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Digital buzz Featured

12:45pm EDT July 18, 2002
With more than 100 years under its belt, Penton Media Inc. is best known as the publisher of traditional industry trade magazines, including its flagship, Industry Week.

In recent years, the Cleveland-based media giant has strategically focused on establishing footholds in the emerging new media marketplace and targeting fast growth industries for new niche publications.

Penton has vaulted to the top of a $12 billion industry, backed by its 51 publications, numerous trade shows and a wide array of Internet and broadband products. The company's aggressive pursuit to develop multiple revenue streams has been spearheaded by Tom Kemp, who assumed Penton's top spot in 1996.

Kemp combined Penton's conservative fiduciary approach with a forward-thinking strategy to move the publishing titan into a new age. SBN Magazine sat down with him to discuss Penton's focus and his view of what the future holds for traditional print publishers in an increasingly digital world.

Penton has made quite a few changes. In what direction is the company heading?

We're shifting from being just a print magazine publishing company to becoming a fully integrated B2B media company. We serve our vertical industry communities through three core channels -- in print with our magazine, in person through tradeshows and conferences and increasingly through online information.

We want to be content rich but distribution neutral, connecting buyers and sellers through priority content. We are not as concerned about the channels of distribution; we are more interested that we provide consumers with content in any format that they want. They read newspapers and magazines, attend conferences, go to trade shows for their industries and use the Internet for information or up-to-date news.

For suppliers, we want to provide an integrated marketing approach. Sure, they want to advertise in magazines, but they also exhibit at trade shows, sponsor conferences and want to reach their customers through online services.

How do you facilitate an integrated market approach?

What is important is that Penton has a leading media product in all three channels serving these vertical communities. We have a strong magazine and a strong magazine brand. We either develop or buy trade shows and conferences in these markets and develop an online presence through Internet activity.

In addition to serving the traditional markets -- over the years, Penton has served manufacturing and design engineering -- part of our strategic plan was to diversify the markets and particularly those markets that have strong growth.

The most important strategic move we made was buying a company called Mecklermedia in 1998. We are now the leading B2B media company, serving the world's fastest growing technology -- the Internet.

Traditional print publications rely heavily on advertising revenue. Will the Internet create similar revenue streams? If not, how will it be profitable?

Part of the challenge is to figure that out. We have a lot of Internet initiatives. Initially, the Web sites consisted of an electronic version of our print magazines. That doesn't take advantage of the capabilities of the Web, so in the second generation, we've developed products that are more in tune with the Web itself.

A good example is PlanetEE, a site for the electronic engineering OEM market. It has vast resources of editorial content, market information and databases. It also combines and aggregates information from about 10 different magazines and is a vertical portal for electronic engineers with more information than they can get from any one magazine.

The challenge is that we are developing products and putting them out there. But these are new media models and new revenue models.

Everyone is trying to figure out the Web and how to utilize it for e-commerce, information resources and to generate revenue. Disney is shutting down its go.com portal. A lot of traditional media companies were aggressive in developing Internet media products, but now are retrenching or downsizing because they feel less threatened by Internet-only or dot.com competitors.

The slowing economy has put pressure on the underlying core business, particularly in regards to advertising. They haven't seen the return on that investment relative to revenue and profit growth.

A year ago, people were excusing Internet losses. That game is over. The financial community is judging Internet investments just like any other investments. You have to show returns and good traction in terms of revenue growth or else you're in trouble.

What will the year 2001 bring for Penton in terms of revenue?

We have Internet media products in all of the market sectors we serve. These are Web businesses that are generating revenue. About 33 percent of our 2000 revenue (came from) the Internet and broadband sector, but those are through traditional media products like our trade shows, conferences and magazines serving that industry.

It is the best of both worlds: Proven media products that are highly profitable but are in a fast growing, dynamic industry.

For the year 2001, we expect about 52 percent of revenue will come from publishing properties and print publishing, 44 percent will come from trade shows and conferences, and 4 percent from the Internet.

We also diversified our revenue streams. Three years ago, 90 percent of our revenue was from publishing. We have aggressively diversified that so as we move on, 44 percent will be coming from our trade show portfolio this year.

In fact, our trade shows have a higher margin; that 44 (percent of revenue stream) translates into 65 percent of profit that will be generated from our trade shows.

How does that compare to five years ago?

Five years ago, Penton was basically a nonentity in the trade show business. As recently as 1998, 12 percent of our revenue came from trade shows. In 1997, five percent of our revenue came from trade shows. In 1999, it was up to 30 percent. Last year, it was 39 percent, and now it's 44 percent.

We have been growing at about 24 percent per year in revenue growth. So not only has the percentage increased very dramatically, but it's also a fast-growing base of our operations.

You've had many acquisitions in the last few years. Will that trend continue?

We did 15 acquisitions in the two-and-a-half years since we became a public company. Those acquisitions have furthered our strategic plan to diversify the markets we serve and to capture those markets.

