City dot-coms still waiting to strike it rich

January 16, 2006 by

[Correction: An earlier version of this article stated that Associated Cities was formed in June 2005. In fact, it was formed in 2003. Additionally, Patrick Carleton, president of Associated Cities, informs OJR that the group now has 87 member sites with 6 million unique visitors, not 82 member sites with 5 million unique visitors, as originally reported. The story has been changed to reflect that information as well.]

A decade ago, a scattered band of savvy wheeler-dealers had the foresight to snap up thousands of dot-com Web addresses composed of the names of cities, counties and other geographic regions. They have been waiting ever since for that presumably prescient virtual land grab to make them rich.

It has been a long, sometimes seemingly hopeless wait. But last year, so-called geodomain entrepreneurs finally could point to some concrete developments that suggest their investments might pay off one day. In fact, the prospects for the future began to look bright enough that the major players in the city-site niche decided they needed a trade association of their own, and they formed one — Associated Cities — to help promote the sites among consumers and advertisers.

In the early days, it wasn’t clear whether private operators would be allowed to stay in the geodomain game. Municipal governments from Myrtle Beach to Barcelona filed suits asserting that since they owned the trademark to their name they were entitled to the corresponding URL. That argument was repeatedly rejected by the courts and finally fizzled out several years ago. But while the legal threat to city sites dissolved, a swarm of competitors — ranging from the media giants’ city guides and travel portals, like Citysearch and Expedia, to trendy, local blogs and online community forums (see OJR’s story “Grassroots Journalism”) — had arisen, making city dot-coms begin to look irrelevant.

Various types of city sites

A few city domains, most notably Cleveland.com, Miami.com and Boston.com, are owned and run by their respective city’s major daily newspaper and do workhorse duty as the paper’s website. But most geodomains are held by an assortment of entrepreneurs who may know little or nothing about the town whose namesake website they run. The value of the domains for them lies in the sites’ utility as advertising vehicles — and the prospect that they could be resold some day for a hefty markup over the purchase price.

The pioneers in the field by the early 1990s had swept up all the “pure” geodomains, such as LosAngeles.com. Latecomers paid from tens to hundreds of thousand of dollars for pure domain names, while laying first claim to endless variations of secondary names like Los-Angeles-California.com and derivatives such as MyLosAngeles.com.

Over the years, the major players have accumulated hundreds of geodomain names. A majority of the most important city dot-coms today are in just three hands.

Boulevards New Media owns 90 significant city domains, including pure URLs for 12 of the 20 largest U.S. cities, and hundreds of lesser ones. The company is headed by Dan Pulcrano, the publisher of Metro, an alternative weekly paper in San Jose, where Boulevards is also based. The company’s look-alike websites include a cluster in the San Francisco Bay Area, led by SanFrancisco.com and SanJose.com, and others scattered around the world from Dallas.com and Houston.com, to Managua.com and Belfast.com, and beyond.

A company in Hilton Head, S.C., called Information Centers, Inc., owned by Skip Hoagland, controls around 600 URLs, starting with a cluster in the Southeast including Atlanta.com, HiltonHead.com and MyrtleBeach.com. Hoagland’s geodomain empire extends from there to cities and countries around the world, from Honolulu.com to Cuba.com. Hoagland has said he was a tourist magazine publisher just trying to protect his online flanks when he purchased his first city dot-com in 1995, a step that led him into his current full-time vocation as a geodomain entrepreneur. He told an AP reporter that he remains constantly on the prowl for underutilized city and country URLs.

One of Hoagland’s recent prize purchases was Portland.com, which was gathering dust in the hands of the company that publishes a newspaper in Portland, Maine. Hoagland, who had said he’s never paid more than $200,000 for a domain name, acquired it for an undisclosed sum in 2004. Using his standard city dot-com template, he has turned it into a platform for paid listings of hotels, restaurants and other services for visitors to Portland, Ore.

The third power in geodomains is an enterprise called Castello Cities Internet Network Inc., headed by a pair of brothers, David and Michael Castello. They own more than a 1,000 city, country and other geographic URLs, including city dot-coms for such major tourist destinations as Palm Springs, Acapulco and Nashville.

