Tim e Inc. Ne w Medi a str a t e g y up d a t e Walt e r Isa a c s o n Dec e m b e r 1, 19 9 4 Overvi e w Our prim ary stra t e g y will be to crea t e a line of produc t s , bas e d on our cont e n t , for electro nic delivery to cons u m e r s . Thes e will rang e from narrow b a n d to broa d b a n d services , and we will att e m p t to shar e resourc e s and cre a t e syner gi e s amo n g the offering s. In order of incre a sin g ban dwidt h, thes e produc t s includ e: 1. Com m e r ci al online titles : Deals betw e e n our mag a zin e s and com m e r ci al service s such as America Online and CompuS e r v e . 2. Pathfind e r : A packa g e of titles and service s offere d throu g h the ope n archit e c t u r e of the Intern e t and throu g h privat e networks that suppor t Intern e t protocols. 3. Cable- mod e m front end : An interfac e , cont e n t packa g e and set of navig a tion al tools, cre a t e d in partn e r s hi p with TW Cable, code n a m e d Excalibur or RoadRu n n e r , that will link com p u t e r s to 1 online service s and the Intern e t using a cable rath e r than telep h o n e conn e c tion. 4. Inter ac tiv e television . News on de m a n d , sports on de m a n d , and adv er tising for the Full Service Network. Com m e r c i a l onlin e s er vi c e s . Deals betw e e n our titles and the com m e r ci al online services , such as AOL and Comp uS e r v e , offer som e clear ben efits: guar a n t e e d reve n u e s , without risk or significan t inves t m e n t , that mod e s tly exce e d the cost of the staff time and adv er tising pag e s that we provid e; the opport u nity to cre a t e digitized cont e n t and service s that can hav e value in oth er venu e s ; the chanc e for our editors to practice and learn what is valua bl e in an inter a c tiv e environ m e n t ; prom o tion al and public relation s payoffs. On aver a g e , abou t 65% of the reve n u e that our titles get is attribu t a bl e to the subscrib er s they are able to acquir e for the online service; the other 35% repr e s e n t s the value of the use of their cont e n t . The existing online service s, and som e futur e ones such as The Microsoft Network, are bas e d on clos e d archite c t u r e s and propriet a r y softw ar e . In oth er words, som e o n e conn e c t e d to AOL mus t use AOL's softw ar e and can only get cont e n t that is packa g e d by AOL. The Intern e t , on the other hand, is an open archit e c t u r e . Even thoug h people may acce s s it or conn e c t their cont e n t to it using privat e netw orks, the stan d a r diz e d protocols me a n s that any us er can get to any cont e n t or service. Most online service s (including AOL and Microsoft), and mos t major pipeline com p a ni e s (such as AT&T and MCI), say that they will offer cons u m e r s acce s s both to the open archit ec t u r e of the Intern e t as well as to their privat e networks. It is in Time Inc.'s inter e s t to enco ur a g e the Intern e t mod el rath e r than the close d- netw ork mod el, so that the com m e r ci al services 2 do not continu e to be gat ek e e p e r s , pack a g e r s and inter m e d i a ri e s that stan d betw e e n us and our users. Cons e q u e n tly, Time Inc.'s stra t e g y tow ar d de als with com m e r ci al online service s is to: ... split our titles amo n g the differe n t com m e r ci al service s so that a linked pack a g e of our cont e n t will be available only throu g h our own service on the Intern e t . ... resist making de als for long er than a year. ... limit the degr e e of exclusivity offere d. ... res erv e explicitly our right to use our cont e n t and bran d s on an Intern e t- bas e d service of our own. ... avoid aiding Microsoft's strat e g y of cre a tin g a new close d netw ork. Pat h fi n d e r Pathfind e r launch e d in Octob er on the Intern e t ' s World Wide Web. Usag e has grown approxi m a t e ly 20% each week. During the first week of Dece m b e r ther e were 600,0 0 0 "hits" (us es of a piec e of cont e n t) from arou n d the world. The stra t e g y for Pathfind e r is to: 1. Creat e a pack a g e of service s on the Intern e t with enou g h bre a d t h and dept h to supp ort subs cription and adv er tising reve n u e . 