The Chicago Tribune has been one of the first newspapers to fully embrace the use of the Internet. But the paper's advertising revenue has been threatened by specialty Web sites and the technology giant Microsoft. Elizabeth Brackett of WTTW reports.
ELIZABETH BRACKETT: This is the Chicago Tribune, a major metropolitan newspaper with a 150-year tradition. And this, only a year old, is part of that same venerable institution: The Internet Tribune. Clicking on their Web address brings up the site that was recently voted the best online newspaper of the year by the National Newspaper Association.
HOWARD WITT. Over here you see news headlines; everyday we keep the top five stories updated throughout the day.
ELIZABETH BRACKETT: In addition to breaking news, there's the complete contents of the daily paper and special reports designed for the Web site. A staff of 20 work virtually around the clock to update information.
EDITOR: Check out the time line early on, so we get--because it's going to be huge, and we have to see what format to use.
EDITOR: We're going to do like last week and get it early, okay.
The advertising game.
ELIZABETH BRACKETT: The Internet, is changing the economics of the newspaper business so dramatically that to keep the presses rolling, it's essential to be online. Yet the battle in cyberspace is more about advertising dollars than it is about journalism. The 50 cents charged for the Tribune covers only 28 percent of the cost of putting out the paper. It's advertising, particularly the big display ads that wrap around news stories that takes up most of the freight-- the salaries, the presses, the building, and so on. But even with these ad revenues the newspaper barely breaks even. The profit comes from an unlikely source--these are buried deep inside the paper--the classifieds. Howard Witt is the associate managing editor for interactive news.
HOWARD WITT: Classifieds are the key to the whole game. And this is why newspapers are all over the Internet now because newspapers understand that their classified advertising is highly vulnerable.
ELIZABETH BRACKETT: That's because on the Internet anyone can start a classified ad site
cheap. All that's needed are classified listings and a computer, the ideal tool for creating a searchable data base. Jeffrey Rayport teaches about managing online at the Harvard Business School.
JEFFREY RAYPORT, Harvard Business School: The Web is full of individual sites, new startup businesses that have taken a look at those wonderful classified advertising franchises that the newspapers have owned for time immemorial, and they've said gee, I think we can do this better electronically, so that the Web is full of examples of people who have created category killer sites for things like jobs, things like cars, things like apartments and real estate.
ELIZABETH BRACKETT: For example, Auto-by-Tel a new site on the Web, sells new and. used cars. It's run by Peter Ellis.
PETER ELLIS, Auto-by-tel: We appear to be a pretty good threat because when we try to run ads in certain papers in Canada, Boston, Seattle. The newspapers didn't want to take our ads because they felt
that our programs were sucking their classified advertising out of the newspapers.
ELIZABETH BRACKETT: But the Tribune has more to worry about than Auto-by-tel. Monsterboard is a help wanted site; so is Career Mosaic. And Realtor.com and Cyberhomes.com both list houses on 
the Web. But more worrisome still are the sites owned by the behemoth of the information age, Microsoft. One of them, Carpoint, is a national site that sells automobiles Another, Expedia, is an online travel agency. And by spring, Microsoft intends to roll out its own real estate site, code name: Boardwalk.
JEFFREY RAYPORT: The Tribune Company is smart to be concerned about Microsoft for a very simple reason Microsoft has traditionally done what Willy Sutton did with the banks, which is go where the money is.
ELIZABETH BRACKETT: Owen Youngman knows just how essential that money is to the Tribune. His job as director for interactive media is to devise a strategy to hold onto the business. Known to his colleagues as the visionary, Youngman has a penchant for high technology and the cartoon geek Dilbert.
OWEN YOUNGMAN: Financial strength is what makes it possible for us to do good journalism; makes it possible for us to have hundreds of people on the street covering news, writing stories,
testing recipes, all the things a newspaper does, that's paid for by our advertising, and our classified advertising is a big high-margin chunk of that.
Launching an online offensive.
ELIZABETH BRACKETT: So the Tribune has gone on an online offensive. In the past year
it's created its own sites to sell used cars, to help you find a job, or a house.
HOWARD WITT: Where do you want to look for a house?
ELIZABETH BRACKETT: Lincoln Park.
ELIZABETH BRACKETT: Howard Witt likes to emphasize the many possibilities of the online paper.
HOWARD WITT: We give you at kinds of community information. There is some basic demographic information: the population, typical income, typical home price $420,000; we are
a newspaper; we can bring to bear a lot of resources more than just the basic listing.
ELIZABETH BRACKETT: If the Tribune can hold onto its classified listings, then it can attract advertisers to pay for the site. That flashing rectangle is an ad. The more listings the site has, the more people may visit, and then the more advertising may follow. But according to Jeffrey Rayport you don't have to be a newspaper to win in this business.
JEFFREY RAYPORT: The terrifying thing for newspaper publishers, especially for the editors who work for the newspaper publishers, is that good journalism is not the description of an economic model for most publications. In other words, the economic model for most publications is bringing eyeballs to advertising, literally connecting buyers and sellers. Now it may be that by creating a marvelous set of contents for the news hole of a major daily you bring people who now bump into your classified and display advertising. But the fact is what Microsoft and others competing on the Web have discovered is that you can make connections between buyers and sellers without creating a wonderful department store of news.
The Microsoft strategy and the Tribune's response.
ELIZABETH BRACKETT: And that's just what Microsoft seems to be doing. In Boston, Microsoft has been promoting their latest Web entry called Sidewalk. It's a city specific entertainment guide on the Web. Right now sites are up about Boston, New York, San Francisco, Seattle, and the Twin Cities. Microsoft plans to roll the concept out nationally. Lisa Allen is the executive producer for Sidewalk Boston.
