The state of b-to-b media
For reporters, 2006 was a good year in b-to-b media. You couldn't turn around without bumping into an intriguing story.
The mergers and acquisitions market remained robust, with blockbuster deals involving such big names as VNU, Penton Media and 101communications.
There were big-name changes at the top as well, with several executives—including Dow Jones & Co.'s Peter Kann, Penton's David Nussbaum, Canon Communications' William Cobert and Cygnus Business Media's Paul Mackler—leaving their CEO positions.
Meanwhile, the influence of technology (including the Internet and JDF) continued to remake the b-to-b media business.
Here are 10 key stories from last year and what they say about the state of b-to-b media.
Magazines still have some ammunition
Through September 2006, b-to-b advertising pages increased 1.1% compared with the same period in 2005, according to Business Information Network figures released by American Business Media. Pages increased by 3.9% in 2005.
The figures show the relative health of print publications, especially considering that the technology sector, which declined by about 13% in pages through the first three quarters of 2006, continues to weigh down the BIN numbers. The overall estimated annual revenue generated by print publications ($10.80 billion) is similar to that generated by events ($10.40 billion), which shows that business media are not one-trick ponies any longer but truly reliant on a triumvirate of channels: in print, in person and online.
"We expect that the magazine marketplace will continue to be fine, but you're going to see the big growth in the online sector," said Adam Gross, VP-marketing and communications at media investment bank Jordan, Edmiston Group.
Gordon T. Hughes II, president-CEO of ABM, anticipates that digital revenues will increase 22% to 25% for business media companies in 2007. He also said these companies are generating on average 14% of their overall revenue from e-media.
Driven by advertisers' quest for an immediate and measurable return on investment, business media companies are embracing online revenue opportunities in many forms, from banner ads and webinars to video production and blogs.
Case in point: Cygnus Business Media announced in December that it was launching the Cygnus Video Network, which will include video channels from all the company's 15 major markets. Cygnus' ForConstructionPros.com kicked off the program with the FCP Video Channel, sponsored by Caterpillar Inc.
The Internet is not the only technology that is remaking business media. In the spring, Graphic Arts Monthly became the first Reed Business Information publication to use Job Definition Format. XML-based JDF promises to transform the production process by enabling text to be handled in one file. It is expected to cut costs and streamline production.
Private equity in the public eye
The sale of VNU for about $11.1 billion to a consortium of private equity funds showed the power of private equity in the media world. It also showed that private equity funds continue to be enticed by b-to-b media's cash flows. The consortium included Blackstone Partners, which brought along former Advanstar chairman Robert Krakoff to run VNU Business Media.
The VNU sale was one of numerous b-to-b media deals fueled by private equity. Virtually every significant deal, including those for Penton and 101communications, not only involved private equity money, they had private equity funds as both the buyer and the seller.
"I think [the presence of private equity buyers] has fundamentally changed the industry," said Kathleen Thomas, managing director of communications industry investment bank Berkery, Noyes & Co. "It's opened up a whole new group of buyers, giving sellers a different set of alternatives."
Roland DeSilva, managing partner of media investment bank DeSilva & Phillips, said the presence of private equity, which took companies such as Penton private, has changed the industry for the better. "They are freeing up the strategic abilities of the CEOs, because the CEOs can now focus on what they do best, which is implementing the strategies and tactics to grow a company and not have to focus on the quarterly earnings," he said.
The comeback kids
Penton, often left for dead due to some ill-advised acquisitions during the dot-com boom, was fully resuscitated with its purchase by Prism Business Media, which was backed by Bruce Wasserstein and private equity money. Penton was helped by its efforts to cut costs, its focus on the Internet and, of course, a rebounding economy that helped boost its EBITDA.
Penton was not the only company to bounce back from a near death experience. 101communications was founded in 1998, backed by private equity fund Frontenac, to bring together small, niche technology publications to attract large computer industry advertisers. It seemed like a brilliant idea until the tech wreck. Like Penton, 101communications was helped by its online focus, cost cutting and the surging economy. Frontenac sold the company for a reported $75 million in 2006 to 1105 Media, which is run by Neal Vitale and backed by Nautic Partners and Alta Communications. 1105 Media wasted no time in making additional acquisitions, buying Stevens Publishing and PostNewsweek Technology within months.
