Posted April 16, 2008

By SETH SUTEL
Associated Press Business Writer

WASHINGTON (AP) – The Associated Press announced Monday it will further cut fees paid by struggling newspaper members and will develop an advertising-supported service that will deliver stories and photos to advanced cell phones, including the iPhone.

The service, which will carry local news from participating newspapers as well as national and international news from the AP, is being tested with several newspaper companies and is expected to launch in the summer under the name Mobile News Network, the AP said.

AP said it was working with cell phone manufacturers and carriers to develop a user interface for the service. A product to provide news videos is also in the works.

AP President and Chief Executive Officer Tom Curley said that while the service was designed specifically for Apple Inc.'s iPhone, it can be used with other "smart" phones.

Curley said the service would be organized by ZIP code, with AP managing and paying for a central facility to handle technical and ad-serving functions.

Local ads would be sold by participating newspapers and national ads by ad networks. Revenue would be split 50-50 between news providers and ad sellers.

Curley said several newspaper companies participated in setting up initial rules for how news would be contributed and the revenues split: Advance Publications Inc., Hearst Corp., Lee Enterprises Inc., McClatchy Co., MediaNews Group Inc. and Rust Communications Inc.

Newspapers have been seeing steady declines in advertising revenues in recent years, and many have responded by cutting staff and reducing other expenses.

The AP has also faced calls from members for more price cuts amid steep revenue declines at newspapers because of a downturn in the economy and an ongoing shift of readers and advertising dollars to the Internet.

Last year, total advertising fell 7.9 percent at U.S. newspapers, according to the Newspaper Association of America. That included a 9.4 percent decline in the core print ad business, offset partly by an 18.8 percent increase in online advertising.

Responding to the revenue declines, AP said it was further reducing its fees to newspapers in 2009, following two years of no increases.

The AP had previously announced major restructuring of the way it prices and packages news that would create a core product of breaking news, with separate add-ons of premium services. Those changes, due to go into effect next year, had been expected to return about $5.6 million in cost savings to member newspapers.

Dean Singleton, AP's chairman and the CEO of Denver-based MediaNews Group Inc., said the AP board decided during a weekend meeting to increase the cost savings to about $14 million.

"We have a very simple message for you today," Singleton told the annual meeeting. "We hear you. We understand that these are both difficult and historic times for the industry."

The AP had also previously announced potential cost savings for newspapers of up to $7 million if they joined an initiative to add digital "tags" to news stories that would allow them to be more easily searched and indexed online.

Altogether, the expected savings from participating in the digital indexing program combined with the savings from the new pricing mechanism would add up to $21 million. That represents 10 percent of the total fees that member newspapers pay the AP.

The AP also said it would eliminate premium pricing fees on Money & Markets, a graphics-based business news service, and give photo subscribers unlimited access to archive photos beginning next year.

AP historically provided news mainly to newspapers, but Singleton noted that most of its revenues now come from broadcasters, Internet companies and non-U.S. subscribers. Only 28 percent of AP revenues now come from member newspapers and that figure is expected to fall to less than 25 percent next year, Singleton said.

The AP, meanwhile, reported 2007 net income of $24 million, nearly double the $13.3 million it earned in 2006. Revenue rose 4.5 percent to $710.3 million last year.

The news cooperative also announced that Rupert Murdoch and Sam Zell, two media figures who led major newspaper acquisitions in recent months, are among four new members on the AP board of directors.

Murdoch, chairman and CEO of News Corp., was appointed by the board until the next election of directors to fill the vacancy created by the departure of Jay Smith, who announced earlier this month he was retiring as president of Cox Newspapers.

Murdoch completed his acquisition of Dow Jones & Co. last December, adding The Wall Street Journal to his global media conglomerate.

Zell took control of Tribune Co. after leading a buyout that resulted in the publicly traded company becoming private. The company owns the Chicago Tribune, the Los Angeles Times, nine other daily newspapers and 23 television stations.

In other AP board results, four incumbent directors were re-elected to three-year terms: Singleton; Jon K. Rust, publisher of the Southeast Missourian and co-president of Rust Communications; Michael E. Reed, CEO of GateHouse Media Inc., and Victor F. Ganzi, president and CEO of Hearst Corp.

In addition to Murdoch and Zell, the new members are Donna J. Barrett, president and CEO of Community Newspaper Holdings Inc., and Craig A. Dubow, chairman, president and CEO of Gannett Co.

H. Graham Woodlief, vice president of Media General Inc., was reappointed to a two-year term after his elected term expired. David Westin, president of ABC News, was reappointed to a three-year term, and Bruce Reese, president and chief executive officer of Bonneville International Corp., was reappointed to a one-year term.

The AP board has 18 directors elected by AP members at their annual meeting, in staggered groups of six each year.

AP made the announcements at its annual meeting in Washington, which was being held concurrently with the annual conferences of the Newspaper Association of America and the American Society of Newspaper Editors.

Presidential candidate Sen. John McCain also addressed the AP annual meeting, and Sen. Barack Obama addressed a lunch organized by AP. Sen. Hillary Rodham Clinton was scheduled to speak on Tuesday at a lunch organized by the NAA and ASNE.

The Associated Press is a not-for-profit news cooperative owned by its member news organizations. It was founded in 1846.