2. Make bundling or mark e tin g deals to deliver Pathfind e r or parts of Pathfind e r throu g h oth er netw orks and distribution syst e m s . 3. Use Pathfind e r as a dev elop m e n t are a for building four or five in- dept h services , such as techn olo gy, sports , financ e, health and ent er t ai n m e n t . When ripe, the s e services can be mark e t e d as 3 pre miu m service s within Pathfind e r, spun off as sep ar a t e service s , and/or offere d throu g h oth er online netw orks. 4. Use som e of Pathfind e r ' s cont e n t as part of the basic front- end of the Time Warn er/Tim e Inc. cable- mod e m service, and bundl e all of Pathfind e r as a pre miu m service acce s sible throu g h this cable conn e c tion. 5. Use Pathfind e r as a way to enco ur a g e each of our titles to cre a t e their own stron g websit e s featurin g their own bran d s , which can thrive indep e n d e n tl y of Pathfind e r but hav e com m o n navig a tio n tools, serv er s , and design ele m e n t s so that our cont e n t is easily linked. Sch e d u l e By the end of January, Pathfind e r users will be aske d to give inform a tio n abou t the m s e lv e s to get a pas s w or d. Our dat a b a s e will track how peopl e use the service and gat h e r de m o g r a p hic inform a tio n (withou t violating pers o n al privacy) that will be useful to adv er tis e r s . By Febru a r y, we will begin bringing abo ar d up to 16 adv er tis e r s . We will also hav e the ability to fulfill credit- card trans a c tio n s , and we will featur e catalo g u e and shop pin g services . During the spring, we plan to mak e mark e tin g deals with MCI, IBM and/or AT&T to provide eas y and spe e d y acce s s for Pathfind e r' s subscrib er s and to bundle Pathfind e r with their own online netw orks. By early sum m e r , the cont e n t are a s and individu al websit e s und er the Pathfind e r umbr ella should includ e: Time, Vibe, review s, the Virtual Gard e n , Entert ain m e n t Weekly, Sports Illustra t e d , politics, People, Fortun e, Money, Health, Paren tin g, Technology and Media, trav el, Catalog u e One, and shoppin g. Som e are a s will be cre a t e d and bran d e d by individu al ma g a zin e, oth er s will be new titles or unbr a n d e d are a s . Thes e service s will includ e real- time sports and stock- mark e t dat a feeds , acce s s to import a n t dat a b a n k s , and the ability for users to pers o n alize the service to their own specific 4 inter e s t s . About 40% of the cont e n t will be repur p o s e d from our print publication s and archive s , 20% crea t e d specifically for Pathfind e r, 20% gat h e r e d from public dom ai n resourc e s on the Intern e t , and 20% acquir e d from outsid e sourc e s throu g h licensing or part n e rin g deals. Curre n t plans are to begin testin g a $5 per mon t h subscription fee in July with pre miu m charg e s for som e services . Edit ori al cen t r ali z a t i o n and de c e n t r a li z a t i o n The proce s s we hav e dev elop e d and the budg e t we hav e propo s e d provid e for a centr alize d coordin a tion of Pathfind e r cont e n t while leaving a large me a s u r e of cre a tivity and control (and pot e n ti al profits) with the individu al titles and divisions. The mag a zin e s will overs e e the cre a tion of their own hom e pag e s and det er mi n e ways to feat ur e their cont e n t and inven t new service s. They will be assist e d by a sm all group of tech nic al exp e r t s , associa t e online editors, an online art director and a man a gi n g editor of Pathfind e r. Pathfind e r ' s centr al staff will: crea t e the hom e pag e and navig a tion al scre e n s for the service as a whole; dev elop the com m o n softw ar e for searc hin g, navig a tin g, coding, indexing, handling trans a c tio n s , etc.; cre a t e navig a tion al scre e n s and service s for subject are a s that spa n differe n t titles, such as the "Review s" are a; crea t e links betw e e n relat e d cont e n t in differe n t are a s ; overs e e the acquisition of outsid e cont e n t ; dev elo p the softw ar e for and coordin a t e the man a g e m e n t of