The state of b-to-b media

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Last year provided no shortage of stories in the b-to-b media world: The sale of Hanley Wood for $650 million. Advanstar Communications' aborted auction. The continued rise of nontraditional media, such as blogs and RSS feeds.

It's also true that 2006 has started with a newsworthy bang as Dow Jones & Co. announced the promotion of Richard Zannino to CEO, effective Feb. 1, and the retirement of Chairman Peter R. Kann in 2007. This event and those of last year point to the increasing upheaval in b-to-b media as the industry continues to adapt to the changes forced upon it by the Internet, private equity investment and rising production costs.

Media Business selected 10 important stories and trends of last year for the insight they might provide for 2006.

1. Veronis Suhler Stevenson sells Hanley Wood for $650 million.

This blockbuster deal, which was billed as the second-largest b-to-b media transaction in history (behind Advanstar being sold for $900 million in 2000), was the biggest in a banner year for b-to-b media mergers and acquisitions. Earlier in the year, VSS sold Canon Communications for about $200 million.

The Canon deal's reported multiple of 12 times EBITDA (earnings before interest, taxes, depreciation and amortization) seemed to spur a bevy of owners to consider selling their businesses. In another major deal, Primedia sold its b-to-b unit for $385 million to an investment group led by Wasserstein & Co.

The number of b-to-b magazine deals increased 10% in 2005 and the value of those deals jumped 42% compared with 2004, according to figures tabulated by Jordan, Edmiston Group, a media investment bank. In the same time frame, the number of trade show and conference deals increased by 44% and the value of the deals leaped by 128%.

Robert Krakoff, former chairman-CEO of Advanstar, cautioned that credit may not be as easy to come by in 2006. Interest rates show signs of increasing, which may have a depressing effect on the M&A market. Nonetheless, multiples are still at near-record highs. "I think there will be deals," said Krakoff, who now heads Blantyre Partners, a firm backed by private equity giant Blackstone Partners.

The M&A market in b-to-b media is a fragile ecosystem. It demands at least three elements: hungry buyers, in this case supplied by private equity money anxious to get in the game; willing sellers that have seen their EBITDA recover since the nadir of 2001 and 2002; and available credit, which industry observers say was a key driver in propelling the deal flow in 2005.

A weakening in any of those three areas could dampen the enthusiasm for M&A activity, which brings up No. 2 on the list.

2. CSFB abandons its auction of Advanstar.

In December, Advanstar announced that its owner, a private equity fund controlled by Credit Suisse First Boston, was pulling the b-to-b media company off the auction block. Advanstar had officially announced it was exploring strategic options in the summer, but many industry observers said that Advanstar's sale of its travel and other assets in April for $185 million indicated CSFB was ready to sell. DLJ Merchant Banking Partners III, which is controlled by CSFB, had owned Advanstar since 2000, when it paid $900 million for the company.

What does CSFB's eventual decision to pull Advanstar off the market say about the M&A outlook for 2006? The argument could certainly be made that the future is looking bleaker, especially because of reports saying 101Communications, a technology media company, is also struggling to find a buyer at its price.

But industry observers are confident the M&A market has legs. They speculate that Advanstar's $900 million price tag from 2000, paid at the top of the previous M&A market cycle, eventually soured CSFB's attempts to sell the company in 2005. It simply couldn't get a high enough price to justify a sale.

Joseph Loggia, Advanstar's president-CEO, acknowledged in an interview late last year that he would not be surprised if Advanstar were put on the block again in two years or so.

Despite Advanstar's failure to close a deal, Adam Gross, VP-marketing communications for Jordan, Edmiston, said his firm is optimistic about 2006. "Our deal pipeline is robust," he said. One major deal that Jordan, Edmiston is handling is Reed Elsevier's auction of 15 North American trade shows in its Reed Exhibitions division. (See story, page 22.)

3. CEO Gary Marshall exits CMP Media.

Marshall left tech media company CMP, which is owned by United Business Media, in September and was succeeded by former COO Steve Weitzner. Industry observers said the move made sense. In their view, Marshall, who had a financial background, had done a good job slashing costs at CMP in the wake of the dot-com crash. The business was trimmed as far back as it could go, so now a focus on growth was needed. UBM's new CEO, David Levin, made the move to install Weitzner to supply that growth.

Marshall wasn't the only CEO in b-to-b media to leave his post in 2005. Shortly after the sale of Primedia Business Magazines & Media, Kelly Conlin left Primedia Inc. in October. At Conlin's former company, International Data Group, Pat Kenealy, apparently having completed his task of restoring IDG's decentralized structure, exited the CEO position and returned to IDG Ventures. Also, Tad Smith took over for Jim Casella as CEO of Reed Business Information.

The first week of 2006 indicated that management changes in b-to-b media are not over. On Jan. 4, Dow Jones announced that Richard Zannino was elevated from COO of the company to CEO, effective Feb. 1. Peter R. Kann retains his chairman title but will retire in 2007.

4. Dow Jones closed its $528 million deal for MarketWatch.

When this deal, which was engineered by L. Gordon Crovitz, closed in January 2005, industry observers applauded it as an aggressive expansion of Dow Jones' presence on the Web beyond the paid content model that has been successful at The acquisition of MarketWatch instantly made Dow Jones a significant player on the free Web, where advertising dollars provide the bulk of revenue. Generating users in bulk was necessary to attract the consumer advertisers that Dow Jones wanted.

