The Videotex Debacle   

Times Mirror lost millions on its pioneering online services venture in the 1980s. Its managing editor analyzes what went wrong and sifts through the wreckage for lessons for today's online information entrepreneurs.

What worries me most about the recent rush to embrace new information technology is that it happened once before. More than a decade ago, corporate excitement over online services--then called videotex--was palpable.

"A giant home information industry is taking shape in the plans of hundreds of companies...," said Business Week in June 1981. "By 1990, they are confident that videotex will be big business." By the mid-1980s, however, after blowing at least $100 million, those firms closed down their videotex operations.

How could giants like Times Mirror, Knight-Ridder, Warner and Time have been so wrong?

Everyone had been seduced by the hype. "Now, right at home," stated a 1985 brochure for Times Mirror's Gateway, "you can read the news, hot off the wire. You can pay a bill. Send a note. Shop the stores. Plan a party. Do your banking.... And you'll have an unlimited resource for answers to thousands of questions."

But instead of becoming a "marketing edge for the new world," videotex bombed, collapsing into die-hard CompuServe and fledgling Prodigy. As a medium, it proved to be slow, shallow, intrusive, unreliable and overpriced. Those of us on the news side of the business lamented its passing because it was the fastest, most flexible news delivery system ever invented. Many of us thought the media companies backed out too soon, wasted their money and learned no lessons.

What were those lessons? And will the communications industry spend the money and have the patience to be successful this time around?

The rise and fall of TImes Mirror's Gateway offers some answers. Our company launched its videotex project in early 1982 with market tests in Orange County and the Palos Verdes peninsula, both places with a relatively large number of upscale, computer-hip Californians. We formed a staff of 60, built a database and managed it with software developed by a firm in Canada, where videotex had gotten an early start.

Telephone lines connected our computer to a decoder box attached to test participants' television sets. Viewers used a remote pad similar to a cable TV control, except ours had an expanded set of characters, including the alphabet. They could retrieve information by issuing various commands.

The market test of 300 households was designed to demonstrate the potential of the new medium. We programmed our computer to record what each family member was using from the database and how much time was spent with it.

We had to view these results with caution, of course, because we were never sure that participants were signed on to the system under their own personal code. And since test users didn't pay, much of our research turned out to be of dubious value. The test did prove there was a demand. But it didn't tell us much about what subscribers would want, how much they would pay, or how much frustration they would tolerate from clunky technology and advertiser intrusion.

Nevertheless, Times Mirror decided to continue. We designed a commercial database for a mid-1984 debut that offered news, entertainment and restaurant information, E-mail, shopping, banking, games, reference data, and travel services, including flight information and booking services.

All of this came in gorgeous color with clever graphics. It was remarkably advanced for its time--perhaps too advanced. Many people, when canceling the service, said it wasn't worth the cost.

Undaunted, we continued our research into 1984 and 1985 with more productive results: The data told us what interested paying subscribers. Usage figures and surveys demonstrated that news consistently received the highest ratings, so we beefed up the news budget. Ultimately I oversaw a staff of eight full time editors and a corps of stringers. The Los Angeles Times assembled another seven editors and some part-timers to edit and code various sections of the Times for our use.

We began to attract more subscribers, but they still didn't like videotex enough to pay what we were charging. We had an enormous monthly turnover rate of roughly 60 percent. Exsubscribers told us that they didn't like the keypad and television arrangement. We scrapped that technology in mid-1985 and offered our service to computer owners. But the new version didn't take off fast enough, reaching only about 2,000 subscribers. Times Mirror closed us down in mid-1986.

What went wrong? The Service folded for many reasons:

*Management couldn't find ways to make it pay. We pursued advertisers, but they were reluctant to put much money into an untried medium. When advertisers did buy space, they caused problems. They insisted that their logos be exact replicas, for example. The time it took to reconstruct these sometimes complicated graphics through low-speed modems made subscribers furious. They had paid for our service and resented the intrusion of ads.

With so little ad revenue coming in, management gradually began to raise user fees. The new rate system was hopelessly complicated and some subscribers ended up spending more than $50 a month. When that bill came through the mail, they canceled.

*Videotex was delivered by telephone line. This tied up the subscribers' phones, a major complaint.

*The "critical mass" necessary to create an electronic village never materialized because the decoder boxes were difficult to use. Then, when we discarded the boxes and appealed exclusively to computer owners, we ended up with a subscriber base heavily populated by techies, not exactly a village that noncomputer types wanted to visit.

*Our service was about as interactive as a Renaissance fresco. It's not enough to put canned restaurant and movie reviews, encyclopedias and recipes into a database, add some news and call it interactive. Subscribers told us they wanted to have personal contact with experts.

*Our computer system was unreliable, the electronic equivalent of a newspaper that a delivery boy tosses on the roof one day each week. Nor did we have the resources to quickly restore service when it went down.

What went right? Our news service had much to offer:

*Video Vote, an interactive program, was one of our best-received features. Each week we featured a small, unscientific survey based on the most recent hot topic. At election times, we turned it into a straw poll that was remarkably accurate.

*News summaries, culled from the Times and the Associated Press, were very popular.

*No other news medium could beat us. We could sometimes update stories minute by minute--during an important space launch, for example. We found that even though most subscribers checked in only three or four times a week, they wanted news to be timely.

*We stressed local news--police blotter stories, soccer scores, school lunch menus, city council agendas.

*We did a lot with sports. Scores and stats were updated continually and we got a tremendous response when we published odds and the Las Vegas line.

*We featured color graphics and carried extensive weather reports and freeway maps indicating trouble spots.

So what's in store for the next generation of interactive cable and online services?

The number of families with computers and high-speed modems has increased dramatically. But this isn't just a bigger market, it is a qualitatively new one. Many machines now can reproduce color, sound and photos.

While billions are being spent on technology, it's not clear how much is being earmarked for content. Attracting masses of online subscribers requires a variety of sources: wire services, newspapers, syndicates, encyclopedias; sports, financial, entertainment and weather services; and many other providers. Permissions, copyrights and software for this material are all expensive.

Beyond content, there is a high demand for a large, well-trained staff to run the operation. Developing new software and guaranteeing reliability requires computer experts. Maintaining a big database is labor intensive. Marketing, sales and service departments also are indispensable--and costly.

Unless companies are willing to finance such systems, interactive services will lag. Their track record is not encouraging. In the 1980s major corporations, faced with high costs and uncertain revenues, were reluctant to invest for the long term.

That reluctance is still evident. Many of the new online services seem tentative and underfunded. Most aim at niche markets or limited geographical areas. With the possible exception of Prodigy, which according to some reports has invested as much as $1 billion, no company has stepped forward yet to invest on the scale needed to create a nationwide mass medium.

This year appears to be pivotal. Cox Newspapers and Times Mirror have a few papers online through Prodigy. Time magazine, the New York Times and Knight-Ridder have some papers hooked up with America Online, which is partly owned by the Tribune Co. The Washington Post is about to waltz in with Ziff-Davis. Apple has launched eWorld. Telephone and cable giants are revving up.

Even so, the editorial fare is still thin. Publishers seem to see online as a business of mining and recasting digits that already reside in their computers. If they don't expand online technology into the risky and costly areas of multimedia, the Internet and interactive communications, they could repeat the videotex debacle of the last decade.