There are a few independent city sites — such as Richmond.com, the one and only city dot-com owned by John Whitlock, of the Richmond-based technology consultancy Whitlock Portals — that have full time staffs of as many as half a dozen reporters, editors and programmers, aided by strings of paid freelance contributors. But most city sites, operated by aggregators that have many more websites than people on staff, are designed to run with little human intervention.

Running on autopilot

Indeed, the chief virtue of city dot-coms is that they can practically run themselves. As Hoagland exalted in an interview posted on the Associated Cities website, “We eliminate most everything that starts with the letter ‘p’ except for profit. These include paper, publishing, printing, property, paper-delivery trucks, paper machines, property tax, people and property for communication towers.” As a result, his city dot-coms are a better deal for advertisers, Hoagland asserted. “We can reach many more people instantly at much less cost” than local media competitors, he said.

Perhaps their most important competitive advantage is the fact that city dot-coms benefit from what entrepreneurs in the field call “intuitive branding.” In short, they don’t need to go through a costly song and dance to imprint their Web address in the minds of consumers interested in the city they cover. The sites also come with built-in traffic. According to Associated Cities, between 60 and 80 percent of visitors reach city dot-coms by typing the name directly into their browser. To profit from that traffic, all the operator needs to do is sell ads and feed them into appropriate slots on the city dot-com’s Web pages.

The end result at many city dot-coms is a tacky jumble of paid listings for restaurants, hotels and other local businesses, perhaps with the local temperature appearing in the corner and headlines from local papers somewhere else on the site.

But geodomain entrepreneurs insist the unimpressive looks are deceiving. “Though our front page is obnoxious with tons of local ads, we refuse to change it because it is a triple positive,” said Michael Castello, in an interview with Associated Cities, in which he and his brother boasted that their city sites are running circles around other local competitors. “Advertisers love to be there, visitors love to click on the special PalmSprings.com rates and we love the money we make from that page,” Michael Castello said.

To anyone who inclined to sniff at city dot-coms, the main players have a message. Hold the snickers. Several developments in the past year suggest that a new era for the sector may be at hand.

To begin with, the publishers of rival newspapers, the Las Vegas Sun and Las Vegas Review-Journal, fought it out in a legal dispute that was resolved last spring over control of the LasVegas.com website. The terms of the settlement weren’t disclosed. But the initial offer by the ultimately victorious Greenspun Media Group, publisher of the Sun and owner of Vegas.com, was a whopping $12 million. Perhaps no other city dot-com is as inherently lucrative as LasVegas.com, which reportedly generates $8 million in revenue a year. But besides the hefty sum on the table, the fact that two “old media” entities were fighting over a city dot-com lent much-appreciated credence to the fading notion that good geodomains are worth big money.

The events in Las Vegas sent a jolt of energy through the world of city.coms. Since then, an assortment of other independent Web publishers with city dot-com sites have joined, bringing the total number of city domains under the association’s umbrella to 87 with a reported combined monthly traffic of 6 million unique visitors delivering 50 million ad impressions a month.

Landmark analyst’s report

Another development last year that gladdened the hearts of geodomain entrepreneurs was the November release of a research report on independent city sites by an interactive marketing research firm, Borrell Associates. Many of the sites surveyed reported that ad sales doubled or tripled in 2005 from the year before. “From Atlanta to Yuma and from the suburbs of Syracuse to the tiny Gulf town of Port Aransas, Texas, small, independently run local sites have begun to pick up significant steam,” the report asserted. Fueled by “feverish growth in online advertising,” they have emerged as a “new threat” to “old media.”

The city dot-coms have abandoned the model of traditional media sites, which have expensive staffs of reporters and editors cranking out local content, the report said. The city sites “couldn’t care less about local news headlines, obituaries and Doppler weather reports. They shun the drudgery of repackaging local news and information, and instead focus almost exclusively on fun and interesting things to do around town,” the report went on to say. In the process, they are “elbowing in on territory that traditional local media properties have been trying to stake out for the past decade.”

