Industry Forecast: Weathering Turbulent Times
by Barbara Brynko
English-born author and philosopher Thomas Paine crossed the Atlantic in the late 1700s and arrived in the British American colonies just before the start of the American Revolution. As it turns out, he became one of the Founding Fathers of the U.S., inspiring a nation with his series of 16 pamphlets titled The American Crisis. “These are the times that test men’s souls,” he wrote. His words ring true today as they did more than 200 years ago, but in a different context.
Today, we can draw parallels from his writings to the tough economic times that we’ve faced during the past year. The entire world felt the impact of the economic turmoil, from America to Zanzibar and everywhere in between. In the information industry, belts were tightened, budgets were cut, and tough decisions were (and are still being) made. But are the bad times over, can we expect relief in 2010, and what will the next year hold? These are all questions that we ask as we try to make sense out of the changes in our industry.
Paine signed off many of his inspirational essays and commentaries with the pseudonym “Common Sense.” As 2009 draws to a close and with 2010’s horizon in view, we call upon some of the industry’s notables for their insights into the year we’ve endured and what lies ahead for the information industry as a whole. Their collective “common sense” that follows puts the ebbs and flows of the past into a new light for a new year.
Co-Founder and CEO
All roads point to continued pressure on growth in 2010 and key themes we raised last year. The three main funding sources for our industry (marketers and advertisers, libraries and centralized purchases, end users and their departments) have 2010 budgets that are staying flat or continuing to decrease. Vendor portfolio budgets for information are decreasing 4%, while providers are seeking 5% to 7% budget increases on average—a widening gap from our surveys this time last year.
On top of it, companies with ratable revenue streams will feel the pinch in 2010 as late-2008 and 2009 nonrenewals finally hit. In our view, we are bumping along the bottom, and competition is increasing as more supply chases fewer dollars. Ad-driven publishers are driving for paid content solutions that are entering the market this year. Digital ad dollars are chasing almost unlimited inventory, and “free free” social content continues to be an acceptable solution in many cases. Print ad budgets moved permanently, and global markets that are growing at high GDP rates (a proven driver of information growth) are unproven for information services or coming off small growth rates for information and are not ready to take up industry slack. It is not going to be pretty for a while longer.
During the past year, our
industry’s leaders and teams learned where we were strong and where we were weak in people, processes, content solutions, leverage—everywhere. There is only goodness in that, despite how difficult or painful it is. We were forced to look through the eye of the needle and live our theme: No Guts, No Glory. Reward comes to those who focus, take risks, make changes, make a difference, and live their truth.
As we head into 2010, we continue to enter the age of experience, and the publishers and providers that pick the right markets, and continue to offer a better experience at an equal or better value will be those who find the money and grow, thrive, and be profitable. It’s about execution on all levels.
These are the same traits for the companies that grew in 2009, and they do
exist: offerings in mobile, social, and global workflow; qualified leads; a service-oriented and warm and friendly team; CEOs who answer their own phones; sales teams that are professional, knowledgeable, and easy to do business with; content delivered into new environments such as Facebook; and interactive learning. Those will be the differentiators.
Helping companies make money, save money, or mitigate risk was and remains essential. Like the famous milk commercial, we must ask: Got ROI?
As our industry matures from the realities of technology’s effect that began circa-2000, delivering value, shedding what no longer works, offering better service, and competing on scale and cost all matter. Technology is now evolving to offer better experiences, not just better analytics or better delivery but interactive, 3D, portable, visual, auditory, and sensory experiences. It is now a market share game, and it is about finding new budget pockets. At the end of the day, it’s survival of the fittest, and we will continue to see that play out in 2010. Brand and market share leadership will help but are no longer a “gimme.” The age of experience, a trend we called several years ago, is key.
Ex Libris North America
It appears to have been the perfect storm. Years of diffuse professional leadership, complemented by budgets that, while not plush, supported those disparate efforts, all accentuated by the lack of a clear, unified, and compelling statement that described what libraries are and what they do for those that fund them. When this met with the full force and fury of a crashing economy, the results were not pretty.
