Midway through the year, b-to-b media executives are a little less optimistic about 2005 than they were six months ago, and they are approaching the 2006 budgeting process in a tempered mood. In general, industry leaders are projecting revenue increases for this year, even in print advertising, but their hopes for accelerating growth rates seem to have petered out.
"Last year was a great year," said David Greene, president, PostNewsweek Tech Media. "It was our most profitable year ever, and it was building into a lovely growth wave. That wave continued through February of this year, then the engine seized in March. April and May were good, but not June. We’re starting to see a pattern of dropoffs at the end of a quarter as our customers try to make their quarterly numbers."
Given technology companies’ wobbly approach to booking advertising this year, Greene is now anticipating flat revenue for PostNewsweek Tech Media’s core products, with some growth from custom events and new data initiatives. Growth will certainly be in the single digits, he said, with more of the same expected next year. "Based on what we’ve seen in 2005 so far, I can’t say I have any evidence that ‘06 will be a banner year, and it’s hard to say when momentum will pick back up," he said.
Like PostNewsweek Tech Media, International Data Group’s (IDG’s) fortunes are tied to the IT business. "IT vendors have had some shaky quarters, but this year has had more good news than bad," said Bob Carrigan, president of IDG Communications. "It’s certainly more stable than the beginning of the decade. We’ve had some modest growth in print advertising, with significant growth in other businesses, so it’s been a good year overall."
Slowdowns dampen optimism
Andy Goodenough, Highline Media president-CEO, said his company’s financial and insurance titles had strong growth in 2004 but have seen some softening this year. "I think we budgeted a little too optimistically in ‘05 because we had a heck of an ‘04," he said. "We thought we were getting into a growth period that had legs, but looking back, I think the strength of 2004 was a bounce back after two very depressed years in 2002 and 2003." He projected that growth rates will settle back into the single digits for 2005 and 2006.
"We’re feeling good about our business and the economic environment as a whole," said William L. Pollak, president-CEO of ALM. "I’m confident that we’re in a period of good, steady, sustainable growth. It’s not the irrational exuberance of 2000, but I really like this pattern better."
Pollak expects ALM to end 2005 with growth in the mid-single digits. "Our growth may be a little slower than some of the other b-to-b media companies due to our dependence on newspapers," he noted. Classified advertising, which is critical to the newspaper model, has plummeted due to the Internet and low hiring rates. "Overall, help-wanted advertising is rebounding slowly and steadily, but I don’t think classified advertising will ever go back to where it was," he said.
Pollak said he doesn’t think it’s more difficult to sell advertising schedules than single pages, but "it does feel as if people are waiting longer to book a schedule. We used to sell in October for the following year and now it’s December, or January or longer while people wait to see what’s in their budgets," he said.
Marketers nowadays have a much shorter-term planning horizon, b-to-b executives agreed. "It’s absolutely month to month," PostNewsweek’s Greene said. "In the past, marketers would have a plan and sometimes they’d just have to wait until [financial executives] released the funds."
Now, the whole cycle is affected by budget uncertainty, Greene said. He added that he believes marketers understand the value of a consistent advertising program, but his customers are telling him that the decisions are coming from higher up.
Gordon T. Hughes II, American Business Media’s president-CEO, is predicting a gain in print advertising revenues of 4% to 5% for ABM member companies in general this year, with ad page counts increasing 1% to 1.5%. He said some b-to-b media executives might be downplaying their expectations for 2005. "It’s always better to underpromise and overdeliver," he said.
"At ABM, our sense right now is that print advertising revenue will be up at least 5%," Hughes said, "meaning that this will probably be the first year ad revenue growth is beating inflation since 2000."
Ad rates on the way up
B-to-b media executives have enough confidence in 2006 business to plan advertising rate increases almost universally.
"Most of our publications have raised rates at least 3% to 5% this year, and I’d expect about the same increases next year," said IDG’s Carrigan.
Cameron Bishop, president-CEO of Ascend Media, said: "In almost every one of our markets, print advertising rates will go up in 2006. We think it will range from 3% to 5% on average, but it depends entirely on the market. In some, we won’t raise them at all."
Adds Highline Media’s Goodenough, "We typically do have rate increases. Those increases would probably be 5% or less in 2006."
ABM’s Hughes said the real upside for b-to-b publishers is coming from events and electronic media. "We estimate that trade show and event revenue will be up 6% to 7%, and all the electronic stuff will be up 25% to 27%," he said. "Other growing areas include custom media, which has been so robust we had to create a new committee, and continuing education and rich data."
