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Friday, April 29, 2005

Quality and Debt-based Management 

Beware Product Death Cycles

This article, from the always-excellent Randall Rothenberg-edited strategy+business, about the effect of the erosion in product quality in manufacturing, made me think of the impact of debt-driven cost management in b2b media, something I've written a lot about. There are a number of analogies worth considering.

Are the many magazines and trade shows caught up in the cycle of b2b conglomeration and dissolution run for short term profits or long-term return? Hmm, I wonder...


But for the past decade or so, many corporations seem to have reverted to a more purely cost-based strategy, emphasizing short-term gains from the production of cheaply made, junky products.


...companies that produce products with lower warranty return rates have far stronger bottom lines five years later than those whose product quality erodes more rapidly. In other words, consumers stop buying products and brands they think are likely to break down. Although many top executives may decide that product failures and loyalty erosion aren’t that important in the larger scheme of business, Mr. Brue says “that’s not a responsible fiduciary attitude.”


And in a world of cheap, disposable products, who will care? Maybe only the last few managers, of the last few quality brands, who, like monks in the Dark Ages, keep alive an ideal that others have forgotten — and derive premium profits from a premium audience that nobody else understands.

By the way, that last phrase sounds like an ideal definition of any well-run b2b media property--which generates premium profits from a premium audience that no one else understands or can reach like they do.


Thursday, April 28, 2005

Penton Rising? 

Who knows? But there's a nice interview with Penton CEO David Nussbaum in this week's min's b2b. [Subscription required, and recommended]

Grab: For one thing, he says, Penton--and its counterparts in
b2b--is increasingly selling to marketers, not advertisers. "We find that marketers once again have money to spend, but it isn't easy to get at unless you can come forward with creative, customized packages that can get the job done," he tells us. "I think we're doing a better job of that. We're expected to provide an avenue for our customers to reach their customers. We can't just do that with an advertising channel anymore, because companies like ours have to provide multiple access points" (by which he means e-media, sponsored road shows, targeted events, databases, and just about anything else that moves the ball forward).

Elsewhere in this week's issue:

A good piece by new media maven Steve Smith, with the following observation:

Web technology levels the playing field between consumer and trade news sources. Aggregators like Google and Yahoo! News, let alone the RSS (real simple syndication) feeds to general audiences and journalists alike, now put headlines from small b2bs beside or above those of the wire services. Whoever breaks a story first, or best, has as much a chance of being picked up by major media as anyone else.

Usual disclosures: I own enough Penton stock to buy a grande latte, or maybe just the smaller one--I'm not quite sure. And I had a hand in launching min's b2b years ago.


Portability and Media 

Is Microsoft Downsizing the Tablet PC?

The major advantage of "old" media, beyond our familiarity with its formats, is its easy portability. As I mentioned yesterday, I'd love to see a decent portable reader hit the market. And apparently Bill Gates would like to see this too.

Grab: The new hybrid Tablet/eBook device may be Microsoft's attempt to reinvigorate interest in the Tablet. The new system allegedly is a pet project of Microsoft chairman Bill Gates.

Remember the Rocketbook (pictured)? 10 years ago, I had the chance to work with a Rocketbook. Loved it, even though it was a little too heavy, and only delivered black and white text. But the size felt right, and the intuitive page turning system definitely worked. I read a couple of novels on the Rocketbook, at night, in bed.

My smartphone, which has all of the capability of a portable reader (web access, email access, and a lot of bells and whistles) is small and portable. But the screen size is about 2 inches by 1 1/2 inches. Not workable for me, with my age-related eyesight fade.

Here's what I'd like to see: A reader that's the size of a paperback book, weighing less than 2 pounds (hopefully about 1 pound), with an integrated screen cover that easily moves out of the way. Four color capability, intuitive downloading and page turning. Wireless access. Email and web access. A built in RSS-feed reader.

That's probably not what Microsoft can deliver--yet. But I'll probably give a downsized Tablet PC a try anyway.

My ideal reader continues to be a four page piece of four color digital paper, with built in wireless access, and enough memory to store a reasonable amount of text and graphics. Something I can slide into my briefcase, roll up as necessary.

