NEW CREATIVE TOOLS GIVE ONLINE TITLES HOPE FOR BOLSTERING AD REVENUES BUT THERE ARE NO GUARANTEES THAT MARKETERS WILL SPONSOR SERVICES

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Magazines are pouring into cyberspace by the dozens, taking their editors, reporters and columnists along for the ride.

But many have been leaving behind their best customers: advertisers.

Publishers were expected to help drag the ad community-kicking and screaming or otherwise-into the new-media age. The reasons: ad dollars are an intrinsic part of the traditional magazine revenue model, and publishers and marketers have had a longstanding relationship.

But online editions of magazines for the most part have been built on the single revenue stream of consumer usage fees.

The reasons why advertising has been relegated to a minor role to date are many. Magazines entered cyberspace editorial-first, testing the waters while providing much-needed "content" to the online services, such as America Online, CompuServe and Prodigy. And many of the services, with graphics limitations and slow delivery speeds, were unequipped to handle online ads.

As publishers begin to make deeper commitments to new-media platforms and the services themselves introduce multimedia publishing tools, the way is being paved for online magazine advertising.

"We're coming out of the first stage where there was experimentation and a lack of senior executive focus," says Ted Leonsis, president of America Online's AOL Services Co.

As that happens, he predicts, "We're going to see a first generation of online advertising, just as we saw a first generation of online magazines. And in three years the ad agency community will have fully internalized this and we'll see great work online."

Publishers are developing ad programs linking print and online buys and relying on their traditional sales forces to sell the new-media packages. The online services are providing more of a financial incentive, allowing publishers to keep the bulk of the ad revenues they generate.

There are currently more than 200 online editions of magazines, according to Magazine Publishers of America. But only a handful of those titles have introduced advertising, and most of the early attempts have been uninspired. Time's daily news section on America Online, for example, is sponsored by Compaq Computer Corp. What that means is that Compaq's logo appears on the opening screen of the section.

U.S. News & World Report recently became the first content provider on CompuServe to introduce ads outside of that service's electronic shopping mall. Its marketing applications for DeBeers Consolidated Mines and Saab Cars USA are fairly limited and largely text-based.

"Nobody knows for sure what works and what doesn't at this point. We're all sort of groping around trying to find out," admits U.S. News Publisher Tom Evans.

Few people deny that because of their relationships with advertisers, magazines should be among the first to figure out online marketing.

"Magazines are used to being an interactive medium. You can look at an ad or not look at an ad, read an article or not read an article," says Michael Rogers, managing editor, Newsweek InterActive. "There's no doubt we are open to the changing ways of displaying ads."

It may not be that simple.

As Newsweek itself found out when it introduced ad-supported CD-ROMs last year, digitized TV commercials placed on a disc are not interactive ads.

To succeed, online ads probably won't be ads at all. At the least, they won't be intrusive. Instead, these "ads" will be interactive information, education and entertainment services sponsored by marketers.

(The line between editorial and advertising gets even blurrier in cyberspace, where to the user content is content.)

"One of the reasons you're seeing a focus [on online ads] right now is the realization that advertising does not have to be intrusive," says Bruce Judson, general manager, Time Inc. Multimedia. "If you want to get a sense of what the future will look like, take a look at the Internet. There's a lot of information-oriented, transactional advertising [that will] form the model for what will happen" on commercial services.

Some magazines, such as Wired and Vibe, are bypassing commercial online services to go directly to the Internet. Those titles have the option of creating areas for advertisers or building in links to an advertiser's existing Internet domain. AT&T Corp. has already signed on as an advertiser for the HotWired service, for example.

Rick Boyce, a former associate media director at Hal Riney & Partners who recently joined HotWired to oversee ad sales, is tight-lipped about the magazine's plans but promises they will be groundbreaking.

More sophisticated attempts at advertising on online service-based magazines are forthcoming.

Newsweek will launch an advanced service on Prodigy in November that will enable advertisers to use video, sound and high-quality graphics; Ziff-Davis Publishing Co. is preparing to launch its own online service, Ziff Interchange, providing ad opportunities for the company's magazines; and America Online, home to dozens of magazines, is finally opening its screens to magazine advertising-hopefully, to do things more substantial than merely place a company logo.

Leslie Laredo, director of advertising development at Ziff-Davis Interactive, believes online ads may eventually bring in 30% to 50% of magazines' online earnings, with consumer usage and download fees providing the rest.

But first, she says, creative executives in advertising have to understand the new-media mindset better.

"It's really about getting advertisers and their agencies to think about the information value they are putting up," Ms. Laredo says. "In an on-demand, user-controlled environment, it better be damn good content."

One factor that's expected to carry over from traditional to new media is consumers' desires to have their media consumption costs subsidized. That means advertising will have to play a role in the long-term.

"The American public [does] not pay full freight for their information," says Mr. Rogers. "This is really a remarkable opportunity for advertisers to create a unique way to reach an audience."

Even as publishers and online providers begin to dabble with new forms of interactive ads, many are skeptical that online ads will ever play as prominent a role as their print counterparts.

Says one publishing executive who asked not to be named: "I'm very skeptical whether online advertising's going to work. We're not building a model based upon how well advertising is going to do in that area."

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