Furthermore, it’s not over. While the Dow may have again passed 10,000, in the U.S., home foreclosures remain at an all-time high, unemployment is hovering around 10%, and the financial system regulations that let it all happen are little better than before. “Fragile” is the only suitable word to describe the current situation, and “likely to recur” seems a disturbing but more probable description of the future we face.
The end result is what I believe is a sea change event for libraries and information professionals. It’s one that was probably needed for quite some time. It’s unfortunate that it had to be realized via such painful measures. I hope the following has been learned as a result:
The need for focused goals —Ask 10 librarians or information professionals what they think their “value-add” is to information, and you’ll get 10 distinct answers. This must change, since we can’t be all things to all people. We must build toward some common professional goals that are well-defined and universally understood. Those goals need to be set out and pursued on a national level across all boundaries. They should be goals that inspire. Just as when President John F. Kennedy set an almost unbelievable goal by stating: “[B]efore this decade is out, to land a man on the moon and return him safely to earth,” so too are these visionary goals needed for libraries and librarians. For the next decade following that speech, a country was inspired and achieved great things, not to mention putting a man on the moon. Inspirational goals lead to focused achievements, and the information profession needs some focused achievement goals.
The need for funding at the highest levels to support achieving focused goals —My feeling is that our previous financial scenario, while certainly not one of untold wealth, was one that permitted us to serve wildly divergent interests. Often funding was at a very local level without a long-term approach. It was simply the model that existed and worked at the time. A downside of this model is that it did not lend itself in meaningful ways to cooperation between institutions and most certainly hindered our ability to serve a far-reaching agenda. As long as information professionals are tied to local (or departmental) funding, local needs will always override a higher focus, and that’s part of what got us in the mess we’re in right now. Again, we need to have some inspirational, focused, broadly understood goals; sell their value to the highest level funding authorities; and speak with one voice in order to assure their achievement.
The need to rethink our profession —I can’t underscore enough that I feel we wouldn’t be in the situation we’re in today if a compelling value proposition was being offered to users. Maurice Line, former director-general of The British Library, said it best when he said, “Unless we can see our future in a far broader context, we may not have a future. Our territory is being lost while we think we are defending it, because we are defending the form and not the substance, and the substance is changing.” He’s right. To do this, we need to understand the competitive landscape and where we can still offer substantial value. Building on that value is the only way forward.
Let’s carve a new pathway, build a new platform, and align behind a clearly articulated vision that will be understood and supported at the highest levels. Let’s map out how that new vision contributes value to the people we serve. Only then will we be able to truly recover from what has happened and survive what may recur while being stronger than in the past.
Special Libraries Association
In recent months, I have spoken to groups of librarians, knowledge and information professionals all over the world. Whether I am in Albany or Ahmedabad, Milan or Albuquerque, if I close my eyes and listen, I am hearing exactly the same thing: The traditional specialist librarian is becoming an endangered species. Corporations, government agencies, nongovernmental organizations, and universities are on the hunt, attempting to identify nonessential functions and positions they can cut.
At best, many special libraries are experiencing severe budget cuts that challenge their continued ability to deliver the knowledge organizations need in order to make effective decisions. At worst, these libraries—digital and brick-and-mortar—and the valuable professionals associated with them are disappearing.
Exacerbating this unfortunate trend is the misperception that in the digital age, librarians and information professionals are little more than book stackers and (expensive) human search engines. The tragedy is that special librarians are uniquely qualified to deliver what organizations will need most to recover from these hard economic times: actionable knowledge.
The most progressive professionals in the special libraries world are doing something about this. They are becoming experts in their organizations’ strategic goals and shaping their programs and services to attain them. They are getting to know each business function in their enterprises and proactively planning ways to generate the intelligence to support them. They are capturing and managing their organizations’ intellectual assets and providing platforms through which they can be properly and securely shared. They are communicating, collaborating, and creating a future in which information, and the professionals who turn it into working knowledge, will never again struggle to define the strategic value they offer.
The Special Libraries Association (SLA) is supporting their efforts with the most comprehensive research of attitudes of and about information and knowledge professionals ever undertaken in our 100-year history. We have discovered the language they can use and the actions they can take to inextricably link their efforts to the bottom line. Our board of directors has even proposed a new name for SLA—the Association for Strategic Knowledge Professionals, in order to move the focus away from the functions librarians perform and toward the contributions they make and the value they provide.
