A key transitional milestone for the U.S. Yellow Pages industry — becoming a majority digital business — is about two years away, according to an updated BIA/Kelsey forecast released today.

The forecast, which builds on the 2012-17 forecast released in April, projects the U.S. Yellow Pages industry will cross over into majority digital status in 2016, with $2.7 billion of $5.3 billion total revenue coming from non-print sources. By 2017, BIA/Kelsey expects the projected $5.1 billion U.S. Yellow Pages industry to be 56 percent digital.

Most of the digital growth in the U.S. Yellow Pages market will come from non-IYP products and digital services — including search engine marketing, digital presence products and reputation management. Mobile is also expected to be a significant growth driver.

The U.S. Yellow Pages industry actually lags many global markets in the transition to digital, at least as measured by share of revenue from non-print sources. Several European markets have already passed the majority digital milestone, including Belgium, France, Italy, Sweden, Norway, Denmark and others.

In some instances, directory publishers are already well into operating as true post-print organizations. The best example of this is the Nordic directory company Eniro, which announced on its recent Q3 earnings call that it will phase out its regional print Yellow Pages product in Sweden, essentially drawing the print era to a close in the Nordic markets. Eniro will continue with its small but viable local print directories business, which operates as a separate business unit.

You can learn more about BIA/Kelsey’s U.S. and Global Yellow Pages forecasts by visiting our website.

BIA/Kelsey also released its broader U.S. Local Media Forecast (2012-2017) today, showing local ad revenues of $133 billion (2012) growing to $152 billion (2017). This includes advertising targeted to geographically specific audiences, such as newspapers, radio, TV, and interactive media.

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2012 General Services Ad Spending by Media

But 2012 is the last year that Print Yellow Pages is expected to be on top in the General Services vertical. BIA/Kelsey expects Direct Mail to surpass Print Yellow Pages in this vertical in 2013. By 2017, Print Yellow Pages’ share of the General Services advertising pie is expected to fall to 11%, with Internet Yellow Pages’ share growing to 12%. BIA/Kelsey projects General Services’ advertising revenue on Internet Yellow Pages to surpass their Print Yellow Pages counterpart by 2017. Direct Mail will continue to be the dominant medium in the General Services vertical, with nearly 26% of the advertising revenue.

Health is the next biggest vertical for Print Yellow Pages advertising with 17% share. As advertising revenues for Print Yellow Pages decline, general services and health will remain the top two verticals for the medium.
By 2017, total Print Yellow Pages advertising revenue will have declined from nearly $5.5 billion in 2012 to $2.2 billion, a five year compound annual growth rate (CAGR) of negative 16.5%. All of Print Yellow Pages’ verticals are expected to have double digit declines between 2012 and 2017, with the biggest dollar loss coming from General Services.

Internet Yellow Pages, on the other hand, is expected to increase from less than $2.2 billion in 2012 to $3.3 billion in 2017, a five year CAGR of 9.0%, making Internet Yellow Pages the third fastest growing medium out of twelve, according to BIA/Kelsey’s Media Ad View Plus.

More information on Media Ad View Plus is available here.

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The Sweden-based local search company Eniro has acquired some of the assets of De Gule Sider in Denmark, the Yellow Pages operation closed down recently by European Directories.

EDSA has made the decision to discontinue print directories in Denmark, where it held the incumbent position, while selling many of its online/mobile assets to Eniro. Among the properties Eniro has acquired include the dgs.dk domain, as well as trademarks, intellectual property, IT and customer lists. Eniro emerges as the leading online and local directory player in Denmark.

EDSA’s decision to shut down an incumbent print operation might have once been shocking, but in the Nordic markets in particular, the shift from print to digital has been under way for some time. Before the decision was made to shut down the Danish print operation, BIA/Kelsey estimated that 2012 directory revenues in the Nordic markets would be 67 percent digital.