LISA ALLEN: We're creating a different kind of city media. We are not newspapers. We don't cover the news. We don't do politics; we don't cover last night's baseball game. What we are all about is helping people make decisions. We'll tell you what is going on in the Wang or what's showing at the MFA. We'll even tell you where you can go for traditional Norwegian dancing if you want.
ELIZABETH BRACKETT: The Chicago version of Sidewalk is expected to be on the Web by January, where it will compete head to head with the Tribune for advertising dollars. Sidewalk
General Manager Barry Kurland.
BARRY KURLAND: The business model is to accept advertising from hundreds of local merchants and we also have national blue chip advertisers. The national advertisers
are interested in Sidewalk because it gives them the opportunity to buy across several different markets and offer very vocalized messages to the consumers in these local markets.
ELIZABETH BRACKETT: Microsoft believes its Web advantage is the ability personalize the product.
MICROSOFT DEMONSTRATOR: One of the really keys thing about sidewalk, which is excellent. is the push technology that allows you to customize the site to fit your needs.
ELIZABETH BRACKETT: Microsoft, it seems has the means to deliver its product--and the
advertisers that go with it. The Tribune, on the other hand, is an old dog, trying to learn some new electronic tricks as fast as it can. It launched it's own city guide called Metromix as soon as it found out Sidewalk was coming to Chicago.
HOWARD WITT: It's not perfect; we're working on it; we had great pressure to get it up; they
were concerned that we wouldn't have anything before Microsoft got here.
Protecting the retail advertising base.
ELIZABETH BRACKETT: It's more than the Tribune's classified strategy that's up for discussion at weekly staff meetings. The interactive group is working hard on protecting the paper's retail advertising base as well. For instance, Kurt Fliegel, wants to replicate Chicago's famous shopping area, Michigan Avenue on the Web. He's read the analyst reports that predict online commerce will grow from its current 2 billion dollars a year to a whopping 57 billion dollars a year in just the next five years. He thinks the Tribune can capture a share of it.
KURT FLIEGEL: Our vision here is to create a virtual environment on the Internet that people can use in a different way than they go physically walking down the street. What we will be using is some technologies like virtual reality photo bubbles.
ELIZABETH BRACKETT: So you will be able to walk into the stores.
KURT FLIEGEL: So you can walk down the street, look around, and see where the stores are,
actually walk into the store, and see what is on the showroom and eventually maybe be able to pick up the merchandise and turn it around in a 3-D environment.
ELIZABETH BRACKETT: And how does that sell advertising?
KURT FLIEGEL: It sells advertising because we can ask retailers to pay first some rent to be on the street to be represented there and second we hope that over time we will be driving customers
right to their stores and maybe take a percentage of those transactions.
The Tribune online: First and foremost, a newspaper.
ELIZABETH BRACKETT: But the Tribune worries about Microsoft getting their first, not only with the technology but with the very people working at the Tribune. According to Howard Witt, Microsoft has head-hunted every top interactive manager in the past few month. So far none have left, despite the six figure offers. Kurt Fliegel thinks he knows why.
KURT FLIEGEL: We're in the newspaper business even on the business side to support what we think is a great American institution, which is the ability to present independent news out to the American public. I choose to work here because I really believe in what the Tribune Company does and the difference it makes in the lives of American consumers.
ELIZABETH BRACKETT: The Tribune staff thinks of itself first and foremost as a newspaper, and management hopes this will be their competitive advantage online. They're betting millions that their name recognition and longstanding reputation for quality journalism will attract more users then the non-newspaper sites. That's why the contents of the daily newspaper is on their site along with Web specials; stories reported specifically by on-line reporters and producers. Marja Mills went on assignment at O'Hare airport. She has more than her reporter's notebook with her. Producer Paul Pustelnik is there to record the interview on videotape and shoot digital pictures.
MARJA MILLS: One thing we wanted to get a sense of was how likely different, potentially dangerous situations are to crop up.
ELIZABETH BRACKETT: When the story goes online it will have text, video and still pictures. But the Tribune's focus on news may not be winning that many Web users. According to the newspapers own survey, visitors to the Tribune Web site click first for sports-- the Chicago
Bulls site--next for classified ads--and then and only then for news. So in the high tech market space, what's the future of the printed newspaper?
The future of the newspaper industry.
HOWARD WITT: It's not going to be the death of the newspapers, just as the Internet is not the salvation for all humankind. I mean, the Internet is just like--it's another communications device. It could--if newspapers don't figure out how to hold on to the territory they have and expand it--it could make newspapers into something far different than what they are now.
ELIZABETH BRACKETT: Jeffrey Rayport believes the newspaper may eventually lose many of its traditional sections. Sports, weather, stock quotes, classified advertising will only appear on the Web.
JEFFREY RAYPORT: What that means is that the subsidy that advertising provides to newspaper and the traffic building that some of that utility data provides in terms of attracting readers who don't care what's on the front page but they've go to know what their stocks did today, and therefore they buy the newspaper tomorrow morning at the newsstand, those artificial subsidies that came from bundling commercial editorial information will go away. Hence there will be newspapers. They will be thinner, they'll have a lot less advertising, and you'll pay 10 bucks a copy. Some of us will want to do that; most of us won't.
ELIZABETH BRACKETT: Meanwhile, the Tribune and almost all other major newspapers
continue to struggle for footholds online. Their hope is to create a new
economic model, which will build on their traditional strengths in print while
adapting to the new electronic market space
A RealAudio version of this segment is available.
