The New News Channel

For a while, it seemed as if the battered newspaper industry might be cast in Samuel Beckett’s Waiting for Godot. With readers and revenue fleeing the ink-on-paper business, the Seattle Post-Intelligencer and the Denver-based Rocky Mountain News shutting down, and other papers slashing the size and frequency of their publications, newspapers have been chanting a desperate mantra: Somewhere over the horizon someone surely will come to our rescue… somehow… some day. That day may be at hand. But the potential savior comes from an unexpected direction. Internet technology-the same revenue-and-reader-sucking technology that newspapers have loudly blamed for their current predicament-may offer the solution to pulling the industry out of its financial hole. The prospective rescue vehicle is the electronic reader, the wireless device that allows users to download print material, from books to the New York Times, on a small but highly readable screen.

Newspapers seem captivated by the idea. The New York Times, along with the Boston Globe, the Washington Post and others, are already available on Amazon.com’s Kindle reader for a relatively modest subscription fee. Plastic Logic Inc., a Silicon Valley company, has lined up a newsstand full of newspaper partners, including USA Today, for an e-reader that won’t be available until January. And Hearst Corp., which kept its seattlepi.com website going in Seattle as a bare-bones placeholder in the e-reader sweepstakes, has been readying its own entry into the electronic device market, courtesy of a stealthy startup that Hearst has invested in: FirstPaper.

It’s no surprise that newspaper owners, a notoriously slow-to-adapt bunch, are eagerly embracing e-readers. The owners don’t have much choice, with dwindling print operations eating up their shrinking operating budgets and the existing delivery options-websites, cell phones and other mobile devices-pulling in only about ten percent of the ad revenue and none of the circulation revenue that print papers used to produce. What makes e-readers especially attractive to publishers is the prospect they could return the industry to the good old (i.e., pre-web) days, when newspapers controlled their news and ad markets, and hence dictated their profits.

It could happen. Amazon.com and Sony may soon be positioned, much in the same way Plastic Logic and FirstPaper will be, as ideal partners for a content provider-a newspaper, for example-that would slap a pay wall around its website and prevent outside news aggregators such as Google and Yahoo! from linking to that content. Aggregators will not be able to piggyback on newspaper stories that appear only on e-readers and siphon off potential ad revenue the way they now do with newspaper websites. Newspaper companies have been widely criticized, from within and without, for not thinking through the process when they set up their websites a decade ago and “giving away” their content (thus allowing aggregators to take advantage). The aggregators argue that they drive readers to the papers’ websites and everyone benefits.

There is also some evidence that the e-devices may be drawing new fans from outside the traditional newspaper spectrum. “You shouldn’t presume that new readers of papers on e-reader devices are current newspaper readers,” says Lincoln Millstein, Hearst’s senior vice president for digital media. Millstein and other Hearst executives have been tinkering with seattlepi.com since they shut down the print newspaper in March, and the website could be seen as a testing ground for when FirstPaper rolls out. The site features everything from photo galleries of attractive women and cute pets to an array of hyperlocal blogs, and to the surprise of many, it has more or less held its own. Nielsen Online, which tracks website traffic, reported seattlepi.com drew about 1.5 million unique visitors in June, down from 1.8 million just before Hearst folded the print P-I in March. The Seattle Times‘ website also had 1.8 million unique visitors in June, but that number results from the print paper helping to drive readers to the site.

Hearst won’t say much about its plans for FirstPaper’s technology-a company spokesperson offers only a formal statement that Hearst has invested in an unnamed concern “that is creating an entire e-reading ecosystem for consumers.” But Millstein does proffer an intriguing tidbit: market researchers, he says, have discovered that among those who now take news subscriptions on e-readers, about half did not previously subscribe to print papers.

Millstein calls this group “previously non-consuming readers” and suggests that they constitute a “huge” potential market. Huge enough, anyway, to bridge the gap between die-hard-and dying off-ink-on-paper readers and a new constituency of electronic news consumers. The two markets, he adds, can co-exist, at least for a while. “Don’t presume we will necessarily cannibalize our own [print] subscription base” when FirstPaper arrives, he cautions.

This gradual evolution in the marketplace-rather than a lightning-fast revolution-would be good news for some struggling print dailies, which are not yet ready to go all electronic, a group that includes the Seattle Times. The Times, deep in debt and projecting a 30 percent drop in its total revenue this year, plans to focus on stabilizing its operation over the next 18 to 24 months, according to an in-house memo sent in July to Times staffers by company president Carolyn Kelly. The Times‘ and seattlepi.com’s plans could set up Seattle as a pivotal e-reader testbed next year, with the P-I arriving via the FirstPaper e-reader versus the morning Times thumping on the doormat. Times officials declined to comment for this article.

Hearst and the P-I aren’t the only Seattle players in the thick of the e-reader fight. There is Amazon.com, of course, which will likely introduce another, even larger Kindle to match Plastic Logic and Hearst’s planned devices. None of the companies will discuss strategy, but outsiders who have handled both Plastic Logic’s device and FirstPaper’s prototype say both wireless readers will be magazine size-slightly larger than the current Kindle DX-and be equipped with touchscreens.

Millstein, who carries a Kindle, a BlackBerry and an iPhone, keeps close tabs on the competition. An Amazon spokeswoman says the Seattle-based retailing giant keeps its own counsel. “We don’t focus on other companies,” she says. Microsoft may also play a role in the coming e-reader face-off. While Microsoft officials say they aren’t interested in developing their own e-reader, and won’t comment on any plans to enter that market, the company has tested software that allows text to be formatted on e-readers in traditional newspaper style.

This much seems clear: e-readers could become a big deal in the future of newspapers. How big depends on a couple of key questions. Can newspapers control their own material on e-readers, or will they lose control to the aggregators? With control, papers could trim or eliminate expensive print operations, put some sort of pay wall around their websites and drive consumers to the e-readers. There, money can be made from subscriptions, ad revenue and resale of user and shopper data. And both the Plastic Logic and FirstPaper readers seem to be designed to work in tandem with a pay wall around their newspaper partners’ websites.

“We think the potential is there for e-readers to have some of the potency of the newspapers that served so many readers for so many years,” says Jonathan Wolman, editor and publisher of the Detroit News, which is testing delivery of its paper on Plastic Logic’s device this summer and plans to be on the device when it rolls out in January.

To be sure, skeptics abound. Sarah Rotman Epps, a media analyst for Forrester Research in Cambridge, Mass., says e-readers might rescue newspapers if the papers were willing to embrace them aggressively-that is, jettison their print editions, put pay walls around their websites and pressure readers to migrate to the device. But, she says, that is not happening. “I work with newspaper clients every day and I can tell you, they’re pretty far away [from embracing e-readers]. Everyone says, ‘We need to do something,’ but I don’t see they’ve made any progress in solving their problems in the last 10 years.”

Hearst’s Millstein says the key to whether e-readers recapture newspapers’ market power rests on how successful publishers like Hearst are in attracting readers to the device. “History has proven that any medium that has emerged that has a critical mass of human eyeballs can be a viable ad medium,” he says. “Why should e-readers be any different?”