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Seems every year is a year of transformation in the global Yellow Pages industry. This year is no different, with more leadership changes, financial turmoil, and a much more aggressive push into new strategies and new products. There is a growing sense that some directory publishers are turning in a direction where a return to growth is possible. Still we expect it will likely to take a few more years of solid execution to get there.

As a team, BIA/Kelsey’s analysts are in the midst of developing 2012 picks and predicitons for our respective practice areas. It’s a nice year-end exercise and it helps us sharpen our mental swords as we head to ILM West next week in San Francisco.

When change is in the air, as it is in the global Yellow Pages industry, it’s difficult to be too bold in one’s predictions, so here it goes with my top five predictions for global Yellow Pages in 2012.

1. They’re back. Private equity that is. We would expect to see some significant combinations of large publishers, particularly in the United States. And a group of investors will need to make it happen. In fairness, we basically ripped this one off of former Yellowbook CEO Joe Walsh, who made this prediction at our DMS ’11 show in Denver. We also expect to see some activity elsewhere in the world, with multinational publishers divesting assets in order to focus on core markets. One candidate is Yell, which could generate some cash by selling its Latin American operation.

2. Hang up the phone. We would not be surprised if the year 2012 ended with zero publishers of any significant size under telecom ownership.

3. There’s comfort in numbers. The largest IYPs in the U.S. will decide it makes sense to operate on a single platform. The most likely candidate is AT&T’s yp.com.

4. Speaking of IYPs. Don’t expect them to grow very much, and in fact, we might see IYP revenues shrink in some cases. The lion’s share of digital revenue growth next year will come from non-IYP product extensions — SEM, SEO, websites, video, social, ad networks, mobile and so on. In many cases, digital revenues from non-IYP sources will exceed those from IYP.

5. Stop calling me Yellow. Heck, we’re almost there already. When the Yellow Pages Association changes its name to the Local Search Association, you could see the writing on the wall. By the end of 2012, the term “Yellow Pages” will be all but expunged from the vocabularies of the major global directory organizations.

Here is a counterintuitive bonus prediction: Print will make a comeback. No, it won’t start growing again. Our forecast calls for print declines to continue indefinitely. It will make a mini-comeback in terms of its importance to publishers. As many of them move to more explicitly performance-oriented models, print will remain critical since it drives so many leads. This will mean print gains some renewed attention and focus, if not investment.

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Last week several of the leading listed directory companies saw sizable spikes in their stock prices following their Q3 earnings announcements, though the surge seems to have died off today.

For example, Dex One announced its earnings on Nov. 3. On the call, CEO Alfred Mockett revealed that Dex will not achieve its previously stated goal of returning to growth and reaching 30 percent of revenues from digital in 2012. Yet the company’s share price doubled on Nov. 3 to 1.29 per share, up from the previous day’s close of 0.64.

SuperMedia also got a boost that day, though a less dramatic one. Its share price rose to 2.47 from 1.85 at the Nov. 2 close. Also Canada’s Yellow Media, which has experienced a dramatic fall in its share price in recent weeks, got a nice bump last week after its earnings announcement, also on Nov. 3.

So why the gains? It may be that there is increasing confidence that publishers have a chance to turn the corner with new digital products. Even though Dex announced it would not meet targets it made quite a big deal of at its February investor day meeting in New York, it did make a case that it is making real progress on the digital side of its business. The company announced on the call that digital revenues grew by 15 percent in Q3 and now represent 16 percent of revenues. Dex noted its SEM business in particular has hit its stride and grew by 30 percent.

It appears to be just a coincidence that all three companies are also at times mentioned in ongoing speculation about consolidation of the North American directory industry. At BIA/Kelsey’s recent DMS ’11 event in Denver, Joe Walsh, then the CEO of Yellowbook, said quite directly that consolidation will and should occur within the next one to two years. It’s important to note that Walsh mentioned no company by name in his remarks.