There is a common belief that we can somehow educate the world about the value of librarians. But people will only become educated about things they see as relevant. In the recovery from this recession, knowledge and information professionals have a timely opportunity to take action and show they are more than relevant—they are indispensable to successful organizations.
Vice President, Content Division
The Software & Information Industry Association
Economists believe we have passed through the low point of the current global recession. So what does that mean for the digital paid content industry? Because of the length and depth of the downturn, the digital content industry has fundamentally changed. Segments will be impacted unevenly as some markets shed thousands of workers that they will never rehire while in other markets, the readership has moved to free online substitutes. In order to figure out how you’ll fare, try answering the following six questions if you want to make it to the next recession and determine how they apply to your content:
Q: Do you provide “lean-forward” or “lean-back” information?
A: A lot has been written about this simple test to determine how important your content is in the life of your customer. If your customers are leaning forward and really engaging with your content, then you are well-positioned. If not, you will be trading print dollars for internet nickels. Would you rather be The Economist or BusinessWeek?
Q: Are your customers relying more or less on user-generated content?
A: A few years ago, user-generated content (UGC) was derided as miscellaneous ramblings of people working from their kitchen tables. Now it has come to signify an important part of the content ecosystem. Users are providing news, video, verdicts, contacts, and opinions that are sought after by many end users. You need to determine if your products can be enhanced or replaced by UGC. Would you want to be Jigsaw Data Corp. or Dun & Bradstreet, Inc.?
Q: Does your content drive a transaction or a decision?
A: Many B2B publishers sell content to professionals in financial, medical, legal, and consulting markets to help them make market-moving, lifesaving, or business-changing decisions. During the economic downturn, some of these businesses were forced to cut staff, so the number of seats may have declined, but the value of that content is still incredibly important to the end users. What decisions does your content enable? Would you rather be LexisNexis or the New Haven Register?
Q: Are your users looking for “good enough” or “perfect” information?
A: It used to be said that in order to succeed in the information industry, you needed to provide timely, accurate, and comprehensive information. As the price for these products increased through forced bundling and other tactics, consumers sought out substitutes that offered most of what they needed. Customers might trade off some content or functionality for a substantial drop in price. Are your customers searching for these kinds of substitutes? Would you rather provide a CUSIP (Committee on Uniform Security Identification Procedures) license or an EDGAR feed?
Q: Are print and digital managed as separate departments?
A: If they are, you are in big trouble. The same customer reads both print and online content. Organize your editorial, sales, and marketing accordingly. Otherwise expect to suffer through channel conflict and the pain of keeping people on the payroll who still think the internet is a fad. Would you rather be The New York Times or The Wall Street Journal?
Q: What containers are being used to deliver your content?
A: Newspapers and magazines still revolve around the concept of a page, and this is also the metric used for some websites. In the age of Twitter, wikis, and blogs, this notion seems quaint at best. Businesses that are truly poised for success have studied customer workflow and deliver their services via software. This approach ensures that they are capturing a greater “share of day” from their end users. If you store the content that your users create while using your software, all the better. Reed Elsevier and Thomson Reuters provide countless examples across different market segments.
Based on the questions posed above, I’d venture that content providers in the legal, scientific, technical, and financial spaces will emerge well-positioned after the recession. They tend to provide lean-forward information that drives a transaction. Moreover, many have started to integrate UGC into their offerings because of their decades-long strength in licensing, assimilating, and delivering content. Also, because their chosen delivery scheme has migrated from print to electronic to software, they are poised to enjoy years of strong renewal rates and cash flow.
The Jordan, Edmiston Group, Inc.
The third quarter of 2009 saw 466 M&A transactions worth $16.4 billion announced across the media, information, marketing services, and technology sectors, as tracked by media investment bank The Jordan, Edmiston Group, Inc. (JEGI). Two markets actually saw growth in M&A activity in 2009 over 2008—the mobile and education sectors.
Overall transaction volume, however, fell 30%, while deal value declined 42% through 3Q versus the same period of 2008. While the number of announced deals is on par with 2005–2006 levels, total deal value is on pace with 2002–2003 levels.
