Reader ROI\n\nDiscover options for turning a profit online\n\nRead how one regional publisher struggles to avoid cannibalizing its print advertising\n\nLearn about the current state of online advertising salesIn the beginning, website owners convinced themselves that it was just fine to give products away for free. As long as they lured eyeballs with compelling content or sticky apps, the theory went, they\u2019d rake in the dough with ad revenue. Now, five years later, when having a website is no longer a novelty and venture capital money is no longer flowing freely, the give-it-away business model has been called into question.And while many industries\u2019 webmasters have long ago accepted that advertising won\u2019t keep their sites in the black, the publishing industry still relies on it. The problem is, only those publications with big money readers and legions of sales staffs are winning. The rest are either scaling down their operations or creating sites that expand on (and stray from) their publications\u2019 editorial missions. Cincinnati Magazine is one example of a publication that must decide how it will enter an arena that will likely produce very little monetary returns and present a product that is probably quite unlike its print version. Should the magazine ignore the Web and save the cash, or hop on and reach a new audience while better serving its loyal readers?Cincinnati Weighs Its OptionsCincinnati Magazine is the quintessential city guide. Locals read it to stay in tune to seasonal events, changes in the housing market and, of course, the occasional city scandal. But a Cincinnatian looking for a southern Ohio jazz club to hit on Thursday night doesn\u2019t scour the publication\u2019s calendar of events on www.cincinnatimagazine.com. The website doesn\u2019t exist.Cincinnati\u2019s publisher, Dianne Bohmer, says they\u2019ve simply been too busy to invest time and money in a business plan that seems unlikely to generate much revenue. The monthly publication brings in just under $5 million each year and employs a tight-knit staff of 23 editorial, advertising, finance, clerical and support personnel. Bohmer knows that to establish a Web presence she\u2019ll have to add more staff and dig into the magazine\u2019s coffers. She also knows there\u2019s no pot of gold on the other side of the screen."Magazines I know that could once sell banner ads for $700 are now selling them for $140," says Bohmer. "So when you make a business plan based on $700 ads and it\u2019s brought down to $140, you have a lot of compensating to do.... It\u2019s hard to get excited about a business plan that isn\u2019t a moneymaker."Industry observers are also losing faith in the ad revenue business model. "Rates are coming down for Web advertising, and people are responding less to Web ads," says Dan O\u2019Brien, a senior analyst for Forrester Research in Cambridge, Mass. "Advertising has become a tough model to make work. Everybody wants to be the next Yahoo, but that may be yesterday\u2019s success."Even those publishers that may have a shot at duplicating yesterday\u2019s success in terms of luring advertisers are finding another source of revenue drying up: venture capital. APBnews.com, a breaking news website that employed such luminaries as Pulitzer Prize-winning journalist Sydney Schanberg and O.J. Simpson prosecutor Marcia Clark, folded in June, days after receiving an award from Investigative Reporters and Editors, when its third-round backers pulled their money. The venture capitalists were aware that APBnews.com\u2019s banner ad campaign, which had client cash cows such as Microsoft, wouldn\u2019t pay the bills.But what about city and regional publications like Cincinnati Magazine? They have niche audiences in specific geographies. They probably can\u2019t attract high-paying advertisers, but they may be able to exploit the local market for high-end restaurant and real estate advertising. "This whole area is in a constant state of turmoil," says Jim Dowden, executive director of the Los Angeles-based City and Regional Magazine Association (CRMA). Of its approximately 77 members, only around 50 CRMA magazines have a website, and many of them simply post subscription information and their tables of contents, directing users to buy the print publication to read the stories.Some find unique ways to get around the banner ad trap. San Diego Magazine (www.sandiegomagazine.com) gave its site a name, San Diego OnLine, that is different from the publication\u2019s and offers noneditorial services like Web hosting. But observers say that even San Diego OnLine is operating in the red. Another regional publisher, Homes & Lifestyles Publishing, a division of Englewood, Colo.