Traditional media companies looking to the growing array of third-party ad networks as a panacea for unloading their remnant digital inventory might want to first speak with Rodale's Mary Ann Bekkedahl.

The publisher of leading health and enthusiast magazine titles like Men's Health, Prevention and Runner's World and their companion electronic products, Rodale has distinguished itself as a model for old media hands shaping their digital strategies. The company combined all its print and online sales efforts two years ago and grew its digital business to the point that it now accounts for better than 10 percent of the company's total ad revenue. (Digital ad revenue through June 2008 rose 11 percent versus last year, according to Rodale.)

Still, Rodale faced the same frustration as other publishers when it came to offloading its unsold online space. So, this past March, it made the decision, as others have, to turn over some of that inventory to third-party online networks.

The results weren't always pretty, recalls Bekkedahl, Rodale's evp, group publisher.

In one instance, an ad for an automaker popped up on a site where Rodale had already sold a schedule to a rival auto brand. In another unfortunate case, an ad for a fast-food chain showed up on a site's nutritional channel. The low point was when a Spanish-language ad inadvertently appeared on the English-language home page of Women's Health.

Then, there's the inherent lack of ad-content control that comes with handing over one's inventory to an outside representative. "We don't want the dregs of the universe and the sex toys," explains Bekkedahl. After just six weeks, Rodale pulled the plug. Now, Bekkedahl and her team continue to look for ways to offload their unsold sponsorships.

Over the past seven years -- as old-line media companies have spun off a proliferation of digital products and the supply of unsold online ads has grown -- the number of networks has also ballooned, from fewer than 50 to more than 300, per investment bank ThinkEquity Partners. While ad networks and their cousins, ad exchanges, offer an efficient way to unload inventory that would otherwise go unsold, common complaints are that networks amount to paltry ad rates, low-rent ads and, ultimately, the threat of undermining a brand's value.

Rodale isn't alone in giving up on the third-party model. On the cable side, ESPN and Turner fueled the conversation earlier this year when they cut their ties with networks. Now, other players, alarmed by the rapid proliferation of the networks and the industry's growing reliance on them, are following suit, or at least thinking about it.

New concepts are taking the place of the third-party players. One model that's gaining currency is an online ad network formed last fall by Forbes Digital that offers clients mass reach as well as targetability on sites that are handpicked by the company and editorially compatible to those of Forbes Media -- among them, RealClearPolitics.com and Investopedia, an online investors' resource Forbes bought in April 2007.



Forbes, like Rodale, was disappointed by the networks, says Jim Spanfeller, president and CEO of Forbes.com. In short, Spanfeller wasn't big on having outsiders selling Forbes' online inventory for what amounted to pocket change. "It wasn't really worth the opportunity cost," he says. "I think at the end of the day, larger sites like ourselves, we're really going to want to have as much control over our sales process as possible."

Martha Stewart Living Omnimedia, publisher of the domestic queen's eponymous magazine and titles like Everyday Food and Body + Soul, took a similar tack to Forbes last November when it launched Martha's Circle, a conglomeration of digital properties that today includes about 35 lifestyle sites and blogs.

MSLO's co-CEO Wenda Harris Millard -- who this past February warned in a now-famous speech against selling ad inventory like pork bellies -- says she expects more publishers to follow suit as they come to realize the pitfalls of giving outsiders control. "Magazines are wonderful brands, and brands are about experiences -- there is some concern that the networks are not going to protect their brand," she says.

Also taking a network-like approach, all the while keeping control, is Hearst Magazines, promoting its 20 or so sites as a "Portfolio of Experts."

Hearst sold JC Penney a presence across the sites of its CosmoGirl and Seventeen magazines, as well as Kaboodle, its online shopping and community site. "Our portfolio of sites is, essentially, a network," explains Chuck Cordray, vp, general manager of Hearst Magazines Digital Media.

Cordray says that while Hearst still uses outside networks to sell some remnant inventory, "We're concerned about dilution to advertisers. Adding lower-quality sites where the consumers are less engaged with the content is a concern for us."

Of course, not every player has scale on its side when it comes to digital - a factor they must consider as they explore forming their own sales networks. "If they don't build out their offering and can't offer enough impressions, visibility or viewership, chances are they probably won't make the plan," says Jeff Ratner, managing partner, digital director at MindShare North America.

To get advertisers' attention, "You really have to be in the top three," says Ned Desmond, president of Time Inc. Interactive. "If you're below that, you're really fighting for attention."

