2008 B-to-B CEO Survey
FOLIO:'s fourth annual look at what's on the minds of b-to-b leaders.
The tipping point for business-to-business publishing is here. No, not the tipping point where print is surpassed by other revenue streams (in 2007, on average, print accounted for 63 percent of total revenue for publishers generating less than $5 million per year and 55 percent for publishers generating more than $5 million per year).
Now, b-to-b publishers must now decide what drives them into the future. Online? Data? Events? With a recession looming, b-to-b publishers remain surprisingly optimistic. The 2008 FOLIO: B-to-B CEO Survey shows a market that expects to grow this year, even as the number of executives who anticipate selling their company increases.
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While b-to-b publishers face a slumping economy and skittish advertising market, the overwhelming majority think revenue performance will increase in 2008 [bottom chart, page 30]. Seventy-eight percent of smaller publishers and 85 percent of larger publishers say they will post revenue increases this year, with the majority of both larger and smaller publishers saying the increase will be in the 10 percent to 19 percent range, a significant jump.
Meanwhile, 15 percent of smaller publishers and 8 percent of larger publishers expect revenue to stay about the same, while just 2 percent of smaller publishers and 4 percent of larger publishers expect a decrease in revenue this year. For those publishers expecting a decrease, most think it will be in the 5 percent to 10 percent range (again, a pretty significant amount).
Print remained the dominating revenue stream for b-to-b publishers in 2007 [bottom chart, page 31], despite the hype with online, events and increasingly, data. In fact, print accounted for more of the total revenue for small publishers in 2007 (63 percent) than it did in 2006 (59 percent).
Similar to the consumer publishing side, larger b-to-b publishers seem to be having more success and are outpacing their smaller peers when it comes to diversifying revenue streams. Print accounted for an average of 55 percent of larger publishers’ revenue in 2007, down from 60 percent in 2006. While both larger and smaller b-to-b publishers saw about 8 percent of their revenue come from e-media in 2006, smaller publishers saw e-media grow by one percentage point to 9 percent in 2007, while larger publishers say e-media on average accounted for about 13 percent of their total revenue last year (exceptions include the technology publishers such as IDG, Ziff Davis, ZDE and the former CMP Technology, which have seen print dwindle while online revenue soars).
Although American Business Media claims its members have seen events eclipse print revenue over the last two years, events still lag print and are about even with e-media according to the Folio: B-to-B CEO Survey (events are hugely profitable though, as we will see). Larger publishers saw events grow from 10 percent of total revenue in 2006 to 14 percent of total revenue in 2007. Smaller publishers however, reported events fell from 7 percent in 2006 to just 4 percent in 2007. High travel costs combined with venue expenses (New York City is rapidly becoming a no-go for multi-day events for smaller publishers and their attendees) and a glut of publishing events are part of the reason for the decline.
While there are examples of publishers making strides with data and other services (such as e.Republic, Dolan Media and Randall-Reilly), that category remains untapped for most publishers, accounting for just 5 percent of total revenue for smaller publishers and 3 percent of revenue for larger publishers. It’s a position b-to-b publishers need to rethink as they search for more recession-proof products. e.Republic sees more than a quarter of its total revenue from data (its fastest growing revenue stream) but has also seen data clients boost their spending in both print advertising and events as a result. “As they build on this success, clients spend more money on advertising and shows because they actually have a strategy that’s working,” says e.Republic CEO Dennis McKenna.
Profit Margins Remain High Overall
While publishers are feeling the pinch with ad revenue, publishers are enjoying steady overall profit (although cost-cutting may play more into that in 2008). While 28 percent of smaller publishers say their profit margin was in the 5 percent to 9 percent range in 2007, a significant 15 percent said they had a profit margin of 30 percent or more (however, 10 percent said they weren’t profitable).
The majority of larger publishers said their profit margin was in the 20 percent to 29 percent range, while only 3 percent said they weren’t profitable.
Online continues to boast the best profitability percentage among revenue streams, even as publishers realize they need to make significant investments in both infrastructure and personnel. Forty-four percent of larger publishers said e-media was profitable by a margin of 20 percent or more in 2007, while 21 percent of smaller publishers cited the same range. “We are laying the foundation to capitalize on electronic media and increased market share through investment in new content topics,” says one respondent.
But while the majority of respondents cited e-media as their biggest success, matching return with the hype remains a huge stumbling block. While just 5 percent of larger publishers say e-media wasn’t profitable in 2007, nearly a quarter of smaller publishers didn’t turn a profit on it either. “Our biggest disappointment is sales’ inability to sell new products such as video, Webinars and event sponsorships,” says one respondent. “We’ve seen slow customer acceptance of Internet marketing/advertising,” says another.
Events are considered a major profit center but in 2007, that was only true for larger publishers. The majority of larger publishers saw events with profit margins of 20 percent or more while the majority of smaller publishers (18 percent) said their events weren’t profitable (compared to 3 percent of larger publishers).
Although it may be declining as an overall revenue source and remains a significant cost center, print was fairly profitable for both large and small b-to-b publishers in 2007. Thirty-three percent of larger publishers and 18 percent of smaller publishers say print had a profit margin of 20 percent or more last year. Still, 12 percent of smaller publishers said print wasn’t profitable, compared to 4 percent of larger publishers. “The final issue of the year was beyond painful in ad sales,” says one respondent. “We serve in an industry that’s been hit hard economically last year and advertisers want to wait out the storm.”
