The E-Newsletter EXPLOSION

WITH THIS HOT NEW ONLINE BRAND EXTENSION, PUBLISHERS ARE BUILDING WEB TRAFFIC, CUSTOMER LOYALTY, REVENUES AND INNOVATIVE MARKETING OPPORTUNITIES. E-NEWSLETTERS ARE AN INEXPENSIVE AND EFFECTIVE MEANS OF MARKETING INFORMATION TO THE MASSES AND NICHES ALIKE. BUT AS THEY PROLIFERATE, PUBLISHERS FACE CLUTTER AND PRIVACY CONCERNS.

A year or two ago, everybody had a get-rich-quick Internet strategy. You'd build a few online communities, seal the deal on a bunch of strategic partnerships, line up banner ads, set up storefronts, plunge into e-commerce, announce your IPO-- and then sit back and wait for the Brinks truck to pull up.

Turns out that making money online is not as easy as it once looked. But as many magazine executives sit in strategy meetings reprogramming their next Net step, there is at least one online model that has publishers smiling: e-newsletters. These paperless quick hits of content have quickly emerged as one of the industry's most promising online brand extensions.

In the last year, e-newsletter subscription numbers have grown exponentially. In fact, according to a recent poll cosponsored by FOLIO: and Clientize, a Boca Raton, Florida-based consulting company, almost half of the industry's top-500 titles have at least one e-newsletter. (The poll surveyed magazines in the 2000 FOLIO: 500, a list of the top-500 consumer and business-to-business tides ranked by total circulation and advertising revenue.)

And publishers say they are just starting to understand the full potential of these products. First, they're multifunctional. They do everything from building reader loyalty, to driving Web traffic, to delivering ancillary ad revenue. Plus, publishers are using e-newsletters to test new product concepts, build e-mail lists and databases, sell subs to their magazines, and identify finer and finer niches in any given audience base. Another bonus: They're relatively inexpensive to produce.

Industry Week publisher Tern Mollison calls e-newsletters, which readers generally sign up for on a magazine's Web site, a potential "golden goose." E- newsletters are "a phenomenal opportunity to disseminate information to a microaudience," she says. And that opens the door to a slew of possibilities. "You could have dozens of these, priced at a premium, in which you are giving really quality information."

One characteristic that separates e-newsletters from other Internet initiatives is that the e-newsletter blueprint is familiar to publishers. "It's totally a magazine formula," says Bill Stutzman, general manager, Entertainment Weekly's EW.com. "You build a ratebase and you feed it. You sell ads against content that's informative." And that's very different from the way the Web operates, says Stutzman. "On the Web, you put it together and wait for people to show up. With this, we know how to acquire names, how to interact with them, how to do direct marketing."

Second, e-newsletters have timing on their side, say publishers. People now are generally more comfortable obtaining information via the Internet and e-mail, says Wyatt Kash, group publisher of Hanley-Wood's Magazine Interactive Group. "When it comes to getting a pair of eyeballs, e-mail is something that people really try to look at mast days of the week. Meanwhile, it's getting harder, with so many Web sites, to draw someone to a particular location consistently."

Third, this new method of distributing marketing and content information is extremely cost effective. According to Chris Roberts, director of account development for Messagemedia, a permission-based e-mail marketing and messaging solution provider that serves more than 600 clients, it costs "fractions of pennies" to send an e-mail newsletter.

You've got (too much) mail

As more and more publishers discover the benefits of e-newsletters, and Web users' inboxes start to reach server-space capacity, oversaturation becomes a concern. "We already have it," says Mollison, who is responsible for three e-newsletters. But if e-mail newsletters are handled correctly, publishers stand to win the war on online clutter, she believes. Because marketing messages are everywhere these days, there's a real need for more information filters. Newsletters, when done correctly, can act as that filter, she says.

"As long as readers feel the content is worthwhile, they will continue to subscribe," agrees Bruce Rogers, vice president of marketing, Forbes.com, which currently publishes six e-newsletters and has plans to expand to 30 by year's end.