The key catalyst that drove the downturn in the M&A market was the virtual shutdown of the credit market starting in the summer of 2008, as U.S. Total Debt reached an all-time high of 368% of GDP at the end of 2008, according to Ned Davis Research, Inc. By comparison, the debt-to-GDP level stood at 265% before the Great Depression and had trended in the 160% to 180% range for most of the 20th century. In short, the country was overleveraged, and as a result, banks were hesitant to lend.
Strategic Company Acquirers Lead Strong Uptick in 3Q M&A Activity
While the first half of the year was moribund, the M&A market showed signs of life in 3Q with 168 announced transactions valued at $11.1 billion. By comparison, the entire first half of the year saw only $5.3 billion in deal value, with a high concentration of small distressed sales. This resurgence was driven by more than a dozen $100-million-plus and $1-billion-plus transactions, which drove average deal size from $18 million in the first half of the year to $66 million in 3Q.
Strategic buyers accounted for roughly 80% of total deal value through 3Q as they took advantage of better-priced opportunities and invested in innovative business models, new growth, and integrated solutions. Private equity firms have played only a minor role in acquisitions so far this year, as many have been focused on improving profitability and restructuring debt in overleveraged portfolios.
Some major recent acquisitions, primarily by strategic companies: The Economist Group’s acquisition of Congressional Quarterly, Inc.; Asset International, Inc.’s acquisition of Strategic Insight; Adobe Systems, Inc.’s acquisition of Omniture for $1.8 billion; the sale of Bankrate, Inc. to Apax Partners for $571 million; Microsoft’s sale of Razorfish to Publicis Groupe for $530 million; and IBM’s acquisition of SPSS, Inc., a provider of predictive analytics software and solutions, for $1.2 billion.
Reheating Sectors Drive M&A
The most active M&A markets covered by JEGI have been Education Information, Technology & Training; Marketing & Interactive Services; Mobile Media & Technology; and Online Media & Technology. Together, these four sectors accounted for 337 deals or 72% of the transactions announced and 87% of deal value ($14.2 billion) in the first three quarters.
Education Information, Technology & Training deals increased by 15% in number and 41% in value to $3.2 billion, as this sector benefits from innovation, government spending, and some shelter from the economic cycle. Meanwhile, the Mobile Media & Technology sector saw 25 transactions worth less than $400 million, up 56% in number and 76% in value from 2008 as this long-expected market begins to accelerate.
Given strong growth forecasts for online advertising in the years ahead, interactive and mobile categories continue to see active M&A. According to Rob Norman, CEO of GroupM, global internet advertising will climb 11% to $64.7 billion in 2010, accounting for 15% of all global measured ad spending, up from a 13% share in 2009. Meanwhile, global mobile advertising is expected to climb 19% to $3.3 billion in 2010.
A recent Yankee Group Research, Inc. report estimates that nearly 7 billion U.S. smartphone application downloads will generate $4.2 billion in revenue by 2013, up from $343 million in 2009. With the number of U.S. smartphone users set to quadruple to 160 million by 2013, the Yankee Group describes the anticipated market growth as a gold rush.
Mergers Completed During Downturns Outperform
Interestingly, according to The Boston Consulting Group and the Financial business of Thomson Reuters, mergers completed during downturns far outperform mergers completed during upturns in terms of shareholder return. As a result, now is an ideal time for corporations to make acquisitions, and strategic acquirers in the media and information industry have been focused on investing in the following:
- New business models and integrated solutions across multiple media channels, especially digital
- Emerging markets, which have shown much higher growth rates than traditional markets in recent years
- High-growth market sectors, such as education, mobile, healthcare, and interactive agency services
- Acquisitions of complementary content, information, technology and services that broaden reach within their existing market footholds and strengthen their barriers to entry
Looking ahead, JEGI expects the following dynamics to influence an M&A market recovery:
- M&A activity will build on marketplace confidence, reflecting consensus that the economy has stabilized.
- M&A valuations will continue to strengthen, driven by strategic companies showing revenue and profitability growth.
