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Business Information Markets
Presentation to
National Online 2001
Presentation by
Kenneth B. Marlin
Managing Director
May 2001
Business Information Markets
Where are we?
What happened?
Where are we headed?
What to do to take advantage?
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Where are we?
Over the past 12 months many content-oriented firms
have seen significant decreases in market value.
 Bright Station
 Comtex
 C-Net
 Dr Koop
 Edgar Online
 Hoover’s
 Infonautics
 iVillage
-89%
-77%
-71%
-94%
-57%
-88%
-84%
-90%
 Market Watch .com
 NBCi
 NewsEdge
 Screaming Media
 Terra Lycos
 Verticle Net
 WAVO
 Yahoo
-91%
-92%
-72%
-83%
-87%
-96%
-99%
-89%
At least 500 Public Companies have seen 90% plus declines in Market Value
Source: Bridge
2
Traditional Content Companies have not
been immune to Cutbacks and Layoffs
CBS – Market Watch
Conde Nast
Disney – Go.com
Dow Jones – Interactive
Forbes.com
Hearst – Woman.com
NY Times – Digital
Primedia - Intertec
3
Business Models are in Question:
B2C
B2B
Subscriptions
Advertising
CPMs
Metrics
4
Money seems to have dried up
 Venture Equity
 Banks
 Junk Bonds
300+ Dot Coms have Shut Down in 4 months
5
Business Information
What Happened?
6
Veronis Suhler & Associates
 Merchant Bank Founded in 1981 – – 20 years
 Solely Dedicated to Information Media and Communications
 Largest Firm in the Field – – 125 People – New York & London
 Two Primary Functions
– M & A Advisory
– Private Equity Investing ($1 Billion LBO Fund)
7
Unique Combination of Skills
MEDIA-EXPERIENCED INVESTMENT BANKING AND
LENDING PROFESSIONALS
PAST OWNERS & SENIOR EXECUTIVES OF MAJOR
COMMUNICATIONS COMPANIES
JP MORGAN CHASE & COMPANY
DRESDNER KLEINWORT WASSERSTEIN
JAMES D. WOLFENSOHN
CBS
Publishing Group
EXXON VENTURE
CAPITAL
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Business Information Industry is still Healthy
2000 Business Info. Expenditures ($ Millions)
$44,200
Growth Rate in 2000
7.3%
1995 – 2000 Compound Annual Growth (%)
7.6%
Annual Increase in Spending ($ Millions)
$3,000
Operating Cash Flow Margins
28%
Source: Veronis Suhler, The Publishing & Media Group
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What Happened –
Some Dot Coms Forgot the Basics
 Accounting Profit must equal Cash Profit over the long term
 Real Cash Profit = Cash in (Revenue) – Cash out (Costs)
 Revenue = Price x Quantity
 Price must be rational
– TV = $17 CPM
– Outdoor = $2 CPM
– Banner = $30 CPM
 Quantity must be Rational
– How big is the Pie?
– What is the Value Proposition?
 Value = Present Value of Expected Future Cash
10
What Happened? – Bad Assumptions!
 90% is Not Good Enough
 Adoption of New Technology takes time
 Brand building takes a lot of time (and money)
 Customers’ Willingness to pay cash is based on a Value proposition
– People don’t WANT to change – they need a good reason
 First Mover is not a Barrier to entry and may be disadvantage
 Competitors will react – even old media ones
– Success invites new participants
 Valuations based on metrics other than expected future cash flow are
not real
11
Economic Environment has contributed
8.0%
Forecast
•
Veronis Suhler expects little growth
during first half 2001 as energy prices
and inventories remain high, consumer
confidence remains low
•
VS&A expects the US Economy to pick
up by 3rd Quarter as interest rate cuts
kick in, energy prices stabilize,
inventories balance, and consumer
confidence returns
•
VS&A expects Nominal GDP and Real
GDP to drop to 4.7% and 2.9%
(CAGR), respectively.
