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TAKING NEW AVENUES AS CD-ROMS GROW, MARKETING IS CHANGING

By Published on .

Despite all the hype over CD-ROM, a sobering reality has begun to creep into the psyches of some of the medium's biggest proponents.

Marketing a CD-ROM is no longer just a matter of bundling it with the latest multimedia computer or putting it on the shelves of computer hobbyist stores. CD-ROMs are turning up with increasing frequency in bookstores, video stores and mass merchandisers.

And marketing is taking on significantly more importance. With some 3,000 titles available now, software companies are finding that in order to stand out, they need to broaden their marketing mix and boost spending, leaving less money for development and production.

"Most CD-ROM-oriented products have traditionally been sold through computer stores," said Craig Moody, chief operating officer at Time Warner Interactive, publisher of more than 30 CD-ROM titles. "But over the last 6 to 9 months we've seen a migration to mass merchants and office club environments. Toy retailers will probably start handling CD-ROMs by the end of this year, too."

Mr. Moody thinks CD-ROMs will be a very healthy business during the next 18 to 36 months-but only for companies that have the strength to weather the storm.

"There's a shakeout going on in this industry right now," said J.G. Sandom, president and chief creative officer at Einstein & Sandom, a New York-based interactive advertising agency recently acquired by D'Arcy Masius Benton & Bowles. "The brisk sales of CD-ROM players notwithstanding, many of the software developers who've made the transition into publishing have lost their shirts ... I think some people are realizing this business isn't so easy after all."

Despite increased demand for product, many publishers have cut back on multimedia titles because of the added costs for production and a general stiffening of the competition.

"These factors are causing people to spend more of their total dollar pools on marketing and distribution as opposed to the development of titles," Mr. Sandom said. "These combinations tend to make the market much less attractive."

Steve Riggio, exec VP for bookstore chain Barnes & Noble, disagrees.

"We think it's an explosive marketplace," he said. "And the expansion will come from more creative packaging and more exciting titles. Bookstore demographics are perfect for this type of product. Large numbers of our customers have computers, they're educated and they're inclined to try new things."

Mr. Riggio said Barnes & Noble will start selling CD-ROMs at its stores this fall. The retailer operates 940 stores nationwide.

Competitor Borders also wants a piece of the action: It will start selling CD-ROMs at some of its stores this fall. Blockbuster, meanwhile, has been renting CD-ROMs in a few stores for several months, while mass merchandiser Wal-Mart Stores carries only the top-selling discs.

"Once you get into non-traditional [CD-ROM] retailers, it's very experimental," said Bruce Ryon, multimedia analyst with Dataquest. "Generally, you'll see the biggest sellers of these titles will not have more than a dozen that they're actually selling."

One CD-ROM developer is betting on low price and mass distribution to get a foot in the door. Image Entertainment plans to sell movies on CD-ROM in discount, video, music and computer stores at a price point of $10 to $20, much lower than the $50 norm.

Getting on store shelves is one thing; getting into consumers' computers is an entirely different challenge.

Multimedia developers are hiring ad agencies and planning TV campaigns. And they're teaming with bigger media companies that can help create a consumer image and provide crucial marketing dollars.

Ehrlich Multimedia, recently acquired by Times Mirror Co., is shopping for an ad agency to help it market two new CD-ROMs, "Food & Wine's Wine Tasting" and "Cyberboogie With Sharon, Lois & Bram," due out this fall. Ehrlich plans to run cable TV spots and ads in consumer magazines.

"I think what you're seeing in our marketing approach is something radically new in the marketing of interactive multimedia software," said Debra Miller Fleischer, director of marketing. "We're going straight to the consumer ... as opposed to trying to promote [the CD-ROMs] through a more typical software medium."

Time Warner's Mr. Moody believes adapting to changes in marketing and distribution will be the most important challenge facing the CD-ROM industry in the next few years.

"Getting retail shelf space for multimedia is the art and magic of this business," Mr. Moody said. "Keeping it in 1995 and 1996 will be what separates the major players from the rest."

Debra Aho contributed to this story.

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