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Feb 15, 2001

Gordon Hughes, American Business Media CEO, Predicts the Future of Trade Magazines Online

SUMMARY: Last May, B-to-B publishing association American Business Press changed its name to American Business Media. We contacted CEO Gordon Hughes to learn how his 215 members who between them produce 1,200 magazines and various ancillary products for 181 industries, are moving into the online publishing age.
Q: Who are the most exciting movers and shakers online in the trade publishing industry these days?

Hughes: Primedia, Cahners and VNU are doing some exciting things. I don't know of anybody else. I do think there are a lot of other people sitting back and waiting.

The model of in print, online and in person -- that's powerful convergence. When you combine online with the brands of magazines and trade shows, it's a strong three-legged business model. That's the power and opportunity behind the Internet. It's really awesome. It's where we're headed in the 2001-2010 era.

Also creating mass portals that get you to a lot of different brands -- that helps magazines that don't have strong brands. You might look at Advanstar to see the way they've cross-promoted between Web sites and brands.

Q: Should magazines use their print ad sales staff to sell online media or should they build a separate sales team?

Hughes: There's no right or wrong way to do it. Having said that, salespeople are going to become consultants. They will have to be facile with every aspect of media they rep, so they'll have to learn online. It just makes so much sense if you can send somebody out to do both. The good companies will be training sales people to talk about online. It isn't easy, but it's very, very doable.

The issues are probably more on the agency side where they are not set up to buy that way. They tend to have the most problems. We also have to educate them that it doesn't mean you'll get it cheaper. It doesn't mean free web site space if you buy X number of print pages.

I also think you'll see more broadband, more emphasis on streaming media. Banners have slowed this business down. Banners were a stop-gap measure. They're really not that effective. They may be a reminder if you've got a big brand name. We're seeing click throughs diminishing.

What's already happening is that sponsorships are much like TV ads. Your ratings will be very similar to BPA and ABC. What time people are watching, what days.... You'll be able to build content that goes with that viewership like radio does in drive time. Hit them where they are. You'll begin running TV type commercials in electronic magazines. And that's when agencies will be incentivized to build better and more creative ads.

There is a lot of room for creative growth online and the agencies have resisted it. When we can make this stuff sing, it will ramp up. The agencies aren't incentivized to build banners. There isn't a lot of money in building a banner.

So, sponsorship opportunities are where we're heading now. Once you get good creative services behind them. I think it's all wrapped up in streaming media and broadband. I think that's eight months to a year and a half away. Now, we're not talking about home use here!

Q: How about selling opt-in newsletter sponsorships? Some Web sites tell us these are easier to sell than banners now.

Hughes: Oh I agree completely. I think electronic newsletters with ads are the most profitable thing right now. It's doing really well for all the right reasons.

Q: Should trade magazines be worried about new Web-only competitors that are competing for their audience online?

Hughes: Why go to somebody else when you know Oil & Gas Journal? That's why brand is so critical. You've got anywhere from 20 to 100 years of dependence on those particular brands. Where else would you go? However, these brands better darned well be online or somebody will come in and knock them up.

Sites like VerticalNet have issues once an offline brand fires up and moves into the space. That's not to say that a start-up like the Industry Standard can't be exciting and give you the intellectual content. But the smart company that has its brand in the travel or agricultural business will succeed because it's got a magazine like Pork. If you are in pig raising, Pork magazine is your friend. It's your ally. It's gotten you through more years than you can imagine. If it's online, you'll turn to it. If it's not there, you'll turn to somebody else.

That's why we beat the drums for these guys to be online in the same way they are in magazines. Don't be afraid of start-ups! Take them on. Move them out of your silo. You have the power to do that if you are a recognized brand. And supposing you are the number four book in a category with five of them, think of what the Internet can do to help you support your brand.

The Internet and magazines are absolutely made for each other. It's the dream couple. But you gotta know what you're doing. You can't have a funky Web site and a great magazine. It has to be a synergistic image you're portraying.

Q: How much should magazines be investing in their sites?

Hughes: There's no magic number. Our site was free for us. I had a kid from college design it -- he was our receptionist. I've known people who spent maybe two million on it. I don't know what the right answer is.

I saw a strategy where a company went out and spent a half million five years ago for all the bells and whistles. It was fabulous. And it was sucking wind. They were hemorrhaging. About a year and a half ago their competitors began to lose market share and they couldn't figure out why. Then they figured it was the one with the Web site that was kicking everyone's tail. Today that particular company is the dominant one in their field. I attribute that to the fact that they had the site and magazine working in conjunction with each other. It will equal out eventually because now all these companies are building Web sites.

When I started with ABM in 1995, maybe a couple of members had Web sites. In '96 about 20% did but none were making money. In '97 it grew to 35-40%; and by 1999 every magazine had a Web site. Today ABM represents around 1,200 magazines and 1,360 Web sites. So there are more Web sites than magazines. Some are pure plays. A company like Cahners has roughly 130 magazines and 150 Web sites. Some are portals to get you into the category and route you to other things.

In terms of profitability, in 1997 maybe 25% of our members' sites were in the black. Then it was 32% for 1998, 35% for 1999 and by 2000 about 42%. Now, there are lots of games people play with their Web site accounting. But the point is that people are starting to make real money. In the B-to-B silos it's growing faster than others.

It doesn't mean we're smarter than anybody. It's just that if you're in Alaska working on the pipeline, you're going to go to that Web site every day to find out how to make the pipeline work better. If you pick up Vanity Fair, you don't necessarily need that information on a Web site. There's a big difference from B2B to consumer.

Q: What types of revenue models are working for your members?

Hughes: I have the first six months of 2000 numbers. We're roughly at about 3% of the total industry revenues coming from the Internet. That money is still mainly coming from banner sales, but that is diminishing. The fastest growing piece is sponsorship sales. I would look for that to pass banner sales figures this year.

Q: What's the difference between an online ad sale and an online sponsorship sale?

Hughes: The sponsor sponsors a piece of content. The best analogy is if you're watching TV, what used to be the PGA Open is now the Buick Open. That same model is being used on the Web. IDG is probably the best at it. They were the first. They'll do a story on a part of the industry and it's sponsored by so and so. The advertising itself is not integrated into the story. There's a church and state firewall. And they can run other banners in the story as well as at the top of the page. But the fact that "this has been brought to you by," to me that is really the future of the business.

Q: What about other revenue streams online?

Hughes: Historical data retrieval is probably fourth, paid subscriptions are third. Billboard magazine, AdWeek and AdAge all do great jobs of selling subscriptions online. To me it's remarkable that more magazines are not charging for content.

Q: What are your predictions for online revenues for 2001?

Hughes: We're in economic whitewater now with the dot-coms in a shakeout period. It's just like Detroit in the 20s and 30s. Two things may happen here. One is that advertisers will cut Internet money because they know the least about it. They know magazine ad pages work so they'll put money into pages. The other school of thought is "I'm not spending much on Internet advertising, why should I bother to cut it?"

So, I think we'll see a little slow down the first half of this year, but in the second half it's going to be more and more exciting every month. Yes we'll go through a hiccup, but that's no reason why anybody in B-to-B should be backing away or not building a Web site. If they do, they'll lose their position.
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