Our acquisitions tend to fall in two categories -- the smaller one or what we call "bolt on acquisitions" that strengthen and support our current market position, and the larger strategic acquisitions that give us a leadership position in new market sectors. We will continue to execute acquisitions that make strategic and financial sense to our shareholders.

We spent about $300 million last year on acquisitions, but we still have a good leverage position and strong cash flow. We have a strong balance sheet, so we can continue to execute acquisitions. However, we never want to overleverage the company or put it at risk.

How is Penton hedging the new media part of the company against the recent market downturn?

One of the things we did, which at the time was not very popular but in retrospect has proven to be very wise, is that we never carved out our Internet businesses from the rest of the company.

A lot of companies were packaging and launching new businesses with outside financial investors and would spin off with the prospect of doing an IPO when Internet valuations were so astronomical. We always felt that we wanted an integrated media approach. It was very important not to separate the Internet businesses from our offline businesses.

We had a lot of offers from financial people and from Internet media companies to package our assets into a separate business and all make lots of money. But we didn't think that was the right thing to do for the long-term strategy for our company. What we will do is do it in a prudent way, a way in which the underlying core business can afford to invest in the Internet but achieve profit goals.

If you look at our financial reports for this year, we have told the market we will have about $400 million in revenue, up from $300 million for the year before, which is a 33 percent increase. We also told the market that we expected to go from $67 million in cash flow to between $90 million and $93 million. That is about a 30 percent cash flow operation profit increase.

All the while, we'll be allocating about $7 million worth of investments for our Internet media products.

Will the Internet ever replace print media?

People aren't going to stop reading magazines or newspapers because of the Internet. If we look at history, no new medium has ever supplanted an older medium. Everyone thought that radio was going away when television came along.

Everyone thought that the theater would go away when movies came along. Each of these mediums has unique characteristics and we have a unique experience with them.

The Web is excellent for searchable information or up-to-the-minute news and information. It is not very compatible for reading long, detailed information. I don't think that people are going to stop reading the newspaper on the bus or on the train and just utilize the Web.

Clearly, it will have an effect in terms of the marketing dollar being spent on what print does best, but not try to duplicate what the Internet does better.

What role will advertising play?

Advertising is going to continue to grow on the Web, although so far the Web has not proven to be a very good medium for static advertising like banners and buttons. The key will be an interactive experience.

It will be where they can get much more in-depth information than just reading an ad on a screen. Print is a richer advertising medium, but it doesn't have the interactive or purchasing capabilities of the Internet.

Because it is going to be a competitive channel for marketing dollars, there will be more pressure on pricing levels in the traditional media. We are interested in maximizing the marketing dollar for our supplier customers. We are less concerned about where they spend those dollars and more concerned that they spend them with Penton. That's why we have trade shows.

When they (customers) are ready to market on the Web, we will be there to catch their dollars and also carry their print advertising. That's why it is important to have an integrated media channel. You become much more of a strategic partner and supplier to your customer than simply offering pages of advertising in a magazine.

We can sell them an integrated media campaign that combines both forms of media.

What is the future of Industry Week, taking into consideration the slowdown in the manufacturing industry?

Industry Week, in one form or another, has been around for over 100 years. It had a very good year in 2000 and is off to a good start in 2001. Industry Week has a unique position because it focuses on the senior executive management in manufacturing companies and focuses specifically on manufacturing as opposed to broader base management magazines like Fortune or Forbes or Business Week.

It continues to be quite healthy and profitable and provides a unique kind of information. The readers love the magazine.

We are pretty bullish. We don't see the growth in the print properties that we see in the Internet properties or in person, but they tend to be very stable and a consistent source of revenue.

How is the recent economic slowdown affecting Penton?

Every day, you read about companies like Chrysler and Amazon.com laying off people. It's a concerning backdrop, and I think that the common perception is that the economy is not in good shape right now. But the question is, how long will it take to recover, and will it get worse before it gets better?

Most companies are subject to macroeconomic issues that they don't have any control over. Our jobs as managers is to make sure that we manage our companies in a superior manner irrespective of the environment in which we find ourselves.

The true measurement of management is not how you manage in the good times. It is pretty easy to manage when things are going well. It is how you manage your company and steer your business through the more difficult, more treacherous times of lower economic growth or even recession. That's the real test.

What do you see Penton doing in the next year or two?

We had remarkably fast growth last year. I wouldn't expect to see the same levels next year. We have already told the market that we expect a revenue increase to reach over a half a billion dollars for the year 2001, and our operating cash flow to exceed $100 million this year.

But clearly, the economy has slowed down faster than anyone expected. The Fed is reacting, but it takes several months for the economy to catch up. How to reach: Penton Media Inc., www.pentonmedia.com

Kim Palmer (kpalmer@sbnnet.com) is managing editor of SBN Magazine.