-based Wiesner Publishing, sometimes sells its 12 city and lifestyle magazines sites, including www.atlantahomemag.com, www.coloradofrontiers.com and www.stlouishomesmag.com, to advertisers as a package deal. But Wiesner\u2019s Web Products Manager Tobi Anderson admits they haven\u2019t made money and the Web is still a threat."We don\u2019t have a plan to make money; we\u2019re not an e-business," says Anderson. "It\u2019s important to be on the Web, and that\u2019s why we do it." In Boston, The Improper Bostonian, a monthly tabloid, informs visitors to its website (www. improper.com) that it does not have a Web presence "because we\u2019re still trying to figure out how magazines are going to make money in this new medium once the inevitable stock market correction occurs and ridiculously overpriced dotcom companies are forced to show a profit." That profit-revealing time may be now. Business consultant Seija Goldstein, owner of New York City-based Seija Goldstein Associates, conducted a financial standards survey for CRMA in 1999 and found that, with the exception of city magazines in spots that are major tourist destinations, the typical city\/regional magazine does not make money online.In Cincinnati, publisher Bohmer, against her better judgement, still feels that she should build a website to better serve Cincinnati Magazine\u2019s readers while attracting new ones. "We want the up-and-comer who\u2019s 33 to read it now, instead of at 38.... As we look at circulation, we want to skew to younger readers, and the Web generally gets younger readers." Bohmer, like Wiesner\u2019s Anderson, has reluctantly come to believe that being part of the media means being on the Internet.And Bohmer knows that most of her magazine\u2019s readers use the Web. So why not keep their attention while they\u2019re looking at their computer monitors? Bohmer imagines a hypertext Cincinnati Magazine with a presentation somewhere in between The Improper Bostonian\u2019s confession of bewilderment and San Diego Magazine\u2019s attempt to do business that is far from the magazine\u2019s core competency. Bohmer would like to post all of her magazine\u2019s articles, as well as supplemental content that helps to package the print pieces. "We\u2019re known for our \u2019best of the city\u2019 issue," she says. "Instead of doing only the 12 best places to have dinner online, we could have an online guide that corresponds [to the print coverage]."Kitty Morgan, Cincinnati\u2019s editor, is a bit more enthusiastic. Morgan thinks a website will increase subscriptions by posting subscription forms and spreading the magazine\u2019s brand. "I see [a website] as a marketing tool," says Morgan, "not as a new business that we\u2019d launch." And this marketing tool, she believes, could serve its readers and attract advertisers by serving as an expert guide to Cincinnati.Despite all the benefits Bohmer and Morgan recognize in a CincinnatiMagazine.com, they have not yet made the leap, largely because of Bohmer\u2019s doubts. She knows readers and advertisers like the print magazine the way it is. And so does she. "We know from feedback to our recent redesign of the magazine," says Bohmer, "in which we went from black and white to four color, from saddle-stitched to perfect binding, that people want the package. They want to pick it up, feel it, see great photography." Bohmer wonders if all of Cincinnati Magazine\u2019s readers will visit a hypertext version if the articles are its primary lure.And of course, there are also the typical concerns about cannibalization. "If people have access to our calendar of events without buying the magazine, I\u2019ll have reservations," says Bohmer. "I worry that this could affect our subscriptions." As a publisher, Bohmer wants to run a profitable shop, but now, with Morgan\u2019s encouragement, she is finally ready to swallow her pride and go online. She has come to believe that to thrive as a business that delivers information to a paying audience, her magazine must serve those readers through all the mediums they use."A fax machine is not profitable," she says, "but it\u2019s necessary to do business. Rent isn\u2019t profitable, but you have to pay it to do business." Maybe a CincinnatiMagazine.com won\u2019t be profitable, maybe it will cannibalize the print product and burden its staff, but Bohmer and Morgan believe the advantages outweigh the disadvantages.Bohmer admits that she has been approached by Cincinnati-area sites for partnerships but just can\u2019t figure out what sort of Web business strategy works. The magazine\u2019s parent company, EMMIS Communications in Indianapolis, is working on a plan for another publication, Texas Monthly, a plan Bohmer intends to watch and copy