SCHOOLS FOR SALE -- A DECADE OF LESSONS: CHANNEL ONE HELPED SPAWN A NEW BREED OF IN-SCHOOL MARKETERS. HAS COMMERCIALIZATION IN OUR NATION'S CLASSROOMS GONE TOO FAR?

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Pop quiz:

Companies selling products to children can

A) Conduct large-scale market research projects inside schools

B) Expect to pay high fees for exclusive marketing contracts with school districts

C) Reach teen-agers who are using school computers with hip 30-second TV commercials

D) All of the above

The correct answer is D.

In the 10 years since Christopher Whittle and his Channel One newscasts stirred national controversy by introducing TV advertising into schools, marketers and school administrators have grown more savvy in their dealings with each other. School leaders have discovered their negotiating muscle, forcing beverage manufacturers to boost their fees by as much as 1,000% for the right to shut the competition out of a school district. And companies have become smarter about tailoring their activities to educational environments.

All of this has created some extraordinary opportunities for businesses to reach a market that was entirely off-limits just a decade ago. It has also raised alarms among state and federal officials about the extent of commercial penetration of the nation's schools. In late September, U.S. Rep. George Miller, (D., Calif.), introduced legislation calling for a nationwide study to determine how widespread advertising in schools is, and California enacted two powerful laws to slow school commercialization.

"Students should go to school to learn, not to provide companies an edge on the hotly contested youth market," Rep. Miller said as he introduced his legislation.

MORE SOPHISTICATED METHODS

Yet even as the outrage continues to intensify, so does the level of sophistication of in-school marketing. Within the last few years, several upstart companies have cracked the code for entry into U.S. schools. Education Market Resources, a young Kansas City, Kansas, market research company, has escorted dozens of the nation's largest companies -- Walt Disney Co., Kellogg Co., Mattel, McDonald's Corp. and Pizza Hut -- into several hundred elementary and secondary schools in 90 cities to conduct focus groups on kids' reactions to new flavors, toys and ad campaigns (see related story, Page 24). Cover Concepts Marketing Services has quietly maneuvered corporate giants such as Nike, Calvin Klein, and Quaker Oats Co., into classrooms in 31,000 schools via free textbook covers sporting trendy ads. Last week, ZapMe!, a year-old Internet company developed expressly to deliver ads to students, went public, selling shares on Nasdaq.

"There are a couple of reasons why commercial interest in kids and schools has intensified," says David Walsh, president of the National Institute on Media & the Family, a non-profit group in Minneapolis that studies the impact of media on children. "One is the size of the market. Basically, the school population right now is the largest market segment in America. And this is the only market segment where there is an institution where they are held as a captive audience for 6 hours a day."

Corporate america has found enterprising ways to reach this huge, stationary market. ZapMe!, for instance, has a deal educators find hard to resist: schools get free high-end computers -- high-speed, broad-band Internet connections, and a network of 11,000 pre-selected education Web sites -- in exchange for a promise to use the computers at least 4 hours a day. ZapMe! gets a guaranteed teen and pre-teen audience for the commercials that run continuously on the lower left-hand corner of the screen, and permission to monitor the students' Web browsing habits, breaking the data down by age, sex and ZIP code.

None of this bothers Kathy Reinheimer, head librarian at Egg Harbor Township High School, in Egg Harbor, N.J., a school that has had 15 ZapMe! computers up and running since last spring.

"The students love it," says Ms. Reinheimer. "We had a class in here yesterday doing research on the pyramids in Egypt. And they were able to get to the PBS Nova Web site through ZapMe! And it was wonderful . . . they got all kinds of archaeological information."

Ms. Reinheimer and her colleague Michael Sweeder brush off concerns about the presence of ads, comparing ZapMe! to its competitors. "To me, if kids are going to computer labs anyhow, they're getting on GeoCities, AOL and Hotbot, where there is more advertising that is more overt and more intrusive than anything on the ZapMe! space," Mr. Sweeder says. "And ZapMe! gives you 11,000 education sites right there. So kids might not even have to go beyond that to do average, basic research."

REGULAR COMMERCIALS

The ZapMe! ad space, however, is not the static banner Web browsers are used to. Because of its high-quality Internet connections, ZapMe! can run regular commercials in the space. When students click on the ZapMe! ad space, an expanded version of the commercial fills the screen. By clicking on the expanded version, students can go directly to the advertiser's home page.

The appeal of ZapMe! for advertisers is that it marries two things that are very powerful, the Internet and the in-school experience, says Julie Halpin, CEO of Geppetto Group, WPP Group's 2-year-old New York ad shop specializing in the children's market. Schools are powerful, Ms. Halpin says, "because there's no clutter. It's not like a magazine, or TV, where you're with a thousand other ads."

Students at the ZapMe! computer lab in Egg Harbor Township High School were a little less bowled over than the ad executives, though. "I don't really see them," one ninth-grader says of the continuous ads on the corner of her screen. "I don't see, like, stuff to buy."

