It's going to be a merry Christmas for magazine publishers, thanks to a fourth-quarter surge in ad spending by Internet companies--a category that practically didn't exist a year ago.
"It's really very, very hot right now," says Richard Fairfield, VP-strategic planning and new media for American Express Publishing Corp. "We're getting calls from dot-coms at all stages of the process--through an agency, before an agency, before there even is a site."
Mr. Fairfield estimates dot-com ads more than doubled at his company this year, to account for about 5% of total ad pages.
While 5% may seem puny, Internet/online services is the fastest-growing ad category for many publishing companies. Internet companies spent $271.1 million on magazines in the first nine months of the year, up 193.6% from the same period a year ago, according to data from Competitive Media Reporting. The Internet/online category comprises ads that tout a Web site or online service. It does not include ads that simply mention a Web address.
$186 MIL SPENT ON MAGAZINES
For example, an ad for barnesandnoble.com would be included in the category; an ad for Barnes & Noble would not if it simply mentioned the company's URL.
Fourth-quarter spending is even more robust, with some magazines estimating dot-com ads will account for 6% to 11% of sales (vs. 4% to 10% for the year, depending on the publication). By yearend, dot-com companies will have spent $186 million on magazines, estimates Charlene Li, an analyst with Forrester Research. At Entertainment Weekly, one out of every 10 fourth-quarter ads will push a Web site, accounting for about 11% of sales for the period, says Associate Publisher David Morris.
OUT OF NOWHERE
Many of the Web-oriented ads have come to Entertainment Weekly and other magazines from out of the blue, and from some unexpected industries. At Entertainment Weekly, for example, Reel.com recently signed a one-year contract--"a year ago, I did not know who they were," says Mr. Morris.
He says new advertisers include toys, auctions, furniture and, for the lovelorn, a dating service out of San Francisco called Matchmaker.com.
"We would never think to call on a dating service, but because it is the Internet, it seems totally appropriate," he says.
One Internet company that came out of nowhere to Entertainment Weekly and more than 50 other magazines is the search engine
Ask Jeeves, which has an estimated ad budget of $15 million to $20 million. For the second and third quarters of the year, Ask Jeeves divvied up its marketing budget equally among TV, radio and magazines. But after seeing TV and radio fill up with dot-com advertising and watching prices escalate, the site devoted its entire fourth-quarter budget to magazines.
"We wanted to zig when everyone else was zagging," says VP-Consumer Marketing David Hellier. He says magazines enable Ask Jeeves to tailor each of its 150 ads to the interests of the specific audience.
The fractional ads, created by Euro RSCG DSW Partners, Salt Lake City, offer questions consumers might pose to Ask Jeeves in search of Web sites that provide answers. Examples include: "How can I e-mail my senator?" for Time; "How can I baby-proof my home for the holidays?" for Martha Stewart Living; and "What's new with Ben Affleck?" for People.
The dot-com ad bonanza in magazines follows several months of steady growth, as fledgling Internet companies sought to establish their brand names, draw traffic to their sites or build momentum before an initial public offering of stock.
Advertising has increased dramatically in the fourth quarter as many dot-com companies try to cash in on the dollars consumers are poised to spend on e-commerce. Forrester estimates U.S. online retail sales will reach $20.2 billion for 1999, with $4 billion of that being spent between Thanksgiving and New Year's Day. That is up from $1.5 billion during the holiday season in 1998.
"Most of the dot-com companies are advertising prior to Christmas to get traffic to their sites now that e-commerce has arrived," said Donna Kalajian Lagani, senior VP-publisher of Hearst Corp.'s Cosmopolitan. Cosmo's 18.8 dot-com ad pages in the first nine months of the year put it among the top 25 magazines based on Internet/online services advertising, according to a Publishers Information Bureau ranking of Competitive Media Reporting data. Ranked 24th, it was the only women's magazine to make the top 25 in that period, the most recent figures available.
SOME SURPRISED, OTHERS PREPARED
The Internet-ad surge caught some publishers by surprise, but others saw the momentum building in the second quarter and rushed to put together special fourth-quarter issues, articles or guides on e-commerce. Hearst's Good Housekeeping, for example, anticipates 40 dot-com pages in the fourth quarter, up from just a few pages in each of the first three quarters, largely attributable to fall and winter Internet-related features, reviews, guides and special reports.
"We could see it coming, but we needed to get out ahead of it and not wait for them to come to us. We found a consumer need, which was a guide to e-commerce," says Pat Haegele, senior VP-publisher of Good Housekeeping.
After a dizzyingly fast gestation, Meredith Corp.'s print supplement Shop Online 1-2-3 already has increased to a quarterly publishing schedule for next year. The product was conceived as a onetime supplement last spring. This winter, 4.9 million copies are being poly-bagged with 10 Meredith titles, and a companion Web site launched in October.
"Normally, we need a full year, but with the Internet, if you wait a year the business will be completely different," says Joe Lagani, VP-publishing director at Meredith.
Next year, the business of Internet-related ad sales could be completely different, too.
"Publishers and reps are thankful [for the business] but nervous as well. It's perceived as a ghost phenomenon, because the companies may not be around in the long term," says Doug Powell, media director at FCB Worldwide, San Francisco, agency for Amazon.com.
BOOM TO LAST AT LEAST A YEAR
The New Yorker Publisher David Carey sees the ad boom lasting at least another year.
"There is a whole other set of sites in development that are funded by venture capitalists or private investors looking to build brands," he says. "They're like planes stacked up to land at LaGuardia."
Dot-com advertising accounts for about 9% of The New Yorker's ad sales this year, up from zero in 1998.
One situation that could make the ad category vulnerable is that magazines often play second fiddle to broadcast and radio.
"One of the things that is driving the fourth-quarter frenzy in print specifically is that broadcast is sold out. We're not having to compete against other media, we're just getting" the ads, says Bruce Rogers, VP-marketing communications for Forbes.
The Internet category comprised 5.4% of Forbes' advertising for the first nine months of 1999. In the fourth quarter, the magazine will run about 100 dot-com ads, accounting for about 6% of sales, he says.
Mr. Rogers believes the dot-com category will remain strong next year, but for different reasons.
Today, Internet companies must "get up fast, build the brand and get bought. They're in the business of selling their business. They won't all succeed," he says.
While many companies will disappear next year and beyond, others will merge or be absorbed by competitors.
"It may settle into a few major players with significant marketing budgets. Instead of someone putting in for three pages--a big deal for a start-up--it might be 26 pages, which is what you saw with PC and software companies.
"When they started out, they were putting fractional ads in the enthusiast magazines. Now [those software companies] are some of the largest corporate entities in the world, Mr. Rogers says.
Copyright November 1999, Crain Communications Inc.