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Golden age gone for b-to-b media

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How quickly can a bygone era become a golden age?
Is 12 months enough time?

As the b-to-b media industry grapples with this year’s precipitous drop in advertising pages—with little relief expected for 2002—the period between 1996 and 2000 is looking very much like the industry’s halcyon days.

That is certainly part of the picture presented by Veronis Suhler Media Merchant Bank’s recently released "Communications Industry Report."

"I just think it was a very bullish advertising market in general," said Leo Kivijarv, Veronis Suhler’s director-publications, who supervised the preparation of the 19th annual edition of the report.

The report analyzes the financial data of publicly reporting companies in communications industry segments ranging from b-to-b communications to broadcast television to newspapers.

Helped by the dot-com brand-building frenzy and a robust U.S. economy, b-to-b media produced numerous highlights last year:

• Total revenues for b-to-b media companies included in the report grew 7.7% between 1999 and 2000, increasing to $2.2 billion.

• Operating income margins for the industry increased 3.4 points to 16.0%, and operating cash flow margins also grew 3.4 points to 22.6% between 1999 and 2000. (See chart below.)

• The adjusted value of assets increased 2.7% to $2.4 billion in 2000, and grew at a compound annual rate of 20.3% from 1996 to 2000.

If these aggregate figures seem low, it’s because they are. Due to consolidation and changes in
financial reporting, Veronis Suhler was unable to include in its calculations several important companies, including Primedia, Reed Elsevier and Ziff Davis Media. "This chapter probably frustrated us more than any of the other chapters just because a lot of the b-to-b companies changed their way of reporting information," Kivijarv said.

The conventional wisdom holds that the b-to-b media community reinvented itself in the recession of 1991 and thus was able to take full advantage of the boom years between 1996 and 2000. With a drop in ad pages during the early 1990s, business publications sought new ways to generate revenue. Many began to move beyond print, developing trade shows and conferences, Web sites and other means for marketers to reach their customers.

From boom to bust

The result of the boom for some of the most high profile b-to-b media companies was a strong run-up in their share prices. Penton Media was at $29.75 per share on Nov. 15, 2000. A year later, the stock closed at $6.76. Primedia was trading at $12.94 per share in January of this year, but by Nov. 15 its share price had plunged to $2.00.

Advertising pages in b-to-b media were down 16.8% and revenues off 17.6% year-to-date through August, compared with the same period in 2000, according to Business Information Network figures compiled by CMR for American Business Media.

Veronis Suhler’s "Communications Industry Forecast," a companion to the "Communications Industry Report," projected that total b-to-b marketing spending—which includes ad, trade show and other revenues—will decline 1.6% to $17.9 billion in 2001, compared with last year.

The lessons of the 1991 recession should serve publishers well in the current downturn, said Roland DeSilva, managing partner of media investment bank DeSilva & Phillips.

"What publishers have to do today is concentrate on the core value drivers in their business," he said. "An integrated Internet strategy is essential, but a stand-alone strategy is destructive. They have to build a multi-platform company, which means magazines, trade shows, conferences, newsletters."

Gordon Hughes II, president of ABM, said the combination of belt-tightening and the creation of additional revenue streams will leave the strongest b-to-b media companies poised to take advantage of the uptick, which he anticipated in the fourth quarter of 2002.

Robert L. Krakoff, chairman-CEO of Advanstar, said that one growing revenue stream is the rental of e-mail lists.

In its "Communications Industry Forecast," Veronis Suhler projected a recovery for b-to-b media next year that will continue to at least 2005.

The company also said it expects spending will increase at a compound annual growth rate of 4.0% between 2000 and 2005.

But the next few years, devoid of the wild brand building of
dot-coms and the fear-induced spending of established brands, will likely be no golden age.

Blaming a "slower-growing economy," Veronis Suhler projects that the rate of growth between 2000 and 2005 will be 2 percentage points lower than between 1995 and 2000.

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