The vision that would eventually make Frank Daniels III one of the pioneers of new media materialized 20 years ago.
Working in administration at The News & Observer (N&O;) in Raleigh, N.C. — a newspaper started by his great-grandfather Josephus Daniels in 1893 — the young editor-in-waiting was asked to put together a corporate budget.
The vice president of finance gave Daniels an Apple IIe personal computer and Visicalc, one of the earliest spreadsheets, and told him to get to work crunching numbers. It was slow going, but Daniels was determined to master it.
"Then the first IBM PC came out, I bought a Lotus 1-2-3 program, and I set it up in a spare bedroom of a condo I had here in town," Daniels says. "Every day when I got off work, I'd have dinner with my wife and try to do this budget.
"The epiphany I had," he says, "was that growing up I liked math, but I didn't like doing calculations. I thought, if a machine like this can make me excited about math again and make me do things I hadn't ever wanted to do again, that's a pretty powerful tool, and that power can transform everything."
It certainly transformed the life of Daniels. In 1990, he became editor of the N&O; and proceeded to make it the most computer-savvy newspaper in the country. By 1994, the N&O; was online, the first daily in the country to be published in its entirety on the Internet. The family-owned paper was sold to the McClatchy Co. late that year, but Daniels stayed with the online side — known as The Nando Times, it had grown into a 24-hour news operation independent of the paper — for six months before following his entrepreneurial impulses through a series of Internet businesses, including Koz.com.
Right now, Daniels is CEO of a company that couldn't have existed seven years ago, much less 20. The company, Vital Source Technologies Inc., is a digital resource for health-science learning centers. Vital Source supplies universities with the entire curriculum of, for example, a four-year dental school program — textbooks ("copyright compliant") plus customized class notes, syllabi, research papers, and slides — on a single Digital Video Disk whose content can be continually refined and upgraded.
Daniels was hired about a year ago to be CEO by the company's founder, Todd Watkins, a dentist, scientist, and entrepreneur.
"I want to be an enabler of other people's visions," says Daniels, tilting on a swivel chair in his Raleigh office a few weeks ago. "I'm not quite sure that I see the future clearly right now. But I know that some people do, and I want to work with people who do, and I want to help them achieve their visions. That's why I'm here."
But just a decade ago, Daniels was one newspaperman who seemed to have a vision of the future, who saw that newspapers needed to use all the digital tools at their disposal, that the future of news would take place in a paperless, ethereal region known as the Internet. He saw that personal computers would revolutionize everything from news gathering to data processing to the way people interacted with their newspapers, with their communities, with one another.
And while he left the newspaper business, the former editor (who was once quoted as saying, "Print is dead") still has some blunt observations about the relationship between news-and-information providers and their communities in the 21st century.
"For many households, the newspaper is going to be irrelevant," Daniels says with the kind of emphatic clarity that provokes ripples of shudders in industry boardrooms. "The question is: How can we participate in creating an information product that meets the customer's needs to live life more effectively — and how do we monetize it?"
Daniels in the lion's den
Daniels would love to say that he's found the answer to that question. But in 1995 when he left the newspaper business, he saw the future and was deeply disturbed.
"I thought then that the business model of newspapers was in tremendous jeopardy," he says. "Remember, 75% to 80% of profits come from classified advertising, which is database information that people get for free, essentially. But at an average newspaper no more than 11% are looking at the classifieds each day, and only 2% to 3% actively engaged in buying — and newspapers charge as if it is 100%. It's not really efficient, and it's hard to find what you want.
"That scared me, because even though the N&O;'s help-wanted section was the largest between Washington and Atlanta, we had a ton of our business tied up in something that ..." Daniels pauses to consider the thought, then continues, "I did not see how a newspaper would be able to compete with the kinds of things that would be able to be done with the new technology."
Daniels' pessimistic vision, of digital Huns pillaging the newspaper classified business, was widely shared at the time. But it has not materialized — yet. The booming economy of the late 1990s provided cosmetic cover, with newspaper profits floating on unusually high advertising revenue.
But the overnight collapse of the venture-capital market for Internet stocks and the sickening tailspin of former blue chips such as Lucent Technologies Inc. and Xerox Corp. may still be a harbinger of a disaster that may be as complete as it is impossible to predict.
