2007 u.s. yellow pages market outlook: measuring the ... · yellow book usa 1 2,018.3 970 127 total...

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2007 U.S. Yellow Pages Market Outlook: Measuring the Health of the Industry

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2007 U.S. Yellow Pages Market Outlook: Measuring the Health of the Industry

Panelists:

Robert CoenSenior Vice President, Forecasting,

Universal McCann

David GoddardSenior Analyst/Editor,

Yellow Pages & Directory Report, Simba Information

David DunnManaging Director, Signal Hill Capital Group

Peter BroadbentCEO, Wahlstrom GroupIf you are having trouble accessing the audio portion

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Advertising OutlookReport 2006Midyear Update

by Robert J. CoenSenior Vice President, ForecastingMcCann Erickson, New York

U.S. Advertising ExpendituresFinal Year 2005

National Advertisers $172,797,000,000 +3.4%

Local Advertisers 98,277,000,000 +1.7%

Total $271,074,000,000 +2.8%

% Change

Change in Nominal Gross Domestic ProductPercent Change Over Previous Year

4.9

6.6 6.4

3.53.2

5.96.0

5.3

6.25.7

4.6

6.2

5.15.6

3.2

5.7

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Trend in Advertising as Percent of GDP

2.32 2.322.27

2.24

2.14 2.12 2.122.17

2.232.28 2.30

2.352.40

2.52

2.292.26

2.232.17

2.25

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

?

Economic Expectations December 2005 and NowChange in Real GDP

Year 2005 Year 2006

3.5 3.53.3 3.4

December June December June2005 2006 2005 2006

Consumer Media Advertising by Dot-Com Brands(In Millions of Dollars)

$654

$3,086

$5,597

$2,662$2,150 $2,210

$2,762

$3,700

$4,625

1998 1999 2000 2001 2002 2003 2004 2005 2006(forecast)

Revised Outlook for National Advertising 2006

Four TV Networks +6.5% $17,175Spot TV +10.0 11,045Cable TV Networks +4.5 19,120Syndication TV +5.5 4,080Total TV +6.4% $51,420

Radio +1.0 4,325Magazines +4.5 13,425Newspapers 0.0 7,465Total Major Consumer Media +5.1% $76,635

% Change 2006Over 2005 $(000,000)

Revised Outlook for National Advertising 2006 (Cont.)

Major Consumer Media +5.1% $76,635

Direct Mail +8.0 59,635

Yellow Pages +2.0 2,205

Internet +25.0 9,705

Other National Media +6.3 36,925

Total National +7.1% $185,105

% Change 2006 Over 2005 $(000,000)

Revised Outlook for Local Advertising 2006

% Change 2006Over 2005 $(000,000)

Newspapers +2.0% $40,665

Television +7.0 15,400

Radio 0 15,355

Yellow Pages +1.0 12,185

Other Local Media +5.8 17,695

Total Local +3.1% $101,300

Revised Outlook for Total Advertising 2006

% Change 2006Over 2005 $(000,000)

National +7.1% $185,105

Local +3.1 100,300

Total +5.6% $286,405

First Projection for 2007

U.S. +5.8% $303.0

Overseas +6.6 337.0

Total +6.2% $640.0*

% Change Over Expenditures*(2005) ($ Billions)

* Based on Local Currencies

The Shifting Market Share

By David GoddardSenior Analyst/Editor Simba Information

Independent Yellow Pages Revenue, 1996-2010P

$6 65

$1,3 77

$3 ,0 2 0$3 ,50 3

$4 ,0 9 9

$4 ,8 37

$5,610

$6 ,4 52

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

1996 2000 2005 2006E 2007P 2008P 2009P 2010P

Source: Independent Yellow Pages Markets 2006 (Simba Information).

Market Share, Independent Publishers vs. Telco Publishers, 1996

Telcos, 94%

Independents, 6%


Market Share, Independent Publishers vs. Telco Publishers, 2006

Telcos, 79%

Independents, 21%


Market Share, Independent Publishers vs. Telco Publishers, 2010P

Independents, 34%

Telcos, 66%


Largest U.S. Yellow Pages Directory Publishers, 1999(Revenue and circulation numbers in millions)

Company 1999 Revenue Titles Circulation

Ameritech $1,560.0 358 39.2

Bell Atlantic 2,220.0 509 72

BellSouth 1,760.0 500 52

SBC 2,350.0 492 81

GTE 1,721.3 564 42

US West Dex 1,380.0 300 45

Total Top 6 Companies $10,991.3 2,723.0 331.2

Total US YP Industry $12,800.0

Top 6 companies as a % of industry 85.9%


Largest U.S. Yellow Pages Directory Publishers, 2006(Revenue and circulation numbers in millions)

Company 2006 Revenue (E) Titles Circulation

AT&T/BellSouth 5,846.0 1,250 173

Verizon 3,300.0 1,200 119

RHD/Dex 2,614.1 682 80

Yellow Book USA 1 2,018.3 970 127

Total Top 4 Companies $13,778.4 4,102 499

Total US YP Industry $16,453.0

Top 4 companies as a % of industry 83.7%

1 Simba Information estimate for fiscal year ended March 31, 2007.Source: Independent Yellow Pages Markets 2006 (Simba Information).

