Ad Space is Hot in CYBERSPACE

Folio: The Magazine for Magazine Management, April 1, 2004 by Karen Holt

Byline: Karen Holt

Forget all that depressing news about the collapse of the dot.com boom and the ensuing wreckage. It's all history now. In 2003, Internet shopping made a huge comeback. Sales increased 27 percent, to $93 billion, according to ComScore Networks, and as consumers Google-d around the Web in search of bargains, news and downloads of Paris Hilton's home movies, online advertising jumped 20 percent, to about $7.2 billion, according to the Interactive Advertising Bureau. That trend may be accelerating: In the fourth quarter, ad sales soared 38 percent, to $2.2 billion, breaking the fourth-quarter record set in 2000.

Even better, this flood of online ad spending is raising most magazine boats. While publications have had trouble luring advertisers back to print (consumer ad pages fell slightly in 2003 - for the third year in a row), magazine Websites are thriving. Ad revenue for the 26 members of the Online Publishers Association (OPA) rose, on average, by 45.9 percent in the third quarter of 2003, over the same period in 2002. For the first three quarters of the year, ad revenues rose on average 38.2 percent.

It's an "I-told-you-so" moment for online publishers. "We knew that if we had the stomach to wait and the discipline to keep costs low, the day would come when we would see substantial amounts of money," says Sarah Chubb, president of Condenet, which includes Epicurious.com, Concierge.com and Style.com (Conde food, travel and fashion magazines). Condenet - a member of the OPA - revenues soared 62 percent in 2003, and the company projects at least 30 percent growth this year. "There are huge numbers of advertisers in some of our categories who barely have their toes in the water," Chubb says.

OPA executive director Michael Zimbalist says he expects more of the same this year. "We think that many [advertisers] have passed through the experimental phase," he says.

The success of online advertising for b-to-b brands is even more striking. In the past three years, pages have fallen 30 percent across the industry, including a 3.2 percent drop in 2003, according to Business Information Network. But b-to-b Websites saw a 25 percent increase in ad revenue in 2003, estimates American Business Media president and CEO Gordon Hughes. He's predicting a 40 percent hike for 2004. "In b-to-b, the events are outperforming the magazines, but the Internet is outperforming everything," he says.

RENEWED FAITH

Ziff Davis Media is a good example of the phenomenon. While it lost print pages across its titles, its online revenue soared by 89 percent. There is no question that demand for online ads will continue to outstrip the demand for print ads, says Ziff CEO Robert Callahan. He told analysts in March that even though the business has stabilized, the company still expects tech spending to be weak. "Everyone is snakebit, we just have no idea when the spending will resume," he says. As a result, Ziff is telling investors not to look for significant print gains. But the company expects rapid growth to continue in its online businesses. "Online demand is much stronger than print right now."

Why is online suddenly clicking? After years of effort, the best sites have amassed a large and loyal audience that marketers want to reach; the creative quality of the ads has improved, making them more effective; and publishers now have advertising success stories to bolster their promises of results. The average "view-through" rate - the measure of whether a consumer takes some action related to a product within 30 days of seeing an online ad - rose to 0.75 percent in the fourth quarter of 2003, a 42 percent increase over the final quarter of 2002, according to a new report from DoubleClick.

What's more, after two years in which e-publishers were simultaneously cutting their ad rates and building bigger audiences, online is the place for bargain-hunting marketers to reach consumers for much less than they would have to spend in print.

Now, says OPA's Zimbalist, the faith of publishers such as Conde Nast has been restored, and other magazine companies that avoided the Web or did not pursue online aggressively are rethinking their plans. "The question they're asking now is not so much 'why should we be doing this?' but 'how?'"

In some cases, an influx of new advertisers is driving ad sales growth. Hanley-Wood's Websites, for example, had 92 advertisers in 2002 and 124 last year. This year the company expects to have 170 different advertisers buying online space.

Forbes.com, where ad revenues jumped 60 percent last year, attracted only a few new advertisers in 2003, "but there was a very large increase in terms of total dollars spent per advertiser," says Jim Spanfeller, president and CEO. Advertisers spent more to get more - Forbes.com's audience tripled last year, attracting 6.9 million unique visitors a month by the final quarter - a number that has since risen to 7.8 million. In addition, most advertisers are springing for higher-priced rich media ads.