PUBLISHERS EMBRACE NEW-MEDIA PROJECTS BUT WILL HAVE TO WAIT SEVERAL YEARS TO SEE RETURN ON INVESTMENT

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The interactive gold rush is on for magazine publishers, but it will be a long time before they strike it rich.

Nearly every major publishing company has installed an interactive "guru" whose job is to guide the company into online services, CD-ROMs and, eventually, interactive TV.

But despite their enthusiasm, most publishers admit they won't see significant revenue from new media any time soon.

"They'll be very small for a long, long time," said Hearst Corp.'s Al Sikes of revenues from Hearst's multimedia activities. "I'd love to think they'll be big quick, but realistically, it's going to continue to be a fairly small part-but quite strategic part-of Hearst's business for some time to come," said Mr. Sikes, president of the New Media & Technology Division.

Meredith Corp. is taking a similar long view.

"I think [multimedia] will be an additional and very important revenue stream to us 10 to 15 years from now," said Joe Ward, president of Meredith Multimedia Interactive and Meredith's book group.

That hasn't stopped publishers from rushing pell-mell into interactivity, though.

Hearst last month announced HomeNet, a collection of interactive products, including CD-ROMs and an online service, related to its home magazines. Hearst also will participate in cable company Groupe Videotron's interactive TV test next year in Quebec.

Meredith so far has issued only one CD-ROM, based on Better Homes and Gardens. Another, also based on BH&G, is due out next month. Meredith is looking into cable channels and online services as well.

Other publishers are equally involved:

Time Inc. is working on CD-ROMs based on several magazines.Time Inc. magazines will also provide information for the Orlando interactive TV trial's News on Demand service.

Ziff-Davis Publishing Co. is deep into online services, with its own ZiffNet and the soon-to-be-launched Interchange Online Network. Ziff also tested a CD-ROM version of PC Magazine.

International Data Group offers PC World/Exec Direct, a high-tech shopping mall, on CompuServe, as well as CD-ROM editions of its magazines.Hachette Filipacchi Magazines is now putting several magazines on America Online; it also has an agreement with Tele-Communications Inc. to start an automotive channel.

Rodale Press offers Bicycling on America Online and is exploring developing CD-ROM titles based on its health magazines.

Newsweek InterActive, one of the first magazines to come out on CD-ROM, just published its fourth issue.

"It's almost like a herd mentality, that everybody's willing to invest something in multimedia," said Leo Scullin, president of Scullin & Co., a New York media consultancy. "A lot of it is going to be wasted money."

To some extent, publishers are willing to take that risk.

"Our basic philosophy is to look at business opportunities, not experimental opportunities," Hearst's Mr. Sikes said. Even so, he admitted, there's still lots of uncertainty-about profitability from a multimedia venture, how it should be done, if it should be done.

There's also the question of what happens to the print product, and print revenues.

"Anything we do in this [interactive] arena will complement rather than cannibalize our existing magazine businesses," said Curtis Viebranz, president of Time Inc. Multimedia. He added, however, that "I don't think anybody in the Time-Life Building thinks that News on Demand is going to be a huge money-spinner anytime in the next two or three years." Or, some might say, even longer.

Going online

So where will new-media revenues come from? Publishers hope they'll come from online services and CD-ROMs, which not only extend a magazine's brand name but also enhance the printed product.

But simply putting a magazine online doesn't offer much in the way of revenue to publishers. Most, in fact, consider online magazines a break-even venture and a way to gain experience in interactivity.

"The online area, so far, doesn't offer any enormous revenue potential," said Peter Spiers, publisher of Backpacker and director of new media at Rodale Press. "If we can break even and learn something from it, that's a successful project in the online area in the near term."

Online services typically pay magazines a percentage based on the amount of time members spend in the online magazine, or based on how many subscribers sign up for the online service because of a particular magazine's presence there.

Publishers are starting to find ways to make money online, however. News Corp. bought a service, Delphi Internet Services, last year.

Time Inc. is considering creating its own venue on an existing online service or possibly its own online product. So far, only Time is available electronically, on America Online.

"The model heretofore has been everyone doing their own deal, and we're saying that's not really a model we want to pursue in the future," Mr. Viebranz said. "I think there will be a compelling economic and business model for aggregating all this content online."

And in perhaps the boldest move, Hachette is urging its electronic editions on America Online contain ads. America Online hasn't ever accepted such ads.

"It may be more difficult than it [should] be for a subscriber to request a brochure from an [online] advertiser," said Mario Cooper, VP of Hachette Filipacchi Multimedia. "You should be able to go right in where there's an icon, push it, read about an advertiser, and at the end push a button that says please send me more information."

Hachette earlier this month started online versions of Road & Track and Flying and plans to bring at least three more magazines online this spring.

Ads will also play a significant role in Ziff's upcoming Interchange Online Network.

"We are going to dedicate the first year of our Interchange network to a series of experiments with some major advertising partners where we will mutually explore how to capitalize on" online advertising, said Michael Kolowich, president of Ziff-Davis Interactive.

Ziff and its competitor IDG may have an advantage over other magazine publishers in that their audience is technology-savvy. Ziff, in fact, says revenues from all electronic publishing ventures will be over $100 million this year, about one-tenth of total revenues.

The CD-ROM spin

With CD-ROMs, the revenue potential is less clear and the learning curve is greater.

"CD-ROM does make some sense for magazines to get involved with," Mr. Scullin said. But "it's a much more difficult medium to transition to from print."

Some publishers, however, say doing a CD-ROM is almost as easy as signing a licensing agreement.

"Because our brand names are so strong, it's hardly an expenditure at all for us because people are coming in-literally beating down the door-offering to do everything in exchange for the use of our brand name," one publishing company executive said.

Time Inc. is considering selling sponsorships on its CD-ROM titles.

Even more risky, both creatively and financially, is the prospect of interactive TV. So far only Hearst and Time Warner have made definite commitments to the medium.

Such risks are necessary for magazines, Mr. Scullin said.

"They're smart to hold out optimism and [yet] be patient and cautious," he said. "But I think what's going to happen is this rush to invest, this rush to get involved, will move the art form forward that much faster. It's going to bring the winners into sharper focus more quickly."

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