Lately, the deal's wisdom has been questioned as traffic to the site has decreased. Crovitz, however, continues to defend the move, contending in the media that Dow Jones has focused on traffic of a higher value to advertisers. In any case, electronic publishing revenues are a bright spot for Dow Jones, accounting for more than half the company's profits. Most observers only expect online revenue and profits to continue to grow-not only for Dow Jones but for most b-to-b media players.

5. B-to-b ad pages showed modest growth in 2005.

Through October, the latest date for which American Business Media's Business Information Network figures were available, b-to-b advertising pages had increased a modest 2.49% from the year-earlier period. If the numbers hold, it would make 2005 the second straight year of b-to-b ad page growth (pages increased 1.44% in 2004 compared with 2003) after declines from 2001 through 2003.

For many b-to-b media executives this was seen as very positive news for several reasons. First, any growth in ad pages went almost directly to the bottom line because of cost cuts made in the wake of the dot-com crash.

Second, and perhaps more important in the long run, ad pages were no longer such a dominant revenue source for b-to-b media companies. If ad pages were showing flat to modest growth, it generally meant online marketing was delivering exceptional growth. In fact, most b-to-b media companies were reporting online revenue growth in excess of 20%-and that growth in many cases had continued for several years.

B-to-b media executives still find it difficult to forecast print ad pages any further out than three months, but they do appear uniformly confident that online marketing revenues will continue to grow in 2006.

6. The U.S. Postal Service announces a rate hike.

The Postal Service this month instituted a rate increase that was announced in 2005. For b-to-b publishers, the hike meant an increase of 5.4% in mailing costs. This is not good news for a medium that is seeing its b-to-b hegemony challenged by the Internet. The really bad news is that David Straus, a partner at the law firm Thompson Coburn and ABM's postal counsel, believes the worst may be yet to come. He has publicly advised b-to-b media companies to be prepared for a postal rate hike in 2007 that could approach 30% if magazine publishers don't take advantage of co-mailing and other cost-cutting opportunities.

On top of the recent and threatened postal rate hikes, a rise in paper prices has also hurt magazines. A strike and the closure of mills led to scarcity, which has resulted in paper cost increases approaching 20% for some publishers.

7. Thomas Register announces plans to cease its print publications.

There's no telling how many trees will be saved as a result of the decision last year by Thomas Industrial Network, a unit of Thomas Publishing Co., to no longer produce a print version of its mammoth Thomas Register of American Manufacturers and Thomas Register Regional Buying Guides. Both publications consisted of several phone book-size volumes.

The publications, however, are by no means going out of business. They now live on the Web, where the Internet's ability to search the database of manufacturers and connect users directly to appropriate Web sites quickly made the print version obsolete.

Another iconic print publication, The Wall Street Journal, also made an announcement regarding its use of paper. The newspaper said it would reduce its web width from 60 inches to 48 inches by January 2007. The Journal said it would save $18 million on paper costs.

In 2006, industry observers expect the few companies that haven't shrunk folio size to cut costs will do so.

8. Google experiments with print.

It's odd. While companies such as Dow Jones and Thomas Publishing are trying to limit their exposure to print, pure Internet plays like the much envied and emulated Google are delving into print.

The company conducted an experiment with a handful of print magazines, including Ziff Davis' PC Magazine, in which it bought print ad space and then sold it to its own search customers.

In addition to Google, another Internet play that b-to-b publishers have been keeping their eye on is TechTarget. The company, which made a name for itself with targeted Web sites, such as, has launched and acquired print publications in recent years. In April, TechTarget made its most ambitious print launch yet when it debuted CIO Decisions, a magazine aimed at the midmarket chief information officer.

What this means for the future is unclear, but it seems to underscore the widely held belief that successful b-to-b media companies will offer more than one medium. The best will offer print, in-person and online content and marketing opportunities.

9. Shareholder pressure scuttles VNU-IMS Health deal.

The M&A market wasn't hot for everyone. Case in point: VNU Chairman-CEO Rob van den Bergh, who announced his resignation after shareholders rejected his deal for IMS Health.

For most in the b-to-b media world, the fate of this deal was important only in what it meant for the status of VNU Business Media, which publishes Hollywood Reporter and Billboard and is led by CEO Michael Marchesano. Industry observers had speculated that if the deal for IMS Health went through, VNU Business Media, which always seemed an odd fit for a company moving aggressively toward paid content in the form of Nielsen Media Research and other similar information companies, would find itself on the block.

It remains possible that VNU's new management will explore the sale of VNU Business Media-especially if the b-to-b media M&A market remains robust.

"There's a lot of noise around VNU Business Media, and that's a deal which may or may not ever happen," said Blantyre Partners' Krakoff.

10. CMP Media introduces "The News Show."

"The News Show," a short video podcast on CMP's TechWeb, may seem a small thing, but it is indicative of the numerous ways b-to-b media companies are using the Web to expand the way they deliver content to their subscribers and how marketers reach potential customers. CMP offers sponsorships of "The News Show," a recent edition of which Microsoft Corp. sponsored.

Robert Crosland, managing director of AdMedia Partners, said he is concerned that RSS and other online technologies may be poised to transform the business media industry-and perhaps not for the better from a profit standpoint. He points to how Craig's List and have eaten away at the "structural underpinnings of the newspaper industry."

B-to-b media may already be facing similar challenges. "There is a case that can be made that this is a sunset industry," Crosland cautioned. "Nobody has a clue about what the future of b-to-b media looks like." 

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