Investing, Not Cutting
When the economy slows, cutting costs is the traditional response of b-to-b publishers. But as publishers recognize they’re not just investing in the business but reinventing the business, b-to-b publishers continue to spend, at least online. “We’ll continue to make big investments in the Web as part of planned growth,” says Steve Palm, CEO of NewBay Media. “When you get out of a recession it’s usually the number one, two and three books that get the benefit. It’s the weaker publishers that tend to evaporate.”
Larger companies again are outpacing the smaller ones when it comes to technology investments. The majority of larger publishers (21 percent) spent between $100,000 and $249,000 on new technology in 2007, compared to the majority of smaller publishers (28 percent) who spent between $10,000 and $24,999 on new technology last year.
Still, 18 percent of smaller publishers and 5 percent of larger publishers said they did not invest at all in new technology in 2007.
Web sites received the most investment for 37 percent of smaller publishers and 35 percent of larger publishers. Components of the Web site were the next focus, with 27 percent of larger publishers saying CMS was their largest investment, followed by 21 percent of smaller publishers.
Many of the so-called “Web 2.0” features trailed in investment (thanks in part because these are cheaper to create than Web site architecture or the CMS) but 8 percent of larger publishers said video was their largest technological investment, compared to just 2 percent of smaller publishers. With Webinars, 4 percent of larger publishers said that was their largest technological investment last year, compared to just 1 percent of smaller publishers.
However, when it comes to social media, 2 percent of smaller publishers said that was their largest expense, compared to 1 percent of larger publishers. Part of that is larger publishers have already created many of the building blocks for social media, such as chat forums, and many are outsourcing those initiatives through partnerships with existing social networks [see story, page 8].
As publishers ramp up on the e-media side, that is no longer considered the cheap alternative to print. Operating expenses for e-media grew by 10 percent in 2007 and will grow another 8.4 percent in 2008 for larger publishers, compared to 5.9 percent in 2007 and 5.4 percent in 2008 for smaller publishers.
In 2007, distribution posted the second-largest increase in operating expenses for both large and small publishers (6.4 percent and 6.8 percent respectively). However, in 2008 distribution is expected to get the smallest bump from small publishers (3.5 percent) while circulation will get the smallest bump from larger publishers (3.7 percent). On the sales side, smaller publishers say operating expenses will grow an average of 5.9 percent this year, compared to 4.8 percent of larger publishers. Editorial, which accounted for an average 4.4 percent boost for both large and small publishers in 2007, will see an average 4.2 percent boost for smaller publishers and a 3.8 percent increase for larger publishers in 2008.
Still, much of the increase went to staffing, particularly e-media specialists that, for now, command more money than print staffers.
Despite avoiding the worst case scenario with postal increases, postage was cited as an enormous operating increase by respondents, as was paper. “We’ve expanded our editorial resources to enhance e-media offerings and support print launches,” said one respondent. “Anything related to petroleum (ink, drop, shipments, freight) is on the rise,” said another.
The Year Ahead: Print, M&A Down
Online initiatives will continue to dominate, with nearly half of larger publishers and 25 percent of smaller publishers saying they will launch an online startup this year [bottom chart, page 34]. Meanwhile, 24 percent of smaller publishers (compared to 28 percent last year) and 22 percent of larger publishers (compared to 42 percent last year) say they will launch an ancillary service startup.
Despite their dependence on print as a revenue stream, fewer than a quarter of publishers generating $5 million or less in annual revenue say they will launch a magazine startup in 2008, down from 22 percent last year. Meanwhile, 26 percent of larger publishers say they will launch a print product in 2008, down from 36 percent in 2007.
Publishing M&A may finally be cooling on the b-to-b side. Thirty-six percent of larger publishers say they expect to acquire another company in 2008, down from 46 percent in 2007, while just 9 percent of smaller publishers expect to make an acquisition this year.
Meanwhile, publishing executives are more aware of the potential for their companies being sold this year than in 2007. Eight percent of larger publishers (up from 4 percent last year) and 11 percent of smaller publishers (up from 7 percent in 2007) say they anticipate being acquired by another company this year.
Increasing profitability and revenue growth were top priorities for both larger and smaller publishers in 2008 [left column chart, page 35]. Forty-seven percent of larger publishers and 36 percent of smaller publishers say increasing their Web business is a top priority, while 25 percent of larger publishers and 21 percent of smaller publishers say revenue diversification is a top agenda. However, staff stability is a top priority for just 2 percent of larger publishers and 7 percent of smaller publishers this year.
In 2007, online/e-media was the fastest-growing part of the business for both large and small publishers (76 percent and 45 percent respectively). Forty-two percent of larger publishers and 21 percent of smaller publishers said events were among their fastest growing areas, while 40 percent of smaller publishers said print was one of their fastest-growing areas.
Eighty-six percent of larger publishers and 64 percent of smaller publishers expect to see revenue growth from online this year. New print advertisers were the second highest source of anticipated revenue. However, just 38 percent of smaller publishers and 47 percent of larger publishers say they expect to see increased revenue from existing advertisers in 2008.
The survey sample of 1,000 was selected by Red 7 Media and Readex Research from 1,385 FOLIO: subscribers with executive management titles. The survey was closed with 297 usable responses—a 30 percent response rate. The margin of error for percentages based on these respondents is plus or minus 5.4 percent at the 95 percent confidence level.