The Revenue Tipping Point

By Matt Kinsman
06/30/2006

In recent years, some b-to-b magazine publishers have taken to crowing about their online growth, citing double-digit and even triple digit year-over-year gains. That’s impressive until you realize that the real revenue being generated online was still miniscule.

That’s changing. While online revenue is still dwarfed by print revenue for most publishers, many are starting to see real revenue growth online exceed the real revenue loss in print on a quarterly basis. That’s a huge justification for publishers investing online; a final warning shot for publishers resisting (and yes, there are still plenty of them out there) online investment; and a potential boon for the trade magazine industry if print continues to stabilize (and in some categories, even grow again).

Good News For Penton

In the first quarter of 2006, Penton Media reported $5.1 million in online revenue, an increase of $1 million over the same period last year. The company also reported $31.8 million in publication revenue, an $878,000 decrease from the first quarter of 2005. While it’s essentially a wash, Penton still made approximately $100,000 more online than it lost in print for the first quarter of the year. “The great promise of the Internet is fulfilling what that promise was said to be in the early part of the decade,” says CEO David Nussbaum. “There was a time five or seven years ago when the contrarian view was that e-media revenues were nice to have as ancillary revenues to our business but if print never recovered then there would be real issues for companies in our space. Most people thought e-media was like a lot of ancillaries over the past 20 years—nice to have but you better get your print straightened out.”

Today, publishers can’t afford to give priority to one channel over the other. “Now you have to look at it as merged items—e-media can truly be very significant revenue,” adds Nussbaum. “Because of that, it can grow fast enough to overcome slower growth in print.”

Online is still by far the smallest of Penton’s three revenue streams (which combined for $54.3 million in the first quarter, up 1.8 percent). However, online grew 24.1 percent in the first quarter, compared to an increase of 5.3 percent in events and a loss of 2.7 percent in print. While he won’t reveal specifics, Nussbaum said that March was the largest single month for Penton’s online revenue to date.

Still, Nussbaum sees print as an important component of actually driving the online product. “Powerful magazine brands—which have great readership, strong following, creative editors and salespeople—are terrific platforms for e-media development and growth,” he says. “You have to continue to nurture and grow your print brands even if the revenue and profits aren’t what they were back in the Nineties. They give you a recognizable entree into e-media.”

While Advanstar Communications has primarily benefitted from its thriving trade shows, much of its online efforts have been fledgling. In the first quarter of 2006, Advanstar generated $106.6 million in revenue, up from $90.6 million. However, also in the first quarter of 2006, Advanstar established a dedicated electronic media group assigned to develop electronic products.

Tech Publishers Leading the Way

If technology publishers were the first to bear the brunt of the dotcom bomb in 2001, then they are also among the first starting to enjoy the real pay off of “Web 2.0.” In 2004, CMP Media saw print revenue decline by $15 million, while the online revenue growth in real dollars was about $7.5 million. In 2005, CMP saw an $18 million decline in print and an online increase of $14.5 million in real, organic-growth dollars. While the company won’t discuss 2006 numbers, “The trend is obvious,” says Mike Azzara, senior vice president of Internet Business at CMP.

In 2001, during the depth of the dotbomb, CMP created an online-only group to develop online best practices, then propagate those best practices around the rest of the company. “That’s why you see the pace of increase doubled in 2004—we went from a small portion of the company being advanced in online sense to the entire company,” says Azzara. “We began to redefine the company, began to analyze where our expenses are going—are they going to those things driving revenue growth? And if they’re not, we’re making adjustments. We also need to reinvent our business processes to a certain extent. Until recently, they revolved around a print-centric approach.”

But like Penton, CMP won’t be turning its back on print (even if it is starting to reconsider certain forms of print, such as newsweeklies). “It’s a bit of a dance because you have to find the right balance,” says Azzara. “Nobody thinks print is going away. It’s still a healthy, profitable business. Our customers don’t want it to go away.”

At the American Business Media Spring Meeting in May, IDG Communications chairman Pat McGovern, head of a company that has been criticized for not committing sooner to the Web, spoke of how the company is now making more money online that it is losing in print. IDG Communications president Bob Carrigan goes a step further, saying that not only is online beating the print loss, but after a cutting period that saw the demise of several IDG-owned CXO titles, (including the celebrated CMO), print is coming back for IDG.

“The amount of online revenue in absolute dollar terms is exceeding any decline in print although print has been a little healthier lately,” says Carrigan. “Our online business in percentage terms is up 40 percent over the prior year and online is approaching 20 percent of our total U.S. revenues. It’s a substantial business and high-growth in absolute dollars.”

Still, markets tend to follow the health of the markets they serve and the IT industry is currently enjoying an upswing. “In some ways we as tech publishers have an unfair advantage,” says Carrigan. “Our readers and advertisers are tech enthusiasts.”

However, it’s something other publishers need to prepare for. “As a tech publisher, we had the pain and luxury of being first,” says Azzara. “Our core readers all went online in 1995 and haven’t looked back. Publishers are only beginning to grasp what they’re dealing with. They may not be able to grasp the extent to which they will change their business model.”