Privacy concerns

The explosion of e-newsletters also brings privacy concerns to center stage, say publishers. In order to buffer readers from unwanted electronic solicitations, most publishers use opt-in methods to obtain subscribers. (See box, page 34.) "A person has to raise his hand and say send it to me," says Stephanie Fierman, chief marketing officer, Cahners Digital. "Plus, in every newsletter we offer the ability to unsubscribe." Some newsletters also ask readers to check a specific box if he or she wants to receive additional e-newsletters from selected advertisers or receive the e-newsletter weekly rather than daily.

While most publishers currently seem to be taking the high road, there are still some perceived privacy risks for e-newsletter users. Every click users make from the e-newsletter is trackable and potentially salable information, especially since users are not just code numbers, as in most Web-tracking systems. Recipients generally give a name, and that makes offline reader data easier to match up with online-behavior information. Therefore, that e-name becomes much more marketable to any number of companies. And because e-mail lists can be marketed at a premium, the danger is that e-mail addresses may be misused.

"We may find it legislated at some point," says Roberts. "The difficulty is really getting any teeth into it. The Internet has this sense of freedom about it."

The move to HTML

E-newsletters run the gamut from marketing and promotional tools to blitzes of breaking news, but most are evolving into fully-formed, content-driven products. As such, publishers are now interested in upgrading the look of e-newsletters. Most companies currently release only text-based e-newsletters in which the reader receives a pure-text e-mail. But many publishers say they'd like to switch to HTML newsletters in which the reader would receive an attachment. This would allow e-newsletter publishers to provide art, color, sound--everything you can do with a standard Web page--which would open up advertising options, as well. Plus, this form is more trackable from the publisher's standpoint: what the reader is clicking on and how the reader is moving through the document.

The problem? "The fear from IT departments is a hacker might attach a virus that would infect the local computer system. There are a number of companies--ourselves included--that have set up their mail program to not allow the opening of attachments," says John Butterfield, chief interactive editor, HanleyWood, publisher of three e-newsletters.

The solution? Companies that produce HTML versions of their e-newsletters are also offering the text-based option. However, the hope--particularly for the ad dollars and reader trackability--is that companies will begin to allow those attachments.

"When people become more accustomed to receiving [HTML e-newsletters], that will drive demand," says Fierman. "HTML has astoundingly better click-through rates than text. It can be four to five times the results, so there's a real incentive. Plus, people tend to spend more time reading an HTML newsletter because it's a more enjoyable experience." While Cahners puts out both types, Fierman says at least 70 percent of the readers are still opting for only text-based.

At Forbes.com, text-based readers also far outweigh HTML readers. "People feel it's a quicker read--and the HTML looks more promotional," says Rogers.

Publishers are also struggling with how much and what type of content to include. The concern, as with most franchise extensions, is not to eclipse the core product. "The challenge is to give enough information to keep it fresh, but not so much that you don't want to pickup the magazine," says Gary Armstrong, associate publisher, marketing, Us Weekly. "That's why we shy away from putting pure content in our newsletter." Us Weekly provides readers only a "sneak peek" of its TOC. However, it will potentially help feed the magazine's editorial: "We'll ask readers, 'Who do you want to see on the magazine cover?' You discover things about what readers are thinking, like, everybody's bored with Angelina Jolie."

Publishers are also wary of offering too many choices. "The question now is how to cut it so it's targeted, but not broken into too small groups," says Stutzman.

E-newsletter advertising

Little information is available on industry-wide average click-through rates for e-newsletters. But according to the Clientize poll, click-through rates on e-newsletter advertisements of 5 percent or more were reported by 34 percent of survey respondents, with 9 percent reporting click-through rates of 20 percent or more. Publishers say those numbers are expected to rise as HTML newsletters increase. But even at 5 percent, these numbers far outweigh the average click-through rates of Web-site banner ads, which are generally accepted to be less than 1 percent.