But the authors of the Borrell Associates report were careful not to overstate the case for a resurgence of city sites. The city dot-coms continue to draw only a fraction of the visitor traffic that flows to local media sites, the report pointed out. Revenue, even if it doubled or tripled last year, still lags far behind revenue at local “old media” websites. Annual revenue at many city sites has “moved into the six-figure range,” the report stated. “For a few of the larger competitors, it’s well above $1 million.” Yet revenue at every city site surveyed “amounted to less than 1 percent of the local online advertising expenditure in their respective markets. In contrast, local TV and radio Web sites typically capture market shares of 2 percent to 4 percent, while individual newspaper Web sites get about 18 percent.”

Few of the city sites appear to have ambitious plans to claim more market share, Borrell’s analysts found. “The City.com sites have also done little to develop the latest applications and services for their users,” the Borrell report noted. Few have e-mails, RSS feeds, animation, mapping or other fancy graphics, or sophisticated ad insertion and tracking. The content can be a joke — as it was one day last fall when Borrell’s researcher dropped by WashingtonDC.com for a visit and found that the lead news story of the day was a press release about Armenian railroads. “Almost none of the sites is exploring community input from such networking technologies as forums, blogs, and wikis.”

None of those caveats has stopped geodomain entrepreneurs from trumpeting the Borrell Associates report as vindication of the viability of their business model. An Associated Cities news dispatch about the report gushed that this is “the first time the [geodomain] space has been validated by an outside source.” The gist of the report, as the association saw it, is that “consumers and rivals to these entrepreneurial ventures can no longer take an apathetic stance on the viability of these sites as valuable service providers.”

David Castello found even deeper significance in publication of the report. In a comment to Associated Cities, he pronounced, “Many in print, radio and cable will look back someday and say it was the first time they took notice of us.”

Advantages for advertisers

The Castellos, who post no contact information on any of their websites and couldn’t be reached for comment by way of emails to the webmaster, probably don’t expect aesthetes or intellectuals to be impressed with their admittedly “obnoxious”-looking city sites. But city dot-coms are unsurpassed in their ability to cost-effectively steer business to advertisers, geodomain entrepreneurs assert. “Our network presents a compelling unfair advantage for advertisers and partners,” the Associated Cities website boasts.

In their interview with Associated Cities, the Castello brothers described how ads for PalmSprings.com practically sell themselves on the strength of success stories that business people are hearing from others. “When it comes to Internet marketing, there is no competition in Palm Springs for PalmSprings.com,” said David Castello. “That’s because we’ve concentrated on generating revenue for our clients since day one,” unlike other local sites which expend a lot of costly but needless effort on what he calls “smoke and mirrors.”

Julie Varnau, online editor for The Desert Sun, the daily newspaper in Palm Springs, counts her site, which averages about 225,000 unique visitors a month, as a competitor of PalmSpring.com’s. “We are competitors for advertising dollars,” she said. “They are obviously getting ad dollars that we’d love to have on our site.”

Of course, helping visitors spend their money in town isn’t the primary goal of The Desert Sun’s website. Nonetheless, the paper isn’t about to cede that role to PalmSprings.com. To serve that big market in the desert resort city, The Desert Sun’s website added a visitors guide in 2004, Varnau noted. It has far more extensive lists of a wider array of services than PalmSprings.com has. And it has a big advantage in being able to draw from a deep pool of continually refreshed content produced by the newspaper staff. Thus, the Sun’s online visitor guide maintains a calendar spotlighting a dozen or more events a day versus a paltry list of several random events a month at PalmSprings.com. The Sun’s site also has a weekly schedule of shows at galleries, complemented by the paper’s extensive database of restaurant, movie and theater reviews.

Without a doubt, the paper’s website would be far more useful to out-of-town visitors — but only if they were able to find it. It would help if tourists happened to know the name of the city newspaper; otherwise, they would have to get there with the help of a search engine, which is where one of the biggest natural advantages of geodomains kicks in. Pages on PalmSprings.com inevitably rank higher in search engine results for local attractions because everything about the site, down to the domain name, screams “Palm Springs,” Varnau says. “We have to meter our use of Palm Springs a little more because we also cover other cities in the Coachella Valley who don’t appreciate it if we mention Palm Springs all the time.”