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What does digital transformation truly look like? And how far along the path to a new revenue model are directional publishers? Those questions were front and center at DMS ’11, as Dex One Chief Strategy Officer David Sharman, YP New Zealand CEO Scott Pomeroy and Local Search Association President Neg Norton debated “the future of Yellow Pages.”

Sharman was quick to clarify that his organization no longer views itself as a “publishing company,” instead transitioning to a broader marketing and solutions value proposition that is increasingly driven by a performance-based mobile product set. Ultimately, the core asset remains the same — not the print book, but the established brand and connected sales resources.

Pomeroy, who has aggressively accelerated digital initiatives at YP NZ since taking the reins in January, raised more radical notions of transformative change. Rather than squeezing the final revenue drops from a legacy channel and methodically marching toward digital, he volunteered that traditional media have a responsibility to at least consider running a digital-first business in which digital would be spun off as a separate entity. He reminded the audience that “the market awards value in a digitally based business that is growing.”

Naturally, that raises questions of innovation…if YPs, even with some new internal blood, are positioned culturally, operationally and financially to iterate at the speed that the digital environment requires?

Pomeroy asserted that YP NZ is not a technology company, but an “interpretive marketing services” specialist. For Sharman, it’s all about smart partnerships that fulfill client needs. Perhaps the sweet spot is thinking like a tech firm, even if it’s not a core competency.

The eternal challenge pushing back against these disruptive approaches is actual strategic implementation. As Norton summarized: “Where we’ve fallen down as a group is execution.”

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Yellow Media, a leading print and online advertising company in Canada, has been taking some heat of late over its debt, particularly in the face of an accelerating decline in its core print directory business. This is the second recent departure of a key executive. Yellow Media CMO Stephane Marceau resigned in May, after less than two years on the job. Paupe had a much longer tenure than Marceau, having been with Yellow Media since 2003.

Over in Europe, European Directories has named a permanent CEO to replace interim chief Peter Briggs, who is with the turnaround firm Alvarez and Marsal. Toon Bouten, a former CEO of StoreNord and a past executive at Philips and Compaq, took over the helm at EDSA in August. Briggs will remain on the EDSA board.

Toon Bouten

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The latest “Local Media Tracking Study” shows that search engines rank higher than Yellow Pages (print and digital combined) in monthly reach (67 percent vs. 62 percent), while combined Yellow Pages still has the edge over search in annual reach (84 percent vs. 76 percent). Print Yellow Pages alone, however, has fallen behind search in both annual (78 percent to 74 percent) and monthly (67 percent to 49 percent) reach.

LSA President Neg Norton said in a briefing last week that the study reflects the new direction of the association, which earlier this year changed its name from the Yellow Pages Association.

“This is an example of how the association is changing,” he said. “This is not a Yellow Pages study. It is a more holistic look at the local landscape.”

The “Local Media Tracking Study” was conducted by the research firm Burke. The LSA uses Burke to measure print usage, and comScore for usage data on Internet Yellow Pages. Combining the two sources, Yellow Pages had 16.6 billion references last year, 11 billion print and 5.6 billion online. The print figure was down from 12 billion in 2009.

The study has also found that social media had not yet broken through as a primary source for local search. When respondents were asked to name the source they trusted most in finding local businesses, only 1 percent said “social networks” compared with 41 percent for search engines and 51 percent for Yellow Pages (print and digital combined).

This was the first year that social was included in the study, and it was added in the third quarter last year, so there wasn’t a full year of data. For the 2011 study, the LSA will have a full year’s data on social, which matters if there is a seasonal impact on the use of social media to find local businesses. Regardless, we would expect the social figures to rise substantially this year.

The data on Yellow Pages can be seen as a glass that’s either half empty or half full.

The fact that search has surpassed Yellow Pages in several key measures is concrete evidence that Yellow Pages is no longer the dominant resource for finding local businesses. This is consistent with the longstanding general perception that Yellow Pages has yielded the leadership position to search.

