CloserStill and Nineteen group chairman Phil Soar says his companies should never have been allowed to get so big and asks why doesn’t the exhibitions sector behave as other industries do?
The control Microsoft has on its marketplace has been much in the news. It effectively forced the board of OpenAI to take back Sam Altman as CEO after a mysterious firing – a power reinforced by its $13bn investment in the artificial intelligence firm. Then, Microsoft finally acquired Activision for $69bn to reinforce and protect its position in the whole gaming/software world.
This was an illustration of the lock which the big giant companies – Microsoft, Apple, Amazon, Alphabet/Google and Meta/Facebook – have on the bloodstream of the digital world. They have achieved this by understanding the game and ensuring they buy up or crush anything which might threaten their dominance – Instagram, WhatsApp, Skype, Instagram, Alexa etc etc.
I find this an admirable application of strategy. They understand their business, they understand the world around them, they are quick to spot potential competitors (after all they all grew from nothing themselves) and they apply this strategy with unlimited money and intellect.
How the major airlines defend their patch
One can debate how the large companies in other commercial sectors also defend themselves. Airlines are an interesting example. British Airways recognised long ago that its value, indeed its very existence, depended on owning the slots at Heathrow (slots should ring powerful bells in our own industry to anyone paying attention).
BA has defended its slots vigorously. It bought British Midland and Aer Lingus to defend Heathrow. It bought British Caledonian to stop any other airline from taking long-haul slots at Gatwick.
BA’s money cannot overcome political and legal change – and the growth of easyJet and Ryanair was a function of legislative change. But BA has defended Heathrow to the death – no budget airline flies from there.
Despite an apparent growth in low-cost travel, the landscape of European and US air travel has shown a tightening of the big legions.
Three airlines BA, Air France (with KLM and strong links with what remains of Alitalia) and Lufthansa (Austrian, Swiss, Brussels) still control European business and long-haul air travel. In the US, five decades of takeovers have left Delta, American and United in charge – with Southwest helpfully making it appear not to be a quasi-monopoly.
What about the soft drinks market?
This has been dominated by Coca-Cola and Pepsi since the Second World War. Their sheer size and the dominance of their distribution systems make it very difficult to break in.
There are exceptions – Fever Tree being one recently. But it is important to recognise that Coke and Pepsi don’t want 100% of the market – they know anti-trust rules would never allow it, and they don’t need it to continue to run very profitable businesses (margins of 26% of 14% respectively – Pepsi owns Burger King which reduces its margins).
When bottled water started taking shelf space in supermarkets, Coke launched Desani and Pepsi Aquafina.
Shelf space is critical here. Coke and Pepsi have long-standing arrangements with all the supermarket chains whereby they “buy” a certain amount of shelf space and, in effect, keep other and newer brands out because they cannot pay as much for the shelves. That’s right, the big brands pay the supermarkets for the space their products take up and they defend their space diligently.
Take your pick of other commercial segments
The railway companies in the 19th century carved out their areas and watched like hawks for any interlopers. Their capital structure allowed them to buy out any new railway proposal which looked capable of diverting revenue.
In a nutshell, the dominant companies in almost any business or commercial sector are usually staffed by smart, intelligent and far-seeing people who identify threats to their positions early on and take them out or compete so strongly – often on price – that the newcomer cannot get a foothold.
This is far easier when it is possible to “build a moat around your business”, in the words of Warren Buffett. This is why he liked tobacco – the ownership of the natural resources, the intensive distribution system and the large amounts spent on lobbying were moats newcomers couldn’t cross.
The same is true of airlines – the slot system and, historically, government control of the routes were moats to keep newcomers out (the rise of Ryanair is an interesting story – but Ryanair is not flying first class passengers across the Atlantic at £8,000 a time).
Other moats are political. In almost every undemocratic country they protect businesses. The Trabant and the Lada had no problem holding onto their markets – the political system flooded the moat for them. And this is often true in supposedly democratic states – India made Vodafone’s life almost impossible, and you try selling Boeings to Air France.
So what about our trade show industry?
Let me clarify, I want to talk about the UK market, the one which most readers of EN are interested in.