Maybe content matters after all

In Associated Cities’ recent interviews with all three of the top geodomain aggregators, Boulevards New Media’s Dan Pulcrano is the only one who said unique editorial content may actually matter.

As long-time publisher of alternative weekly newspapers in the San Francisco Bay Area, he told Associated Cities that he personally has a strong appreciation for local content. “Our roots are in independent journalism, so an editorial approach is important to us. We hire professional journalists to write the majority of the information,” he said.

In fact, when he and his editorial team first started launching city sites in 1994, they envisioned that the sites would be filled with many more editorial features than they ended up carrying. Pulcrano told Associated Cities that he anticipated publishing stories that “emphasized arts and entertainment and alternative culture with edge and attitude.” But it became apparent soon enough that what visitors wanted was “a well-priced hotel room rather than the coolest back-alley jazz club,” Pulcrano said. So the sites shifted their focus to tourist services several years ago. But now, the tide may be turning back. “We are slowly reintroducing locally-targeted content, but we’re writing it to be embraced by a general audience,” he said.

For now, the only source of local news on Boulevards’ sites is headlines delivered by Topix.net, which aren’t always on target. But, in October, the company took what could turn out to be a first step toward adding ambitious new features to the company’s city sites. Boulevards New Media paid an undisclosed sum to acquire SFStation.com, a popular guide to entertainment, food and culture in San Francisco. The site, which draws about half a million unique visitors a month, will continue to be run by the existing team as a wholly-owned subsidiary of Boulevards.

Kyu Kyung, one of SFStation’s founders, who will stay on as president, said Boulevards was the most compatible of a number of suitors who have expressed an interest in SFStation.com over the past year. Kyung said he was drawn to Boulevards by the “similar company cultures and their willingness to support our vision.”

In fact, the company cultures are quite different in at least key one respect: staffing. At Boulevards, a staff of about 16 people manages thousands of domain names and runs more than 100 active city dot-coms around the world. At SFStation.com, five full-time employees and more than 50 regular, paid freelance contributors produce the single website.

Pulcrano did not respond to requests for comment about his plans for the future of the Boulevards city sites. But in an interview with OJR, Kyung suggested that at least some of the city dot-coms will be experimenting with one of the most notable features of SFStation.com. “Dan Pulcrano acquired us not only for our reach in San Francisco but for our proprietary technology,” he explained. That technology allows registered users to post their own listings in business directories and event calendars on the Web site and to modify them in real time. The SFStation.com team is going to help relaunch some of the Boulevards sites with similar features, Kyung said.

Imagine that. A city dot-com with a human touch.

Filed Under: Business

Despite premature obits, e-mail still integral to Web publishing

March 17, 2005 by

By many accounts, e-mail died and was buried a year or two ago. Cause of death: suffocation by spam.

Overseas, there have been “dire predictions about the future of e-mail” from England to Korea, where e-mail is “being shaken from its roots” by a younger generation that has moved on to instant messaging, text messaging and other, hipper means of telecommunicating. In the United States, e-mail was “about to vanish” in 2002 and “in the coffin” by 2003. By 2004, when a PC Magazine column entitled “The Death of E-mail” asked whether it had become “useless,” most of the 100-plus readers who responded offered a resounding yes.

The news about e-mail’s demise has spread everywhere, it seems, except into online newsrooms, where e-mail newsletters remain an important – and growing – part of the overall electronic publishing mix.

Consider, for instance, the New York Times. There are now 8 million subscribers to the various digital newsletters disseminated through e-mail by the Times, compared with 1.1 million weekday subscribers to the print paper. Customized selections of daily headlines are e-mailed to 3.1 million people a day.

Additionally, the e-mail products generate a “significant” share of New York Times’ digital properties revenue, which topped $53 million in the first half of 2004, before the company reorganized its financial reporting and began aggregating some online and print results. Jason Krebs, vice president for sales and marketing at NYTimes.com declared, “By no stretch is e-mail going away.” For a newspaper’s online publishing operation, e-mail newsletters “have great features and functionality, if you use them wisely.”

