Wireless and the Future of the Newspaper Business

By Mark Desautels, CTIA - The Wireless Association

If wireless communications are what God wrought, the effects of digitizing a physical good may be the devil’s due.

The disintermediation engendered by the transformation of a physical good into a digital one is rendering asunder numerous industries that were structured to distribute a physical product. Starting with the music industry, but extending to any industry that distributes a product that can be so transformed once the infrastructure is in place to do so efficiently, each will be faced with the question of what they must do to remain viable. Wireless is at once both part of the problem (we distribute digital goods) and the solution (which the music industry is discovering) for these industries as their companies face the turmoil caused by a physical world in digital transition.

One industry especially near and dear to my heart that is suffering this fate is the newspaper industry. I started my career as a cub reporter, went on to run a local newspaper in a small, rural market, covered Capitol Hill as a business and economics reporter and functioned as a press spokesperson before discovering the Internet at its commercial emergence (a fortuitous event that led to my current position). Since joining the digital world, however, I have thought often about its affect on the newspaper business, which has been so vital to developing our democracy, and have even tried to help identify how wireless can help, which I will get to in a moment.

As anyone who has grown up getting his or her information from a newspaper can attest, there is no comparable method in the digital world to reading the daily newspaper for ingesting copious amounts of information in a short period of time, regardless of how much bandwidth your connection will ever have, the speed of your processor, or the number of inches of your display screen. I will hate to see this extremely efficient means of consuming information go, but go it will – hastened by digitization but buffeted by a variety of forces that cannot be accounted for by its business model. (I do not know the carbon footprint of delivering a newspaper to a doorstep each day, but I imagine it to be significant, from the CO2 processing loss from trees felled for newsprint to the step vans left idling while drivers empty and fill corner coin boxes, it is a venture that it cannot be sustained in a sustainable resources-conscious world.)

Wireless can offer newspapers a distribution platform that can provide a new source of revenue, as well as replace revenue loss from a readership transitioning from a physical to a digital product by providing enhanced value.

What can wireless do for you, Mr. and Ms. Newspaper Executive? Quite a bit, one can imagine, though the contours of all the contributions wireless distribution can make in helping news gathering/distributing companies (that were once in the newspaper business) solve their digitization problems are only just beginning to emerge. The moves that a number of large newspapers, like USA Today and the New York Times, have made in the last year to enable distribution to mobile devices is an important start. Both the capabilities of the preponderance of wireless devices in the marketplace and the user interfaces for them have improved significantly in recent years, vastly enhancing the reading experience. And smartphones, like the iPhone, which are increasingly supplanting less capable feature phones in the wireless customer base, will only improve the reader experience going forward. Additionally, as part of the new “Open” paradigm in wireless Internet services, more devices devoted to an enhanced and connected reading experience, like the Kindle, that don’t have any voice capabilities, will proliferate.

However, distributing news content via wireless networks and having customers consume it on mobile devices, even when supported by advertising, is likely to be little more than a stopgap for revenue losses in the traditional business rather than source of new revenue growth, akin the repurposing of existing content and ads online. Charging a la carte for the service might offset some of the development costs (though that is a dubious proposition, in my opinion); packaging the service as part of a new “enhanced” subscription offering will prove the far more effective marketing, I believe.

The outlines of what newspaper subscribers might pay extra for were discovered in some market research that CTIA co-sponsored with the Newspaper Association of America several years ago when the capabilities of wireless networks and mobile devices were not nearly as technologically sophisticated as they are today.

Not surprisingly, newspaper subscribers were not interested in paying extra to have sent to their mobile phones the news and features they thought they had already paid for when they bought the paper. (This was early evidentiary support for my hypothesis that, in the end, consumers will pay only one time (if that) for digital content, a hypothesis I am currently revising and extending…but that is another story.) In fact, whether it was the limited state of the technology at the time or the Internet culture that “information wants to be free,” or both, the primary finding of the research was that there was very little about wireless distribution of newspapers that newspaper subscribers would pay extra (again) for. But there was one thing, and in that one thing exists the elements of the solution to the problem posed by digitization. And wireless is integral.