Time Inc., which sells from within as well as outsourcing to various networks, is doing "a lot of analysis" of how best to handle online inventory, Desmond says. Time, like others, is eyeing niche firms that specialize in selling ads on premium-content sites like Glam and the forthcoming ShortTail Media, which promises to match advertisers with premium-content sites.



The falloff in print business (magazine ad pages in the first half of this year declined by 6 percent overall versus last year, per Mediaweek Monitor) is creating more urgency among traditional publishers looking to stoke their digital business. At the same time, precipitous print declines, coupled with rising production and distribution costs, have left publishers fewer resources for their digital enterprises-this, even as publishers say they're still plowing ahead with their digital dreams.

While the magazine industry's online revenue is growing, it remains a relatively small contribution to the bottom line. According to PricewaterhouseCoopers, online ad revenue accounts for a scant 3.8 percent of publishers' overall ad revenue (even though analysts say that for companies with a more mature Web strategy, the figure can be 10 percent or more).

For all the focus on print's fading fortunes, it's worth noting that the ad downturn is cutting into digital growth, too-only not as dramatically. In March, eMarketer predicted online ad spending would rise 22.7 percent to $25.9 billion this year, adjusted down from an earlier forecast of 28.5percent growth.

One digital executive at a major magazine company sums it up this way: "The magazine business is taking a hit this year. The digital business is not growing as fast as it was. A lot of companies are trying to figure out what to do about their margins. Digital is a very high-investment medium. It's the same with mobile: figuring out what's the right amount of money to invest, and when am I going to get a return on it?" Adds the exec, "I think everyone is generally nervous."

Beyond the Ad Model

Who says you can't get consumers to pay for online content?

Most publishers have staked their digital futures on advertising sales, but a few are supplementing those dollars with consumer-supported products.



With such arcane names as Distressed Debt Securities and Dow Theory Forecasts, Forbes.com's online newsletters for investor mavens may not sound sexy, but they command monthly subscription fees as high as $79.

While newsletters amount to only about 5 percent of all Forbes.com's revenue, Jim Spanfeller, president and CEO, predicts they eventually will contribute at least 10 percent-and as much as one-fourth-of revenue.

Spanfeller also sees potential in selling data and books online. "The ad model works and works extremely well, but I think there are other things we can do," he says.

Health and fitness-focused publisher Rodale is also enjoying a small but nice chunk of business from eight subscription-based sites that it either created (in the case of the Men's Health Abs Diet) or partnered on (like NBC's The Biggest Loser). The services each attract 15,000 to 50,000 subscribers who pay an average $20 per month. For the first half of '08, newsletters, combined with other e-commerce revenue including books and DVD sales, accounted for 40 percent of Rodale's total digital revenue, up 34 percent, according to the company.

Jim Berra, svp, general manager of Rodale Online, sees the company leveraging online properties of its Runner's World and Bicycling brands to offer more paid content. "When you have a service element to your content and you can clearly define the value proposition to the consumer," Berra says, "I believe they are willing to pay for content."



Fortifying the Church-State Line

As marketers scale back their ad spending in print, publishers face even greater scrutiny of their ads online, leading the American Society of Magazine Editors to fine-tune its digital guidelines in response to what it calls a growing occurrence of appeals that blur the church-state line. ASME president David Willey cites concerns including advertisers getting cozy with publishers in developing interactive tools, ads for products mentioned in an adjacent article and ads superimposed over editorial content.

"Marketers have been trained to feel like they have more ownership than they've been accustomed to having," says Willey, editor of Rodale's Runner's World and editorial director of Running Times. "The point of the guidelines is to strengthen and preserve the most important assets we have, which are engagement and trust. Yes, times are tough, but that doesn't mean independence should deteriorate."

Sales execs acknowledge the gray area online. Sarah Chubb, president of CondeNet, digital arm of Conde Nast, says when clients asked to be involved with editorial content on Epicurious.com, the solution was to let them contribute recipes to the site's user-generated database, keeping edit off limits. CondeNet strives to make it clear to consumers what's an ad and what's not, says Chubb, adding, "It's harder to come up with something creative where it's clear."

Jeff Ratner, managing partner, digital director at MindShare North America, warns that publishers could lose business if they tighten restrictions too much. "We're all pushing to get our ads next to more relevant content," he says. "It could push us away from sites that are not enabling us to do that."