“E-mail is still the ‘killer ap’ for the Internet,” as far as Michael Odza, the Web publisher of Santa Fe’s New Mexican, is concerned. The New Mexican, which has a circulation of 25,000, has 48,000 registered users for its Web site, and 11,000 of them have opted to receive an e-mailed version of the daily front page.

That’s not a number that could reel in many ad dollars. “Local advertisers in our market have been reluctant to experiment” with e-mail ads anyway, said Odza in an e-mail interview. But the daily e-mail has helped draw traffic to the paper’s lively Web site, where the number of comments posted by readers has jumped from 50 to 200 a day in the last year.

Salon.com has just one all-purpose daily e-mail newsletter, compared with 10 at Slate.com, another Web-only publication. And CNET Networks’ sites boast a portfolio of 135 active newsletters, including CNET.com, ZDNet, and Tech Republic.

But Max Garrone, vice president of Salon.com’s operations, regards the newsletter as “one of the main avenues for our readership to see what Salon is publishing.” The editors are now looking into launching other newsletters for specific subsets of its audience, such as readers of the politics blog War Room or fans of particular columnists.

“We continue to receive a steady stream of newsletter sign-ups so we’re not seeing the spam deterrent effect yet,” said Garrone, commenting by e-mail. “It drives a good amount of traffic to our site, but it’s also a nice branding device for Salon because our newsletter subscribers get a reminder that we’re out here and of what we’re doing daily.”

Spam’s toll

Though e-mail newsletters have continued to do well for many publishers long after e-mail was left for dead by the techno-cognoscenti, the ever increasing flow of spam that continues to flood in-boxes, despite all efforts to date to turn off the tap, has clearly taken a toll.

“Several years ago people might have thought e-mail would become huge” for Web publishers, said Michael Zimbalist, president of the Online Publishers Association. “You know what, it hasn’t become huge. A contributing factor in that has been the overflow of spam, which has cooled users’ interest in getting a lot of e-mail and has created a certain amount of resistance on the part of publishers and advertisers to go wild with it.”

According to Borrell Associates Inc., an interactive media consulting firm, plenty of money was spent – about $1.7 billion — on e-mail marketing last year. But 90 percent of that was spam, “blasted out to people who don’t want it,” said president and CEO Gordon Borrell. In other words, the sort of e-mail marketing that is muddying the field for legitimate publishers.

Yet despite the glut of spam, legitimate publishers’ e-mail newsletters are still finding their way to lots of readers who want them. “Newspapers’ e-mail messages are considered the gems among the muck of all the unsolicited inbox clutter that everyone’s receiving, because people are opting in, they’re requesting messages,” explained Rob Runett, director of electronic media communications for the Newspaper Association of America. “E-mail messages sent by the newspaper’s online operation have become tremendous advertising and marketing tools.”

Borrell agrees, to a point. “I think newspapers do indeed operate from an advantage in being a consumer advocate in some way, an unbiased source of information,” he said. “But we have found that the successful e-mails are those than contain damned compelling information. You want to provide the kind of information that when the user does not receive it he’s going to complain. Overall, I think newspapers are doing okay in that area. They’re not doing great. They’re still exploring.

“Their big competitor is advertisers,” Borrell added. “I wouldn’t discount the strength of an advertiser’s e-mail going directly to their customers. They get your e-mail address when you buy something from them.” Their follow-up marketing messages offer “something that’s going to help you save money based on a previous habit that you’ve had, whether it’s going into a store, buying a ticket, something like that. That’s pretty compelling information. I welcome US Air e-mails even though I know it’s biased. But I don’t think I’m going to complain if it doesn’t get to me. People will complain if they don’t get their Lhasa Apso newsletter.”

RSS alternative

Web publishers can produce newsletters targeted to subsets of their audiences, and many do, perhaps none more prolifically than CNET Networks, which has 9 million opt-in subscribers for its 135 newsletters.

“In terms of spam, we do not think that this deters people from signing up to receive content that they want and value from a source they trust, and this includes our e-mail newsletters,” observed Sarah Cain, a spokeswoman for the network. “Our subscription rates have remained stable, and we employ some of the strictest list management policies in the industry to ensure that our e-mail lists are clean and that we are only sending our newsletters to the readers who want to receive them.”