bulletin boar d s ; est a blis h a set of com m o n design and navig a tio n al guidelin e s . In som e cas e s , mor e than one title or division may be inter e s t e d in dev elo pin g the sa m e subject are a. We will coordin a t e thes e plans centr ally. On the topic of health, for exa m pl e, Health Magazin e is taking the lead, and it will cre a t e an are a that feat ur e s cont e n t of its 5 own, mat e ri al from outsid e sourc e s , and links to cont e n t put up by Warner Books and Time. In our propo s e d budg e t , ther e is mon e y to subsidize the dev elo p m e n t of cert ain import a n t are a s . This will help us centr alize control over our pac e and priorities. In the s e cas e s , the relev a n t mag a zin e or division will work with our grou p to com e up with an estim a t e of costs for dev elo ping and acquiring cont e n t that fulfills our stra t e g y . We will also jointly ass e s s the pot e n ti al reve n u e sourc e s . Then, mon e y from the Pathfind e r budg e t will be used to defray the margin al new costs the mag a zin e will incur. Any reve n u e s will go first towar d paying back thes e centr al outlays . Alloc a t i n g Rev e n u e s It is pointle s s to fight over how to divvy up the proce e d s befor e we've finish e d robbing the stag e c o a c h . Our basic strat e g y is that any profits from Pathfind e r service s or from pre miu m prod uc t s that are dev elo p e d in this proc e s s should accru e back to the individu al titles and divisions. The allocation of Pathfind e r subscription fees will be bas e d on the usag e rat e for the cont e n t that was cre a t e d by eac h title or division. Among oth er things, this will give each title an incen tiv e to cre a t e mor e cont e n t and service s (and an incentiv e to shy aw ay from exp e n siv e end e a v o r s that are not value d by users and adv er tis e r s ). The mag a zin e s will be able to view electro nic publishing as a pote n ti al growt h are a for their franchis e while having an incentiv e to work within the fram e w o rk of the Pathfind e r stra t e g y . The adv er tising strat e g y is still being dev elop e d . Most pag e s within Pathfind e r will offer adv er tising availabilities and links that will take users to spons or e d inform a tio n and catalo g u e s . A price will be set for eac h of the s e avails and links. Thes e will be sold by a centr alize d new media adv er tising pers o n in coordin a tio n with the specific titles. 6 The ques tio n of reve n u e allocation and the use of thes e avails as part of value- add e d packa g e s has not yet be e n det e r mi n e d . Pre m i u m s er vi c e s It is uncle a r to what ext e n t cons u m e r s will value bre a d t h in an Intern e t service (i.e., a broa d array of subject s und er one conve ni e n t roof) and to what ext e n t they will value dept h in the particular special inter e s t that is their pas sion. It is import a n t to tes t this ques tio n and begin cre a tin g a few high- end pre miu m services . Our dat a b a s e is design e d to track the beh a vior of each user. We will know in six mont h s what perc e n t a g e tend s to explore a broa d array of our subjec t s and what perc e n t a g e tend s to stick to one or two inter e s t are a s and plum b the m de e ply. As part of this proc e s s , we are planning to crea t e up to five service s are a s within Pathfind e r that will feat ur e dee p e r , mor e valua bl e cont e n t and application s . If any of thes e de m o n s t r a t e a high cons u m e r de m a n d within the Pathfind e r test b e d , we may migra t e the m into sta n d- alon e service s. The five are a s we are exploring in dept h are: 1. Sports . We alre a d y hav e real- time sports score s and statis tics in a searc h a bl e and pers o n aliza bl e dat a b a s e throu g h the relations hip betw e e n Sports Ticker and The News Excha n g e , and for a tes t period we can use it on our Intern e t service. Sports Illustra t e d is crea tin g a plan that would includ e fant a s y leagu e ga m e s , fan clubs, discus sio n group s , and a daily sports analysis. We are consid e rin g a plan sugg e s t e d by Don Elliman of pack a gin g daily sports stories from major news p a p e r s arou n d the country. Our softw ar e dev elop e r , Open Markets , is working on ways to allow users to crea t e their own tailore d score b o a r d s and report s bas e d on their favorite tea m s . There is a window of opport u nity for online sports, since no one is doing it well now. Spry Inc., the mak e r s of a leading Intern e t- acce s s prod uc t, hav e 7 propo s e d a joint mark e tin g arra n g e m e n t if we can dev elo p a sports cont e n t are a . 