Can Yellow Pages Make a Come Back? - Analyst Blog
March 21 2013 - 9:05AM
Zacks
SuperMedia Inc. (SPMD) and Dex One
Corporation (DEXO), two of the nation’s largest "yellow
page" companies, announced earlier this week that they have filed
for Chapter 11 bankruptcy protection. This is part of a plan to
merge into one entity. According to Dex One’s General Counsel Mark
W. Hianik, the merger will result in annual savings of $175
million.
The merger plan, revealed in August 2012, has received support from
shareholders as well as a majority of the company’s lenders. As per
the Chapter 11 petition, Dex One has $2.84 billion in assets and
$2.79 billion in debt.
SuperMedia has declared assets of $1.4 billion and $1.9 billion
of debt. SuperMedia’s Chief Financial Officer has said that the
companies will be able to utilize $1 billion in net operating
losses from Dex One to save around $400 million in income taxes in
the future.
This is not the first time these companies have filed for
bankruptcy. In 2009, SuperMedia filed, emerging only in December
that year, with Dex One following suit the next month. The
single entity formed out of the merger is expected to exit
bankruptcy in 60 days.
What this development draws attention to is the dwindling fortunes
of the yellow pages business. There are several indications that
the directory business is steadily shrinking. With the
proliferation of digital media, the likes of Google
Inc. (GOOG) and Yelp, Inc. (YELP) have
challenged the paper directory business in a manner it is finding
difficult to combat.
For instance, leisure-related searches, such as restaurant
locations, have moved almost completely online. This has led yellow
page companies to invest more in improving their digital business,
through which their customers can have an online presence.
Additionally, many larger companies have sold or spun off their
directories businesses. In fact, the companies in question, Dex One
and SuperMedia were both formed as a result such moves. Dex One was
formed out of the directories businesses of Sprint Nextel
Corp. (S) and Qwest Communications, which no longer
exists.
Similarly, SuperMedia was created after the directory business
of Verizon Communications Inc. (VZ), spun off in
2006, went bankrupt in 2009. And last year AT&T,
Inc. (T) sold a significant portion of its directory
business to Cerberus Capital Management.
In fact, the Verizon spin-off, which is the subject of much
controversy and litigation, provides further evidence. Creditors of
the directory business have claimed that Verizon did not reveal
that the yellow pages subsidiary’s revenue had declined in excess
of 10% in major markets. This is because customers were
increasingly opting to advertise online because of the greater
availability of broadband Internet services.
Of course, this is not to suggest that this segment has run out of
steam altogether. In 2011, 422 million yellow page directories were
distributed as per research company Simba Information.
Additionally, directory companies accounted for 7.6% of total
advertising revenue in the U.S. in 2011, taking into account both
print and digital sales. According to market research firm
BIA/Kelsey, $6.9 billion worth of advertising revenue was spent on
yellow pages advertising in the same year.
The opportunity for yellow pages lies with local advertising.
According to BIA/Kelsey, local media advertising revenue is
expected to amount to $148 billion in 2017. This is a 2.3% annual
increase from the $132.5 billion in 2012. These forecasts were
revealed in the market research firm’s new report “U.S. Local Media
Forecast (2012-2017)” released on Monday.
Almost all major directory companies now have a significant online
presence. The opportunity lies in expanding this presence to cater
to smaller businesses who lack the know how to advertise on the
Internet. This includes purchasing keywords online, as well as
creating and maintaining their Facebook (FB) pages
in addition to the conventional ads in print directories.
Of course, even such a strategy may not be enough to help yellow
pages firms recover, given the competition in the digital space.
This is where the major challenge lies.
According to the new BIA/Kelsey report, the share of digital
advertising expenditure in local markets will increase from 17.4%
in 2012 to 27.6% in 2017. How yellow pages retrain their employees
and garner funds to develop their digital businesses will be the
key to determining their survival and future success.
DEX ONE CORP (DEXO): Get Free Report
GOOGLE INC-CL A (GOOG): Free Stock Analysis Report
SPRINT NEXTEL (S): Free Stock Analysis Report
SUPERMEDIA INC (SPMD): Get Free Report
AT&T INC (T): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
YELP INC (YELP): Free Stock Analysis Report
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