It is staggering to see the stock value deflation that happened among directory publishers this week. On the backs of a quarterly print decline announced by Yell and Idearc, these stocks have witnessed deflation of over 40% of their stock value in one week, driving prices down by as much as 80% off the 12-month high. Sobering stuff.
print usage down, online up
So, what’s the problem? Aren’t we offsetting marginal decline in print usage with smart packaging of online YP and search engine traffic? Don’t we have this channel advantage well on the way to being locked down? Doesn’t the strong ROI of the print product protect the business from the dramatic change?
Well, for starters, the basic math is scaring the analyst - the rate of decline in print appears to suddenly hit a point of inflection. The ghost of newspapers past is haunting them, and if you update your model off the decline of print classified, the spiral would indeed justify a dramatic deflation in value. Coupled with highly leveraged debt structures, the market is genuinely worried, and clearly running the other way.
yp & classified: an apples and ugly fruit comparison
It’s too easy and superficial to draw conclusions from the decline curve of the classified business.
I have always contended that the decline in print classified revenue is a direct function of extreme product inadequacies of print versus online. Online produces a dramatically more effective consumer experience than print for home, car and job searching. I witnessed the exact same principle in mapping - the ability to find an address and directions were dramatically improved with the right interactive application and content. The improvement in consumer utility was clear, and the only thing standing in the way of print product replacement was time.
I personally dispute that the bell has already tolled for “YP” - that’s far too broad a brush, AND it is devaluing the components of the underlying asset.
There is one slice of YP which does follow the principle I describe above. Using the print book to look up a specific business is legitimately old school, when compared to the efficiency and convenience of online. There is enough historical habitual usage that - as it deteriorates - can certainly trigger a meaningful usage decline in the print product. This usage systematically shifts to online (and mobile). Given the plethora of online choice for name-based searching, this traffic diffuses from one dominant print source to a number of sites. However, at the end of the day, name-based lookup is the least valuable lead to the advertiser, and is not reflective of the “core value of YP”.
The core consumer utility of Yellow Pages - the ability to efficiently scan, compare and narrow a sizable range of businesses for specific local products and services - has not yet matured enough online, in either content or application experience to drive a catalytic product gap between print and online. Don’t mistake my position, it is most assuredly marching there, and siphoning usage as it progresses. Continual improvement on the dual axis of content and application is happening, and the dripping continues.
“no going back” does not equal “no going up”
There are two mistakes in the logic that leads people to underestimate the value inherent in YP businesses. One, it equates value only to print product usage, and two, it undervalues the “derivative opportunity” of online as being capped by the display advertising opportunity.
If you strip away the product value of classified advertising, you have little left that can be leveraged well in an online world. Classified was, in large part, driven by two parallel “sales and content models” - one, consumers placing their ads over the phone, and two, local sales forces facilitating content feeds into the listing pages. If you strip away the product value of YP advertising, you have a sales force which has a coverage of SME advertisers second to none, customers who rely on leads for their life blood, and client relationships based on consultative help with ad messaging and media choices. The ability to reinvent the YP business into a healthy media content and channel business is far stronger in YP than classified.
I’d go even further, I believe that the print product is, in many ways, “holding the channel back” from exploiting its value. A fixed cycle annual print ad inventory completely misses the opportunity to participate in the direct marketing and active promotion spending of local advertisers. A reinvented channel (no small task, but that’s another post) is capable of selling into a revenue opportunity that is meaningfully larger that of what is thought of as “print YP”.
As new media reinvents classified and YP, it also reinvents promotion and direct marketing - the spending when you combine these budget pieces is on the order of 3-4 times that of the YP business. The leaders in online search and local ad channels are positioned to take an uneven share of this on top of the replacement view of print display advertising. Verticalization, opinion sharing, and new models of offer placement and syndication have yet to kick in, but as they do, the market is poised for growth. My hunch is that this isn’t even close to being captured in the valuation models of Wall Street, as they assess the YP business.
the news under the news
Stuff I think has been overlooked, and very key in how to look at the bigger picture.
From Yell’s Press Release:
UK revenue increased 3.3% to £527.0 million driven entirely by a 49.0% increase in revenue by Yell.com, which more than offset the expected 4.4% decline in print.
So, online growth is excellent, and enough to offset print decline. Hmmm.
And, from a Kelsey summary of Pages Jaunes recent bold move in realigning pricing in print and online.
Pagesjaunes France has announced it will take a dramatic pricing approach in its largest urban markets where it will cut print costs by 20 percent while raising online costs on average by 50 percent. The goal of the pricing program is to move more revenues into online while reducing the revenue growth risk created by declining print usage in its major urban markets. The areas affected by this pricing strategy are Paris and its surrounding areas as well as the Southeast (Provence, Alps, Cote d’Azur).
I’ve described PJ before as one of the most important leaders to watch. With a more evolved position of online success than most of the world, this company is stepping boldly forward on their agenda of reinvention.
step up and take it.
Perhaps the market is overreacting to the potential “offsets” to print decline, and to the underlying value when you factor a print product in decline. Or, perhaps it is taking this into account and simply is not willing to bet on the current progress as being capable of getting them “to the other side”.
Well, there is only one solution - step up and prove them wrong. The opportunity for reinvention, leverage and long term growth is absolutely there. The charge is back to the leadership of this industry to stop hoping for the good old days, and charge more confidently forward in reinvention that does not rely on print stability.
While consumers who stop using the book are probably “not coming back”, as Paul Ginocchio’s analysis points out, but they are sure as hell going somewhere. And we need to will lead them, and meet them, there.
Well said Perry. As you rightly close, those who have found the power of online search are not coming back to print (but for the occasional life event), so our real focus must be on understanding and meeting them in their new tool(s).
Left by Eric on February 19th, 2008