Yellow Pages Revenue by Publisher Category, 2006 and 2010P($ in millions)

Type of Publisher 2006E 2010P

Telcos $12,950 $12,565

Non-telcos $3,503 $6,452

Total $16,453 $19,017

Market total % change 3.0% 3.9%


Signal Hill Capital Group

by David DunnManaging Director Signal Hill Capital Group 300 East Lombard Street, Suite 1700Baltimore, MD 21202-3243Phone: 443-796-4011; Fax: 443-796-4002Mobile: 202-309-0892; www.signalhillcapital.com

Overview of Signal Hill

• With the emergence of each new medium, the audience base has been fragmented

• The acceleration of technologies, however, will continue to impact the distribution of media content

1600’sNewspaper

Posters / Flyers

1920’sRadio Talking Pictures

1930’sBroadcast Television Color Movies

1950’s-1960’sStereo FM Radio 8 Track

1970’sPong Cable Television Cassette Tape

1980’sPC Walkman Atari VCR Compact Disk

1990’sLaptop Internet Digital Cable Satellite TV DVD PDA Napster

2000’sSatellite Radio MP3 Broadband HDTV Digital Video Recorder Itunes Blackberry

FuturePodcasting Mesh Networking Digital Radio Wireless Cable Wireless Broadband

1880-1900Recorded Music, Directories

First Feature Film

Media Evolution – Distribution Channels Continue to Emerge

Advertising Industry Growth

2000 Advertising Market

Mi s c .

14. 9%

Ne ws pa pe r s

19. 8%

T V

18. 1%

R a dio

7. 8%

Di r e c t or i e s

5. 3%

Onl i ne

2. 6%

Di r e c t Ma i l

18. 0%

Out door

2. 1%

C a bl e

6. 2%Ma ga z ine s

5. 0%

2005 Advertising Market

Mi s c .

14. 7%

Ne ws pa pe r s

17. 5%

T V

16. 7%R a di o

7. 3%

Di r e c t or i e s

5. 1%

Onl i ne

2. 8%

Ma ga z ine s

4. 7%

C a bl e

8. 6%

Outdoor

2. 3%

Dir e c t Ma i l

20. 3%

Source: Wall Street research

Radio (-)

Cable (+)

Online (+)

Newspaper (-)

TV (-)

Directories (-)

U.S. Market Share – Local vs. National – 2005

Local Market

Ot he r8%

Ne wspa pe rs42%

TV15%

Ra dio16%

Ca ble6%

Dire c t or ie s13%

National Market

Ot he r19%

Ne wspa pe rs5%

TV18%

Ra dio3%

Ma ga z ine s8%

Ca ble10%

Int e rne t4%

Dire c t or ie s1%

Dire c t Ma il32%

Source: Wall Street research

• Despite the share shift, newspapers continue to dominate the local advertising market

Tracking Industry Multiples

Source: Radio average includes: Citadel, Cox Radio, Cumulus Media, Emmis, Entercom, Radio One, Regent, Salem, Spanish Broadcasting and Univision; Outdoor average includes: Lamar Advertising and Clear Channel Outdoor; Diverse media average includes: Clear Channel and Viacom; TV average includes: Hearst-Argyle, Sinclair and LIN TV; Newspaper publishing average includes: Journal Register, Knight-Ridder, Lee Enterprises and McClatchy; Directories average includes: R.H. Donnelley and Dex Media

Forward EBITDA Trading Multiples

5.0x

7.0x

9.0x

11.0x

13.0x

15.0x

17.0x

19.0x

Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 May-06 Current

EBIT

DA M

ultipl

es

Radio Outdoor TV Diverse Media Newspaper Directories

Valuation of the U.S. Media Sector –EBITDA Analysis

• Relative to projected sector EBITDA, all media are trading at a premium to projected long-term EBITDA growth rates

