YP’s decision last July to create a separate business unit for its print operation fueled a great deal of speculation of what the next move would be. High on the list of possible scenarios was what happened yesterday when YP announced it will separate its print business from its core, creating two separate companies, YP and Print Media LLC.

The split happens at the end of this month and both companies will remain under the common ownership of Cerberus Capital, at least for the time being.

YP will include everything the company has today — except for the printed directories. Print Media will develop, publish and distributed YP branded print directories.

The entire sales organization will remain under the YP banner, along with all digital products and services. The two companies, once separated, will have an exclusive sales relationship in which YP will act as a reseller of the print products for Print Media, in markets where the company currently operates. The terms of the split essentially prevent the two companies from launching products or services that compete with one another in the existing YP markets. Print Media can only have its own sales organization if it operates outside of the existing YP markets.

BIA/Kelsey estimates that YP has roughly US$1 billion in print revenue, but that revenue is declining at a pace estimated at more than than 20 percent per year. The key question is whether the print operation will have a better chance of extending its life under independent leadership than under the YP banner. YP as an organization was unambiguously focused on developing its digital business, with little investment in the print business.

On a briefing yesterday, YP CEO David Krantz argued that Print Media will fare better independently because of its ability to focus on creating the best print directory business. There will be no competition for resources or attention. A counter argument might contend that with YP as a reseller, not an owner, of the print inventory it sells, print may not be presented to as many advertisers, as frequently or as forcefully as it is now, which could accelerate its decline. Print Media will be led by CEO Jack Freker, who is currently in charge of the print business unit within YP.

While the move may appear to show YP’s desire to separate itself from the legacy of the print Yellow Pages, it also creates opportunity for the print organization to optimize its business and product portfolio.  While analysts and pundits are quick to say “5 years and the print book is dead,” the actual expiration date for print may be farther out than most expect.

We would expect to see Print Media develop print products for rural markets and specialized verticals, focusing on segments where print still performs well. The Local Search Association reports that consumer references to print Yellow Pages fell from 12 billion in 2009 to 7.4 billion in 2011. That is a steep drop, but the flip side is usage remains in the billions. It is still a large number.

It’s likely that the true death knell of the print book will sound when smartphone and digital services usage becomes ubiquitous across both major and rural markets.

YP hasn’t disclosed average advertiser spend for print and digital, or what the gap between the two might be.  BIA/Kelsey tracks the spending habits of SMBs as part of our Local Commerce Monitor annual survey.  Last year we found that the average annual spend on advertising and promotion (all-in) was $35,847 – – of which 4.1 percent of that was dedicated to print YP.

There are still many small businesses that rely on the print book as primary lead source.  While it used to be that it was every type of category that could benefit, in the last few years its been service and professional services companies (contractors, plumbers, dentists, lawyers) that still get meaningful ROI.  Print is also still highly used in non-urban marketplaces. Berry put out a stat recently showing that in mid-size markets eight out of 10 people still used the print book as a way to find information about local businesses. And of people who use print directories, 74 percent made or intend to make a purchase and 36 percent of those are new customers (2012 LSA Tracking Study, Burke Research April 2013).

Now that YP is a stand-alone digital only business with a large sales organization and revenues in the ballpark of US$1 billion, the key question is what happens next? There are a few possibilities. YP could be the target of a strategic acquisition. It could go public. Itcould be sold to another investor group. Or YP could carry on under Cerberus ownership for the foreseeable future.

The long term fate of Print Media seems less certain. The company clearly will be dependent on its sales relationship with YP and on YP’s enthusiasm for selling print going forward. We do not believe Cerberus will retain the Print Media operation for very long and will soon look at its options for exiting that business. Cerberus has clearly made a bet that YP is more valuable without the print business, and its sights will be set on fully unlocking that value.

Abid Chaudhry contributed to this post.