The niche e-mails are good advertising platforms because “they enable marketers to connect directly with engaged readers,” Cain added. “And our subscribers spend a good portion of their days in their e-mail inbox, making e-mail a required element of any effective marketing program, and our newsletters a great option.”

To be sure, e-mail is no longer the only way to target a narrow audience online, noted Andrew Nachison, director of the Media Center, a think tank in Virginia.

“There are now other opportunities to deliver targeted advertising, so from an advertiser’s standpoint, that’s no longer as important a differentiator for e-mail distribution,” he said. “Publishers that collected registration and user data can also target advertising to visitors to their web site. They may come from a variety of channels, including links from e-mails but also RSS feeds, so the targeting can really be done as effectively online as can a push product.”

By many accounts, RSS should be one of the biggest beneficiaries of the spam fatigue that has turned off many readers to e-mailed news updates. But RSS is only slowly gaining adherents, by the account of some Web publishers. CNET is still in the process of rolling out RSS feeds, but they won’t supplant the e-mail versions.

“Our e-mail newsletters will continue to be an important service. But we also plan to make our newsletter content available via RSS feeds in the coming weeks,” Cain said in comments e-mailed in mid March. “By offering both options, we are giving our readers a choice in how they want to receive our content.”

Salon currently offers two RSS feeds compared with its one newsletter. Garrone can certainly see the advantages of RSS feeds, which “have the potential to supplant newsletters because they don’t get lost among all the spam that crowds our in-boxes, are relatively easy to set up, are truly on-demand information sources and give the end user a really nice index of all the information sources that interest them.” But Salon’s readers are still showing decided preference for the e-mail newsletter, so far.

“We think e-mail newsletters will remain important because e-mail is an almost ubiquitous application,” said Garrone. “Everyone in our audience already has at least one account and is familiar with the format so we don’t have to introduce a technology.” That isn’t the case with RSS, which probably accounts for its slow adoption. “We fully expect some of our readers to use our RSS feeds more aggressively in the future, but the adoption rate has been rather anemic so far,” said Garrone.

At the New York Times, Krebs said it’s “too soon to tell whether RSS is going to replace anything,” because so far it hasn’t reached much deeper than the “fringe” of early adopters. RSS is already generating impressive numbers of click-throughs to the heavily-trafficked New York Times Web site. In January, NYTimes.com set an all-time record for pageviews when 16.4 million unique visitors opened 553 million pages. The Web site’s RSS feeds, available since February 2002, generated a record 4.5 million, or 0.8 percent, of those pageviews. The various e-mail products generate over 30 million pageviews per month.

Online news consumers in Seattle appear to be migrating to RSS more rapidly. Lee Rozen, general manager of the Seattle Post-Intelligencer’s Web publishing operations, said the paper’s e-mail newsletters “are being outpaced both by RSS downloads and RSS click-throughs.” In February, for instance, click-throughs to the Web site from e-mail newsletters constituted 0.3% of site pageviews, while click-throughs from RSS feeds constituted 1 percent of all pageviews. But Rozen said that perhaps the paper’s e-mail newsletters could do better. “Poor marketing of the newsletters on our part is the main deterrent to sign-ups based on what we know about the level of sign-ups at related sites,” she said, “We continue to get new e-mail newsletter registrations.”

E-mails as ad platforms

By the account of the small random sample of Web publishers who responded to questions for this story, e-mail newsletters are highly effective in bringing traffic to Web sites but have achieved more modest results as advertising platforms.

“Our e-mail newsletter provides a very nice complement to advertising campaigns on our site. Generally newsletter ads have good click-through rates and reinforce an advertiser’s reach across our audience and site,” reported Salon.com’s Garrone.

The NYTimes.com’s newsletter products “are good, not great” as advertising vehicles, Kreb conceded. “When there’s the right need, a certain deadline for a marketing campaign, a need for a call-to-action with a large-scale reach effort in a short period of time, they’re very effective. And in certain small niches, they can be very effective for longer campaigns.”