"The CEO of Thomson called me up in late 1995, early 1996, and asked me to talk to his newspaper people about why we sold the paper," Daniels says. "I talked about classified advertising, and I said that we in the newspaper business will not be able to anticipate the day it changed, because the day that it changed, it will have already fallen off the cliff. Because what happens to marketplaces today is that they're viable until the day they're not viable, and on that day, they disappear.
"There used to be a curve — a business would go up and up, peak, and then there'd be a gradual decline. But the declination curve of classified ads isn't a curve, it's a cliff."
A cup of joe
It's important to remember that the pressures on Daniels in the mid-1990s were singular because the N&O; and Nando (for "N and O") were his family's businesses.
Josephus Daniels, patriarch of the publishing family, was an official in the U.S. Interior Department under President Grover Cleveland when he bought the N&O; for $10,000 at a courthouse auction. His previous papers — the Farmer and Mechanic, the State Chronicle, and the North Carolinian — were money pits, but Josephus' N&O; was "extremely popular and prosperous," according to online biographical materials developed by the State Library of North Carolina. The influential News & Observer became nicknamed "The Nuisance and Disturber" for its editorial outspokenness, which must have pleased Josephus. "Dullness is the only crime for which an editor ought to be hung," he was quoted as saying.
Josephus Daniels was a power in state and national politics until the day he died in 1948. During World War I, he served as Navy secretary under President Woodrow Wilson. When a ship under the command of an officer who had imbibed a toddy ran aground off San Diego, Daniels, a teetotaler and Prohibitionist, banned alcohol from Navy ships. As a result, officers and enlisted men were the first to call the coffee they drank instead "a cup of Joe."
His son, Frank A. Daniels Sr., took over running the paper in the 1930s, after Josephus had been named ambassador to Mexico by his former protoge and undersecretary at the Navy department, President Franklin Delano Roosevelt. Frank A. Daniels Jr. became president and publisher of the N&O; in 1971; Frank Sr. remained chairman until his death in 1986.
"I often say, 'What would my father do? What would my great- grandfather do?' That's the source of any vision I might have," Frank Daniels III says.
Daniels still has the manner of "the affable preppie," which is how some described him at the N&O;. Wearing knit shirt, chinos, and loafers, he sits in a plain swivel chair, the blinds half-drawn, in his modest office in a nondescript building on the Fayetteville Street Mall in downtown Raleigh.
Being the boss' son can be an albatross, whether he's a plumber or a publisher. "I was very fortunate to have my father's experience with his father, which was difficult,' Frank 3 (as he's often called) says. "My grandfather lived in the Depression, and he was very tight with authority and responsibility, so my father really had to struggle to prove to folks that he was competent. With me, he probably erred on the other side — he gave me lots of opportunities to screw up, so I never felt burdened. I was always in a position where if I failed, it was my fault.
"The flip side is that most people think the sons of owners are dummies. To exceed expectations is not hard, and I was able to do that. ... All I had to do was be a little bit smarter than they think I am, and that worked for me."
Frank 3's brightest, and saddest, moment may have been the day in 1995 when the N&O; and Nando.net were sold to McClatchy. "It was really emotional, there was a lot of crying," Daniels says. "But we were a pretty big family by that time.
Josephus had four children, the four branches of the family had spread out all over the country, and they all kept ties to the family business. The business was financially important to them, it represented a significant amount of financial freedom. I thought it would be way too egotistical as one of 36 members of my family to say, 'Hey, we should keep the newspaper around because I might want to have the bully pulpit.' The family would have to give up some measure of financial future to keep the bully pulpit, and I didn't think that was worth it."
Around that time, Frank 3 made the comment that made him infamous in publishing circles, the one about print being dead. The way newsprint prices have risen, most of those who once derided that point of view may now wish he was right. But Daniels says he was misunderstood.
"Print is never going to go away,' he says. "All I was talking about was the financial model for print media, which is under constant erosion."
Frat boy goes digital
Back in the late 1970s and early 1980s, Daniels was far from concerned about running a newspaper. He just wanted a job at one.
He had interned every summer as a reporter at the N&O; during what he suggests was a less than stellar academic run at Duke University in nearby Durham, N.C. Daniels began a newspaper career in 1978, with entry-level reporting and editing jobs at the St. Joseph (Mo.) News-Press and the Norfolk, Va., Ledger-Star.
"It was the default thing to do," Daniels says. "I had some experience as a reporter during summers. My other experience was working for a food-wholesaling company, and I know I didn't want to be driving trucks and hauling food for the rest of my life. I had a modest ability to be a reporter, and Dave Bradley offered me the princely sum of $100 a week to be a reporter in St. Joe, so there I was."
