Sunday, January 13, 2008
The State of b-to-b media
By Matthew Schwartz
Business media companies continue to recalibrate their brands for the Internet, where advertisers can get immediate and measurable returns on their investments. But while digital media and trade shows remain the primary growth areas for publishers, print is still the core for most b-to-b media brands.
Here are 10 key trends to watch heading into 2008, a year expected to be marked by a slowing economy and increasing pressure on companies to justify their marketing spending.
Through August (the most recent month for which figures were available), b-to-b ad pages fell 3.3% compared with the same period in 2006, according to Business Information Network data released by American Business Media. Ad revenue declined 2% during the same period. Magazine revenue is expected to drop 2% to 7% in 2008, according to ABM.
To wring more value from print, publishers are shrinking the size of their magazines and reducing their frequency. But in some cases, they're also pumping up their investment. For example, Questex Media's Travel Agent in September switched to a biweekly frequency from a weekly, while upgrading its paper quality, design and editorial content. Since the revamp, the magazine has seen a spike in advertising, both in print and online, said Questex President-CEO Kerry Gumas. "The changes could be a bellwether for b-to-b publishers in nontech markets on how to satisfy the needs of customers in a traditional print format," he said.
Coping with rising production expenses
While there has been some moderate relief in postal rates under the recently enacted Postal Accountability and Enhancement Act, the same cannot be said for paper costs. ABM President-CEO Gordon Hughes II said business publishers face a 14% annual increase in paper prices this year.
Millions of tons of capacity have been taken out of the market, said Mike Bennett, a sales executive at paper producer Bulkley Dunton Publishing Group, pointing to recent shutdowns of paper mills by UPM, Fraser and Tembec. "We're still scratching our heads," he said, referring to the closings.
With chemical and energy prices continuing to rise, paper prices may rise even higher than predicted this year.
Integrated marketing marches on
Integrated marketing is fast becoming the industry standard, as publishers strive to offer buyers what they hope is the right mix of media vehicles to help them get their messages out.
But with a squeeze on b-to-b marketing budgets expected this year, publishers will have to go the extra mile when crafting integrated marketing plans, said John French, president-CEO of Penton Media.
Penton's Registered Rep, a monthly publication aimed at independent financial brokers, offers integrated buys that include print, online and events. For its biggest customers, it can add customized research.
"It's not just selling someone pages and online space but information that can become part of the customer's overall strategy," French said, adding that in a tight economy, business publishers also have to be careful not to "unbundle" integrated packages and have the buyer pit the price of one medium against the others.
Face-to-face revenue has been growing in recent years, and ABM predicts a gain of 7% to 10% this year. Business publishers have been capitalizing on this growth in events, both in physical space and online.
One of those publishers is Canon Communications, which has 55 events targeting the advanced manufacturing sector. In particular, Canon has been out front with a co-location strategy. Last year it co-located three major shows: National Manufacturing Week, Assembly Technology Expo and Quality Expo.
Buyers "are under more pressure to justify their time and money and, by offering co-located events, you give them an itinerary of primary objectives for attending a show but also a set of secondary objectives by visiting related events under the same roof," said Charles McCurdy, CEO of Canon and Apprise Media.
Reed Exhibitions, Americas, which has more than 100 trade shows and events, launched ISC365.com last March to leverage Reed's ISC West and ISC East shows, which target security markets. The Web site includes news feeds from five publications covering security, a product database, a search engine and archives from previous ISC shows. It will soon add Web 2.0 elements. "It's not about a trade show, or online or anything else, per se," said Chet Burchett, president of the division. "It's about contacts, content and community."
Expanded Web distribution
As the Web drives business conversation and pulls in more sales prospects, publishers are changing the way their assets are distributed online.
For example, with IDG Connect, a database of 5.5 million IT professionals, IDG Communications is "able to market to individuals directly," said Bob Carrigan, president-CEO of IDG Communications. He said that through IDG Connect, the company can approach prospects "by the stuff they buy or the industry they work in."
Another trend that plays right into business publishes' strengths: content syndication. IDG recently cut a deal with widget provider Clearsping to syndicate IDG's content across a number of online networks. "We have a tremendous opportunity to get our brands in front of new users and cast a wide net, because you have to assume that not everyone is going to find your Web site," Carrigan said.
Digital revenue for b-to-b media companies is expected to grow 18% to 22% this year, according to ABM.