But the most lucrative e-mail products are exclusively advertiser driven, with no editorial content, sent to those who opt-in to receive special offers. The newspaper’s Web site offers three — Sophisticated Shopper, Great Getaways and Ticket Watch — with well over 300,000 subscribers each, said Krebs. “They move product and put people in theater seats, and that’s very easily measurable from an online to an offline transaction.”

Chris Jennewein, director of Internet operations for the Union Tribune Publishing Co. in San Diego, has seen similar results. “E-mail is a good business. It’s not more than 5 percent of our total business at this point. But it’s certainly a good business.” News-oriented e-mail newsletters “have been pretty good advertising vehicles, but what are better are advertising-only messages, for example, where a restaurant has an entire e-mail to itself.”

Brigid Kenney, general manager of Tribune Interactive, reported by e-mail that advertiser interest in the array of e-mail newsletters produced by the company’s stable of papers is “still lagging as it takes scale to interest advertisers. But we expect this to improve as we continue to sign up more users.”

Tribune Interactive, like some of the other online publishers, has found that direct advertisements by e-mail have turned into “quite a lucrative business.” Those programs are operating in full compliance with spam regulations, with transparent opt-in and opt-out procedures. “We find that this vehicle still works well for advertisers, with acceptable open, click-through and acquisition rates,” said Kenney.

Borrell warned that newspapers, which can get e-mails through the clutter of spam in part because they are trusted as consumer advocates, run the risk of sending mixed messages if the e-mail too many purely commercial offers. “It kind of confuses consumers,” he said.

But Runett, of the Newspaper Association of America, insisted that prudent use of ad mail will prevent any consumer backlash. “The key thing that newspapers need to do is make sure they have extremely well-written subject lines and messages of high value. And the ad messages should be content focused and targeted to the particular audience.” If the offers are well-considered, “I would definitely recommend that the newspaper name should be part of subject line,” Runett said.

Filed Under: Uncategorized Tagged With:

Questionable Future Looms for Common Carriage Regulations

December 2, 2004 by

Over the next year, Federal Communications Commission Chairman Michael Powell will have an opportunity to complete a mission he launched several years ago to free broadband Internet services from the burden of being regulated as common carriers.

Cable and telephone companies, free market advocates and others who are cheering Powell on believe the old English common-law concept of common carriage has outlived its usefulness in the modern world of high-speed Internet services. The deregulators might admit that common carrier regulations, which obligate owners of facilities serving the general public to provide nondiscriminatory access to any customer willing to pay the standard tariff, may have been necessary in the “one-wire world” of decades past, when the telephone lines were the only conduit for telecommunications. But in the fiercely competitive broadband market, in which telephone services are competing with cable and wireless systems to offer high-speed Internet access, Powell and his allies insist market forces will keep any monopolistic tendencies in check. For those who share this view, the liberation of broadband Internet services from common carrier regulations can come none too soon.

An array of opposing interest groups, however, isn’t going to let common carriage principles get chased out of the broadband arena without a fight. Foes of the FCC’s push to deregulate broadband, including Internet service providers, consumer and civil liberties groups and state and local governments, fear that the freedom Powell is offering means freedom for powerful telecommunications companies to exert monopoly power over the Internet. Powell’s critics insist that once the handful of broadband giants are relieved of an obligation not to discriminate, it will only be a matter of time before they start exerting control over content, if that’s what they decide they need to do to advance their economic interests.

These starkly opposing views of broadband classification are currently facing off in two big showdowns that will play out over the coming year. The first concerns the pivotal 2002 ruling by the FCC declaring that cable modem services aren’t common carriers. That declaratory ruling was shot down by a federal appeals court last year in the Brand X case, which is now before the U.S. Supreme Court.

The second showdown is looming over a petition filed in October by BellSouth Corp. The phone company contends that its DSL service is entitled to a level regulatory playing field with cable modem services, so telephone-based broadband service shouldn’t be regulated as a common carrier either.

As groups opposed to deregulation see it, the stakes couldn’t be higher in the two big cases now under review. Mark Cooper, research director for Consumer Federation of America, asserts that if BellSouth successfully deregulates broadband Internet services, “For the first time in the history of this country the dominant means of communication, and some people think commerce, will be entirely in the hands of private carriers with no public obligation whatsoever.”

