Growth of Dot.com Dollars Slows for Magazines

Folio: The Magazine for Magazine Management, April 1, 2000 by Andrew Marlatt

The magazine industry fared well in grabbing ad dollars from Internet companies last year, but their piece of the dot.com pie continues to shrink.

In a market where everyone seems to gain, it's hard to complain, but an extra $117 million is worth at least a grumble. That's what magazines would have added to their 1999 revenues had Internet companies stuck to 1998 advertising habits.

In the first 11 months of 1998, magazines grabbed 25 percent of the ad dollars spent by dot.coms. A year later, the percentage was down to 20. Most of the difference was snatched up by television, which increased its share from 48 percent to 51 percent.

Kelly Conlin, CEO of IDG, attributes the gap between magazines and television to the "embarrassment of riches" lavished on Netcos by venture capitalists, and insists that magazines will close the gap this year as those same companies learn from experience where their money is best spent.

But the numbers reveal another gap that has emerged. According to Competitive Media Reporting, dot.com advertisers poured $500 million into magazines in the first 11 months of 1999--less than half the amount garnered by television, but nearly twice that for radio. While magazines witnessed an impressive 383 percent jump in dot.com ad dollars compared to a year earlier, that actually put them near the bottom of the growth-rate heap.

Newspapers, with $341 million, took in 467 percent more ad dollars from Internet firms in the first 11 months of 1999 than in 1998's first 11 months. Combined spot and network radio jumped 507 percent, to $312.4 million. Dollars spent in national and local television soared 495 percent, to $1.25 billion, and even outdoor advertising, with a 482 percent jump, outstripped magazines' pace.

Why have magazines fallen behind? "I think it has to do with the type of companies that came to market last year," Conlin says. "There was a lot of emphasis on consumer brands and I think those other media (radio, newspapers and outdoor) hadn't really been as successful early on at capturing advertising. They sort of woke up to the opportunity."

Nonetheless, magazines certainly have done well in obtaining ad dollars, which shouldn't be surprising, says Ellen Oppenheim, senior vice president and media director at FCB Leber Katz Partners. For one, it's simply cheaper to create a magazine ad than a television commercial, and while Internet companies are often legendary for their profligate spending, many do have limited budgets that demand they keep an eye on production dollars. Another factor is magazines' ability to minimize waste. With so many niche publications, they are low-hanging fruit for some niche dot.coms.

However, Oppenheim envisions that ad spending on television will continue to outstrip magazines, and not just because television hosts the Super Bowl, where this past January the action on the field paled in comparison to all the Internet firms jostling for air time. "The whole phenomenon of the IPO may play a role," she says. "You need to make the investors feel you're a large and thriving company. You want to look big, and as wonderful as print advertising is, broadcast is still a pretty dramatic medium."

But Conlin argues recent events contradict that practice. IDG, he reveals, tracked the stock prices of a dozen Internet companies that advertised during the 2000 Super Bowl. Their share prices, which had been increasing throughout December 1999, "dropped like a stone" the day after the Super Bowl, he says.

"There was an interesting correlation between the buzz and the perceived value that advertising on the Super Bowl would get you. There was a very strong deterioration post-game when the panacea that the Super Bowl was thought to be didn't result in the kind of brand benefit or stock appreciation that some people expected."

As a result, Conlin says, "The initial exuberance, the experimentation and spending in a non-discriminating way just because the money is there--that will give way to the more typical environment which is resource restrained."

Distributing The Dot.com Ad Dollars

Dot.com advertisers poured $500 million into magazines in the first 11 months of 1999, about half the amount garnered by television, but twice the amount for radio. While magazines witnessed an impressive 383 percent jump in dot.com ad dollars from the previous year, other media -- radio, TV, newspapers, even outdoor -- all enjoyed significantly higher percentage increases.

                       Jan-Nov      Jan-Nov      %
                          1998         1999 Change
Report Total        $530,561.9 $2,468,361.6    465
Magazines           $131,151.3   $502,083.8    383
Sunday Magazines      $3,214.9    $18,771.6    584
Newspapers           $19,454.4    $97,414.2    500
National Newspapers  $53,617.0   $243,641.6    454
Outdoor               $4,858.9    $23,437.7    482
Network TV          $110,041.7   $553,811.6    503
Spot TV              $67,279.3   $310,220.0    461
Syndication           $5,873.7    $24,389.6    415
Cable TV Nets        $73,448.2   $382,151.1    520
Network Radio        $24,324.7    $60,655.7    249
National Spot Radio  $37,297.8   $251,784.7    675
All dollars are in thousands (000)
SOURCE: COPYRIGHT 2OOO COMPETITIVE MEDIA REPORTING