The next stop was Norfolk, where Daniels did various reporting, editing and copy-editing jobs. He entered the family business in the circulation department in 1981.
As soon as he joined the paper, those computerized budget assignments got Daniels hooked on databases. Using his influence at the N&O;, he got a personal computer so it could access Lexis-Nexis and other online databases.
"He was sort of on the publisher's son track,' says Lany McDonald, who ran the N&O; library before Daniels renamed it the news research department. "I remember finding out he had some PCs, and I was trying to get one. He literally slipped one from his department to mine, which was something that really wasn't done."
Daniels' digital education continued when he briefly left the N&O; in 1987 to become publisher of Business North Carolina, one of many business magazines sprouting in the quickly changing, increasingly white-collar region of eastern North Carolina known as the Research Triangle.
"We were spending a ton of money getting the magazine made up," Daniels says. "I wanted to change the look and approach, and the art director suggested doing it on [an Apple] Macintosh. We hired a designer, and he redesigned the magazine using Pagemaker. We were one of the first magazines to be desktop-published. That taught me what the value of a computer could be, in a different way than just simplifying math."
McDonald, now director of the research center at Time Inc. in New York, was then moving the N&O; library from a passive source of information to an active part of the journalistic enterprise. "I was understanding the raw material of news was information that could be hiding anywhere," she says. "My job as head of research was to get information to journalists to know what to do with it."
Pat Stith, the N&O;'s renowned chief investigative reporter, had also become a database addict. "I worked with Pat to begin collecting information in digitized form, whenever possible," McDonald says.
Meanwhile, the 34-year-old Daniels returned to the N&O; in 1989. The paper was conducting an exhaustive search for a new editor to replace the highly respected Claude Sitton, who was retiring. Daniels was on the search committee. The paper was seeking another journalism heavyweight and came close to hiring Howell Raines, who was then London bureau chief of The New York Times.
"I was in very serious conversations with the N&O;, and I think it's a great newspaper," says Raines, now the editorial page editor of The New York Times. "I'm pleased they thought of me. It never came to the 'go/no-go' point, but we had some very serious conversations." Those conversations became moot, Raines says, when Max Frankel "independently" asked him to become Washington bureau chief for the Times.
The Raleigh paper still needed an editor. Frank 3, with just a smidgen of experience, nominated himself.
"It was a stupid thing to do," Daniels says now with a modesty that can border on the excessive. "Why would you take a 34-year- old 'amiable frat boy' and make him the editor of one of the best regional newspapers in the country? But you can do that when you're a family-owned newspaper, you can do stupid things, and we did it."
Taking 'N and O' for an answer
Daniels may or may not have been "stupid," but he understood that the world was on the precipice of a future that would be altered permanently by computer technology.
"I thought computers could help the staff see the world differently, it would make putting out the paper more cost- effective, help us get better connected to the community," Daniels says. "I didn't really know how, but I started the process."
Every morning at 8 o'clock, Pat Stith would hold a computer class in the newsroom. The economy was slowing down in the early 1990s, and the budget required trimming. But Daniels doubled the staff in McDonald's news-research department.
Home computers were not yet as ubiquitous as toaster ovens, but Daniels saw them coming — and he wanted everyone at the N&O; to have one. Not even the great-grandson of the founder can just go out and buy everyone computers, so he did the next best thing: He laid out the money for interest-free loans to any staffer, in any department of the paper, who wanted to buy a home PC.
"As people got excited about computers, they wanted to use them more and more," Daniels says. "I talked to my cousin, Bobby Woronoff, our chief financial officer, and we came up with this program for an interest-free loan. I think we had $600,000, maybe a little less, in loans out to the staff, so we did take some capital of the company committed to staff members, but it was an unbelievable, transforming investment. It made for a very literate staff. As we came out of the recession and started recruiting people, we started attracting people from all over who were interested in computer-assisted reporting.
"One of them said, I want to come work with you, but I want Internet access. I said, 'Absolutely.' It was mid-1991. I hadn't the foggiest idea what the Internet was, but I said, 'Fine.'"
With a solid base of capital and knowledge, the N&O; embraced the Internet with gusto. Daniels took classes on TCP/IP. "I can tell you all about a communications stack, what a protocol means," he boasts. Daniels was frustrated by the slow-footed connection speed of telephone modems, so he bought a T1 line for the newsroom.