With the Brand X case now before the Supreme Court and BellSouth’s petition under review at the FCC, Cooper adds, “The entire issue is now teed up. No more playing around. We will have a big debate about fundamental values, an expression I like to use these days. Is open, nondiscriminatory access to the means of communication a social value that we hold dearly?” That is the “central issue” in the debate over the classification of broadband Internet services, Cooper says.

The case for competition

Proponents of deregulation contend that competition is the best way to assure that the means of communication are open to all. And the regulations on Internet services that are hold-overs from an irrelevant past are nothing but costly obstacles that hinder competition, they say.

As BellSouth asserted in its “forbearance petition” asking the FCC to hold off on imposing common carrier regulations on DSL service, “Application of these outdated rules in the current environment effectively insulates cable companies from the most robust facilities-based broadband competition possible. True facilities-based competition will provide the greatest competitive benefits to broadband customers, and those customers lose when regulatory burdens are skewed in a way that protects the market leaders and handicaps investment and innovation by those seeking to compete.”

BellSouth emphasizes that its customers include hundreds of independent Internet service providers who use the phone network to serve their own customers. Wholesale transactions with major ISPs, including EarthLink, are “an incredibly important part of our business,” a company spokesman said. Far from abandoning those customers once common carrier regulations are lifted, BellSouth, relieved of the costs and bureaucratic impediments imposed by the regulations, will be able to offer better service, as the competition is already doing. “While BellSouth is currently required to provide wholesale broadband to competitors under FCC rules, cable companies are free to negotiate private agreements with the same ISP competitors,” the spokesman explained. “Again, BellSouth is simply asking for a level regulatory playing field.”

The phone company’s position echoes the views expressed by Powell in a statement explaining the FCC’s petition in the Brand X case. “This is about ensuring that high-speed Internet connections aren’t treated like what they’re not: telephones,” he wrote. “A successful appeal of this case would ultimately mean lower prices and better service for American consumers. Applying taxes, regulations and concepts from a century ago to today’s cutting-edge services will only stifle innovation and competition.”

Randolph May, senior fellow with the Progress & Freedom Foundation, a market-oriented think tank backed by the cable, telephone and computer companies, adds that competition is already, or at least potentially, vigorous enough to overcome any abuses. “The operators of the broadband services won’t discriminate against people who want access because they have to satisfy consumers or the consumers will go to an alternative,” said May. “Not every place in the United States has an alternative, but we’re moving in that direction rapidly. Competition and potential competition act as a restraint against harmful practices.”

That seems to have been the case in the several years since cable Internet services have been operating free of any common carrier obligations, May added. “I don’t think anyone has been able to cite any real complaints or any instances where there has been denial of access,” he noted. “Even proponents of regulation concede that there haven’t been instances of ‘bad conduct.’ There’s just a fear that there might be.”

Regulation still needed

In a brief filed with the Supreme Court in the Brand X case, a coalition of municipal governments indicated in blunt language that they aren’t going to be fooled by the argument. “That cable operators have, so far at least, voluntarily chosen not to exploit that control more fully by blocking some Internet content — or, more accurately, that operators have made the editorial decision that, at this time, it is in their marketplace (or strategic regulatory) interest to provide unfiltered Internet access content — does not, and cannot, alter the fact they possess such control,” said the brief filed on behalf of the National League of Cities, the U.S. Conference of Mayors and the National Association of Counties.

Cooper agrees. “The simple fact of the matter is that under the cable modem approach there are no obligations to let anybody write or publish anything.” Cooper notes that Powell has proposed “his famous four freedoms,” a set of guiding principles that he has challenged the broadband network industry to voluntarily follow, one of which is the right of consumers to have access to their choice of legal content. “That’s well and good, but if you don’t have muscle behind freedom, it’s useless,” says Cooper. Owners of broadband networks won’t mess with most content. Cooper adds. “If it doesn’t matter to them they may not bother you. But the minute it threatens their economic interest or their control of the network, there is nothing to prevent them from exercising their market power to stifle things that they don’t like, other than the wrath of Michael Powell which doesn’t scare too many people.”

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