Engage Struggling To Pay Publishers

Despite making moves to exit its media business, online ad technology player Engage continues to be haunted by the final payments due its network affiliates — payments that it says it won’t be able to make in full.

In September, the Andover, Mass.-based firm closed its media network to cut costs and refocus on ad serving, workflow automation and digital asset management. But now, the company’s final payments to network publishers — which it repped in return for a cut of the CPM profits — are coming due.

Just how much it owes publishers is uncertain, through sources close to the company say the figure could be as high as $10 million. In any case, that’s cash that Engage says it can’t afford to spend.

“Engage recognizes that certain of our publisher clients are due payments by Engage under the terms of their publisher agreement,” the company wrote in a letter to publishers. “Engage takes its contractual obligations very seriously. 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.”

A spokesperson from Engage said the letter had been sent a week ago as part of the company’s efforts to exit its media business in an “efficient and fiscally responsible way.” He declined to comment on the exact amount due publishers, but in July the company reported owing a whopping $41.5 million to parent CMGI and its network affiliates — while ending the month with only $33.3 million remaining in cash. (The company does have a credit deal with CMGI, of an undisclosed amount.)

As a result of the financial squeeze, the company said it would try to cut back some of its payouts.

In its letter, the company offered to give publishers until Nov. 16 to accept 60 percent of the amount they’re owed. If they accept the 60 percent, they must also agree to release Engage from any further claims.

Clearly, the decision facing publishers is whether to take a pared-down payment, or risk further endangering Engage’s financial position — making it still more difficult to obtain a payment. In the event, however unlikely, that Engage seeks bankruptcy protection from creditors, publishers are likely to be far down the list of creditors — and the amount they are likely to receive could be well shy of the original 60 percent.

Many publishers expressed irritation at the forced decision.

“It’s complete baloney… a real bum deal,” said one Web site publisher. “Still, I think most sites will take the money now, as opposed to down the road, when it’s questionable whether we’ll get anything. Anyone in the industry will tell you that any money’s better than no money when you’re trying to run a Web business … especially these days.”

“I’ve been with them since they were Flycast [which Engage acquired in early 2000] and I guess this means I’ve been with them ’till the end, though now I’m getting about $1,500 less than I should,” he added. “It smarts, but that’s the environment.”

But another publisher of a niche-interest Web site said she wouldn’t take the payout, and urged other sites to decline as well.

“Yes, I’m spiteful,” she said. “I let Engage handle nearly all of my inventory, and ultimately, that cost me a lot of money … and I don’t agree with they way they’ve handled their relationship with their affiliates. I am one of the many bitter ones.”

Indeed, this isn’t the first time that Engage has alerted its publishers that they’d be getting less money than originally expected. In January, the company’s sites lashed out when Engage said it would cut their payments by a third, to 40 percent.

Soon after, Engage spokespeople said that less than 25 percent of its publishers abandoned the network after the rate decrease — a figure that the company took to indicate that publishers were generally satisfied with the situation.

But as a result, publishers still resentful about Engage’s earlier payment reductions say they’re not surprised by the newest developments.

“I can understand [Engage’s] predicament, and I would probably be doing the same thing if it were me in their shoes,” said a publisher. “But we’ve seen them cut and cut payments, and now we’re getting the shaft one last time, so everyone’s steamed again.”