"Now our franchise can offer more information at more points of contact in a more precise way, based on customer need when customers want it," says Fierman, who oversees approximately 96 e-newsletters. "So it's more of an integrated package helping advertisers to get what they really want."

Some are offering e-newsletters to advertisers as an added marketing tool. For instance, Us Weekly has featured scavenger hunts in which readers are directed to go to advertiser Web sites to find answers and win a prize. It's also been used to promote advertiser events nationwide. "'When readers opt in, I get their name, age, sex and where they live. So when I give advertisers metrics, I know everyone is qualified," says Armstrong.

The real challenge now, says Fierman, is to create a rigorous testing plan to see what types of information readers click on. "That's when advertisers can get really specific. If we know this kind of story generates more click-throughs than that one--that will be a real help."

The future

Most publishers agree that the most critical component of a successful e-newsletter strategy is a carefully crafted game plan. "If you're going to do it, you have to do it properly. You can't just end up spamming your audience," says Butterfield.

Mollison agrees. "What worries me," she says, "is that I see so many poorly thought out newsletters. People pretend they're news, but they are really nothing more than veiled ads for a product or a vendor. Every time you send out something that's not a journalistically sound newsletter, you're teaching people to expect something that's not up to the integrity of what the publication is supposed to be doing. And if we, as an industry, keep sending out garbage, I think we'll be killing the golden goose before we've had a chance to reap the benefits."

E-NEWSLETTER POLL: RATING PRIORITY AND PERFORMANCE

These days it seems that everyone's got one, but not for the same reason. So what are the top objectives for e-newsletters? The key concerns? A Folio co-sponsored poll reveals that publishers are most focused on driving Web traffic, and most mindful of clutter and content quality.

WHICH BUSINESS OBJECTIVE IS MOST IMPORTANT TO YOUR E-NEWSLETTER?

Drive traffic to Web site                    36%
Generate ancillary revenue                   32%
Generate subscription sales for print brand  16%
Increase customer loyalty                     9%
Build e-mail subscriber database              7%
Build your Internet brand                     0%
46% report an ad click-through rate of less than 5%.
Surprisingly, 9% say more than 20% of readers click onto ads.
Note: Table made from bar graph
 HOW MUCH AD REVENUE DO YOU EXPECT E-NEWSLETTERS WILL GENERATE IN 2005?
Expectations were surprisingly mixed. The largest number of respondents
                             (46 percent)
    expect annual revenues of $100K or less, while 9 percent project
     revenue of $500K to $999K, and 11 percent expect $1M or more.
Less than 24k  23%
$25-99k        23%
No Answer       9%
$100-249k      14%
$1M or more    11%
$250-499k      11%
$500-999k       9%
NOTE: Table made from pie chart
       HOW DO YOU PACKAGE ADVERTISING OPPORTUNITIES? The majority
   of respondents (93 percent) accept ads in their e-newsletters. But
  more than half (57 percent) don't combine those sales with print or
                     Web site advertising packages.
Offer e-newsletter-only sponsorship packages     57%
Offer combined print and e-newsletter ad rates   41%
Offer combined Web site and e-newsletter rates   67%
Do not currently accept ads in the e-newsletter   7%
Note: Table made from bar graph

METHODOLOGY: Research and tabulation for this article was conducted by Clientize of Boca Raton, Florida. Two hundred twelve publications from the FOLIO: 500 list of the industry's top titles were identified as having an e-newsletter. Inclusion criteria included the following: The e-newsletter is free; it can be received by signing up at the title's Web site; it directly corresponds to the print publication; and it is not a "member only" service. Clientize contacted each magazine via phone and/or e-mail, and distributed an online survey to 200 publications, yielding 44 respondents.