Conferences, events and trade show revenues have been a rapidly growing business for b-to-b media companies over the past five years. "Trade show revenue is now approaching parity with print advertising," Hughes said. "This may even be the year they cross," with event revenue surpassing print advertising for the first time ever. "But we always have to keep in mind that the magazines are the brand," he said.
Late last year, in quick succession, Ascend Media purchased three companies: SynerMed Communications, which produces continuing medical education programs in multiple therapeutic areas; Exhibitor Visibility Worldwide, which provides publishing and other marketing services for major medical and health care events; and Medical World Communications, which publishes 50 medical and health care magazines and journals and other business-to-business publications (through its Stagnito Communications division). Within two months, its b-to-b publishing and event business increased from an annual volume of about $18 million to $150 million.
"We’re looking at double-digit growth in medical education and double-digit growth in our events, and these are year-over-year organic growth rates," Bishop said. "Nothing we’re anticipating would prevent that from continuing."
Bishop added that live events have also grown nicely in Ascend’s professional gaming division. "We launched a new one this year on gaming technology, and there will be more focused, vertical niche events launching later in ‘05 and in ‘06," he said.
Norman Kamikow, president-editor in chief of MediaTec Publishing, described his seminar business as "huge" and said the return on events is higher than on print advertising. "Our number of events grew this year and will grow next year, although we can grow revenue significantly without adding new events," he said.
Event business booming
"The whole area of learning is hot," said ALM’s Pollak. "That includes continuing legal education, webinars and live events. We will continue to create sales opportunities around them."
PostNewsweek Tech Media produces the largest government trade shows in the world, according to Greene. "There’s no new big trade show on the horizon for us, but we’re constantly tinkering with our conferences and events. We do a lot of smaller, more nimble events, and our custom events, which we put together on behalf of a sponsor, have become really popular."
At IDG, a revenue model is blooming in a new kind of event. "We’ve done a lot of reader research, and CIOs and senior IT managers have told us that their No. 1 most reliable source of information is their peers, so we’re starting to put together forums to connect these folks," Carrigan said.
One example is the CIO Executive Council that was developed by IDG’s CIO magazine. "We’re leveraging our brand to connect users at a certain level so that they can network and discuss industry issues," Carrigan said. "These guys have come together and formed a variety of subcommittees so that they can get work done, even in Washington. We’re always looking to diversify revenue streams. Even though this is still a small, developing initiative, it’s somewhat of a breakthrough to be getting revenue from our readers through these memberships."
Concerns over costs
B-to-b executives raised concerns over the cost and supply of the paper they need to publish their magazines, which had been affected lately by a prolonged lockout at paper mills in Finland. A settlement in the labor dispute was reached in late June (see story, p. 6).
"Cost increases are giving us a little concern," Bishop said. "We think postage increases will be tolerable, in the 5% to 6% range, but paper costs, of course, are more volatile now."
Highline’s Goodenough said he expects to be more stringent in managing costs in 2006. "We’ve already hired quite a few people in 2005. We expanded our workforce by about 15% this year," he said. "So, I think hiring will slow. And we’ve just invested a few million in our IT infrastructure, so we don’t expect to put as much money into it next year."
PostNewsweek Tech Media has significantly increased the size of its editorial staff this year. "We took the total editorial budget up 10% this year. We’re actively hiring reporters and editors as we try to grow new publications, and custom events and our online content," Greene said. "We also invested in our sales team, and we’re adding some bench strength at the associate publisher level. Some of those people are expensive-but we think they were worth it. So we’re really trying to make sure the readers and advertisers see more and more value, and we can cut back on everything else."
In absorbing three new companies, Ascend Media has consolidated some accounting and back-office functions. "We’ve been able to increase our buying power in print and telephone costs, to get those costs down, but for the most part, we’ve made substantial investments in capital improvements and personnel," Bishop said.
"By year-end, we will have spent in the seven figures upgrading our IT infrastructure," Bishop added. "We invested in our core production and desktop systems, new servers, production equipment and software upgrades." Given that, "we’re pretty satisfied with where we are and don’t see putting big dollars into IT next year," he said.
ALM’s Pollak said: "There’s been a great deal of pressure on the cost side of the budgeting process for the past few years, and we still want to keep costs tight. But I also think we can spend more time raising our expectations and looking at new revenue opportunities. That raises a real question-do we have enough people? When we want to add to staff, we look very carefully at ROI, but I think we need to look at that in 2006."
"Our attitude is not cut, cut, cut," said IDG’s Carrigan. "We’re not shy about making investments. As a private company, we have the financial discipline of a public company, but we’re able to keep investing even when business gets a bit choppy."