AOL content partners find silver lining in a dark cloud

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Since Dan Hurley launched The Amazing Instant Novelist on America Online nearly two years ago, he's attracted hundreds of loyal followers to his quirky smorgasbord of humor, poetry, and 60-second novels. But now he counts his audience in the thousands.

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"My jaw drops every morning seeing how many hours we pulled [the day before]," says Mr. Hurley. "Our usage has so gone through the roof that we're in the process of soliciting bids from top advertising agencies."

What's driving Mr. Hurley's traffic skyward is AOL's new flat price of $19.95 a month for unlimited access. While the deal has been a disaster for AOL, which is having to pay millions of dollars in refunds because customers couldn't even get into the service, it's been a godsend for the New York companies supplying AOL with content.

Their chat rooms are jammed and usage fees from AOL have soared. They're looking to cash in, pitching to new advertisers and predicting higher ad rates.

The trick will be to convert a short term blip into long term loyalty that can command more ad dollars. That won't be easy if AOL doesn't fix its problems soon.

For the most part, the soaring traffic is playing into the hands of the largest content developers with a well developed infrastructure to sell ads. They are delivering sooner on their commitments to advertisers, allowing them to clinch long term deals or free up ad space for new sponsors.

The Knot, an AOL area targeted at brides planning their weddings, has seen its traffic triple since the new pricing debuted.

"Our community is packed to the seams," says Michael Wolfson, a principal in Element Studios, which produces the Knot. "People are putting more content on message boards, playing more games and requesting more catalogs from advertisers."

The Knot has garnered $180,000 in advertising since it debuted last September and is now hoping for $500,000 to $750,000 in ad sales for 1997. The audience surge has already helped it deliver twice the estimated number of eyeballs to Celebrity Cruises in the first three weeks of Celebrity's ad campaign last month.

"It's going to enable us to attract advertisers who may have had questions or concerns about our audience size," says Rob Fassino, marketing director.

Other content players, such as Manhattan-based iVillage, are delivering the committed number of impressions to advertisers much more quickly than promised, opening more slots for new ads. Its newest channel, About Work, saw a 184% jump in traffic in December.

Flat pricing has "increased our traffic hugely, says iVillage President Nancy Evans. "We have more room to rotate advertising and put more advertising on."

At the same time, smaller players, who have relied mostly on AOL usage fees that can reach $50,000 to $80,000 a month, are now racing to make advertising a bigger part of their revenues. Mr. Hurley, the instant novelist, has interviewed three interactive agencies to represent him and expects to sign with one soon.

Eugenie Diserio, who operates ASTRONET, an astrological area, did about $35,000 in sales to three advertisers. This year, Ms. Diserio is hoping to bring in $200,000. It doesn't hurt that in December, ASTRONET clocked 93,000 hours of viewing, up 55% from November. For January, Ms. Diserio is projecting 150,000 hours.

"We are scrambling," says Ms. Diserio. "Every day that goes by and we don't have [ad space] filled, we are losing serious money. People who two months ago wouldn't have been interested in being on our front screen are now much more interested because of the number of impressions."

If developers can sustain the increased traffic, say industry regulars, they'll be able to boost their ad rates as vendors fight for space on popular areas.

"Eventually, it will affect the bottom line," says Colby Hall, executive producer of Spin magazine's SPINOnline, which has seen its hours climb to 30,000 from 12,000 in the course of a month. "CPMs, the cost for an impression, will go up."

In the meantime, boosting total ad dollars is becoming essential for content providers. Along with its pricing change for subscribers, AOL is slicing its payments to its content partners. They used to get 10% to 20% of subscriber fees based on the total number of audience hours they clocked. Now AOL is planning to pay them something closer to a flat fee.

While many developers alsohave a presence on the Web, small players like ASTRONET and The Amazing Instant Novelist have come to rely heavily on their cut from AOL. To attract the ad dollars in a medium where the supply of advertising space is still greater than the demand, say analysts, developers will have to turn the two-month traffic surge into a long term trend.

That means fixing the traffic jams--quickly. AOL has said it will spend $350 million in the first half of this year to upgrade its network.

"The price change has been mostly good for content providers," says Mark Mooradian, a senior analyst with Jupiter Communications. "The problems will come if people view the AOL brand negatively and don't bother signing on because they don't think they can get in."

Copyright February 1997, Crain Communications Inc.

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