"We had several years of growth and good times that led to some fattening and inefficiencies, and now we're going to see some dead wood go away," says Reed Phillips, managing partner at New York media investment banking company DeSilva & Phillips.
The process will be painful for publishers of lower-tier trade magazines in sectors where advertising has fallen off sharply, and consolidations among smaller and less robust titles will be rampant, insiders predict.
Survival will depend on maintaining top-notch content quality and finesse in keeping marketers committed to long-term ad programs, according to trade publishing veteran Jack Love (see story below).
"This is cyclical and we're going to see certain categories of advertising come back to more realistic levels," says Edward Fitzelle, managing director of AdMedia Partners, New York. "In 1999 and 2000, we were roaring along at 7% to 8% growth, and now we're going back to 2% growth, which people were happy about through most of the 1990s."
Overall, publishers are seeking to consolidate their offerings into specialized areas, to gain economies of scale and increase opportunities to leverage content and ad sales between print properties, market research, trade shows and Web offerings.
The biggest consolidations are expected in sectors where b-to-b advertising has shriveled. Those categories include automotive, computers, construction and pharmaceuticals, according to Ameri-can Business Media, a trade association of business-to-business publishers, both print and online.
LESS URGENCY TO DO DEALS
As the downturn drags into the second quarter, b-to-b magazines that are already on the selling block are holding their value, but deals are not happening as quickly, thanks to the uncertain economy. "The value is there, but there's less urgency to do deals," Mr. Phillips says.
In one large-scale sell-off, Toronto-based Thomson Corp. is trying to shed a raft of trade titles operated by Thomson Financial Publishing to concentrate on its electronic information and research services in the investment banking and broker/fund management arenas. Thomson has retained Morgan Stanley to help it find a buyer for magazines including American Banker, Bond Buyer, Credit Union Journal, Financial Planning, National Mortgage News, On Wall Street and Securities Industry News.
Thomson hopes to find one buyer and get $400 million to $750 million for the titles, say industry insiders, but it also may parcel out pieces of its empire to separate buyers. Thomson wouldn't provide additional details.
"The banking industry has undergone a lot of consolidation so suppliers don't have to work as hard to reach so many buyers; banking is just one sector going through changes amid an overall downturn," Mr. Fitzelle says.
Cahners Business Information, a subsidiary of Reed Elsevier, went through a winnowing process last fall when it sold for an undisclosed price four magazines-Automotive Industries, Commercial Carrier Journal, Owner Operator and RPM-to Randall Publishing. Still on the block at Cahners are Hotel & Travel Index and Travel Weekly; a spokeswoman says the titles no longer fit the company's strategy, which now revolves around construction, manufacturing and technology.
Some business-to-business publishers are not letting the downturn affect plans to introduce new titles. This month, Ziff Davis Media debuts CIO Insight, targeting information technology leaders. The introduction comes in spite of a court challenge by International Data Group, which is suing Ziff Davis for copyright infringement in U.S. District Court in Delaware, contending the new title too closely resembles its own CIO magazine. Ziff Davis says the case is without merit.
Experience has taught 37-year-old IDG some tricks in weathering downturns, says Chairman Patrick McGovern, including the value of diversification and selling information.
UNIT DOUBLING REVENUE
Over the last decade, IDG has dramatically expanded its global operations so that 278 of the company's 300 magazines are now located outside the U.S. For the entire company, 70% of profits and 60% of revenue come from international operations, helping blunt the effect of the U.S.' dot-com depression, Mr. McGovern says.
IDG's fastest-growing profit center right now is its International Data Corp. research division, which is doubling revenue annually "because in tough times people need more information and competitive insight to navigate," says Mr. McGovern.
As in previous downturns, IDG says it will raise its rates for subscriptions and single copies of its magazines to offset losses from advertising, "and we'll make up the revenue loss in other sectors, harnessing our content for market research, seminars, expos and new online products," Mr. McGovern says.
IDG is a potential acquirer in the current market. "We've looked at some titles on the market, but we find their prices exceed their value," Mr. McGovern says. "We have a very good idea of what titles are worth to us, and we're not going to pay top dollar to enhance our operations in this climate."