Some buyers are harder to come by
Ziff Davis Media is rumored to be for sale, but so far there have been no buyers. The M&A market may be hot, but not every company or every sector is created equal. Both Ziff Davis and the technology sector overall have struggled for the past six years. Ziff Davis, so goes the speculation, may have to be broken up to get a deal done.
The tactics of strategics
Last January, United Business Media's CMP Media paid $65 million for Media Live International's Technology Media Group, which produces events such as Interop and VoiceCon. In the same month, CMP (since renamed CMP Technology) acquired another events company, Shorecliff Communications, for $12.3 million. The moves indicated that b-to-b media companies have finally regained enough health to begin looking for growth. Noticeably, however, the buys weren't in print; they were in niche events.
Reed Elsevier CEO Crispin Davis made noises about his company becoming a buyer. It did acquire BuyerZone and Spec Chec U.S., two online-oriented businesses. At the same time, Reed Elsevier was more active on the divestiture side of the M&A equation, selling its New Products Division.
Meet the new boss
Richard Zannino succeeded Peter Kann as CEO of Dow Jones & Co. in February and quickly launched a reorganization, dividing the company into three parts: the consumer media group (The Wall Street Journal, wsj.com and Barron's); the enterprise media group (Dow Jones Newswires); and the community media group. Zannino was tapped, in part, to emphasize Dow Jones' Internet presence.
Similarly, Cygnus Business Media, which is backed by ABRY Partners, replaced Paul Mackler with co-CEOs Carr Davis and Anthony O'Brien, both of whom brought extensive Internet experience.
"Virtually every company is looking to be more online-focused and trying to figure out how to take advantage of the growth in the online sector," Jordan, Edmiston's Gross said. "They're doing everything they can to make that happen."
Other CEO changes were made after private equity acquisitions. Charles McCurdy replaced William Cobert as head of Canon Communications, which McCurdy's Apprise Media, backed by Spectrum Equity Investors, acquired from Veronis Suhler Stevenson. Similarly, Penton CEO David Nussbaum left the company after it was acquired by Prism. John French, CEO of Prism, took over the combined company, which is keeping the Penton name.
Finally, postal reform
It was a nice Christmas present for b-to-b publishers when President Bush signed the Postal Accountability and Enhancement Act on Dec. 20. The law is intended to ensure that postal rate increases will be predictable by tying them to the rate of inflation. It will also allow the U.S. Postal Service to continue cutting costs. The Magazine Publishers of American and ABM were key lobbyists in the effort to get the legislation passed. Magazine publishers view it as a means to keeping postage costs under control.
Good news on paper
The Postal Accountability and Enhancement Act is widely expected to help the magazine industry manage postage costs. The relative stability in energy prices in the latter half of 2006 has helped with another expensive "P": paper. Although paper prices rose moderately in the early part of the year, they remained steady the last two quarters. Costs for paper mills seem destined to rise in the future, but that doesn't mean that the industry will be able to institute price hikes, primarily because the demand for paper is down.
Go east, young publisher
Together with International Data Group, Hearst Business Media's Electronics Group acquired 21ic.com, a Chinese Web portal aimed at electronics engineers. The deal shows business media companies remain fixated on China and its vast economic potential, particularly in the semiconductor sector. The site already boasts Freescale Semiconductor, National Semiconductor and Texas Instruments as advertisers.
With the deal, Hearst and IDG are ramping up their ability to compete with Reed Business Information, which produces EDN Asia.
The Hearst-IDG acquisition is just one deal among scores as Western b-to-b media companies scramble to take advantage of the booming market not only in China but in India and other parts of Asia. Expect more deals like this one in 2007.
DeSilva said it was wise for U.S. business media publishers to have a presence in China. "The People's Republic of China is going thorugh an incredible and fundamental change, and U.S. publishers should be a part of that change," he said.