The reality in markets where the shows/venues are owned by some combination of the City/the Province/the national Government is rather different. The German Messen control their environment – they own the venues and the big shows there and can seek to keep competition at bay (often by offering slots only at inflated prices – though the recent downturn has affected this).
Making barriers even higher, they avoid competition with each other, so Frankfurt has Automechanika and the Book Fair, Dusseldorf boats and clothing, and Hamburg has catering and aircraft interiors.
Comexposium, after it fell into administration, is in effect a French dirigiste business owned by state-supported players. While the Chinese venues are all state-owned. In all these cases, the moat is created by constant political oversight.
I am also making a clear distinction between exhibition businesses, which have grown essentially through acquisition – Hyve, Arc, Tarsus – and those which have grown organically by launching and developing their events – Media10, EasyFairs, Nineteen and CloserStill.
At the recent NEC Christmas party, we were talking about how the business had changed and how the major players have retreated– 2006 was being used as the base year, just before the financial crash. In 2022, representatives of the “big 4” were surprisingly notable for their absence at the table.
In 2006, of the 50 largest shows, rated by square metres, 11 were run by EMAP, 10 by Reed, eight by UBM/Informa and six by Clarion. By 2015, this number had fallen from 35 to 22 – but even then they still owned nine of the 12 biggest events. UBM still owned two of the country’s six largest events – Interiors and the IFSEC cluster.
My hypothesis of market dominance
I would argue that, in most other market and commercial sectors, this dominance should lead to continuing control of the marketplace. Revenues are not easy to determine, but we do have square metre numbers.
The biggest 12 shows in the UK in 2015 sold 384,000 sqm. The eight owned by the big three sold 270,000 sqm. This means that they controlled 70% of the revenues of the biggest events (and roughly the same numbers apply to the top 50).
This has to be added to the biggest advantage of all – the “moat” effect provided by the control of the slots in our industry, and the deterrent effect of a good rebook.
Since 2015, we have only had two large venues – the NEC and ExCeL. Olympia is a good central venue, of course, but it is size-limited – of the top 25 shows in revenue that year only three (London Book Fair, Ideal Home and Pure) ran in Olympia.
The big players had effective control of the slots – just as BA fights to hold its 52% of the slots at Heathrow, Lufthansa does the same at Frankfurt and Air France dominates Charles de Gaulle.
Why the big players should have an iron grip
This is typical of most markets – two or three big players control them and build strategies around maintaining that grip. Our sector therefore should be an easy business to dominate.
At the simplest level, we can create blockers. If you have a dominant show in the Spring at the NEC, then you can largely block out the opposition with an Autumn shown in ExCeL.
Competitors can launch small events at the BDC, Manchester or Telford. But these are rarely real threats because, if they do grow in size, they find themselves struggling for a good slot at the big venues.
If you doubt that hypothesis then, going back to the list of the 100 biggest shows by revenue in 2015, only six did not run in the NEC, ExCeL or Olympia. (The six were, since you ask, Offshore Europe in Aberdeen – the only one in the top 25 and in Aberdeen for obvious reasons – the Southampton Boat Show (again, water is important), a Classic Car show at Alexandra Palace, Home and Gift in Harrogate, Farnborough (again, runways are critical) and CarFest, which ran in two open locations.
So, to repeat the hypothesis, we had three large players which were soon to be reduced to two. EMAP/Top Right/i2i became Ascential, run by a CEO for whom trade shows were not the future and which did not form part of his vision (he sold most of them at a very good price). So then we were left with UBM/Informa and Reed (RX).
Any management consultant asked to project the future of the trade show marketplace at that time would have summed it up like this:
“There are two or three large players. They have, within reason, unlimited funds and plenty of human capacity (thousands of them) to do whatever they want. They already control some 70% of the revenue in the business. They can buy tactically to take out any new competitors and will do so. But this should not be the core of their strategy. They should examine the marketplace in penetrating depth. They can look out over the whole landscape. They are already strong in certain sectors, and they have stout walls protecting them because of the slot system. They should launch new events to completely secure the sectors they own and make their position untouchable. They should look at other sectors where they might have strengths and launch events (at virtually no cost to their massive resources) to take over and dominate those sectors as well. There is no legislative barrier to prevent this. One obvious example might be medicine and health. Reed Elsevier owns the world’s dominant and prestige publication and dataset – The Lancet. Why not parlay that massive asset into an array of powerful medical/health events which would be almost impossible to compete with?