2. Busines s and Financ e . Throug h the efforts of Fortun e and Money, we hope to build an are a bas e d on our cont e n t , archive s , lists and dat a b a s e s . It would also includ e: stock searc h e s and pers o n al portfolio tracking throu g h the deal betw e e n PC Quote and The News Excha n g e ; a custo miz e d dat a b a s e of SEC filings and other financial disclos ur e docu m e n t s ; acce s s to Refer e n c e Press ' s Hoover s Handb o o k of major corpor a tion s ; acce s s to the dat a b a s e of Market Guide, a comp a n y in which Time Inc. has a small inves t m e n t ; application softw ar e for tax e s and inves ting eith e r licens e d or built with a softw ar e part n e r; a daily mon e y and busin e s s watch report building on what Money is alre a d y producin g for Pathfind e r and what Fortun e produc e s for New York One and The News Excha n g e . 3. Health . Eric Schrier and Larry Kirschb a u m are coordin a tin g work on a dat a b a s e and refer e n c e service on he alth. This will includ e mat e ri al from 50 dise a s e found a tio n s , such as the Muscular Dystrop h y Association, along with bulletin board s for their supp ort group s . Thes e found a tio n s would help mark e t the service. 4. Entert ain m e n t and Reviews . This is a surprisingly popular topic on the Intern e t . Without acquiring outsid e cont e n t , we can packa g e mor e review s than any other comp a n y . We alre a d y hav e this dom ain working, using review s and audio clips from Time, EW, Vibe and People. It also has an active bulletin boar d are a wher e users post their own review s. We will soon add charts and statistics. Spons or e d links will be sold to movie studios and record comp a ni e s . 5. Technology and Media . This are a would includ e our own cont e n t and also mat e ri al offere d in allianc e with IDG or CMP publication s . We are also discus sin g with Denis e Carus o and Stew a r t Alsop ways to build this are a into a full service. Building the Technology and Media websit e could be the found a tio n for a family of new prod uc t s , confer e n c e s and publication s 8 that cover this field. We are exploring the possibility of a newsle t t e r, a pre miu m online service, a mag a zin e and a confer e n c e - hosting busin e s s . Mark e t i n g Stra t e g y Our busin e s s plan estim a t e s a cost of $35 per subs crib e r acquisition. Curre n tly we are making deals with major Intern e t- acce s s comp a ni e s , including Spygla s s and MCI, to feat ur e our service as part of their pack a g e and to take just $2.50 bount y for each paying custo m e r they acquir e for us. We also plan to work out a deal with a com m e r ci al netw ork to provid e eas y and spe e d y acce s s to our service, including local acce s s nu m b e r and dedic a t e d lines. This will allow us to sen d out disks to pot e n ti al subs crib e r s . The service will be mark e t e d initially as the Pathfind e r packa g e . But we will soon test mark e t it throu g h our ma g a zin e s in a more targ e t e d fashion. For exa m pl e , it can be sold by Sports Illustr a t e d as an online sports service, which happ e n s to includ e an array of oth er service s. Custo m e r s who sign up throu g h this prom o tion would hav e the sports hom e pag e as their initial scre e n . Daily Ne w s Su m m a r y In purs uing multim e di a, Time Inc. lacks cont e n t in two are a s : video and daily produc t s . We are addr e s sin g the video issu e by our acquisition of the MNN studio; cre a tin g cont e n t for New York One; Joe Quinlan' s oper a tio n s ; allianc e s with CNN, NBC and ABC for The