November 13, 2005

As 2005 comes to a close, we can look back to discern a broad set of trends affecting the global directory publishing industry — print and digital. These trends have been illustrated through business developments this year as well as the financial results of key players in the industry.

Clearly, there is an ongoing trend to consolidate and rationalize the directory industry business. Just witness the completed acquisitions of TransWestern Publishing by Yellow Book and Advertising Directory Solutions by Yellow Pages Group in Canada, as well as the pending acquisitions of Dex Media by R.H. Donnelley Corp. and Findexa by Eniro, among others. The majority of recent deals between directory publishers have been about protecting margins and defending businesses from emerging competitors, most of them digital.

Incumbent directory publishers the world over are facing a common set of business challenges. The core product remains tremendously profitable with pockets of growth, but in general the print business is either flat or in decline on a purely like-for-like basis. This explains the renewed emphasis on product development around the globe as publishers search for new revenue sources and ways to restore growth, or at least blunt declines, in the core product.

Business results for the year to date have been mixed in the global Yellow Pages industry. In this report, The Kelsey Group examines financial results for January through September 2005 for 12 global Yellow Pages companies and their directory-related subsidiaries. Those companies are BellSouth Advertising & Publishing Group, Dex Media, Eniro, Findexa, PagesJaunes Group, R.H. Donnelley Corp. (RHD), SBC Directory Operations (SBCDO), Seat Pagine Gialle, Telefónica Publicidad e Información (TPI), Verizon Information Services (VIS), Yell Group and Yellow Pages Group (YPG). We also review results and recent developments for other key global operators, including Australia’s Sensis.

To prepare this report, TKG looked at a number of available indicators, including revenue growth; revenue growth by category (Yellow Pages, White Pages, online, other); and growth in earnings before interest, taxes, depreciation and amortization (EBITDA). We also considered indicators such as account growth, churn levels, Internet traffic and bad-debt ratios, although the disclosure of this information varies considerably by publisher.

Of the 12 companies, 10 reported positive top-line results in their home markets for the period, with only two posting net revenue declines.

Of the 10 publishers with positive top-line results, three reported declines in print that were counterbalanced by growth in online directories, directory assistance or other non-directory revenue sources. A fourth publisher, TPI, posted a decrease in Yellow Pages revenues that was offset by growth in White Pages.

The questions the numbers raise are profound for the global Yellow Pages industry. Can growth in the print product be at least stabilized through product and pricing innovations, process improvement and increased sales effectiveness? How ready are publishers for what seems to be an inevitable transition from a print-dominated business to one that is truly multi-platform? How much longer can publishers balance the need to maximize cash flow with that of investing in the business? And how will the recent intense wave of consolidations address these issues?

By Charles Laughlin
The Kelsey Report

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