Engage sold ad inventory for thousands of Web sites including Motortrend.com and Gorp.com but shut down the business two months ago. On Monday, the CMGI-backed company informed hundreds of Web publishers by letter that it is offering to hand over only 60 percent of expected payments because of poor economic conditions.
More than 1,000 sites were operating on the Engage Media Network before its close, producing about $5 million in monthly revenues, according to a former Engage employee familiar with the letter. About half of those revenues were due within 60 days to the network's publishers. According to the source, Engage owed at least two months of payments. With the revised payment structure, former Engage publishers may be out an estimated $2 million.
"Unfortunately, due to the difficult economic environment, the extreme downturn in the online advertising market, and the dwindling of Engage's cash reserves, it is problematic for Engage to satisfy all obligations completely," reads the letter, which was published in Internet chat rooms and e-mail lists last week. "We are offering each publisher an opportunity to receive 60 percent of the funds due from Engage, in final settlement of obligations under the publisher agreement."
Engage spokesman Ted Weismann acknowledged the letter but would not give further details on how many publishers received it or the money at stake.
"The letter...was forwarded to former Engage media customers as part of the company's plan to exit the media business in as efficient and fiscally responsible a manner as possible," Weismann said.
Engage is asking former customers to sign off on the deal by Nov. 16.
"Legally, according to the contracts, Engage has to pay the total amount. But the risk for the publisher is that they could get nothing if the company goes bankrupt," according to the former Engage employee. "If you're a site, you either take the money or take the gamble."
In September, Engage sold some online advertising assets to rival Bluestreak and announced it would refocus efforts on software products for multi-channel marketing. The company has also had several rounds of layoffs.
Any diminished payment would come as a bitter pill for Web publishers, which are scrambling to make every dollar count during a severe advertising downturn. Many Web site operators have gone out of business or cut staff just to stay afloat, as investors and marketers have become frugal and skeptical when it comes to the Internet.
Analysts say that publishers may take the payout, but most won't be happy about it.
"It's not as if advertising dollars are flowing freely right now," said Denise Garcia, an analyst at research firm Gartner. "Any business, now matter how big they are, that would get only 60 percent of what it's owed right now is going to have a tough time swallowing that pill. They worked hard and earned that money and were counting on it."