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Prolonged Ad Slump Puts Media in the Mood to Pander to Buyers

On an early March episode of her talk show, Rosie O'Donnell chatted about her new diet and the "great different salads" available at Wendy's fast-food restaurants. A sample sat on the table in front of her.

Suddenly, Ms. O'Donnell received an urgent instruction from off stage: eat the salad. "Any reason you want me to taste the salad?" Ms. O'Donnell asked, on air. Just do it, came the response. Shrugging, Ms. O'Donnell shoveled a fork-full of lettuce into her mouth, and declared, "Mmmm, that's good."

This is what it takes to get advertising these days. When Wendy's International Inc. committed to spend more than $23 million on ads with AOL Time Warner Inc.'s media outlets, the burger chain asked for -- and received -- a host of extra goodies. The media giant, which produces "The Rosie O'Donnell Show" through its Warner Bros. unit, agreed to have the host eat a "Garden Sensations" salad on air. The salad also made an appearance on TBS Superstation's "Dinner & a Movie." And this month, AOL Time Warner magazines such as Sports Illustrated and InStyle inserted a Wendy's promotion personalized with each subscriber's name.

Media companies have long sold ads simply by touting the size of their audiences or the quality of the product. They'd herd advertisers into neatly prescribed areas of real estate -- a 30-second TV spot, a half-page print ad. Now, on the heels of the worst advertising slump since World War II, advertisers are getting a startling array of services that have turned publishers and TV channels into full-service marketing companies. On behalf of their advertising clients, media companies stage and pay for parties and corporate events, develop elaborate promotions and mailings and agree to unusual product placements.

Advertisers see the shift as long overdue. For years, they have been increasingly concerned that their messages were getting lost in the clutter of new cable channels and Internet sites. They've worried about dwindling network television shares and declining magazine and newspaper sales, and fretted about the looming era when consumers will be able to zap commercials with the help of electronic recorders. Now, an 18-month-long advertising recession that saw ad spending slump nearly 10% last year has shifted the balance of power in favor of the advertisers. Even though there are signs that the recession is lifting, many of the changes demanded by advertisers are likely to be permanent.

"The tables have turned," says Don Calhoon, Wendy's executive vice president of marketing. If media companies don't play ball, "marketers will take their ad dollars to other places. There are too many ways to reach consumers."

The shifting terrain puts media companies -- especially magazines and television networks -- in a tough spot. They often pay for events and parties out of their own pocket and write it off as a new cost of getting ads. This means that the ads that do run these days aren't as profitable. And the new product placements are blurring the line between content and advertising in ways that may be jarring to consumers.

For instance, in a move that gives new meaning to the term "autoeroticism," Playboy magazine will replace its June centerfold with a fold-out picture of Bayerische Motoren Werke AG's new Mini car, bumping the real Miss June to another section. BMW paid the equivalent of six ad pages to the Playboy Enterprises Inc. publication. On the May 1 episode of soap opera "Days of our Lives," meanwhile, a box of Kleenex tissue got unusually prominent display in a scene between two weepy characters forced to give up their baby. Kimberly-Clark Corp. got the plug as part of an elaborate advertising deal with General Electric Co.'s NBC.

Some in the business lament the changes, especially the smaller players. "I am frustrated by how much the world has changed," says John Fox Sullivan, president of the Atlantic Monthly and National Journal. "Consumer magazines have become such commodities, almost the last thing the advertiser seems to care about is placing their ads amidst editorial the reader craves."

But many others shrug it off. "Our world is changing," says Gary Burke, vice president of prime-time sales at NBC, which has created several promos tied to ad deals in recent months.

Ad Bombardment

Traditional ads alone just don't cut it anymore because "folks are bombarded with advertising," agrees Joe Adney, director of marketing at Baskin-Robbins, a unit of Allied Domecq PLC. "There is a real desire to be integrated into the program." Baskin-Robbins's media-buying firm, Interpublic Group of Cos.' Initiative Media, recently completed a media-buying deal that included having the ice-cream brand incorporated into TV shows such as "Top 20 Countdown," a music-video program broadcast on Viacom Inc.'s VH1. During a recent episode, the host passed out Baskin-Robbins ice cream from a VH1 truck to passersby.

The clout large advertisers wield has grown with the consolidation of companies, known as media buyers, that act as liaisons between advertisers and media operations. About 80% of the ad spending in the U.S. is funneled through only eight firms. WPP Group PLC's Mindshare, for example, represents more than $20 billion in annual budgets with clients including Ford Motor Co., American Express Co., and International Business Machines Corp.

These firms start throwing their weight around early in the selection process. Landing in publishers' mailboxes recently was a document from Media Planning Group, a unit of Havas Advertising SA, which represents Ford's Volvo unit. The firm wanted information to help it plan a coming advertising schedule. Instead of asking standard questions about readership size, age and income levels, MPG wanted publishers to describe readers' typical day, their favorite movie, author and TV program. "I look at this stuff and ask, 'Is this creative writing?' " complains one publisher.

To prepare its 2002 schedule, Volkswagen AG's U.S. media agency, Arnold MPG, a Havas unit, asked publishers to make a video describing their readers. Blender, a new music magazine owned by Dennis Publishing, rented a VW Beetle and sent a production crew on a road trip around Manhattan, mixing nonalcoholic drinks and confronting random pedestrians. The staffers videotaped interviews with those who turned out to be Blender readers. When a policeman gave them a ticket for making an illegal turn onto 42nd Street, they taped him, too.