- Credit markets have begun to rebound; credit is available but expensive. Senior debt on M&A transactions is two to three times earnings before interest, taxes, depreciation, and amortization. Strategic companies that must reinvent/retool models will acquire; private equity firms will be preoccupied with overleveraged portfolios.
- Federal capital gains taxes are expected to increase from 15% to 25% or more in January 2011, propelling some owners to sell in 2010.
JEGI has a robust pipeline and expects to close several noteworthy transactions in 4Q 2009. Overall, the M&A market has begun to turn, and JEGI anticipates healthier deal activity for the balance of the year, especially in the fast-growing media and information sectors, with strategic acquirers leading the way.
President, Senior Analyst
Shore Communications, Inc.
After a whirlwind of economic adjustments in 2009, enterprise publishers, content technology companies, and their clients, are hoping that the belt-tightening that they have undertaken this year will set the stage for renewed economic health in 2010.
While there are polls and forecasts that seem to bear out these expectations, there are many unknowns that may lead to unpleasant surprises and a challenging environment next year. On the media side, the rapid acceleration of online content consumption and the rapid shift of advertising budgets to online venues spells good news for online revenues, but it also means that sinking traditional print revenues will be less likely to carry online publishing efforts that are not mature enough to manage their futures on their own. Micropayments, subscriptions, and other premium access models will try to help fill the gap, but the success of premium mobile content-serving applications suggests that consumer spending on content may not all go to traditional publishers. At the same time, steps by business and scholarly publishers to leverage social media as a publishing platform will become far more serious and concentrated in 2010, as their clients begin to migrate their time and attention toward social media platforms that increase their productivity and connect them with the markets that they serve and influence.
In enterprise markets, parallel trends are challenging publishers that are seeing librarians with budgets already cut to the quick having to adjust to reshaped enterprise priorities. The other shoe to drop for enterprises will be a continuing reprioritization of collection acquisitions and more emphasis on consortium purchases and project-oriented content acquisition and billing.
At the same time, enterprises are focused more on integrating content from multiple disciplines into services that can drive their revenues from product and service innovations more effectively. Much of the excitement in enterprise publishing will be with content integration and visualization services that aggregate content from multiple sources into decision-making platforms, making advanced search, categorization, and collaboration tools particularly important enterprise investments. It’s no longer about just searching in the enterprise: Search is now an editorial and data harvesting tool that feeds sophisticated display and analytics applications. The rapid rise of enterprise-ready cloud computing services underscores the importance of publishers being able to curate a wider array of content to support decision making. Even as trading room services that integrated enterprise and external content and conversations revolutionized financial markets in previous years, similar objectives to reduce the time and costs of identifying and executing on opportunities in enterprise marketplaces will make winners of companies that are well-positioned at the center of these integration efforts.
The major technology that will shape content markets in 2010 is the mobile microchip processor, which has matured to the point that it can deliver web content, videos, and sophisticated applications on handheld devices with quality that can rival desktop and laptop computers. Already, Apple’s iPhone has competition in earnest from a wide array of manufacturers and mobile carriers looking for alternatives to its proprietary platform, with Google’s Android operating system and other systems on top of these new powerful chips helping people access high-power 3G and 4G communications networks. This will tend to push the content industry to the realization that it needs the web and other open standards more than ever to simplify cross-platform deployment challenges. Cross-platform challenges will tend to push the ebook marketplace into devices that will support more open deployment standards, making more room for competitors that are ready to embrace this more open environment.
While Apple has gained a great deal of attention in 2009 from the success of its iPhone, expect 2010 to be a year in which Google becomes a more clear successor to Microsoft as a default global publishing platform in both enterprise and media markets. With its web-centric approach and long-term view of who needs to be served by content technologies, Google is well-positioned to challenge the world as a new kind of cloud-oriented content juggernaut in 2010. The advent of Google Wave will begin to beg the question of why we have bothered to put up with email and other legacy communication services for so long, while Google’s efforts to penetrate markets aggressively in developing nations will begin to show the outlines of a global strategy that will put the power of publishing into more hands than ever before. If you thought that the “Content Nation” activated by social media demonstrated impressive power in 2009, wait for a turbulent 2010 that will begin to expose just how much the center of power in publishing has shifted into the hands of audiences everywhere.