Dense ‘Deal’ Piece on YP

I stumbled across a fairly “dense” and difficult to read (because of formatting) piece on the outlook for the YP industry from The Deal. It covers the current state of the industry focusing on RHD and Idearc. There are no revelations or really new insights here but here are some interesting bits:

On who’s to blame for the stock losses:

Wall Street analysts are “the worst demographic for Yellow Pages usage,” David Swanson, the chairman and CEO of R.H. Donnelley Inc., asserted in an interview with Barron’s a couple of months ago. “Just because they don’t use it, they assume nobody is.”

(While there’s a fair amount of truth there, it’s not the only explanation. It’s a little like blaming Sarah Palin entirely for McCain’s loss; she was a factor but only one of many.)

On debt:

Idearc’s debt of $9.04 billion actually exceeds an enterprise value of $9.03 billion, meaning its cash on hand is worth more than the market value of its common stock. It’s the same at R.H. Donnelley, whose $9.90 billion in debt tops an enterprise value of $9.88 billion. To service this debt, fortunately, both companies have enviable cash flows: For the trailing 12 months, each claims Ebitda of nearly $1.4 billion. Still, cash flow notwithstanding, Idearc’s debt represents 6.6 times trailing Ebitda. At R.H. Donnelley, it’s 7.1 times.

Growth outlook:

Veronis Suhler Stevenson LLC projected in August that domestic spending on Yellow Pages would produce a 0.7% compound annual growth rate between 2007 and 2012. Only newspapers — with a CAGR of negative 2.4% — were accorded a worse outlook. And that’s from a total of 20 media segments for which the New York-based merchant bank made forecasts.

On the industry wide “triple play” strategy (print, IYP, search [soon mobile]):

Nobody knows better than the CEOs of Idearc and R.H. Donnelley that their companies’ survival depends on their ability to contain usage and revenue erosion in their core print products, which last year accounted for 87% of industry sales, while staying ahead of interlopers and competitors in the fast-growing IYP and local-search segments. R.H. Donnelley’s Swanson has even incorporated this three-part mandate into his company’s “Triple Play” — a strategy introduced a month after the acquisition of LocalLaunch in September 2006 and trademarked, literally, by July 2007.

A mysterious, “anonymous” comment: 

An industry expert who requests anonymity expects the continuing quest for a “better mousetrap” to inspire incremental improvements in IYP and SEO. But some day, he says, an IYP or SEO competitor will come out with a real game changer — something that does for the directory business “what the iPod did for digital music.” And though it’s impossible to know who’ll create this metaphorically superior mousetrap, its basic look and general features are foregone conclusions. “As soon as they come up with a screen interface that replicates a real Yellow Page,” the expert explains, “the print version is dead.”

(If this is a reference to websites or screens that look like print YP pages that was tried and largely rejected quite a while ago. However, there is an interesting possibility for an internet-connected flat panel that replicates look and feel of print YP along the lines of how a newspaper might be published on a digital flat panel in the future. However, younger people generally aren’t drawn to print YP’s look and feel and it doesn’t address the central problem for the industry: digital doesn’t allow/sustain print-level pricing or the same margins.)

On YP as an “agency” that sells multiple ad products to SMBs:

Dave Lewis, an Idearc regional vice president of sales who has sold Yellow Pages for 19 years, already reports good feedback from the field. “At point of sale, our clients love our new product set,” he says. “These folks need someone they trust to be their one-stop shop for getting things like postcards — designed with a strong offer, printed on high-quality paper — mailed to folks who are likely to need that service. It also helps our other product sales, as we’re able to bundle all of our products and really help that business crank up advertising at a minute’s notice or crank it down if they are getting too much business.”

In my view, the central challenges facing the industry involve managing and servicing its debt (a area beyond my expertise), as well as maintaining confidence in and usage of the core product — and perhaps getting used to lower margins over time. 

The digital “local search ecosystem” needs a healthy yellow pages industry to thrive. What’s more, the print side of the YP industry is not unique. All “traditional media” are faced with similar challenges and pressures: fragmenting audiences, greater competition for advertisers, downward pressure on ad rates and the recession of course.

3 Responses to “Dense ‘Deal’ Piece on YP”

  1. Chris Silver Smith Says:

    The article was quite a good overview of current issues facing YP companies, although the writer’s use of the term “SEO” was really way off in a couple of places.

    While initially defining “SEO” correctly, he then appears to refer to Search Engines as “SEO” or “SEOs” or refers to search engine listings as “SEO”.

    Yellow Pages companies are using Search Engine Optimization or “SEO” as one method of distribution of their business listings and ads on the internet.

  2. Neg Norton Says:

    Both the print and digital formats of Yellow Pages are key to maintaining the health of the local search ecosystem, and in both cases the industry continues to innovate and deliver some of the most competitive ROIs amongst performance-based media. Recent data from comScore and TMP Directional Marketing show that Yellow Pages dominate local search with print and Internet Yellow Pages claiming 49 percent of the market. We feel confident that the major industry players will weather the current market conditions.

    In an environment where every marketing dollar is precious, advertisers – particularly small and medium sized businesses – need a solution that maximizes their spend. The Yellow Pages offer a seamless, multiplatform advertising solution that ensures that customers can find products and services quickly and efficiently when they are ready to buy.

    Neg Norton
    Yellow Pages Association

  3. Greg Sterling Says:

    Thanks Neg. Hope you’re well.

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