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According to Dave Ibsen at Five Blogs Before Lunch:
The practice of placing paid advertisements within novels and serialized stories dates back to David Copperfield (Dicken's novel, not the magician) in 1858 . . .
Apparently, in 1958 an advertising executive named Roy Benjamin started a company to sell advertising to book publishers. Ads for Q-Tips and Carnation were soon being tipped into Dr. Spock's baby books, followed by ad inserts in mystery tales and pulp fiction novels.
But what caused book advertising's demise? It was the horror of authors who found that their stories were interrupted by tobacco ads and feminine hygiene products, and the fact that no one ever thought of cutting them in on the profits.
Once discovered, lawsuits ensued (including Dr. Spock) with authors claiming they had been misled into signing permission for the ads by publishers who assured him it was common practice. As a common practice, paperback book advertising died out as a popular advertising media by the early '80's.
A 1972 study of paperback advertising found that although readers professed to dislike the idea of ads in books, after actual exposure their negative responses to the practice slid while brand awareness climbed. Sounds like television advertising's love hate relationship to me.