"Ugh," said another when he was asked to click open the Arizona Jean ad. "I hate these commercials."

ZapMe! says it has signed up 6,000 schools in the last 12 months, but, at least on the East Coast, the company is struggling to get its network up and running. Schools in Philadelphia and New Jersey that signed contracts last February are still waiting for ZapMe! to install systems that were promised for last spring.

Channel One, the pioneer in school advertising, meanwhile, is still going strong. In 1994, Mr. Whittle averted personal financial disaster by selling Channel One to K-III Communications (now Primedia), but operations were unaffected by the sale.

Almost half the nation's high schools are wired for Channel One's daily 12-minute newscast and commercials. In exchange, schools get free TV sets for every classroom and a satellite hookup. Some 8.3 million teen-agers watch the newscast and commercials every day; 30-second spots go for up to $200,000 and the venture nets about $30 million a year.

Business executives are not the only ones who have wised up to the in-school marketplace. In the last few years, school superintendents, too, have received an education in Business Negotiations 101. In Colorado Springs, Colo. -- ground zero of the marketing explosion, where businesses can sponsor spelling bees and hang posters promoting teen products in the halls -- school officials have extracted a 10-year, $8 million contract from bottler Coca-Cola Enterprises.

In the last 18 months alone, the number of exclusive soda contracts in school districts has increased nationwide 300%, to 150. Like many others, Colorado Spring's $8 million deal was brokered by Dan DeRose, head of DD Marketing in Pueblo, Colo., a company that has single-handedly changed the financial equation for schools and beverage companies around the country. This month, the San Jose, Calif., school district and Pepsi Bottling Group officials are expected to sign a DD-brokered deal that will raise per-pupil soda revenues for the schools from $2 a bottle to $26.

"For the last 20 years, Coke and Pepsi have gotten into schools for the cost of providing a scoreboard and a plastic cooler for the football team," says Mr. DeRose. "And we come in and say that's not going to happen anymore."

"Schools are pressed from all sides for funding," he adds, "Taxpayers are asking schools to be creative and innovative, to exhaust their resources before going back to the taxpayers."

CORPORATE PARAPHERNALIA

Schools with exclusive beverage contracts sometimes find themselves inundated with corporate paraphernalia. Ryan Crockett, a senior at Doherty High School in Colorado Springs who protects his calculus book with a Coke book cover, says the proliferation of Coke products in his school doesn't bother him -- except when school officials start pushing students to drink more Coke.

"Apparently we don't buy enough of their product to be worth the deal," he says. "At the junior high school my brother went to last year, the school stopped selling soft drinks at the dances from a stand. Students had to buy their sodas from the Coke machines."

While kids may chafe at pressure to buy soda, critics are concerned about more subtle coercion that commercial activity may exert on children. "Kids are in school to learn to read and write and how to think, not to learn to desire products," says Gary Ruskin, president of Commercial Alert, a consumer watchdog group.

Even those who approve of partnerships between businesses and schools are troubled by the increasingly sophisticated product advertising in schools. "Kids are so bombarded with commercial messages outside of school," says Mr. Walsh of the National Institute on Media & the Family. "The risk is that they will be treated increasingly as consumers in the one institution where they're supposed to be treated as learners."

SOME LIMITS IMPOSED

Concerns like these are causing state and federal legislators to take action. A California law which goes into effect Jan. 1 bans exclusive soda and electronic contracts unless schools follow a set of strict procedures designed to ensure the public's chance to voice its objections. The legislation's sponsor, Democratic Assemblywoman Kerry Mazzoni, says she sympathizes with school leaders who are desperate for funding and high-quality resources. "But the reason school districts have gone to these contracts is because of funding problems we've had in California. That's not the right solution," Assemblywoman Mazzoni says.

Ms. Mazzoni also has shepherded a bill into state law this fall that bans the use of textbooks with brand names and company logos embedded in the material. That bill comes in response to complaints from a California parent about "Mathematics: Applications & Connections," a middle-school math book from McGraw-Hill that spices its word problems with references to Barbie, Oreos, Nike, and Sony PlayStations.

A McGraw-Hill spokesman says the company has revamped the book for California but has no intention of pulling it from other states. "This is the best-selling middle-school math book in the country. Teachers demand it."

Rep. Miller's bill, in addition to setting up a study of the extent of commercialism in schools, would prohibit ZapMe! and others from monitoring students' browsing habits and purchasing preferences unless parents give written permission. "He's not trying to usurp local school decision-making," says Daniel Weiss, a member of Rep. Miller's staff. "He realizes how strapped schools are. He just thinks we need to look at all the costs and benefits of these arrangements before we go much further down this road."

Now, though, there may be no turning back. In today's hyper-competitive business environment, consumers of all ages are inundated with marketing messages -- adding new meaning to the term, "from the cradle to the grave." America's

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