Once we get to that stage, arguments about the validity of "old" media as a content provider ought to have withered away.


Wednesday, April 27, 2005

Where Have I Heard This One Before? 

Next: The Google Street Journal

From the Los Angeles Times' Andres Martinez:

It's only a matter of time before a Yahoo or a Google decides to buy an old media company in order to differentiate itself by offering high-quality, proprietary news. Or a company like Amazon could buy a prestigious newspaper publisher and reinvent itself as a portal, leapfrogging over those that treat news updates as a commodity.

Can anyone say AOL/Time Warner? Perhaps a Yahoo or Google could make the merger of "old" and "new" work better than that fiasco, but I doubt it.

Frankly, Yahoo and Google, as far as I use them, aren't content creators. They're delivery mechanisms for the information I need (RSS feeds, my stock quotes, searches). And they're delivery mechanisms for a lot of the output of "old" media.

As Martinez points out:

And yet, for all their revolutionary and transformative power as information hubs, these companies have not reinvented the news business. Go to Yahoo's home page and the prominently featured news items are mostly wire stories from such sources as the Associated Press and Reuters. How retro. The point-and-click world still depends on us old-fashioned news types for indispensable content.

I think that's true. But that doesn't mean that Yahoo or Google could do any better owning a media brand than Steve Case, or Bill Gates, for that matter.


M&A Mania, part two 

The buying and selling craze in B2B

A postscript to yesterday's post on the M&A resurgence in B2B: my friend Paul Conley's blog always keeps a strong focus on the people part of the B2B equation. The old saw that "all our assets leave the office every night" is never truer than when it comes to media. Media is never technology, or distribution, or debtload, or P&Ls, or M&A. It's always people. The people who create content, sell advertising, build circulation, design products.

And people get chewed up in the great cycle of b2b buy, build and sell. They watch the actions of those at the "top" (see Paul's post referencing the drinking habits of some of those).

Sample grab: I'd spent too many boring meetings in Primedia's executive dining room, wasted too many days trying to track down high-ranking bigwigs with drinking problems who frequented the bars near corporate headquarters, and listened to far too many imbeciles tell me their theories on journalism.

B2b people see colleagues laid off, salary cuts, resource cuts. Their morale sinks, and they spend more time trying to lay low and keep their jobs, than do the stellar jobs they're capable of and must do in order to create insanely great media. Who can blame them?

And the business stagnates, and the numbers drop, and good products become mediocre products, and investors sell out, and the process starts all over again.

I believe in profitable b2b media--otherwise, why do it? And if done right, b2b can be incredibly profitable. Not too many industries can deliver 25-50% contribution margins.

But to all the money folks out there, as you wheel and deal the b2b companies currently on the market (and those that are sure to follow): think about the people (the real asset) you're acquiring. Give them decent executives who actually listen to customers and staff. Give them decent financial breathing space. Give them a sense of job security. And then expect excellence. You'll get it.


Print is Dead: Pharmaceutical Edition 

Medical Publications Spending Exceeds $3.2 Million for Mid-Level Pharmaceuticals

According to a report from Cutting Edge Information, pharmaceutical companies spend an average of $3.2 million creating publications to support mid-level drugs ($500 million to $1 billion in annual sales.) "Support" means publicizing and selling the drugs to physicians.

Blockbuster drugs (the ones that make you feel very good) have average publications spending of $6.7 million.

While STM pubs are probably a primary target, I'm sure there are plenty of opportunities for smart medical and custom publishers to be found here.


B2B Experts and the MSM 

BtoB Meets the Press

Nice whitepaper from American Business Media on getting your b2b editors into the mainstream media as industry experts, with advice from the MSM on how to pitch stories and make your publications generally useful.

Grab: "We all cover the beverage industry aggressively, for example. I would be interested in sitting down with the editor of one of those beverage titles and just see what the big issues are. What are the companies that you're really paying attention to? And if I get a story, I'll give you credit." Melanie Wells, Forbes.