Blender eventually got a "high single digit" number of pages for 2002, says publisher Malcolm Campbell, but not everyone was so lucky. Of the 120 publications that made a video, only 50 made the cut.

Because Volkswagen is a marquee advertiser, media companies are willing to go the extra mile. But they're doing the same for companies without generous ad budgets. In March, MSNBC, the cable news channel jointly owned by NBC and Microsoft Corp., signed a deal with financial-services company Lending Tree Inc. In return for about $5 million, a tiny sum that will cover all of 2002, MSNBC is creating a twice-weekly financial update which will be sponsored by Lending Tree.

Last summer, Jeff Hicks, the president of Miami-based agency Crispin Porter + Bogusky, gathered more than 50 publishers into an auditorium in Manhattan and asked for "groundbreaking" ideas to promote BMW's Mini. Even though the account was valued at only an estimated $20 million -- as little as a third of similar launches -- Mr. Hicks was inundated with proposals, including Playboy's centerfold idea. The New Yorker, owned by Condé Nast Publications Inc., threw a party in a Soho gallery displaying Minis that had been decorated by top artists. Wenner Media Inc.'s Rolling Stone magazine ran ads in a thin strip around the edge of the page showing Minis tearing along a road. The tagline: "Nothing Corners Like A Mini." Readers had to remove the strip to read the article.

Television networks have gone the furthest in incorporating advertisers' messages into once-sacrosanct territory. When Verizon Wireless, a joint venture between Verizon Communications Inc. and Britain's Vodafone Group PLC, dangled $50 million in the hope of integrating its "Talk Man" character into network programming, eight different channels leaped at the opportunity. "Talk man" is the Verizon pitchman who crisscrosses the country saying, "Can you hear me now?" into his cellphone.

By January, "Talk Man" escaped from the confines of the traditional ad. He popped up in a promo for NBC's "Frasier" and also appeared on a movie set designed to mimic "Indiana Jones and the Temple of Doom" to tout a rerun of the adventure flick on Walt Disney Co.'s ABC. Following the opening credits of the WB's "Dawson's Creek," a teen drama, "Talk Man" appears on the show's set and repeats his catchphrase as part of the ad deal.

"The networks have been more willing to pursue things like product placement while two years ago when the market was tighter they were less willing," said Rich Hamilton, chief executive of Zenith Optimedia, which is jointly owned by Publicis Groupe SA and Cordiant Communications Group PLC and which represents Verizon Wireless.

Suzanne Kold, executive vice president of marketing at WB, doesn't see a problem with this. "I don't think most audiences are shocked that there are advertising relationships with shows or that advertisers fund things," she says. ABC declined to comment on the Verizon deal.

To accommodate the new demands, media companies have started to change the way they do business. Hearst Corp.'s magazine division, for example, awards a $1,000 prize each month to the salesperson who comes up with the best idea to be used by an advertiser. Chief Marketing Officer Michael Clinton says the company has around 40 proposals floating around at any one time.

One of those proposals led to Hearst's announcement last year that it had teamed up with Brookstone Inc., a Nashua, N.H., gift retailer, to promote DaimlerChrysler AG's Chrysler in Hearst publications and Brookstone's catalog business and 240 gift-store outlets. After six months of planning, the November issues of 7.8 million Hearst magazines ran a section highlighting design elements of Chrysler vehicles and Brookstone merchandise. Hearst says the section enticed 13,600 readers to test-drive a Chrysler.

Julie McGowan, the publisher of Food & Wine, reckons the magazine now throws anywhere from two to five events a week, compared with two a month in the late 1990s. These range from parties to store openings to wine tastings, all arranged to leverage the magazine's contacts and give more publicity to advertisers. "Advertisers demand it," she says. Food & Wine is owned by American Express Publishing Corp., a venture of AOL Time Warner's Time Inc. and American Express.

Elaborate Events

The events are becoming increasingly elaborate. Fortune magazine, published by Time, holds roughly one mammoth event a month either tied to an ad-page deal or to schmooze important advertising clients. In March, Fortune and its sister publications took over the Road Atlanta Racetrack in Braselton, Ga., on behalf of Merrill Lynch & Co., a key advertiser. The financial-services company invited some of its own wealthy customers and corporate clients. Participants were given a chance to drive a race car at 120 miles per hour.

Publishers fervently hope that a recovery in the advertising market will bring some respite. Stocks of major newspaper and advertising companies are up substantially so far this year. Steven Florio, chief executive of Condé Nast, says 12 of his 15 magazines, which include Vogue and Vanity Fair, posted gains in their June issues.

But few executives are certain when the turnaround may come. First-quarter results were generally inconclusive. "I've seen some swallows, but I'm not ready to call it summer," says Richard M. Smith, chairman of Washington Post Co.'s Newsweek magazine.

As far as exhausted media executives are concerned, it might not matter when the ads return. Arnold, the media-buying agency that put magazines through their paces for VW, is considering kooky ideas for 2003 pitches. Publishers are already calling asking, "What is our assignment this year?" says Steve Moynihan, senior vice president media director at Arnold MPG.

This time around, Mr. Moynihan says he is looking for "bigger and better ideas" from publishers. "I anticipate that they will respond to whatever we request of them," he says.

-- Joe Flint contributed to this article.


Matthew Rose and Suzanne Vranica, The Wall Street Journal. May 9, 2002

Copyright © 2002 Dow Jones & Company, Inc.. All rights reserved.