“UBM already owns two of the six largest events in the UK – Interiors and the IFSEC cluster. It has decided to move them both to ExCeL. Its obvious next move is to block out these sectors by launching new events in the NEC to prevent any competitor setting up – this may cost something in tenancy costs, but protecting these two massive assets is far more important. The NEC may not be too happy, but enough money talks.”
In almost all other commercial sectors, the big players would examine the marketplace this way – not just looking to protect against predators, but also to (multiply) their existing strengths and financial clout into other verticals, which their position, reputation and understanding would give them a head start.
Large players do this as second nature – they have teams which trawl their businesses looking for new ideas, other opportunities and holes in the market fabric. Most such players do NOT have the two massive advantages with which trade show companies start – the slot system and the protection of rebooks.
So why have some companies achieved what should never have been deemed possible?
It is one of the mysteries of our industry that this has not happened in the UK. By any normal standards of capitalism and incremental improvement, companies like Media10, Nineteen and CloserStill should never have been able to grow as they have.
The general behaviour of the largest companies in any field (in this case, just three companies controlled two-thirds of the market) should have made it almost impossible for interlopers to carve out major positions (CloserStill/Nineteen is now the largest player at the NEC).
Lee Newton’s Media10 came from nothing in a crowded field of consumer and television-sponsored shows (owned by the BBC in particular). The mighty DMG group, one of the UK’s four exhibition giants as recently as 2000, decided it did not know how to run that most iconic of all events, Ideal Home, and sold it for £2. How could Media10 happen in a business where the grandfather rights are everything?
And while I know I refer to my own companies on occasions, how could CloserStill start with just £700,000, no staff, no shows, no offices and no people, grow ORGANICALLY to be the fourth largest pure player (excluding state players like the Messen) in the whole industry within just 12 years (ignoring the 24 lost Covid months).
The key word here is ‘organically’. CloserStill had to largely launch its own shows – it did not have the funds to buy anything and even as late as 2023, the most it had ever paid for events was €14m.
One can say the same for EasyFairs and Media10 – it had to be organic growth because the funds were not there to make major acquisitions and their models did not lend themselves to splashing large amounts of cash.
Nineteen Events is an even stranger story. Effectively founded as recently as 2017, and with just one tiny capital injection, Nineteen never made a profit until 2022. And yet, growing organically, in 2024 it will be running two of the seven largest events (by turnover) in the United Kingdom (and possibly two of the five largest).
These companies shouldn’t have achieved any of this
The advantages that the big players, the incumbents, have in our industry worldwide are so large, the moat they should build so deep, that newcomers should never have the opportunity to grow the way they have done.
They should either have been strangled at birth by the straightjacket of the slot system or bought out early on by one of the big guys seeing their potential, taking ownership of it and paying whatever it cost.
I am not seeking to criticise anyone here.
I suppose I have benefitted personally from what I see as flaws in our business. But I would ask why, as an industry, we don’t behave as other industries do.
And why it has been possible for the likes of EasyFairs, and Media10, CloserStill and Nineteen to find themselves in places they should never have been able to reach.
A footnote from Phil…
Every year the Wall Street Journal runs its “TOP 250 BEST MANAGED COMPANIES” list.
“In December 2023, 7 of the top 10 were web based/IT companies – the top 4 were Microsoft, Apple, Nvidia and Apple…………as a declaimer, I wrote my “Why do our Companies not dominate” article well before this came out – and I also started with Microsoft).
“There wasn’t a single media company in the Top 250 and you have to go down to as low as 157 to find any company with which we might identify – in that case, Interpublic. Out of interest, Pepsi came 21st, well ahead of Coke, and Hilton Hotels 31st. The highest placed airline was Delta at 168.”