Newspapers were beginning to awaken to the idea of making some of their content available to computer users. Most stuck their toes in the water by forming alliances with popular Internet service providers (ISPs), such as America Online, Compuserve, or Prodigy.
In Raleigh, the N&O; became an ISP on its own in 1994, in part to amortize the expense of the T1 line. First, the N&O; did a limited rollout, selling Internet access in a package with the print newspaper: for $26 a month, you got the paper delivered seven days a week as well as e-mail and Internet access through the company's ISP, called Nando.net.
"We wanted to have 2,000 testers," Daniels says. "We got 2,008. After one year, we had 2,004 testers left. The four who had left moved out of town."
Research into the cross-subscribers showed an unexpected result: "They didn't spend less time with the newspaper; they spent more," according to Daniels.
"They were telling us that their reasons for enjoying the newspaper had a whole lot more to do with utility than entertainment: 'What are the things I need to know that are going on in the community? Sales, calendars, classifieds. What happened in City Hall yesterday?' They were more interested in the sort of transactional nature of information than I think we had assumed, or executed."
The sale to McClatchy — for $373 million — interrupted Daniels' own efforts of remaking the paper as "The User Manual for Daily Living." Nevertheless, the N&O; today retains both its deserved national reputation for quality and its accessibility to the Research Triangle community. Each story or column ends with the e-mail address and telephone number of its writer.
Daniels has spent the last seven years engaging his curiosity in Internet start-ups. He started Koz.com with George Schlukbier, one of his former partners from Nando. Koz.com created publishing tools to allow newspapers to develop community-driven Web sites.
After selling his interest in Koz.com, Daniels and some partners started Total Sports, an online service. After an initial public offering failed to develop, a result of the Nasdaq's tour of hell last spring, he sold his interest for stock in Quokka Sports. Once worth tens of millions of dollars on paper, Quokka is now selling at about 25 cents a share. "We had a couple of million users a month, and we struggled, like most people, to figure out how to truly monetize it, create value for our users and for companies that wanted to use us as a marketing intermediary," Daniels says.
To dress up the company to go public, Daniels says he and his partners quickly blew through $10 million to $15 million that they otherwise would not have spent. "I can tell you that the number of mistakes I made at Total Sports astounds me," Daniels says. "A lot of other people made the same mistakes, but I know I made mistakes."
But Daniels is still bullish on new media, especially for large media companies that have already established what he calls "mindshare."
"You've got to be aware of new technologies," he explains, "but you have to ask, 'Why? Why are we doing it?' Everybody in the business gets so wrapped up in the 'what,' they stop thinking about the 'why.' There are a lot of good sites out there that get tremendous amount of traffic, but they didn't answer the question, 'Why would people pay for this? Why would this create value?' We don't do enough to understand how we're creating value in people's minds and, therefore, their decisions."
Despite the souring economy, Daniels believes that the media future not only has not stalled but that it hasn't even started. His theory is that it will begin to take shape in 2003, but not really become embedded in the culture until 2007.
Why those years?
"2003 will be when the eighth graders who were first exposed to the Internet start entering the economy, the 12- to 14-year-olds who were exposed to a networked world start working.
"That will begin to make some massive changes. We've already seen a lot of changes as these people have taught their parents and older siblings, but we haven't seen the behavioral changes these people will bring into the society: The Internet is their way of life. They turn in papers via e-mail, and their primary way of talking to friends is through Instant Messenger. They don't even know of a world that's not networked. That will have very profound behavior changes, and it really starts in a couple of years."
Daniels often ponders a question that occurred to him before he stepped up to running the N&O;, at a time when staying on top of the old economy seemed as challenging as squeezing profit from the new one.
"I was working all around the newsroom getting to know people," he recalls, "and one Saturday I was sitting at the metro desk and a woman calls up and says, 'Can you tell me what the weather's like in Charlotte?' I said, 'It's in the paper, ma'am.' She said, 'I don't read your paper, I don't want to buy it, I just want to know what the weather is.'
"I think about that woman a lot. Trying to figure out how to give her the weather and try to make a little bit of money on it — either that time or some other time. That drove a lot of my thinking. She knew she should ask us what the weather is, she trusted us because somebody told her she could trust us. The question is: How do you then reach out, use that lever of trust, bolster it, and convert it into a relationship that allows you to keep growing?"
Wayne Robins (email@example.com) is an associate editor covering new media for E&P.;