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NOVEMBER 15, 2002 NEWS ANALYSIS Comdex' Troubles: Not Just Tech The spending slowdown sure has hurt, but so do the questions about its relevance and the actions of parent company Key3Media
The mood is hardly buoyant, however, at the Los Angeles headquarters of Comdex' parent company, Key3Media Group. Key3Media lost $21 million on revenues of $252 million last year, and prospects are looking bleaker for 2002. It was delisted from the New York Stock Exchange in July. The stock now trades in the over-the-counter market for less than 3 cents per share. In the past four months, six of Key3's 12 board members have resigned. On Nov. 14 it announced it had hired boutique investment bank Houlihan Lokey Howard and Zukin to advise it on a restructuring of its $290 million in junk bonds. Key3 also said it may have to seek bankruptcy-court protection. "There isn't any doubt the balance sheet and the business don't fit together right now," says Todd Morgan, a managing director of high-yield-bond research at CIBC World Markets. "LIKE AN ACCORDION." Key3 Chairman and CEO Fredric D. Rosen blames these woes on the tech industry's meltdown and the post-September 11 travel slowdown. No doubt they're two big reasons why only about 1,100 exhibitors are at Comdex this year, less than half as many as two years ago. "We're like an accordion," Rosen says. "When our industry contracts, we get squeezed." Yet critics argue that the story has more to it than that. Comdex is doing worse than other tech shows, according to data from industry publication Tradeshow Week. Last year, average attendance at info-tech trade shows sank 14%. At Comdex, attendance was down 41%. The average number of exhibitors and the average amount of exhibit floor space at tech trade shows fell 6.8% and 5.6% last year, respectively. At Comdex, exhibitors and floor space were down 27% and 32%, respectively. The situation is enough to convince one Comdex speaker, technology prognosticator Mitchell Levy, to include "Will Comdex survive? -- An insider view" as a potential talking point for interviews with reporters this year. BIG DEFECTORS. Comdex' troubles predate the tech crunch. In 1997, in a well-publicized event, IBM (IBM ) declined to buy exhibit space at the show, citing its shift from a business audience to more of a consumer-oriented crowd. James Hasl, the head of IBM's trade-show business at the time and now a consultant with the event-marketing firm TaylorMcKnight, says: "You didn't sell any more PCs if you went to Comdex. We had much more luck at a health-care or retailing industry show." Indeed, longtime Comdex participant Cisco Systems (CSCO ) declined to put up a corporate booth at Comdex this year. A Cisco spokesperson says the company is participating in more industry-specific shows, such as Supercomm, which focuses on communications. Former employees of Key3 say Rosen, the cantankerous former chief executive of Ticketmaster Group, may have exacerbated his present company's predicament. Rosen led an investor group that bought Comdex and other tech trade shows, such as NetWorld+Interop and Seybold Seminars, from Ziff-Davis in August, 2000. Ziff-Davis' former parent, Softbank (SFTBF ), remains Key3's largest shareholder, with about 54% of the stock. Rosen relocated Key3's corporate offices to fancy new digs in his hometown of Los Angeles. A number of experienced Comdex executives left as a result of the move. BAD TIMING. Former employees say Rosen annoyed some customers by selling trade-show floor space to nontechnology companies such as American Express (AXP ) and Mercedes-Benz (DCX ). "At a moment when questions are being asked about the show's relevancy, those inconsistencies stick out like a sore thumb," says one former executive who asked not to be identified. In September of last year, Rosen put further strain on Key3's balance sheet by acquiring three more tech trade-show operators for $110 million. Rosen admits his timing was off. He has also gotten into a spat with Comdex founder Sheldon G. Adelson, who sold the show to Softbank in 1995 for $860 million. The quarreling began in mid-2000 after Adelson became aware that Key3 would not be holding Comdex' keynote addresses at his Venetian Hotel, as it had the year before. Unhappy with the loss of foot traffic at his casino, Adelson told Key3 he would no longer provide it with free hotel rooms and meeting space that he had agree to offer in exchange for minimum food and beverage purchases. Key3 sued Adelson to prevent him from not providing the space. Then in late 2001, Rosen moved Key3 staff from an Adelson-controlled building in Needham, Mass., citing unhealthy working conditions. Adelson sued Key3 for $6.5 million in lost rent and related damages. The unrelated cases are still working their way through courts in Massachusetts and Nevada. Both sides say they believe they're justified. ACQUIRE WHAT? Adelson, meanwhile, sent a letter to Key3's board last summer asking for proprietary information so that he might consider an acquisition offer for the company. The board rebuffed his overture, saying, according to Rosen, that it would not provide information to anyone it was in litigation against. Adelson claims he's no longer interested. "As time goes on, there's nothing worth acquiring," he says. Rosen and other Comdex supporters beg to differ, of course. It's still one of the most influential trade shows in the world. "It's a great opportunity to meet partners, the press, and customers in one place," says Oscar Koenders, the vice-president for worldwide product planning at Toshiba (TOSBF ), which is unveiling a new notebook computer with a theater-quality screen at Comdex. "We have the best brands in the business," Rosen says. But right now both Comdex and Key3 need polishing.  By Christopher Palmeri in Los Angeles, with Jay Greene in Seattle Edited by Beth Belton Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. 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