"We look to diversify our business because it gives us greater stability and strength if spending softens in our advertising markets," said Neal Vitale, president-CEO of 1105 Media. "Online publishing is a big area of growth for us and we are clearly employing resources to build that business, but it's dangerous to be totally dependent on advertising revenue if there's ever a large pendulum shift."
Although Vitale didn't say it directly, his words evoked the 2000 dot-com bust that decimated online advertising budgets. The memory is etched indelibly in the consciousness of the b-to-b media even as Internet advertising rebounds.
B-to-b media executives tend to frown on the term "ancillary revenue," saying it implies that dollars from activities other than advertising and subscriptions are of secondary importance. In addition, they say, the business categories that are considered ancillary vary from one publisher to another.
According to the most recent ABM Financial Trend Report, the category of ancillary revenue contributed 8.4% of total revenue for the average b-to-b publication in 2005. Advertising revenue supplies the majority, at 81.5%, with circulation revenue providing the remaining 10.1%. (The report does not include online or trade show/conference revenue in this breakdown.)
The primary value of ancillary businesses is their profitability. According to the ABM trend report data, gross margin in the ancillary category was 59% in 2005, lower than the traditional margin, which is somewhere around 75%. Expenses shot up 66% in 2005, which the report attributed to publishers' ramping up personnel and resources.
In fact, the number of new initiatives and products that have been popping up within the ancillary businesses of b-to-b media companies over the past year seems to back up the assumption that these areas are getting an infusion of resources after the lean and mean years of 2002 to 2004.
Expanding beyond list rental
The largest single revenue stream within the ancillary category is list rental and related activities, and it's these related activities that are the growth areas, according to list management executives.
"There's no question that list companies are transforming themselves from list brokers to data intelligence companies," said Deb Goldstein, president of IDG list services. "This is not a new trend, but it has accelerated in the past year. We've developed an expanded service model so that there are now four aspects to our list business: list rental, lead generation, data enhancement and co-branded e-mail programs."
Databases offer guaranteed revenue
Gloria Adams, senior VP-audience development and book publishing at PennWell Corp., said, "Databases are becoming very important with both public and private companies." As these large companies invest in their own customer databases, they're not as likely to rent big mailing lists; but they do come to list owners and brokers to update their information, append demographic data and get additional names.
"Overall revenue is lower," Adams said, "but it's guaranteed revenue because we license it for an entire year."
PennWell is also creating a new central database of its audiences. "That allows us to slice and dice to create new lists," Adams said, adding that a new nanotechnology list is one example of this.
"Lists in themselves are not a high-growth market," said Steve Rourke, general manager of DM2-DecisionMaker, a unit of Reed Business Information. In the months after he took on his current post (in mid-2005), Rourke led a research initiative to find out what b-to-b list renters really needed and wanted. Based on that feedback, the company last year introduced three new products.
"In the second quarter of 2006, we rolled out new data enhancement and lead-generation products," he said. "At the end of the year, we rolled out online research panels in partnership with Harris Interactive in four markets: small business, IT, manufacturing and construction."
Rourke said the new services are changing the way DM2-DecisionMaker operates in the marketplace. "We can work with other list brokers as resellers of our products, creating partnerships that weren't considered in the past. And we are developing other reseller partners, such as advertising agencies and marketing consultants, for our panels," he said.
Jeff Moriarty, VP-list management at MeritDirect, said: "The biggest trend I see now is more emphasis on segmentation and selects than ever before." He said b-to-b marketers are drilling down and asking for three or four selects. "I would say 85% of our lists have at least two selects, such as job title or job function, industry type or company size," he said.
"Another select that is becoming more popular is purchasing authority, and that's where b-to-b publisher lists excel. Another trend I'm starting to see is list companies charging more for these selections. Marketers understand that there's a cost to the list owner to ask these additional questions."
Susi Cordill, VP-circulation at Ascend Media, said the sale of e-mail names is another growing trend. "It is a huge initiative for us to increase the number of e-mails we have on our files," she said. "Historically, the gathering of e-mail names has been seen as the sole responsibility of the circulation department, and for years many circulation professionals have been gathering e-mail names through print and telemarketing efforts."
However, Cordill said, the circulation department typically contacts subscribers only once a year for requalification, so she is working more closely with other departments within Ascend to collect all the e-mail names they have gathered through registrations for e-newsletters, podcasts, webcasts and contests. "With the continued growth in the number of e-mail addresses on the files, we anticipate an increase in e-mail rental revenue in 2007," she said.
Getting proactive with reprints
Cordill said Ascend has seen a big jump in its reprint revenue since it outsourced reprints for two-thirds of its titles to PARS International in mid-2005. Prior to that, reprint sales had been exclusively handled internally. "In 2006, we more than doubled the reprint revenue from 2005; and in 2007 [we] are planning on a 15%-to-20% increase," she said. Meanwhile, she added, "our internal reprint management is well established, well-managed and going strong. It continues to grow at a double-digit rate."
At Cygnus Business Media, "traditional print reprints are strong and growing," said Jeff Jost, director-inside sales group. "However, clients don't necessarily come to us, so we go to the clients and provide various marketing uses as well as design services."
Jost said Cygnus salespeople encourage customers to go beyond the reprint of the material that appeared in a publication to create a full-fledged marketing piece supplemented with client-supplied content, including their own ads. "Because of this, the trend is more to four-, six- and eight-page or larger orders, where in the past two- and four-pagers ruled," he said.
Ellen Siegel, VP-licensing and business development at ALM, said her department is following a similar course with reprints, proactively putting packages together and marketing them to companies that have been covered in ALM editorial. "Our reprint business keeps growing. We're moving more to online reprints, but I don't think custom-printed reprints will ever go away," she said.
Electronic reprints on the rise
Electronic reprints represent about 25% of the market, according to Michelle Wolfe, VP-sales at FosteReprints. "We really try to sell the e-print as part of a package with the print reprint," she said.
At Cygnus, 45% to 60% of all print reprint orders include the additional purchase of an electronic reprint in PDF form. "We drastically discount the e-print for clients ordering a print reprint, and this may be why participation is very high and growing," Jost said. "Electronic reprints as stand-alone orders are also growing, but the percentage of overall sales is small, less than 2%."
Cordill said Ascend's printed reprints are selling extremely well ever since PARS developed links at the bottom of Ascend's online pages, across all products, that land on a page that explains the benefits of reprints and provides a contact name, phone number and e-mail address that enable the viewer to make an immediate connection to a reprint salesperson.
"The response from these links has been amazing," Cordill said. "For 2007, we are continuing to explore Web-based opportunities for reprints."