                   DO YOU SELL YOUR E-MAIL LISTS? The
                  majority of respondents (59 percent)
                   do not currently rent their e-mail
                   address database, primarily due to
                           privacy concerns.
Rent the e-mail list on
a permissioned basis        30%
Rent or share the list
with advertisers only       11%
Do not rent/share the list
and don't plan to do so     25%
Do not rent/share the list
but may in the future       34%
Evaluating how to market
the e-mail list             27%
Note: Table made from bar graph
                HOW IS THE E-NEWSLETTER BUDGET HANDLED?
               E-newsletters have an identifiable budget
               in the majority of cases, with 56 percent
                    reporting a separate P&L center.
Has a separate P&L center          56%
Has separate line items in the
magazine's budget                  14%
Is commingled with the magazine's
total budget                       30%
Note: Table made from bar graph
                 WHICH, IF ANY, SERVICES ARE OUTSOURCED
                FOR YOUR E-NEWSLETTER? In order to keep
                    costs down and profits up, most
                respondents report keeping a tight lock
                        on outsourced services.
Editorial content development   5%
HTM Web page development        7%
Ad management                  16%
List management                39%
E-mail distribution            57%
56% say that 15% or more of readers
link from their newsletters to their
Web sites.
72% say they use existing staff to
produce e-mail newsletters.
Note: Table made from bar graph

The Ins and Outs of Opting-In

Many publishers, defending their sensitivity to e-newsletter privacy concerns, say, "Hey, the reader has to opt-in to get the information." But there are different levels of "opting-in." Impower, a Princeton, New-Jersey based e-mail marketer, has identified nine opt-in categories. (Category distinctions are based on commonly used language and standards in e-mail marketing practices.)

STRICT OPT-IN "Please check this box if you wish to be notified via e-mail about products or services that maybe of interest to you."--This type of statement requires an action on the consumer's part in order to be part of a list.

OPT-IN TO CATEGORIES "Sign up for our mailing lists below. We'll keep you up-to-date on the categories of your choice. All messages are moderated and always on topic. You can unsubscribe at any time."--This type of statement also requires a definite action by the consumer. Messages are limited to information in which the consumer has expressed an interest.

OPT-IN AUTOMATICALLY CHECKED "Occasionally, we will send you information from carefully selected, third-party product and service providers that may be of interest to you. Would you like to receive such value-added mailings?" (Yes automatically selected.)--This is similar to the strict opt-in, but with the opt-in automatically checked.

OPT-IN/OPT-OUT LIST "All subscriber information is kept strictly

confidential. We occasionally send our subscribers e-mail messages with special offers from qualified, relevant businesses and organizations. If you prefer not to receive such offers, select this box."--Individuals must take an action not to be part of this type of list.

OPT-IN/NO OPT-OUT, E-MAIL NOT REQUIRED "E-mail addresses will be used to provide monthly updates on free offers. We may also make your e-mail address available to some valuable sponsors on occasion." -- Offers no opportunity for the consumer not to be a part of the list. But an e-mail address is not required.

E-MAIL REPLY OPT-IN/NO OPT-OUT "By verifying your subscription, you agree to receive these special messages that serve to subsidize the cost of the free service."--Opt-in is not on Web-site registration, but is on the confirmation message. To opt-in, consumers must reply to the message.

OPT-IN/NO OPT-OUT "By entering the contest, you will, from time to time, receive free information on the hottest products and services from top companies who have the very best to offer you." Opt-in language is clearly displayed on the registration page, but there's no opportunity for the consumer to choose not to be a part of the list.

LEGALESE OPT-IN "As a member, you will receive special offers, discounts, and other promotional offers via e-mail from various name-brand merchants." People who enter their email addresses into the database will be unaware that they are part of the list unless they read the legalese.

OPT-OUT ONLY Pure spam. This type of list is compiled in two steps. First, a company collects e-mail addresses in some way, either through magazine subscriptions or by compiling names off the Internet. Second, a mailing goes to those people that gives them the option not to receive any additional email messages. Users who do nothing will automatically be part of this type of list.

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