Dismal earnings reports last week from b-to-b media companies suggest the tech-related business slump is continuing, with no relief in sight.
CNet Networks Inc., Penton Media Inc. and Primedia Inc. all reported losses and revenue declines for the first quarter of the year; all blamed the weak advertising market.
"Business conditions continue to be very challenging, particularly for media properties serving the technology sector," said Thomas Kemp, chairman-CEO of Penton Media, during a conference call last week. Kemp said Penton’s non-technology properties saw ad revenue increase during the quarter, but publications serving IT, Internet and telecommunications industries continued a downward slide.
Penton publishes Internet World, Windows, CRN and other technology publications; it also produces the Internet World conference and other technology trade shows.
Gordon T. Hughes II, president-CEO of American Business Media, said that while overall b-to-b ad spending is expected to pick up by September, it will take longer for the technology sector to rebound.
"This year is still going to be a very rough year for these guys," Hughes said. However, he predicted the sector would start to show some improvement by the fourth quarter.
Roland De Silva, managing partner at media investment bank De Silva & Phillips, expects to see a slight rebound in technology ad spending beginning late in the third quarter or early fourth quarter. It will be 2003 before there is a full rebound, and with only single-digit growth likely, he added.
Mixed news for Ziff Davis
For troubled publisher Ziff Davis Media Inc., there was mixed news last week. Ziff, which is in default on a substantial portion of its debt, made progress toward financial restructuring. Bondholders representing about 60% of Ziff’s $250 million in 12% senior subordinated notes due in 2010 agreed in principle to the restructuring, which would reduce the company’s debt by approximately $155 million. In conjunction with the agreements, Ziff’s controlling stockholder, Willis Stein & Partners III L.P., and other current stockholders agreed to contribute $80 million in cash in exchange for preferred stock and warrants.
Ziff must obtain approval from 95% of its bondholders to complete the restructuring. If that doesn’t happen, "a bankruptcy filing could be possible," said JoelWeiden, a Ziff spokesman.
But not all the news for Ziff was positive. Also last week, Ziff’s auditor, PricewaterhouseCoopers, stated in a filing with the Securities and Exchange Commission that Ziff’s significant loss from operations,negative cash flow, negative equity and default on the lending facility raise "substantial doubt about its ability to continue as a going concern." PricewaterhouseCoopers would not comment on the filing.
However, De Silva said he expects Ziff to not only survive but to prosper.
"I think their chances are excellent when someone makes an $80 million additional bet," De Silva said. As for the auditor’s assessment, he said: "Given the Arthur Andersen fiasco,auditors are certainly going to be far more cautious and conservative than they have in the past."
By the numbers
CNet reported a net loss of $31.1 million, or 22 cents a share, for the 2002 first quarter, compared with a net loss of $316.6 million, or $2.33 a share, for the same period in 2001. Revenue for the quarter was $55.7 million, compared with $75.2 million for the first quarter last year.
CNet said it captured a larger share of tech marketers’ budgets during the first quarter. "We are seeing traction online with our biggest advertisers," said Barry Briggs, president of U.S. media for the San Francisco-based company.
In comments during the company’s earnings conference call last week, CNet Chairman-CEO Shelby Bonnie said he expected to see continued weakness in the technology sector for the remainder of the year.
Penton reported a net loss of $4.6 million, or 14 cents a share, compared with net income of $2.4 million, or 8 cents a share, for the first quarter of 2001. The publishing company’s quarterly revenue dropped to $63.2 million, down from$112.7 million in the first quarter of last year. Penton revised its revenue forecast for the year to between $280 million and $310 million, down from its previous forecast of between $320 million and $350 million.
Another leading b-to-b publisher, Primedia, reported a first-quarter loss of $139.6 million, or 65 cents a share, compared with a loss of $85.8 million, or 54 cents a share, during the same period last year. Primedia’s first-quarter 2002 revenue dropped slightly to $412.1 million, from $414.2 million in the first quarter of last year, reflecting gains in its consumer business but a sharp drop in its b-to-b holdings. Primedia publishes Telephony, Wireless Review, BroadcastEngineering and other technology and business publications.
A bright spot
One technology media company that is showing comparatively strong results is TechTarget, which provides a network of industry-specific IT Web sites, publishes Storage magazine and produces conferences and Webcasts for the IT industry.
Although the privately held company does not release precise revenue figures, TechTarget reported a 78% increase in revenue in this year’s first quarter compared with the first quarter of 2001. It also reported its first cash-positive quarter since its founding three years ago.
Greg Strakosch, TechTarget’s CEO, said his company is on track to achieve more than $30 million in revenue this year, compared with less than $20 million in 2001.
Strakosch pointed to three trends that contribute to TechTarget’s success: A shift from broader, brand-based advertising to more ROI-driven advertising, more product research being done online and the need for accountability.
For instance, one of TechTarget’s ad programs, called TargetROI, gives advertisers a guaranteed number of qualified leads as part of their ad buy.
Brian Fetherstonhaugh, senior partner of global brands at Ogilvy & Mather Worldwide, who leads the IBM global advertising account, agreed that lead generation is one of the key demands of technology advertisers these days.
"A lot of b-to-b advertisers are going from an awareness model to a direct response and lead generation model," he said.
Another trend among technology advertisers is consolidating their marketing efforts into fewer vertical segments and fewer media properties.
"There is a flight to quality," Fetherstonhaugh said. He noted that advertisers are more likely to select blue-chip general business publications such as The Wall Street Journal, BusinessWeek and Forbes, plus leading IT publications such as InfoWorld, InformationWeek and eWeek.
Fetherstonhaugh said event marketing in the tech sector is experiencing the same trend. He observed that advertisers are being more selective about the trade shows in which they participate, adding: "Last year, they may have [attended] 10 to 15, and now may [be in] three."
Penton’s Kemp said his company’s trade show business "felt the full impact of the economic recession and Sept. 11 in the fourth quarter." The decline, he said, continued into the first quarter and is now spilling into the second quarter.