Signs of the Times in Yellow Pages

We got news this week of two directory publishing operations shutting their doors, a reflection of the challenges of running a competitive directory publishing company in the face of a difficult economy and intense competition from incumbent publishers and the Internet.

HYP Network, a private-equity-backed company that built a substantial operation in Spanish-language directories through acquisition and start-up, has announced it will liquidate, citing the tough economy. Here is a comment from CEO Jerry Folckemer: “Due to the global economic downturn that has affected the entire country, the YP industry is one of the business areas that has been deeply impacted leaving us no choice but to close down with great regret with a wonderful pool of employees.”

HYP’s demise follows soon after the September 2008 liquidation of rival Hispanic Yellow Pages of America. The failure of these two companies leaves the U.S. Spanish-language publishing field largely to Seccion Amarilla USA, a division of the Mexican directory publisher, itself owned by Telmex, and the U.S. incumbent Yellow Pages publishers, all of which have Spanish-language products. Seccion Amarilla entered the U.S. market in 2006 by acquiring the independent publisher Enlace Spanish Yellow Pages.

Further north, media company Canwest has closed down its competitive directory publishing operation, which had entered the Canadian market with a pay-for-performance print directory model. The closing reflects both the performance of the unit and the overall condition of Canwest, which isn’t very good. The media company is scrambling to avoid violating its loan covenants, and it is closing non-performing units and looking to asset sales to improve its balance sheet.

While we think there will be more business failures in the directory space this year, we’d caution against reading these two developments as a sign of wider contraction in Yellow Pages, given the specific nature of each. The Spanish-language publishing niche has never established itself in the same way as general competitive publishers like Yellow Book and Valley Yellow Pages. So it doesn’t surprise us that Spanish-language publishers are early victims of the economic downturn. And the demise of Canwest’s directory unit was certainly precipitated by the condition of the parent. However, had that unit been a top performer, it probably would have been kept or sold, not shut down. In a healthier economy, perhaps it would have been given more time to succeed.

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