers will spend the money to wholeheartedly practice genuine public journalism remains to be seen. The short term economic pressures are against them. The first scenario produces visible and immediate rewards while the costs are hidden and distant. The second yields immediate costs and distant benefits.

"The dilemma cuts across all forms of newspaper ownership, but publicly held companies bear a special burden because of Wall Street's habit of basing value on short term return. Take the case of a long term-oriented, nurturing company like Knight-Ridder. With total average daily circulation of 3.6 million, its newspapers would bring a total of $6.5 billion if sold separately at an average value of $1,800 per paying reader. ... With 52.9 million shares outstanding at the 1994-95 high price of $61 per share, the entire company, including its non-newspaper properties, is valued by its investors at only $3.2 billion or around half the break-up value."

In its letter today to Knight Ridder's directors, Private Capital Management noted that since July, ".the Company's share price has declined by over 14% from $62.23 to $53.38." Knight Ridder's market capitalization today was $4.27 billion. Yesterday, Deutsche Bank securities downgraded Knight Ridder from "hold" to "sell."

Cutting expenses and staff to maintain profit margins while the product newspapers' popularity declines is bad management. It's management that's now unexpectedly reaping the whirlwind.

Knight Ridder Chairman Tony Ridder has been expressing confidence in his company. I think this week that too began to crumble.

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