It's always worth the effort to encourage your editors to step out as industry experts, because they should be. And it's a great way to make the case for your magazine over your competitors, without having to crank out yet another study that shows you're number one. If your audience and your advertisers see that you have a line to the large circulation business pages as an 'expert witness,' you're adding value--to them and to your business.

Also, not a bad use of a NXTbook in the link at the top. Easy to read and navigate. I, for one, like digital editions. I think the trick is to find the right reader format. I'm still hoping that electronic paper technologists find a nice lightweight, rollable and foldable way to view these types of things.


Mass Transit 

DCist: Metro's (Unofficial) Rules

I don't have the opportunity to ride Washington D.C.'s Metro all that often (usually only when it's snowing or when my wife and I plan a late night in town, since the nearest Metro station is about as far from my house as the center of DC is), but when I do ride the Metro, I manage to encounter nearly all of the 'rule breakers' called out in DCist.

One (very) oblique media observation: when riding a full Metro train, a small handheld news reader would come in handy. It's impossible to read a broadsheet like the WSJ without getting dirty looks and muscle cramps. I've tried using my smartphone, but of course, AT&T/Cingular hasn't figured out how to get signals in the Metro like Verizon does.

Update: Also, some nice DC "etiquette" links from Gridskipper, fast becoming my favorite travel blog.


Tuesday, April 26, 2005

M&A Mania 

The story so far:

Questex bought a $100 million chunk of Advanstar. Advanstar is now focusing on enhancing its remaining markets.
Apprise Media has bought Canon Communications.
Hanley-Wood is for sale.
Primedia's b2b unit is for sale (for a nice insider's take, see Paul Conley's blog.)

And, of course, there have been a lot of other announcements in the past few months.

What's behind all of this b2b M&A activity? One read: burned investors are getting out of b2b, or narrowing their portfolios, while multiples are reasonably high. They're hoping to get out while the getting is good (or at least, given the returns over the last few years, mediocre), and let some other poor sap waste his money. B2b is dead.

Another read (mine): This cycle of activity was completely to be expected. It's happened before and will happen again. It has little to do with the future of b2b as a medium, and more to do with the human inability to learn from the past.

I have a view about M&A cycles in general, and about b2b publishing in particular. Here 'tis: larger b2b companies aggregate products through acquisitions, with a grand vision of creating the biggest, and theoretically, the greatest value for their owners. But these b2b conglomerates eventually suffer from several things:

Lack of senior management depth
Lack of patience due to high debt loads and investor expectations
Lack of an exit strategy

Each lack has a specific outcome.

Management depth. Big multi-portfolio b2b companies with high debt loads tend to manage from the P&L and balance sheet, and that's where the focus of senior management is. They can't spend enough time in their markets to look for new opportunities to serve their customers. And the company tends to stagnate as a result, while smaller, more nimble publishers (or websites) eat away at marketshare. There's never enough senior management in b2b conglomerates to go around, either. So strategic and tactical decisions at the market level often get deferred. Who has enough time to meet with bankers, reforecast results, cut staff and meet with customers in tens or hundreds of markets?

Patience. B2b conglomerates can't ride out market lows, and can't invest during those lows. They need results now, and make decisions that improve those results for the short term, but hinder long-term prospects. New product creation slows or halts. Core business assets see cost cuts in core areas--circulation development, editorial and more. Staff is trimmed, new hires are stopped. The damage done by these moves is recognized, but what can they do? They have to make their numbers.

Exit strategy. The bigger the b2b conglomerate, the more limited the exit strategy. The former big idea was to go public, but Penton and Primedia each showed that the public markets are even less patient than the private investment markets. Some companies, like Advanstar and Network Communications, found themselves flipped from one private investment group to another. But these flips have an end point as well--how much big money can chase after big money? Ultimately, these conglomerates end up with just one exit strategy: break up into smaller, more easily justified pieces ($150-$500 million buys). Advanstar broke off a chunk of its business...and who knows? More may follow. Primedia is breaking off a chunk of its business. Veronis Suhler Stevenson has broken off Canon and Hanley-Wood. (Though these latter cases are obviously different, since each was run as an independent company).