if it\u2019s successful. "We\u2019re holding back until we see this plan," she says. "Until that\u2019s in place, our hands are tied."Strategic AdviceThree new media pundits offer suggestions as to how Bohmer can address Cincinnati Magazine\u2019s online publishing dilemma. Befine why you\u2019re going onlineJimmy Guterman, founder of The Vineyard Group, a media consulting group in Massachusetts that helps existing publications build websites, suggests that before Cincinnati Magazine shops around for Web servers and designers, Bohmer and Morgan should try to identify exactly what they want in return. "If they ask what they\u2019re specifically trying to get out of it, they can save a lot of money in terms of building it," says Guterman. "A site that is intended to increase subscriptions will look quite different from one built to lure advertisers." Guterman says if Bohmer and Morgan decide they\u2019ll measure success by traffic, they may institute a content strategy to bring visitors back on a regular basis, such as posting content far more often than once a month. But if they hope to use the site primarily to drive up circulation, they shouldn\u2019t put the effort into creating more timely content. And if success for them means more revenue, they\u2019ll have a lot of sales pitches and partnering ahead. Consider the consumerIf Cincinnati Magazine hopes to reach a younger group of readers, says Guterman, it has to add new editorial features that speak to people in their 20s. City magazines, says Guterman, aren\u2019t known for speaking to young readers. "It won\u2019t work to put up the same content packaged differently," he says. "People aren\u2019t that stupid." Fellow consultant Mark Logan agrees but thinks Cincinnati Magazine shouldn\u2019t rush out to hire new writers and freelancers to create the new content. Logan, a managing partner at Lookandfeel New Media, a Kansas City, Mo.-based interactive marketing and design company, says hiring a new staff would devour any increased profits. He suggests that Bohmer and Morgan should, as much as possible, steer their existing editorial and advertising staffs toward the Web. Learn from those who have gone before To keep costs low, Logan advises Cincinnati Magazine to look outside its walls for Web production tools. Because many online publishers have already undergone the painstaking tasks of connecting word processing and publishing tools as incompatible as ATEX and Microsoft Homepage, Logan suggests Cincinnati Magazine learn from them. "A lot of people who have already jumped into the game are renting out their systems," he says. "Why not piggyback on their successes?" Look at alternative revenue modelsEven though Logan believes that profitability is "a very tricky game for startup Web publishers," he doesn\u2019t think it\u2019s impossible, provided Cincinnati Magazine looks at its content in a new light. "Its events calendar has an obvious tie-in with e-commerce," he says. "It can establish a revenue stream by putting it online, partnering with ticketing agencies and arranging to get part of revenues from sales made through the events calendar." Logan suggests that Bohmer and Morgan sit down and brainstorm about all possible revenue models. "There are many ways to make money in addition to ads," he says, "like sponsorships, e-commerce revenues and sponsored text, which is a huge moneymaker, though it gets dangerously close to editorial boundaries." Entice advertisersCary Berman, an angel investor based in Chicago, thinks content sites can be lucrative investments. He predicts that content companies like News Corp., Marvel Enterprises and Disney will prevail over portals like Yahoo. But Berman warns that small sites are viable only if they attract niche audiences. "The problem with content is people don\u2019t pay for it," he says. "You can\u2019t just put the feature articles online. You have to build a new model around it," says Berman. And a model that would entice Berman to fork over cash would have to attract a strong niche audience or revenue base. "They need to figure out how they can rearrange their assets to meet a need that isn\u2019t being met in Cincinnati. Maybe it\u2019s artsy listings, maybe it\u2019s real-time, up-to-date information. Whatever it is, it has to attract very targeted advertisers." Attracting advertisers, ultimately, may require crossing the boundary of editorial and advertising that many journalists hesitate to cross. The Vineyard Group\u2019s Guterman suggests that doing so would alter the magazine\u2019s identity. But if it doesn\u2019t go that way it probably won\u2019t make money, says Guterman. "Going online merely to be part of the Web is not a sufficient reason to spend a lot of money."