The teen Web portal and online ad network sent an e-mail to affiliates last week that outlines plans to narrow its marketing agreements and trim ad delivery, the company confirmed Wednesday. The e-mail, obtained by CNET News.com from an associate site of Snowball-owned ChickClick, blamed market conditions for the change.
"What they're trying to do is rein in spending and concentrate on affiliates that will make more money" for Snowball, said Sarah Bunting, co-editor in chief of another ChickClick affiliate, MightyBigTV.com, who confirmed that her company received the same e-mail.
The move is in direct response to the softening online ad market. It highlights the dramatic measures some ad networks are taking to cushion losses. Major ad networks such as DoubleClick and Engage have cut earnings expectations in 2001 to reflect the downturn. In addition, Engage recently said it is renegotiating many of its contracts with Web sites to take a bigger cut on ad sales commissions.
An ad network offers advertisers placement on a group of Web sites catering to specific demographics. Such deals promise advertisers greater marketing reach--and attract sites that may have trouble selling ads on their own.
Typically, Web advertisers buy space in groups of 1,000 impressions. Ad networks try to match the inventory of paid ads to the total number of page views. But frequently, the page view count outstrips the number of paid advertisements, meaning many ads get served for free. For example, if a site produced 10 million page views, but only sold 8 million ad impressions, the remaining 2 million page views would typically carry unpaid ads to avoid the embarrassment of showing a blank space.
Many of Snowball's affiliate contracts--often exclusive agreements to sell ad banners--receive minimum, guaranteed fees when they deliver a certain number of page views regardless of whether Snowball sells the ad space. The company would run in-house ads when its paid-ad inventory was exhausted. But that is slated to change Feb. 1, according to the e-mail, when the company plans to leave blank spaces instead.
"This blank space will not be counted in your monthly totals because it is neither a paid or unpaid ad. Since your monthly totals will be lower, this will have an effect on your monthly minimum guarantee, and thus your paycheck," the e-mail said. "This is due to the fact that we pay your minimum based on paid and unpaid ads that run on your site, not when there is a blank space."
The Brisbane, Calif.-based company said the move cuts its marketing budget.
"We, like everyone else, have been forced to get more conservative and frugal with our marketing dollars," the company explained in its e-mail. "A direct result of this scaling back is the number of house banner ads we will choose to run on affiliate sites."
Catherine Delett, director of affiliate programs for Snowball, said the change is meant to help the company reach profitability. It has initiated other shifts in its affiliate programs to focus on content programs for niche sites and to continue serving ads to premier partners.
"We're still around and we're going to be around, and we're offering our affiliates a program that they really can't find anywhere else," Delett said. "Hopefully it will help us reach profitability and, in turn, help our affiliates because we'll be here.
"If I was on the other side of this, I'd be upset. I'd have to readjust my budget, but it's much better than having to shut my site down."
Many affiliates signed up with Snowball because they were guaranteed income on pages they delivered regardless of whether ads were sold--a practice practically unheard of in the market. Snowball, which has signed up such sites as SpaceGirl and Girl Groove, offered attractive packages--for example, guaranteeing between $2 and $5 per thousand impressions delivered, sources have said, if the affiliate site delivered at least 3 million pages. For a niche site, a guaranteed $6,000 per month was comforting and enticing.
Beyond such packages, Snowball has paid minimum monthly fees to ad affiliates even when it hasn't sold the inventory.
"We've been supporting them when we haven't been supporting ourselves. We can't do it," said Snowball spokeswoman Leslie Weber.
By contrast, ad networks such as DoubleClick will pay affiliate sites from $2 to $5 per thousand impressions based only on ads sold.
A year ago, Snowball expected to sell advertising well above the minimum rate it promised affiliates, analysts say. As the climate for online advertising cooled, the company has become desperate to cut the costs of such relationships.
"They were betting that they would be able to sell enough inventory to cover the minimum commitments and then some," said Laura Mitrovich, program manager in the Internet market strategies planning service for The Yankee Group. "Now given the downturn in the market, they can no longer do that."
In the quarter ended Sept. 30, Snowball reported revenue of $5.2 million--331 percent higher than the same period a year ago, but 16 percent lower than the previous quarter. It posted $14.1 million in operating expenses but had just over $39.6 million in cash and cash equivalents, the company said in an earnings statement. Unless it reduced its burn-rate or lined up new financing, the company at that time faced the possibility of running out of cash by mid-2001. Snowball is scheduled to report fourth-quarter earnings Feb. 8.
Many of the company's affiliates, however, are confused by Snowball's abrupt change and have yet to grasp its effects.
"Even from a site perspective, it's going to look like we're idiots because there's a giant white space at the top of our screen. And I can't even fill that space with ads for nonprofits or philanthropies or other paid clients because they're my exclusive rep," said the owner of one affiliate company, who asked to remain anonymous.
"On some level, I think that's calculated. Why would anybody stick with this contract? If we decide to get out of our contract, they've just saved themselves X amount of money," the site owner said.
Snowball's Weber said the company will provide affiliates with the option of working with other ad networks. She said the company is optimistic that the long-term outlook for online advertising remains strong.