The B2Bs are coming back. Really

Folio: The Magazine for Magazine Management, Jan 1, 2004 by Karen Holt

Byline: Karen Holt

Believe it. The b-to-b sector is quietly rebounding. After slogging through three years of a downturn, b-to-b publishers are happy to be starting 2004 with the belief that the worst is over. In fact, publishers predict a low single-digit increase in b-to-b ad spending for the year. Financial services, pharmaceuticals, automotive and technology have the greatest potential to beat the average, they say. Below-average performers are likely to include telecommunications and manufacturing. But ads in even those categories, publishers predict, will stop shrinking. "It promises to be the best year we've been able to start in a long time," says Michael Marchesano, CEO and president, VNU Business Media.

The optimism is better founded this year than it was heading into 2003, when b-to-b publishers also confidently forecast a turnaround for the sector. The difference is an actual upturn in the fourth quarter, says Gordon Hughes, CEO and president of American Business Media. Ad revenue, flat through the first three quarters, will probably be up about 1 percent when the tallies for the fourth quarter are complete, he says. That would mean a fraction of a percentage gain for 2003, compared with a 14 percent decline in 2002 and a 21.7 percent free fall in 2001.

For 2004, ABM forecasts growth of 2 percent to 4 percent in ad spending in business books. The recovery will ride on a number of market-specific factors, say publishers. An urgent need for public works projects delayed because of budget shortfalls, for example, should boost construction spending. But key to recovery in all markets is the increasing health of the economy.

The second half of 2003 brought a spate of unexpected positive news: The gross domestic product grew by a torrid 8.2 percent in the third quarter, as business spending rose 14 percent, the largest increase in three years. In October, construction spending reached an all-time monthly high of $922 billion, according to the Commerce Dept. In November, manufacturing activity rose to its highest level in nearly two decades, according to an Institute of Supply Management survey. It also found manufacturers are in a hiring mode after three years of layoffs. The encouraging news foreshadows a better year for publishers in those markets, such as McGraw-Hill, Hanley-Wood, Cygnus and Advanstar.

"If you look at the overall strength of the recovery and you look at how it is broadening, 2004 is going to be a surprisingly healthy year for economic growth. It should translate nicely into marketing and media dollars coming back into the market," says Paul Mackler, CEO and president of Cygnus Business Media, which publishes titles serving 15 markets, including construction equipment (Asphalt Contractor) and manufacturing (Metal Working).

Though ad pages remain the standard for gauging the recovery's strength, they don't tell the whole story. As print ads decline, other forms of marketing - online, events and custom projects - become more important revenue sources for b-to-b publishers. Advertisers are increasingly interested in these nontraditional forms of marketing, which they believe are better at lead generation. "The days of going out and trying to sell an ad are over," says Mackler. "You have to present a solution - an ad, an exhibit booth, online or a custom solution. Or all of them." Cygnus will get about 25 percent of its marketing revenue from sources other than print ads in 2004, he says. Hughes says other sources won't eclipse print ads, but will outpace them this year. ABM estimates online ad spending will rise 25 percent in 2004, as spending on events increases 6 percent to 7 percent.

Still, publishers expect most of the new marketing dollars to go to print, as advertisers return to building brands and introducing new products. "They're going to take aggressive competitive steps, and that leads to a demand for advertising," says Michael Wood, CEO of construction publisher Hanley-Wood. Construction is a likely category winner in 2004. Wood says his company's ad revenues should rise 10 percent in 2004 - mostly on the continued strength of housing, which accounts for about half of all construction. Wood says spending for public works, which makes up about 20 percent of the industry, has been sluggish but will increase as roads and sewage treatment plants are built to serve new homes. Commercial construction is another matter. A glut of office space and new apartments make projects less likely until excess inventory is absorbed. Wood says: "We're not expecting anywhere near the kind of robust market we see in residential."

Financial services is another category worth watching, according to Doug Manoni, CEO of Wicks Business Information, which runs Investment Advisor and Treasury & Risk Management. "A series of external factors support the case for cautious optimism," he says. "We're beginning to see RFPs again, and we saw some advertisers come in during the fourth quarter that we didn't expect."

Conventional wisdom says that b-to-b ad revenue lags a general recovery by six to 12 months. But given the depth and length of the slump, Penton CEO Thomas Kemp warns that this time could be different. "In spite of fairly strong improvement in the economy, as well as in the underlying markets that many of us serve, we haven't yet seen it translate into a full recovery in our business." Also tempering optimism is a post-9/11 understanding that industries can be blindsided by unforeseen events. "Our customers tell us they see better business ahead," says Advanstar chairman Robert Krakoff. Krakoff expects consumer demand to continue the growth spurt of 2003 (through September, retail ad spending was up 11.6 percent, and automotive rose 27.8 percent). But he sees a slower, more uneven comeback in business ads. He says manufacturing should start the year flat and show modest growth by the end of 2004, while the battered telecommunications sector may not improve until 2005.