Online video emerges
Online video is becoming an integral part of publishers' Web sites. According to research company eMarketer, online video advertising spending in the U.S. will grow to $1.3 billion this year, up from $225 million in 2006.
There are two ends of the online video spectrum: broadcast quality and what Fritz Nelson, senior VP at CMP, calls "grainy, YouTube-ish video." Considering that the cost for broadcast-quality video can be prohibitively expensive, b-to-b media companies are going for something in between, he said.
"It's a middle ground," Nelson said, adding he anticipates that this year business publishers will lose preroll ads that are packaged with online video in favor of deploying "lower-third," text-based ads recently popularized by YouTube.
CMP's online programs range from "The Friday ITch," a humorous look at IT trends, to magazine-based shows "CRN TV" and "CIOs Uncensored."
CMP is also selectively repurposing some stories that originate in print. "Just because you run a big story doesn't mean it can lend itself to video," Nelson said. "You have to ask, `Will viewers be interested in seeing something about it?' You have to think about visuals."
Putting the brakes on M&As?
The ongoing credit crunch and mortgage mess "have filtered down into parts of the banking industry that lend directly to media companies or finance media transactions," said Richard Mead, a managing director at media investment bank Jordan, Edmiston Group. Despite the challenges, "b-to-b media deals will continue to get done" in 2008, Mead said. "It's not going to be a fallow period."
The media and information M&A market last year saw 838 transactions with a combined value of nearly $110.0 billion, up 32% and 79%, respectively, from 2006, according to a report by Jordan, Edmiston. The online media and marketing services sectors led the charge in 2007 with a combined 555 transactions valued at $43.0 billion.
Private equity companies have fueled many of the major b-to-b media transactions, such as Veronis Suhler Stevenson's acquisition last March of Advanstar Communications for $1.2 billion. However, the biggest media deal of 2007 was executed by a strategic player-News Corp.'s $5.6 billion acquisition of Dow Jones & Co.
Challenges for strategic companies
With private equity companies struggling with their exposure to the current banking woes, strategic b-to-b media companies may loom large on the M&A front this year.
Reed Business Information made a big splash in the industry in December 2006 when it acquired lead generation company BuyerZone, which links prospective buyers to qualified suppliers in more than 134 business product and service categories. The deal could be a harbinger for business publishers that want to move aggressively online.
"It brings buyers and sellers together to another level," said Tad Smith, CEO of Reed Business. "But let me tell you, there are not a lot of BuyerZones out there." He added that Reed Business continues to be an acquisitive mode. "For strategic companies, the acquisition situation has been improving the past few months, but that's offset by a more worrying economic environment, and there's still some resistance to sensible pricing," he said.
'Wonderful' time to be a small publisher
Smaller publishers face the same rising costs as large publishers but have fewer financial resources to deal with them. Gary Redmond, partner and director of publishing operations at Construction Business Media, is unbowed, though.
"It's a wonderful time to be a small publisher, with a lot of advantages if you can niche smartly," he said. Smaller publishers-those with less than $50 million in annual revenue-comprise about 55% of b-to-b media companies.
After spending 13 years at Hanley Wood and McGraw-Hill Cos., Redmond launched Construction Business Media in 2003 with one title: Architectural Products. In 2006 he added a quarterly supplement called Illuminate, and in May 2007 introduced the stand-alone Architectural SSL. The company's revenue rose 49% last year.
Redmond said smaller publishers' ability to stay nimble is particularly valuable in the current climate. "The velocity of clients' needs is accelerating, and it's incumbent upon business publishers to respond in kind," he said. "We have the ability to foster an atmosphere of creative thinking, which is more easily done in a small workplace than a big one."
Despite the ongoing weakness in the U.S. dollar, there are ample opportunities for business publishers to try and penetrate overseas markets, said Bill Baumann, group publisher at Penton Media's Electronic Design Group, which in 2006 launched Electronic Design-China and Microwaves & RF China in concert with Global Sources and CMP. IDG Corp., Hearst Business Media and Reed Business also have major stakes in China.
The emerging business class in the so-called BRIC countries (Brazil, Russia, India and China) hungers for b-to-b information and the attendant tools that business publishers can provide.
"You have to be in it for the long-haul," Baumann said, referring to investing overseas. Of course, having a legitimate Web site makes "you an international publisher by default so you know how important overseas markets can be," he said.