Newspaper subscribers would pay extra to be pre-alerted to garage sales and classified ads featuring products of specific interest to them, especially if geographic proximity could be included in the response/alert. The use cases presented to the focus groups at the time were fairly rudimentary compared to what can actually be done today given sophisticated devices and smart, fast networks. However, based on the interests that the subscribers indicated, one can envisage a host of enhanced services that can be built around the information that newspapers collect as a part of their news gathering function and that they are also paid to distribute, such as classified ads, that can be facilitated by anytime, anywhere wireless connectivity. These services, not just the gathering and distribution of news, then become the basis for an enhanced subscription (plus advertising) business model in the digital “newspaper” business.

The winners will be those that build services on top of the information they gather such that I, the newspaper subscriber, can see higher value in the trade off of consuming the information less efficiently, but acting on that information more effectively.

While the rapid rate of technological development and the uncertainty of the availability of various capabilities make it difficult to predict exactly what will comprise the set of new services that newspaper subscribers will pay for, to bridge to this new world there seem to me to be a couple of things that newspapers must do that are tantamount: They must begin to build data bases of the information that they collect and sell each day that can be data mined in the development of these new services, and; they must think of wireless providers as they do their delivery infrastructure today, and be ready to assume for it the same level of cost, as well as offer a share of the enhanced value wireless can bring.

The newspaper business that I grew up with in my career, and that I love as a consumer of information, will not survive the forces of digital change and environmental challenge arrayed against it. The companies that comprise the industry will have to make radical changes to survive and most will not.

Q&A with Mark Desautels, VP, Wireless Internet Development, CTIA - The Wireless Association

What are the three most telling or significant statistics right now in terms of U.S. mobile usage (and why)?

1) SMS text messaging continues to grow annually at triple digit rates, and is approaching 2 billion messages a day in the United States. The significance is that consumers are comfortable with interacting with each other, and even third parties, via text messaging, and that SMS will be an important platform for news distribution companies to utilize to interact with their subscribers going forward.

2) 87: That's the percentage of the U.S. population who are mobile phone subscribers, a phenomenal penetration rate that virtually ensures overlap with all newspaper subscribers.

3) 20 percent: That's the approximate percentage of wireless industry revenues attributable to non-voice (data) services, representing an amount that is still growing at double digit rates annually. Wireless subscribers are doing far more with their phones than just talking, indicating a growing awareness and willingness to use mobile phones for a variety of applications, including accessing and consuming news and information. Newspapers are sure to find a customer base that is willing to utilize their mobile devices to consume news content.

What do you expect ultimately will be the standard broadband technology for wireless? How quickly do you think it will be adopted?

Standard is an interesting word in that it implies something singular. But the reality in wireless is that there are a variety of "standards" in place, and that condition is likely to persist in the future. Instead, the better question is what are the capabilities of today's networks, and what will they be tomorrow. Most networks today are described as being 3G (third-generation wireless: analogue networks were first; early digital networks (comprising a variety of air interface "standards") with limited bandwidth and throughput capabilities were second, and; digital networks with broadband capabilities and throughput speeds are third): ubiquitous, nationwide, all digital networks that offer throughput speeds of one megabit or more, speeds similar to wireline broadband connections to the home. Over today's 3G networks, mobile customers can consume a wide variety of digital content – from text to music to images, video, and games – as well as utilize sophisticated devices to run applications and access services similar to the desktop computer and wireline Internet experience. For instance, I can take the train from Washington to New York today and maintain a VPN connection to my office network at speeds of around 700 kbps nearly the entire trip, making data service over wide-area cellular networks a very compelling offering.

The next generation of cellular networks – 4G – is beginning to be deployed. As with the current generation, there will be more than one "standard," with WiMAX and LTE likely to be the most ubiquitous in the United States. More important than that, however, is the enhanced capabilities both types of networks will provide beginning with throughput speeds of 5 mbps and more. Speaking recently about the capabilities of these 4G networks, Verizon Communications CTO Dick Lynch described it as a network that would be fully capable of handling all the kinds of applications that people want to do on social networking sites, like exchanging large graphic and video files. He estimated that his network would optimally handle such applications in 2012-2013. This has significant implications for news gathering and distribution companies, as they seek to gather and distribute news information in a variety of formats, as well as enhance their daily interaction with their subscribers.

