The Associated Press is setting up a division to help the news cooperative, newspapers and broadcasters sell digital products directly to readers on the next wave of Internet-connected devices such as Apple's iPad.
The AP's chief executive, Tom Curley, announced the new business unit, called AP Gateway, during a speech Friday to the Colorado Press Association.
AP Gateway will focus on expanding such products as the AP Mobile news service for cell phones and the kinds of online platforms that the AP developed for the Winter Olympics and Copenhagen climate talks. Some services might be supported by advertising revenue, while others might require readers to pay subscriptions, Curley said.
The AP already has drawn up plans to charge for an application designed for the iPad, a 1.5-pound tablet computer that Apple Inc. is scheduled to release at the end of March. The price of the application has yet to be determined, although it might start free, according to Jane Seagrave, a senior vice president who becomes the AP's chief revenue officer Monday.
Much like the AP Mobile news product, the iPad app will show custom packages of headlines, stories, photos and video from the AP and from newspapers and broadcasters that choose to contribute their content and share the revenue. AP members also could use the same system to offer their own iPad apps that show their own content.
"AP is proposing a change that is exciting, historic and even breathtaking. After 164 years, AP sees a way to extend the power of the cooperative to become a revenue-generating engine," said William Dean Singleton, who heads newspaper publisher MediaNews Group and is chairman of the AP board.
"By opening the AP Gateway, our industry can get into position now to take advantage of what promises to be a remarkable period."
The AP's iPad app could compete with offerings from some of its member newspapers, including The New York Times and The Wall Street Journal, which also are believed to be mulling whether to sell subscriptions on the iPad to take advantage of its format. The slate-like computer, which will sell for $499 to $829, has a touch screen that measures 9.7 inches diagonally. In comparison, the iPhone is just 3.5 inches.
The plans reflect the news media's hope — still untested — that consumers will be more willing to pay for content on the iPad and similar handheld devices than they have been on traditional computers that depend solely on Web browsers to surf the Internet.
"At last, we truly will be able to deliver the right content to the right people at the right time to the right device," Curley said. "We must seize this opportunity to reinvigorate our business models as well as our journalism."
The digital age has been painful for newspapers because the Internet made it possible to publish without a printing press and hatched less expensive advertising alternatives. The upheaval has contributed to sharp declines in print subscriptions and the advertising sales that account for most of newspapers' revenue.
The situation has prompted scores of publishers to consider erecting toll booths to get into their Web sites. But few newspapers have done it because they fear they would lose advertising revenue if online readers spurned them for free sites.
Now, both news and technology executives sense the digital landscape is shifting again as a growing number of consumers buy increasingly sophisticated mobile phones that have created a new distribution platform.
This emerging generation of handheld devices could produce a "digital do-over" for newspaper and magazine publishers as they try to avoid repeating the mistakes they made when graphical Web browsers started to disrupt things 15 years ago.
"For publishers, it is likely the defining moment," Curley said.
If this view is right, people would depend less on Google and other search engines to find news. Instead, they would embrace applications that give them more control to select which types of information and entertainment they want fed to their "smart" phones, electronic reading devices such as the Kindle and more powerful "multi-touch" devices such as the iPad.
But the idea might not pan out if the iPad doesn't turn out to be as revolutionary or popular as Apple's iPods and iPhones. Or readers could simply use the Web browsers built into computer tablets to peruse the Internet's free news sites.
Jeff Thomas, vice president and editor of The Gazette in Colorado Springs, said he was interested in learning how the new business will enable newspapers to reach customers in new ways. His newspaper's owner, Freedom Communications, is working on developing its own applications.
Curley is "giving me something to really think about," he said.
The AP already has been mining digital opportunities with a mobile phone application that has been downloaded more than 3 million times. Except for an unsuccessful attempt to charge for a version of the app on BlackBerry devices, the AP has given away its mobile product, which includes stories, photos and video. The AP has not disclosed how much ad revenue the service produces.
Selling the news directly to consumers is something new for the AP, a not-for-profit cooperative founded in 1846. The AP subsists on fees paid by newspapers, broadcasters and commercial customers, including Internet-only outlets such as Yahoo Inc. and MSNBC.
But the ad slump's ripple effects have forced the AP to dramatically lower the fees it charges U.S. newspapers and broadcasters. The AP's 2009 financial statement, which hasn't been released yet, is expected to show a revenue decline of about 6 percent to roughly $700 million.
As it wades more aggressively into trying to generate revenue from consumer subscriptions and advertising, the AP has been trying to get a better handle on consumer preferences. Late last year, the AP began testing a "news registry" to track the usage of its online content. About 200 newspapers have been participating in the registry's test phase, which is expected to end this summer.
A leader for the AP Gateway group has yet to be named.
By SANDY SHORE and MICHAEL LIEDTKE
AP Business Writers