News Excha n g e ; and the growing ability to buy video foota g e as a com m o dity produc t. 9 In the online and on- de m a n d world, fresh and timely cont e n t is critical. Users mus t be draw n in on a daily basis. A few mont h s ago, we launch e d the Time Daily news analysis, cre a t e d by thre e young staffers, and soon add e d a Money Watch comp o n e n t , writte n by a staffer at that ma g a zin e . Our stra t e g y is to exp a n d thes e daily sum m a ri e s , as propos e d in our budg e t , to includ e other fields, such as sports, review s, and tech n olog y. This news sum m a r y will hav e man y outlets : it is part of Time' s offerings on AOL; it is on Pathfind e r and includ e s links that draw users into our other cont e n t ; it will be oart of the front- end for our propo s e d cable- mod e m project; it will be printe d out for users of the FSN; it will serv e as a basis for the news sum m a r y script rea d by the anchor on The News Excha n g e ; it can be deliver e d in the future by other met h o d s such as e- mail, fax and to pers o n al com m u nic a t o r s . By testin g the cost and value of this produc t, we can det er mi n e whet h e r we should continu e to cre a t e a sum m a r y ours elv e s or licens e news feed s from an outsid e sourc e. At pres e n t , indication s are that it would be che a p e r and pot e n ti ally mor e profitable to cre a t e a new produc t of our own that provid e s the type of sum m a r y , an alysis, prioritizing and sorting that is not readily available or afford a bl e from eith er the wire services or news retriev al sourc e s . The Cabl e Mod e m Proj e c t Time Inc. and Time Warn er Cable are working tog e t h e r on a project, called "Excalibur ," which may be bran d e d "RoadRu n n e r ," to cre a t e a front- end for cons u m e r s to conn e c t their com p u t e r s to online service s and the Intern e t using their cable rath e r than phon e lines. This offers at leas t 50 time s the spe e d and the opport u nity to rem ai n online aroun d the clock. 10 Many comp a ni e s hav e anno u n c e d bet a version s of "cable mod e m s . " The Excalibur project will us e a hardw a r e solution dev elo p e d by Hewlett- Packard. Our stra t e g y is to cre a t e an Excalibur/Ro a dRu n n e r division that would be oper a t e d as a joint vent ur e by Time Inc. and TW Cable. Other cable comp a ni e s may be offere d a stak e in this new entity if it would help ass ur e exp a n sio n into their syst e m s . The Excalibur entity would not own or licens e the hardw a r e and mod e m tech n olo gy, which would be boug h t by each local syst e m directly from Hewlett- Packard (or anot h e r vendor). Excalibur' s role would be to crea t e , and to tailor for each local mark e t, the front- end that users would get when they linked to the syst e m , the navig a tion al tools and interfac e s that would guide the m to the service s they want e d , and som e nation al and local cont e n t . This cont e n t would draw from the mat e ri al in Pathfind e r, and it would link to the full Pathfind e r packa g e , which would be offere d as a pre miu m service (along with AOL, , DowVision, etc.). It might also use video or audio mat e ri al from The News Excha n g e . Excalibur would get reve n u e in thes e ways: 1) charging cable syst e m s a licensing fee for this front- end packa g e ; 2) selling nation al and local adv er tisin g, tran s a c tio n al and classified service s; 3) taking a com mis sion for selling pre miu m service s rangin g from AOL and Prodigy to DowVision and the Encyclop e di a Britannic a Online. Time Inc. would get reve n u e in the s e ways: 1) from its portion of the profits mad e by the Excalibur entity; 2) from charging the entity a licensin g fee for the Pathfind e r and other Time Inc. cont e n t that is use d; 3) by being the nation al ad sales arm for Excalibur; 4) by bundling Pathfind e r subscription s with the front- end packa g e . Int er a c t i v e Tel e vi s i o n 11 The News Excha n g e will draw from the sa m e techn olo gy and resourc e s as the online and cable- online produc t s . Likewis e, adv er tising will be sold acros s platfor