The challenge with all this activity is that the cycle begins anew. New owners, with high debt and high investor expectations, look to grow. They'll make acquisitions, and eventually suffer from the 'lacks' outlined above. And we'll see another round of sales and breakups, probably in about 5-7 years, depending on the economy and multiples.

The sweet spot in b2b is the smaller company, the $10-$40 million b2b groups. They're small enough to focus management time and attention on their markets, which gives them great growth patterns, and the ability to invest to stay ahead of technology, as well as audience and advertiser expectations. They're often not saddled with crushing debt. And they have a natural exit strategy--a sale to one of the new nascent b2b conglomerates.

I recognize that I've oversimplified here, and that companies like Hanley-Wood, with its laser-like focus on a single market, is much different from a multi-market portfolio company like Primedia or Advanstar. But that's why Hanley-Wood will probably command a premium price in the market, and why Primedia and Advanstar's investors are taking it in the shorts with those sell offs. (In many ways, Hanley-Wood operates like one of those $10-$40 million b2b companies...and because of that, has managed to grow well beyond that while keeping its management focus).

I'd love to see a comparison of IDG over a ten year period with some of the other b2b conglomerates I've mentioned. IDG has managed to avoid all of the 'lacks' I've outlined through a strategy of decentralized control, strong market focus, private and patient ownership, and no real current need for an exit strategy.

But IDG is far from the norm.


The Newspaper Tipping Point? 

Advertising: Newspapers Find National Ads a Tough Sell

All politics is local, said Tip O'Neill's father. And all advertising is local (or individual-- intended to convince individuals to take some action).

The article linked above from the New York Times, on the increasing tough sell of national advertising in newspapers, will probably be used by some to continue the tolling of the death knell for old media. But read it carefully.

My takeaways: national advertising is harder to sell for newspapers with national aspirations and circulations (excepting USA Today). But smaller papers are seeing increases in advertising. And of course, the online portals, which draw much of their content from newspapers, are growing like weeds.

Grab: "The smaller papers are doing better than the larger papers, and local retail and classified outperformed national," said Lauren Rich Fine, an analyst with Merrill Lynch, which does business with Dow Jones and the Tribune Company.


"National advertising is financial, technology, professional services advertising," said Richard F. Zannino, executive vice president and chief operating officer at Dow Jones. "That advertising tends to follow the profits of the companies doing the advertising."

"Local advertising is just much less volatile than national advertising because of its mix," Mr. Zannino said. "If you're a local auto dealer and you have inventory to sell, you have to advertise to get people into your store to buy the cars. They tend to be much less cyclical."

If you tie this together with my recent posts here and here on newspaper websites dominating their local markets, I think you have the makings of the new economic model of newspapers, and other "old [read 'print'] media."

The return of newspapers to their local roots may be the real tipping point (with a tip of the hat to Tip's dad) for this particular medium.

Update: I didn't blog Murdoch's ASNE speech, but here's a relevant grab:

"Plainly, the Internet allows us to be more granular in our advertising, targeting potential consumers based on where they've surfed and what products they've bought," Murdoch said. "The ability to more precisely target customers using technology-powered forms of advertising—contextual-based targeting and behavioral targeting—represent a great opportunity for us to maintain and even grow market share and are clearly the future of advertising."


Scott Donaton Gets It 

Making Space for the Future of Magazine Publishing

I enjoyed Scott Donaton's column on the National Magazine Awards, especially his assumption that is as much a magazine and has as much a right to hang with the big glossies as any other nominee.

Says Donaton: Had Nerve bagged an elephant, it would have been a bold statement. It’s not only redefined the model for profitable niche publishing, it’s also one of the freshest editorial voices to come along in years.


[Nerve's] half of Table 19...was a validation of Nerve’s achievements, a sign the magazine industry is ready to make space, if only by adding a few chairs, for the future of publishing.

It's great to have the editor of Advertising Age making that same space. I'll say it again: a magazine doesn't need to be printed on paper to be a magazine. A magazine is an editorial- and audience-organizing principle, regardless of the production or distribution mechanics.


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