EBITDA Trading Multiples / EBITDA Growth

4.8x

2.5x

1.9x1.5x

1.3x 1.3x

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

Dire

ctorie

s

Telev

ision

Radio

News

pape

rs

Outdo

or

Dire

ct Ma

rketin

g

2006

E EB

ITDA

mult

iple /

EBI

TDA

LTGR

Trading Multiples Relative to Projected EBITDA Growth

Radio

Newspapers

Direct Marketing

Outdoor

Television

Directories

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%EBITDA LTGR

TEV

/ 200

6E E

BITD

A

Source: Wall Street research estimates and company filings

Valuation of the U.S. Media Sector – FCF analysis• On a FCF basis, outdoor looks expensive largely due to significant capital expenditures associated

with upgrading assets

• On an EBITDA and FCF basis, television is the most expensive relative to projected growth

FCF Trading Multiples / FCF Growth

1.8x

1.2x1.1x

0.9x0.8x

0.5x

0.0x

0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

1.8x

2.0x

Telev

ision

Outdo

or

News

pape

rs

Dire

ctorie

s

Radio

Dire

ct Ma

rketin

g

2006

E FC

F mu

ltiple

/ FCF

LTGR

Trading Multiples Relative to Projected FCF Growth

Directories

Television

Outdoor

Newspapers

Direct MarketingRadio

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0%FCF LTGR

P / 2

006E

FCF

Source: Wall Street research estimates and company filings

Yellow Pages’ Historical Performance• Yellow pages is the only medium with positive growth as an industry through both the ’91-’92 and

’01-’02 recessions

Local Ad revenue outperformed GDP by 200 bps in boom times and underperformed by 520 bps in bust times

Yellow Pages long publication cycle hedges against up and down cycles. Yellow Pages was the only ad media to maintain positive growth in both 1991 and 2001 recession years

-10%

-5%

0%

5%

10%

15%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

GDP Growth Ad Revenue Growth

-15%

-10%

-5%

0%

5%

10%

15%

20%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004E

Newspaper TV Radio Yellow Pages

1991 Recession2001

Recession

Source: McCann Erickson

RBOC Pricing – No Longer Driving Growth

Source: Wall Street Research and Simba Information Inc.

Indexed Price Growth: RBOC vs. GDP vs. YP

Sta

rt

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

E

Inde

xed

Pri

ce G

row

th

RBOC GDP Yellow PagesAnnual Price Growth: RBOC vs. GDP vs. YP

-2%

0%

2%

4%

6%

8%

10%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

E

Ann

ual P

rice

Gro

wth

(%)

RBOC GDP Yellow Pages

• As demonstrated by sector pricing growth, independent advertising price growth is increasingly driving sector trends

Electronic Media Expands the Pie

• Electronic media continues to expand the overall yellow pages advertising market, providing new opportunities for incumbents, independents and Internet-only publishers to increase market share

• Where we stand today, 95% of revenues are still driven by print directories, but user fragmentation will threaten long-term margins

Kelsey forecasts a 60% increase in Digital revenues (IYP, Local Search and Wireless-related activity)

Internet Yellow Pages Revenue Forecast

$22 $46 $102$257 $263 $347

$597

$945

$1,242

$1,568

$1,858

$2,108

1997 1998 1999 2000 2001 2002 2003 2004E 2005E 2006E 2007E 2008E

(in millions)

Internet Advertising Expands The Overall Pie

$-

$5

$10

$15

$20

$25

1998A 2000A 2002A 2004E 2006E 2008E

($ b

illio

ns)

Total Print Yellow Pages Internet Yellow pages

While the overall print market expands at a 3.5% 5-Yr CAGR, Internet YP should grow an incremental 22% annually reaching $2B in 2008 from $600M in 2003

Source: Veronis, Suhler, Stevenson; Kelsey Group

Current Directories LandscapeChallenges Opportunities

Directory growth has slowed. The economic downturn may have masked a shift of advertising dollars from incumbent to independent publishers

Large, independent publishers are growing

Same store growth in excess of 10%+Margins improving (30%+)Stealing market share from incumbents

Print publishers currently own 70% of on-line directory revenues

Print usage stable, online transition may take a while

Incumbents willingness to compete outside markets (Verizon)

Better relative growth comparisons as prospects for other media have slowed

Slowing incumbent advertising revenues

Independents taking shareCompetitive marketplace impacting historic monopoly pricing powerNature of business (12-month ad cycle) will cause sector to lag in ad recovery

Certain headings reallocating dollars online and B2B shifting

Travel dollars moving to online platforms

Perception that Internet will result in large share loss

Google/Yahoo! localIncreasing broadband penetrationMargin erosion from traffic deals

