After months of flak from other Web publishers, ad agencies, marketers and media over its high ad rates, ESPN's SportsZone World Wide Web site (http://espnet.sportszone.com) scored the Internet equivalent of a grand slam, signing eight major marketers to contracts amounting to a total of more than $1 million.
Levi Strauss & Co. committed some $300,000 to a deal extending through the end of 1996. Other marketers-Pizza Hut, Visa International, Ford Motor Co.'s Lincoln-Mercury, AT&T, Microsoft Corp., New Balance Athletic Shoes and Worlds Inc.-ponied up for sponsorships that start at $100,000 per quarter.
For Rich LeFurgy, director of advertising at Starwave, ESPN's online developer, the deals are both vindication and a sigh of relief.
Over the past few months, ad sales reps had been pounding the streets of Madison Avenue and Silicon Valley to show why marketers that were just creating their Web sites should advertise them on what has become the most expensive spot on the Web.
"`These guys are all paying the rate that everybody thinks is too high," Mr. LeFurgy said. "These are major brands making a major commitment to the service."
The ESPN deals set a new benchmark in the fledgling Web advertising business, where site owners are frequently accused of the egg-on-the-wall tactic of throwing ad rates up to see if they stick. By showing that advertisers will commit six-figure amounts to promoting their Web sites, ESPN and Starwave open the door for other Web sites to raise their rates as well.
But many say that, if anything, Web ad prices need to get lower, not higher, in order for the medium to expand.
"As the number of ad opportunities spreads, ad rates are absolutely going to fall," said John Nardone, director-consumer products at Modem Media, Westport, Conn.
Internet-savvy marketers and media buyers are increasingly playing hardball, forcing Web sites to create value-added deals and demanding more in audience tracking.
And no one is playing by the rate card.
"Rate card is irrelevant in this area," said Bob Allen, a partner in Modem Media.
There's another dynamic at work, however. Call it the casual observer factor.
For many marketers, allocating the funds to create a Web site is fairly simple. But spending thousands more to promote that site is alien.
Marketers are saying "I could be spending.....$800,000 per year to promote my Web site," said Wes Dubin, senior VP-director of electronic ventures at DDB Needham Worldwide, Chicago. "That budgeting might not be in place in the middle of a fiscal year."
Even Starwave's Mr. LeFurgy admits the market has a long way to go in this respect.
"A lot of people see the value we're providing, but they just don't have the budget," he said.
Web media are intensely monitoring the situation. For most, ad revenue is their only source of income, because most consumers haven't shown interest in subscription fees.
Marketers are "going to drive the price down so low they're going to drive sites out of business," lamented Andrew Pakula, exec VP-managing director of Interactive Marketing Agency, New York, sales rep for Yahoo Corp., which offers sponsorships of its popular Web site guide (http://www.yahoo.com).
Some say the Web advertising market is headed for a shakeout. Smart marketers will demand to know how many people saw their ad and clicked on it, and if the numbers don't add up, the price will fall or the marketer will get make-goods.
"When we evaluate sites, we compare them to other media.....If I have a client that's trying to draw traffic to his or her site to sell something, I'm going to evaluate the [place to advertise] as leads. I'm going to ask `Why don't you price it on a cost-per-link for me?"' said Matt Thornhill, president of Martin Interactive, Richmond, Va.
So far, there are no signs that major Web media are cutting ad rates across the board. Ziff-Davis Interactive's ZD Net Web edition (http://www.zdnet.com) earlier this month cut its monthly basic rate by 50%, to $2,000, to attract smaller advertisers but raised its quarterly prices $2,500, to a base of $17,475.
HotWired (http://www.hotwired.com), one of the first to define the Web as an ad medium, has no plans to raise its ad rates for 1996, said Rick Boyce, VP-advertising director. He does admit to dealmaking "here and there" to give certain marketers added value, however.
In an attempt to add value for the same dollars, Web media are increasingly constructing special content areas with advertisers in mind. Conde Nast Traveler (http://www.cntraveler.com), for example, is offering to create a content area targeted to business travelers that an advertiser would sponsor, said Mr. Nardone, whose agency handles Delta Air Line's interactive advertising.
"We recognize these properties desperately need cash flow," Mr. Nardone said.
ESPN says its high ad rates reflect its large audience and technological sophistication. The site claims 450,000 visits per week (visits represent individual users, but ESPN has no way of determining how many of the visits are unique users vs. repeat visitors).
For each advertiser, Starwave creates one or more "bridge" pages that serve as interim pages between the ESPN content and the advertiser's site.
"We are working with advertisers to develop marketing programs that work for them," Mr. LeFurgy said. "We're not just giving them avails."
So far, the Starwave approach is working. Although he admits Web ads are "for the most part" expensive, Doug Powell, media account director at Levi agency Foote, Cone & Belding, San Francisco, adds: "We would not have made a commitment that we did not think made sense."
In the end, value may be the final determiner of Web ad rates, because the medium-like no other-is capable of providing both buyers and sellers with immediate, accurate data on whether an ad is seen and whether it incites a user to respond.
"It's a market that's trying to find its price point right now, and in the end the market will be driven by the buyers," said Mr. Boyce.
Jane Hodges contributed to this story.