6.0%
4.0%
2.0%
0.0%
1995 96
97
98
99
'00
Nominal GDP
'01
'02
'03
'04 2005
Real GDP
Veronis Suhler Communications Industry Forecast, 2001 - (Pre Publication)
Bureau of Economic Analysis, March 2001
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Business Information
Where Are We Headed?
13
Over the next five years, VS&A expects Rate of Growth for
Business Information Services Spending to slow to 6.9%
From 1996 to 2000 BIS Spending increased at a 7.6% CAGR
Forecast
$ Billions
$80.0
$70.0
$64.3
$59.6
$60.0
$60.0
$50.0
$50.0
$40.0
$40.0
$32.9
$35.6
$38.3
$41.1
$44.2
$47.6
$51.3
$55.3
$30.0
$30.0
$20.0
$20.0
$10.0
$10.0
$0.0
$0.0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Veronis Suhler Communications Industry Forecast, 2001, (Pre Publication)
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Business Information Services Spending Should
Continue to Exceed Nominal GDP Growth
Business
Information
Services
Year
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Spending
8.4
7.5
7.1
7.7
7.3
7.1
7.0
7.0
6.9
6.8
Nominal
GDP
5.6
6.2
5.5
5.7
7.1
4.5
5.7
5.5
5.2
5.0
Source: Veronis Suhler, The Publishing & Media Group
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By 2005, Total BIS Market Should Exceed $60 Billion
Marketing and Financial Information Will Continue to Lead
1995-2000 CAGR
7.9%
8.1%
6.3%
6.8%
6.0%
8.3%
Marketing
Economic & Financial
Credit
Payroll & Human Resources
Product & Price
General Business
2000-2005 CAGR
8.2%
7.6%
6.2%
8.5%
7.0%
8.2%
$25
21.5
20.4
$20
14.9
$15
10.0
14.9
11.0
$10
7.1
6.1
$5
3.5
4.7
3.6
5.6
4.8
1.9 2.5
3.5
2.8
3.8
$0
Marketing
Economic &
Financial
1995
Credit
Payroll & H.R.
2000
Product &
Price
General
Business
2005
Veronis Suhler Communications Industry Forecast, 2001 (Pre Publication)
16
“e”-Content Continues To Be Integrated by
Traditional Business Information Firms
Bertelsmann
Bloomberg
Dun & Bradstreet
Dow Jones
Gartner
Hoover’s
Hearst
McGraw Hill
Pearson
Primedia
Reed Elsevier
Reuters
Thomson
VNU
Reed Elsevier reported $650 mm in “Internet” delivered Revenue in 2000
up from $180 mm
Subscription Models Rule
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On-Line Advertising Is Not Dead,
but it is concentrating
 $6 Billion forecast to be spent in 2001
– $4.6 Billion in 1999
– $7.7 Billion spent in 2000
 Long term trend is up
 All sites are not created equal
– AOL gets 45% of on-line Ad revenue
– Top 9 Publishers get nearly 84% of Revenue
 Depth, and Demographics count
 Measured Effectiveness is required
18
Non-Strategic (Financial) Investment is Available
But Investors are demanding
 Careful Strategic Business Plan
– Rational Revenue Model
– Clear Competitive Advantage
– Close Control of Costs
 Reasonable Path to Profit – – near team milestones
 Sane Valuations based on revenue and cash flow
19
Last Minute Advice For Those Looking For Money
 Forget What Your theoretical Value “Was”
– Market is much closer to Rational Now
– A very few firms over-corrected
– Some will fall farther
 Real Cash Profit counts
– Everybody says they are going to be profitable in six months
 Deals are moving slowly – – Six Months +
– Be proactive – – Right now, mergers often are easier than cash sales
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Business Information
Questions & Answers
Kenneth B. Marlin
Veronis Suhler & Associates
350 Park Avenue
New York, NY 10022
[email protected]
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