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Outsourcing News Sites May Prove Short-Sighted for Local TV Stations

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Local TV stations have a love/hate relationship with the Web, wanting desperately to have a presence online but not wanting to do heavy lifting. Have they erred by relying on outsourcing Web sites, including editorial content?

In some ways, local TV seems like a good cultural fit with the Internet, since both often favor the sensational and the bizarre. A recent perusal of KRON4.com, an independent local station in San Francisco, brought up headlines such as "Car Runs Down Marching Band, Spectators at St. Patrick's Day Parade" and "Student Charged for SUV Ecoterrorism."

But in other ways, the two mediums couldn't be more different. TV stations rely on polished anchors and on-the-scene video to tell a news story; the Net is a multimedia melange of text, audio and video with interactivity as the special sauce. So it's not surprising that many stations spent so much money trying to "get" the Web and failed, investing during the dot-com boom and giving up during the bust.

But now may be the time for a local TV renaissance online, as business models have matured at the same time that new broadband capacity allowed better online video viewing. While many stations have relied on corporate resources to help with economies of scale, others have outsourced online operations to companies such as Internet Broadcasting Systems (IBS). That may have dulled the pain of the bust, but it also could leave them out of the party of an online recovery.

Local TV still has many hurdles to overcome before it can lay claim to a large chunk of the online viewing audience. Many newspaper sites have become go-to sites in their markets, with bigger operations such as SignonSanDiego.com, NYTimes.com and Washingtonpost.com shooting their own video for news stories.

In some cases, the local TV stations have partnered with or converged with newspaper Web sites. But in others, the TV stations are left having to create text stories online from stories that were written for TV. Mark Thalhimer, senior project director for the Radio-Television News Directors Foundation, spells out the historical challenges for TV stations going online.

"A newspaper's content fits so well in a narrowband world," he told me. "You can put it in there very easily. But things that come into a TV station, all the scripts are meant to be spoken, they're not meant to be read by an audience. They're generally done in all caps. They spell names phonetically. It's a huge mess. Essentially you have to set up an entire other editorial stream in order for a station to run a Web site in parallel with its standard broadcast operations."

But now broadband penetration is growing, and comScore Networks predicts that broadband usage will outpace dial-up Net usage in large local U.S. markets. That leaves an opening for local TV stations to have an advantage in producing video of local events.

But did some stations make a mistake by outsourcing their entire online operations? Steve Safran, executive producer of New England Cable News and NECN.com, recently sparked a debate on the subject on the Lost Remote Weblog . "There isn't a news station in the country that would allow an outside vendor to do its news and much of the rest of the news in the market," he wrote. "Why should this be allowed on the Web?"

Desperation pass-off

Many media companies tried to do it themselves and failed. At the chain level, Cox Interactive went through tens of millions of dollars before deciding to outsource its sites to IBS. At the solo independent level, WRAL in Raleigh, N.C., spent years investing in its own site before making a deal with IBS.

IBS operates more than 60 sites for TV stations; in aggregate, the IBS sites ranked #5 in Nielsen//Netratings' top news sites for February 2004 with 11.8 million unique visitors. The company counters the anti-outsourcing argument by saying it is actually partially owned by station groups such as Hearst-Argyle Television, Post-Newsweek Stations, and McGraw-Hill Broadcasting Group.

"In most cases, companies are not paying us licensing fees; rather, they literally own us," said IBS Interactive Director Rex Sorgatz on the Lost Remote boards. "They aren't our clients -- they're our bosses."

Still, IBS is the one that actually employs the people who work on a station's Web site, including a content editor who might sit in on the TV station's news meeting. NECN's Safran says that makes a big difference. "If your check doesn't come from the station, by definition you're an outside vendor," he told me. "Outsourcing TV news sites was one of the most short-sighted decisions ever in our business."

Others see the move to outsourcing as a pragmatic one that kept many stations online during an economic meltdown. The RTNDF's Thalhimer told me the economics just didn't work for stand-alone sites.

"These big companies were looking at having 5 to 8 people in each market running their sites, something that's not their expertise," he said. "A lot of these companies were bleeding red ink over the Internet. They said, 'I gotta have this Internet presence. I gotta show that I'm hip and with it.' But every time they looked at the bottom line, they saw their yearly expenses would be several hundred thousand dollars and revenues would be a few thousand dollars. They would just choke on it."

John Conway was the former managing editor for WRAL's site, and is now the assistant dean for distance and executive education at the School of Journalism at the University of North Carolina in Chapel Hill. WRAL.com was launched in January 1996 and had a team of programmers who built the publishing system from the ground up. The site's "build-it-and- they-will-come" philosophy brought an influx of traffic -- but only a trickle of ad revenues, according to Conway.

The problem was how to attract national advertisers to make a small online buy. Eventually the site turned over operations to IBS, and Conway went to work for IBS as the point man for weather content across the network. WRAL.com broke traffic records in February 2004 with 37 million page views and 1.2 million unique visitors. Conway lays out the positives and negatives of going with an outsourcing network such as IBS.

"There are tradeoffs," he said. "You get to have national advertising, national content, and multimedia packages that are shared as a network. Those are the upsides. The downsides are the loss of flexibility, the time lag that can occur when you're trying to get a project done, but it's not a priority for the overall network."

Partial outsourcing

While IBS offers end-to-end solutions for TV sites, other vendors sell smaller pieces of the online puzzle. WorldNow offers a Web-based software package for a monthly fee, consulting for ad sales, as well as a national sales network. FeedRoom focuses on the video portion of TV sites, also selling national ads across its network of sites.

