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 DMS '11

Yellowbook CEO Joe Walsh made a very direct case this morning for massive consolidation in the core U.S. Yellow Pages business sometime over the next couple of years. Ultimately, Walsh believes there will be a single national print Yellow Pages company, which he says will be an excellent platform to pivot to a digital business.

As moderator Neal Polachek noted, Walsh arguably fundamentally changed the U.S. Yellow Pages industry by offering a direct competitor to the incumbent Yellow Pages publisher in major U.S. markets, something that was fairly rare before the late 1990s.

That competition, based on the premise that incumbent Yellow Pages advertising was overpriced, spurred a wave of me-too competition in large markets, creating a huge oversupply of Yellow Pages in most U.S. cities. The economy and the shift to digital is beginning to correct this oversupply.

“We are seeing the fifth and sixth book begin to go away,” Walsh said. He compared this excess of competition with the more recent oversupply of daily deal companies. “We are seeing the over the top stuff starting to shake itself out, leading to a more direct and full consolidation next few years.”

On yesterday’s Future of Yellow Pages panel, Dex One Chief Strategy Officer David Sharman referenced consolidation indirectly when he expresed a desire for Dex One to gain a fully national platform to sell digital advertising solutions. Last year, Dex One was widely rumored to be a potential merger partner for SuperMedia, but that deal never materialized.

In his presentation, Walsh said his modeling shows that consolidating two hypothetical large directory businesses that are seeing roughly 15 percent annual revenue declines, as well declining EBITDA despite cost cutting, could stabilize revenue declines and eventually return to EBITDA growth within a few years.

Asked what will trigger this consolidation, Walsh said it will just take the right group deciding the opportunity is ripe.

“We are almost there. It will take a financial group that says ‘I see it, let’s go.’ Some would argue it has been sitting there for a while,” Walsh said, adding that it won’t happen this year. “But defiinitely before the next time I am here.”

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