The half-full perspective comes from the fact that despite its decline, Yellow Pages, including print, remains a very large component of local media use, perhaps beyond what the common perception might suggest. Also, the fact that Yellow Pages is still the more trusted resource for local business lookups is a positive datapoint for those in the Yellow Pages business.

Norton’s take on the data is that they show consumers are consulting more sources to make a purchase decision (consistent with what BIA/Kelsey has found in its User View study), particularly around infrequent or considered purchases, which have always been sweet spots for Yellow Pages.

“Despite all the fragmentation, print is holding its own,” he said.

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The Local Search Association filed suit today against the City and County of San Francisco, the Board of Supervisors, and Mayor Edwin Lee asking the U.S. District Court to overturn the city’s recently passed opt-in ordinance. The suit claims that the city’s rationale for the ordinance is unconstitutional on the grounds that it is “arbitrary” and “irrational.” For example, the suit claims that the city “singles out Yellow Pages while other sources produce 99 percent of paper waste.”

The YP industry has fought against opt-in since the legislation was first considered in February. By the end of March, the industry received a small victory after a vote was delayed to commission a study on whether opt-in would economically harm local SMBs. Ultimately, the city won the battle. Now the industry is pushing back through its only recourse, the courts.

In a blog post announcing the decision to sue, LSA President Neg Norton said: “This is not an action we take lightly. For years, we have worked to improve the San Francisco community by providing residents with important local civic and business information. We are disappointed that we now need to sue the city in order to provide our services to its residents and local businesses. That said, we believe there are limits to any city’s ability to control how we distribute community information, whether it is print or online.”

 The ordinance’s architect, San Francisco Supervisor David Chiu, told the The SF Appeal online newspaper that he expected the city to win the suit.

“I am confident San Francisco’s new law will stand up to court scrutiny…We carefully crafted the legislation to address the significant environmental harm and blight caused by mass over-distribution of yellow pages while still allowing for them to get into the hands of all who want them,” Chiu told the Appeal.

The suit’s prospects are unclear. In Seattle, where the city has passed a robust opt-out ordinance, the Yellow Pages industry has lost the early rounds of that legal battle. However, the industry seems confident that the more draconian opt-in measure is on shakier legal ground.

In a related development, the Association of Directory Publishers announced it has established the Delivery Rights Defense Fund. The DRDF will receive, hold and disburse voluntary financial contributions for the industry’s legal challenge. ADP has sought legal counsel from Jeffrey Yablon, of Pillsbury Winthrop Shaw Pittman LLP, concerning the tax-deductibility of contributions. Yablon advised that funds from publishers and partner members deposited into the account are tax-deductible as long as they are not used to influence legislation.

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2010 was a dismal year for the New Zealand branch of Deutsche Bank after exposure to the Yellow Pages Group restructuring. The KPMG Financial Institutions Performance Survey issued last week shows that Deutsche ranked at the bottom out of 10 New Zealand branch banks on key measures, including a $53 million loss for the financial year, a 162 percent fall from the previous year’s profit and a negative 37 percent return on equity.

Local Chief Executive Brett Shepheard declined to comment on the deterioration specifically, but in a written statement to www.stuff.co.nz said that “the 2010 result was effected by a loan loss provision from a legacy leverage loan portfolio.”

Last December 40 banks holding Yellow Pages Group’s debt were expected to vote on a restructure of YPG’s reported debt mountain of 1.4 billion for the June 2010 financial year. The banks loaned nearly $1.5 billion to Unitas Capital, a Hong Kong-based private equity group, and a Canadian teachers pension fund to help fund the $2.24 billion purchase of Yellow Pages from Telecom in 2007. The debt restructure came after the banks decided against selling Yellow Pages through a sales process run by Goldman Sachs last year, which would have attracted interest from potential buyers ranging from $400 million to $600 million.

The FIPS report also stated that total equity had increased across New Zealand’s banking sector in 2010, “with the exception of Deutsche Bank.”

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