In terms of trends, do you see U.S. mobile device users adopting the mobile Web at a faster or slower rate in next few years?

Mobile Web use is going to explode from here going forward. Sophisticated devices with great user interfaces, such as the iPhone, have demonstrated that customers would like to do, when mobile, many of the same things they do on a wireline Internet connection, and the existing wireless networks have demonstrated that they are capable of enabling such use. As those devices begin to proliferate across the base of wireless subscribers, we would anticipate a similar increase in demand for mobile Internet access and services. Additionally, as even more data capable 4G networks deploy and come online over the next five years, an even wider array of Internet-based applications and services will be enabled, further driving adoption.

Can you give some statistics or projections on where you see mobile Web adoption in the next five years?

While CTIA does not make forecasts, it does collect industry data. As of year end 2007, of the then estimated 255 million wireless subscribers, 218 million, or 85 percent had data-capable digital handsets. Of those subscribers, around 55 percent (119 million) were reported to be actively using data services. The growth rate in data revenues was 45 percent in 2007 over 2006. Those statistics indicate both a large and growing addressable market, as well as growing demand for wireless data services.

What do you think will be the tipping point for the mobile Web? (Will it be cheaper data plans from carriers, faster networks, or more widespread adoption?)

All of those things--lower prices, faster networks, better devices, more adoption – and something else: the integration into mobile applications of location-based information. One of the biggest drivers of Internet usage is the convenience it provides; the mobile Internet can provide exponentially more. Here is an example of how the integration of location information into a growing number of mobile applications will drive adoption and send mobile Web usage over the tipping point to the mass market: I was riding in a car on a highway near my home in Washington, DC, one evening recently when the driver and I decided we would like to have BBQ for dinner, but had no clue where the nearest BBQ restaurant was. I launched a navigation application on my mobile phone that includes local search capabilities and clicked on restaurants and then BBQ/Southern. Immediately, the query returned a list of restaurant options and the distance to each. I clicked on the link to the closest restaurant and the application immediately responded with voice driving directions. We were instructed to exit the highway at the next exit and were at the restaurant and seated within five minutes. The entire event took only three clicks and ten minutes. As that type of capability is incorporated into more and more applications, mobile Web usage will skyrocket.

What should newspapers do to encourage mobile Web adoption?

To the extent that a newspaper digitizes its content and provides access via a Web site, more and more mobile subscribers will be able to access that content as the conditions described above, in terms of device and network capabilities proliferate. And they will. But newspapers can also help drive mobile Web adoption by incorporating SMS text alert services for content of specific subscriber interest, as well as by enabling their Web sites to accept breaking news content from mobile devices. Because it is a two-way data communications system, mobile devices and networks will enable newspapers to both push their digitized content to subscribers as well as receive information back, in real time, vastly enhancing value to both.

What newspaper content do you think is most suited for the mobile Web?

The simple answer is that anything newspaper subscribers want on the wired Internet, they will want on the wireless Internet. However, the opportunity to provide new services based on the current set of information that newspapers collect and are paid to distribute, such as advertising, could prove to be where the sweet spot is. When the NAA and CTIA collaborated on some research as to what kinds of information newspaper subscribers might be interested in receiving on their mobile phones, what we found was that more than any other kind of information, subscribers were interested in receiving localized classified ad alerts, especially for yard sales. Now, think about the application I described above that helped me find a BBQ restaurant, and marry driving directions with the classified ad yard sale information: You send a consumer, who has pre-defined for you on your Web site his or her preferences regarding types of yard sales and location, an alert indicating a yard sale in progress. They click on the link, launch a map and voice driving directions, and maybe even some pictures of the items for sale (or real time of the crowd, if you have enabled the person holding the sale with the ability to send real time photos from his or her phone), all for a monthly subscription fee. You no longer charge for the news you deliver, but you have a whole new business using that information to provide services that are of high value to your subscribers.

First Published:
July 31, 2008

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