FeedRoom CEO Jon Klein believes TV stations should focus on video and not text. "I don't understand why stations would want to have an ordinary text Web site," he told me. "You don't get that much traffic to it. You don't monetize it that well. It does nothing to enhance your brand. Your brand is your anchors and your video. A text Web site does neither. I've been preaching this in the wilderness for years, and people are starting to finally listen, now that broadband penetration is so high."

WorldNow and IBS both have video back-end solutions for their sites, but Klein notes that FeedRoom has been much more focused on video, rich media advertising, and serves up 24 million to 30 million streams of news video per month.

WorldNow President Mark Zagorski says his service has seen soaring national ad sales (up 25 percent from the fourth quarter of '03 to first quarter of '04) and says overall revenues have gone up 200 percent year-over-year for the privately held company. Shouldn't that make TV stations think about doing the work themselves and keep those revenues?

Zagorski disagrees and says that just the opposite is happening. "A lot of [station groups] tried it on their own," he said. "They know how to write and they know how to produce content, but they don't want to be in the technology business. They don't build their own cameras and they don't build their own sets. And they don't build their own PCs. That's our expertise. We've had $50 million invested in our infrastructure and technology. It doesn't make sense for them to be in that business."

In fact, Belo Interactive, which has spent millions on its local TV and newspaper sites, is turning to WorldNow for help on an ad sales project. In the past, Belo decided to do everything in-house, including a registration system to gather data on readers. But including depreciation and amortization, Belo Interactive lost $9.1 million for 2003 after losing $14.2 million in 2002.

John Granatino, vice president of news and operations for Belo Interactive, admits the TV business didn't get off to a good start online in the '90s, but sees a lot of potential in combining the power of TV advertising with ad targeting online -- something which WorldNow will help with. Granatino says BI expects to break even in 2004, eventually getting profits that can be put back into operations.

"Having control over our own destiny is something that's very powerful and not really available to those stations that have turned over operations to outsourcing," he said.

Same look, different town

Another problem with many outsourced sites is the common design and templates. Safran especially takes issue with the IBS sites and the clutter at the top of each one's home page navigation. They generally have three -- not one -- rows of navigational tabs running across the top of their home pages. (For instance, try to spot design differences in these two IBS sites: TheOmahaChannel.com and TheKansasCityChannel.com.)

"You look at some of the IBS sites and you wonder, is this news, is this marketing, who's in charge of this thing?" Safran wondered. "There's no sense of priority in the top half. It's all over the place. These pages look like everybody got their way at the station at once. Whether it's breaking news from Baghdad or Mr. Food, it's all top line. It makes me nuts, I don't understand the logic."

IBS News Director Beth Pearlman admitted that the sites indeed have three masters: local news, local sales and promotions for programming. She said that they all want to be at the top of the page, so the home page has to highlight all of them. Stations do have a say in the design of the sites and could pay more to have custom-designed sites, but they don't want to incur the extra cost in time and money.

"We have brainstorming sessions with the creative and art directors at the group level before designing the sites, then we design to their specifications," Pearlman told me. "However, we all try to keep in mind that our sites have to accommodate standard [ad sizes]. IBS can design custom Web sites, but most companies see a benefit to having their sites on a standardized template. It reduces the time and cost of the original design and it increases the efficiency of sharing content, ads, and creative elements."

As viewership drops for local TV broadcasts, and many younger folks go online for news, it's only a matter of time before TV executives realize that their Web presence isn't just "cool" but essential to the bottom line. But then what? More original online content? Better design? Time will tell whether they can do it in-house or must continue to rely on outsourcers who know the online business better.

A Quick Look at Outsourcing Companies

Internet Broadcasting Systems
Minneapolis, MN

Founded: 1995
Runs 65 local TV sites
Audience: #5 on Nielsen//Netratings' news sites for February '04 with 11.8 million unique visitors
http://www.ibsys.com/index.html


WorldNow
New York

Founded: 1998
Helps run back end or advertising for 143 local TV sites
Audience: #19 on Nielsen//Netratings' news sites for February '04 with 4.9 million unique visitors
http://www.worldnow.com/


FeedRoom
New York

Founded: 1999
Helps run video for 40 local TV sites, as well as corporate customers
Audience: Serves between 750,000 and 1 million video streams each day to about 3 million unique visitors per month, according to CEO Jon Klein
http://www.feedroom.com

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Related Links
Belo Interactive
FeedRoom
Internet Broadcasting Systems
KRON4.com
Lost Remote: Are some TV stations giving away the Web?
MediaPost: Broadband Penetration Poised To Outpace Narrowband Internet In Major Markets
NECN.com
Pew Journalism Study
Radio-Television News Directors Foundation
TheKansasCityChannel.com
TheOmahaChannel.com
WRAL.com
WorldNow
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John Conway, former managing editor for WRAL in Raleigh, N.C.: "There are tradeoffs."

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John Granatino, VP of news and operations for Belo Interactive: "Having control over our own destiny is something that's very powerful and not really available to those stations that have turned over operations to outsourcing."

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Mark Thalhimer, senior project director for the Radio-Television News Directors Foundation: "Essentially you have to set up an entire other editorial stream in order for a station to run a Web site in parallel with its standard broadcast operations."

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Mark Zagorski, president of WorldNow: "[Station groups] know how to write and ... produce content, but they don't want to be in the technology business. That's our expertise."

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