m s . The stra t e g y for The News Excha n g e is to be availabl e by the end of next year on the Time Warner syst e m in Orland o and the U.S. West syst e m in Omah a . From this exp erie n c e , we will dev elo p a fuller busin e s s mod el for subs crib e r and adv er tising reve n u e . As with Pathfind e r, the Time Inc. cont e n t for TNX will be a collabor a tio n betw e e n a centr al staff and the journ alists at the individu al titles. Throug h 1996, we hav e arra n g e m e n t s to use cont e n t from CNN, NBC, ABC and som e local station s as a test. At the beginning of 1996, we will hav e to decid e amo n g the s e options: 1) begin cre a tin g a full packa g e of progr a m m i n g on our own, using video acquir e d from Reut er s , Conus or other sourc e s ; 2) form a partn e r s hi p with a netw ork such as CNN or NBC to cre a t e inter a c tiv e television jointly; 3) continu e in the role of pack a g e r as well as cont e n t- supplier and mak e royalty- sharing arra n g e m e n t s with all of the netw orks. Sports Illustra t e d is purs uin g an aggr e s siv e television and FSN stra t e g y . Curre n tly the new me di a group is sharing som e facilities and coordin a tin g activities, but we are not man a gi n g the SI strat e g y . CD- ROMs CD-ROMs do not repr e s e n t a short- ter m or long- ter m major busin e s s for Time Inc. Our stra t e g y will be to allow mos t of the cre a tiv e work and busin e s s decisions to be mad e at the title or division al level, with coordin a tio n and cons ult a tion to be man a g e d centr ally. Any CD-ROM deal should aim to follow the s e guidelin e s : 12 > > They stan d on their own financially. > > The mag a zin e cont e n t is not licens e d on an exclusiv e basis. > > Long- ter m deals should be avoid e d. Stra t e g i c Inv e s t m e n t s Time Inc. should not be an inves t m e n t bank. In addition, inves tin g in softw ar e or tech n olog y comp a ni e s could bind us to tech n olo gi e s that no long er bes t suit the crea tiv e and distribu tion nee d s of our cont e n t . Our stra t e g y should be to look at inves t m e n t s and acquisitions with an eye on the following criteria: > > Softw ar e firms we plan to work with clos ely and want to hav e som e control over. The propo s e d 10% equity inves t m e n t in Open Markets , which com e s with a board sea t, falls into this cat e g o r y. > > Conte n t comp a ni e s that fill an import a n t gap in our strat e g y . Warner Books' inves t m e n t in Refere n c e Press is in this cate g o r y. The acquisition of a techn olo gy or new media mag a zin e might also be consid er e d . We also hav e to look at the high- end busin e s s mark e t . An ad- hoc group led by David Nagour n e y of Fortun e and Larry Kirschb a u m will soon begin dev eloping ideas in this are a . Orga n i z a t i o n an d Top Per s o n n e l Here are a few thou g h t s abou t top pers o n n el: A part n e r and ad ministr a t o r who would han dl e man a g e m e n t duties, television produc tio n, and strat e gic nego tia tion s . He would also 13 overs e e dealings with the cable comp a n y on the FSN, television progr a m m i n g , and Excalibur. (Paul Sag a n ) (Split with TNX budg e t ) A top busin e s s officer and gen e r al ma n a g e r to overs e e mark e tin g, cons u m e r mark e tin g, busin e s s negoti a tion s and adv er tising strat e gi e s . (Bruce Judson) An oper a tio n s director to handle facilities and techn olo gy. (Oliver Knowlton) (Split with TNX budg e t ) An engin e e r to build our syst e m s , esp e ci ally for the FSN (John Missale). (On TNX budg e t ) An adv er tising sales director to sell ads and coordin a t e stra t e g y with the titles. A cons u m e r mark e tin g/ circulation ma n a g e r . Two financ e & ad ministr a tio n people, one to handle online, CD- ROM and Excalibur projects , the oth er to han dl e television produc tio n and FSN projects . (Bob Rusak and Stev e n Georg e s ). (Split with TNX budg e t ) A pers o n to coordin a t e new inves t m e n t propo s al s and high- end busin e s s produc t dev elop m e n t . (Norm may hav e ideas for how this job should be filled.) ## # 14