Incumbent, Independent and Internet Directories

Pros Pros Pros● Established customer base ● Core focus on advertising ● Low operational costs● Dominant market position, typically ● Growth potential through ● Dynamic - can be updated

greater than 80% geographic expansion, niche continuously to reflect changing● Invoicing and customer contact directories and increased advertisers information

through existing telephone bill circulation (stealing share) ● Ability to geographically target ● Large distribution more attractive ● Higher growth on lower base of end-users based on connection

to national advertising customers revenue location● Ability to charge premium ● Lower ad rates than incumbents, ● Offer wider range of advertising

advertising rates creating ability for price increases and services than print alternatives● Limited bad debt as distribution broadens ● Potential for wireless deployment

● Low product differentiation

Cons Cons Cons● Large organizations with limited ● Incumbents have stronger branding ● High traffic and marketing costs

top-line growth potential ● Introduction of new directories is ● Technology - "always on" ● Non-core component of larger expensive and requires significant connections expected to increase

telco enterprises up-front investment to market and consumer usage but are not ● Increasing M&A activity has brand currently widely deployed

caused incumbents' brand ● Online - Incumbents have the largest ● Phone book still easierstrength to diminish existing user bases ● Uncertainty surrounding value of

online branding and value to localad base

InternetIncumbents Independents

By Peter BroadbentCEOWahlstrom Group

National Landscape

• Channel that has been for some time now facing the changes in media distribution:– intraMedia competition – interMedia competition

• Further complicated by changes in retail:– Distribution strategies and funding (Co-op)– Procurement involvement in Advertising

Retail Environment

• Retail funding– Media dollars shifting locally to distribution– Local planning and execution

• Pressures on technology– More sophisticated systems / planning

• Closer to point of sale – strength of medium

intraMedia Environment

• Consolidation• Circulation


• Consolidation– Opportunities:

• Deeper client-media relationships• More efficient planning/execution• Technology as an enabler

– Threats stem from any decline in investments:– Staff– Technologies


• Consolidation• Circulation

– Increasing alternatives (core + companion)– Reach objectives require more titles– Seniority and pagination pressures – Outcomes:

• Top titles retain share• Middle to low tiers face pricing pressure• Performance based planning

interMedia

• Perception v. Reality– Top National Headings by Revenue

• Insurance• Storage• Physicians• Cellular Phones• Movers• Plumbers

%Used Internet%Used YP’sMedia used prior to purchase:

0

5

10

15

20

25

30

1999 2001 2002 2003 2004 2005

INSURANCE

0

10

20

30

40

50

60

1999 2001 2002 2003 2004 2005

STORAGE

0

5

10

15

20

25

30

1999 2001 2002 2003 2004 2005

PHYSICIANS

0

5

10

15

20

25

30

1999 2001 2002 2003 2004 2005

CELLULAR PHONES

0

10

20

30

40

50

60

70

1999 2001 2002 2003 2004 2005

MOVERS

05

101520253035404550

1999 2001 2002 2003 2004 2005

PLUMBERS

#YP Purchasers +16%Source: TNS Media Impact Study 2005

interMedia

• Perception v. Reality– Highest On-line categories

• Airlines• Hotels• Books• Internet Products & Services

177

16 12

5 5 8 8

1999 2005

0

5

10

15

20

25

30

35

40

1996 1999 2001 2002 2003 2004 2005

BOOKS

0

10

20

30

40

50

60

70

80

1999 2001 2002 2003 2004 20050

10

20

30

40

50

60

70

2001 2002 2003 2004 2005

AIRLINES HOTELS

0

10

20

30

40

50

60

70

1999 2001 2002 2003 2004 2005

INTERNET P&S

interMedia

• Perception v. Reality• Innovation and repositioning

– Technology – Lead generation

• Our audience: CMO, CFO or the VP Sales?

• Proof of performance (ROMO)

National Landscape

• Bellwether of things to come:– Pressure on Research / Testing and proof of performance (in

collaboration w/other media)– Innovation in media planning – across deliverables:

• X-media• X-distribution

What Makes Simba’s Data Unique?

• The Yellow Pages Group – a team of veteran, industry journalist

• Independent of any vested interest within the industry.

• Yellow Pages & Directory Report

• Research databank of 19 years of independent information for analysis and projections

Simba’s Methodology

Primary• Interviews with key executives• Current and archived content from Simba’s original, targeted research reports•Yellow Pages & Directory Report

Secondary• Annual reports, SEC filings• Financial analysts• Industry associations and Conferences

Questions?Thank you for joining us for 2007 U.S. Yellow Pages Market Outlook: Measuring the Health of the Industry

Information concerning Yellow Pages Market Forecast 2006contact Chuck BhirdoPhone: (908) 219-0262 Email: [email protected]

Questions concerning this presentation contact David GoddardPhone: 203.325.8193, ext. 105Email: [email protected]

2007 u.s. yellow pages market outlook: measuring the ... · yellow book usa 1 2,018.3 970 127 total...

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