Newsletter Archive - Corner Office
The Path Ahead -- 2008
01/10/2008 - By Ken Clark, Publisher
This is the time of year when everyone offers us their list of predications for what is ahead in 2008. I’d like to throw my observations, prognostications, and probably some guesses into the pot also.
Where we have been
To gauge what lies ahead, I think it best to summarize quickly where are/where we have come from. In many ways, I believe 2007 will be viewed as a breakout year for the Yellow Pages industry -- the year that the world of Yellow Pages did truly evolve after some 120+ years. How can I say that?
First, there were some significant changes in senior leadership, more so than in any one year that I can remember. Denny Payne retired from AT&T after 33 years in the industry. Dan Swanson joined White Directories/Talking Phone Book as its new head of sales. Pat Marshall one of the originators of the Superpages online concept joined Yellow Book as its head of new media. Fred Groser stepped up to become COO at Ambassador Media Group.
Secondly, there was no shortage of views on where the industry is headed. In these View From The Corner Office articles, where we only interview the most senior management in the industry, we talked with several key leaders, among them -- Kathy Harless of Idearc, Robert Hawthorne from Hawthorne Search, Neil Polachek from the Kelsey Group, and Kathy Geiger-Schwab from The Berry Company/Berry Network. Each offered some interesting insights on their company and the direction of the industry in general. Click on any of these to read the full interview.
Third, Yellow Pages became mainstream in the financial markets. RHD, Idearc, Yellow Pages Group, and Yellow Book (via Yell) are all publicly traded companies with all of the scrutiny that goes along with being a public company. Local Insight Media emerged as a major industry player with the purchase of the Hawaiian Telecom products, the former Alltel/now Windstream books, and CBD/Cincinnati directories.
Fourth, 2007 was certainly the year of change of Yellow Pages print publishers as they evolved from hawking just one flavor of advertising (print) to true media consultants with a complete suite of advertising products that could reach a business’s customer base on the Internet, through their cell phones, and through print. It happened because advertisers want it, consumers expect it, and the technology is real. As an example, you only need to look at the rabid success of the iPhone to see the format of mobile access has changed.
Fifth, after nearly a decade of quiet, environmental issues are again confronting the industry. A group called the Product Stewardship Institute worked with a local North Carolina senator to introduce required opt-out for print book deliver (which never made it to a vote), which prompted a series of meetings with industry leadership, and finished with the industry’s trade associations giving in to their demands despite lots of early, tough hell-no-we-won’t-go rhetoric.
Where are we headed
So where are we headed in 2008? In late December/early January we polled publishers, suppliers and CMRs for their projections. In this highly unscientific poll (as in we didn’t weight the responses by a company’s revenue impact), several key trends emerged:
Publishers: Among the three different sized publishers, the comments were consistent based on the publishers overall size. One interesting trend I did note -- those with books in the more urban markets are feeling a decrease in usage of the print products, upwards of a 10% drop in total usage. Those in more rural/smaller markets have indicated that the Internet/local search craze has really not hit in those markets. Print is still the king.
Large publishers: all expect an increase of revenues in the 2-4% range. But it’s not clear that financial experts believe in these numbers as Yell’s stock has dropped 50% from its 52 week high, RHD is down 65%, and Idearc had a 61% drop. Clearly the major concern that outside analysts have with these bigger players is whether these company’s can successfully make the move to a true media consultant selling a range of local search, IYP, and mobile products in addition to their core print offerings.
Mid-sized publishers: where generally more optimistic, most thought their revenues gains would be in the 4-7% range. Most continue to indicate they will enter new markets with print, and Local Search/IYP offers promise for some additional growth as all are testing some form of these products.
Small publishers: since they can start and run more niche print offerings, this group continues to be the most optimistic, generally indicating they expect double digit gains in revenue. This group is also the one struggling most to understand what and how to integrate their own IYP product or local search offerings from others into their product lines.
CMRs: In the national market segment we got a lot of conflicting responses. While most publishers report positive gains in 2007 from the national channel, I’ve noted several larger agencies in consolidation mode closing offices/reducing staff. No doubt the slowing general economy and housing issues have not helped as I reports have surfaced of housing related national advertisers pulling all/most of their print product advertising. That’s not because of a flaw in Yellow Pages. Instead, it’s a reflection of how weak their business is. And it’s not just specific to Yellow Pages – Adweek is reporting that client discontent with their ad programs reached an all-time high last year, as $27.5 billion went into review. That is a 57% increase over 2006 and a $5 billion increase over the previous record of $22 billion in 2005. The number of clients that switched ad agencies was also up 20% to 153, compared to 128 in 2006.
Suppliers: Overall, this was the most cautious of all segments as their estimates reflect slower spending by the bigger publishers, the impacts of consolidation among publishers resulting in fewer potential clients, and a clear shift towards supporting more Internet based products.
The Yellow Pages industry is no different from other advertising media in that it is also affected by market economics. External to the industry, several situations will directly impact the results of this industry in 2008. And it all starts with the consumer:
Consumers getting shaky. Consumer spending is 70% of the U.S. economy and 2008 is shaping up to be the most uncertain year for consumer spending in some time. As always, consumer spending is largely driven by employment. Unemployment is starting to rise, initial jobless claims are up, continuous jobless claims are rising, and the employment participation rate is falling. It is fair to say that employment is weakening. But anecdotally, I still see plenty of “For Hire” signs in the Raleigh area, even if they are not the cream of the crop $100k+ jobs that most want. As a result of current conditions, I think the consumer will muddle on during 2008, perhaps dragging on a little longer than most analysts and economists expect. If unemployment begins to rise sharply, all bets are off. Keep reading.
Housing will reach a bottom near mid-year. The perceived and actual prices of home ownership are a huge component of the consumer psyche. This is one of the harder areas to predict but based on everything I’ve read and heard, I believe that housing will finally reach its bottom in mid-year and prices in most markets under stress will start to stabilize. Note – not increase in price again, but stabilize with the help of low interest rates and an improving supply/demand ratio. We all need to root for this to improve as quickly as possible.
Credit bubble will be the next to burst -- In 2007, we saw the mortgage bubble burst, which was then followed by the popping of the real estate bubble. In 2008, I think the easy credit card bubble will burst, as some consumers on the edge will have financed their credit card purchases to the max. At the end of the day, the credit card industry is similar to subprime crisis you are hearing so much about, with new cards of initial tease rate of 0% to people who should not even have a card, then jacking the rates to as high as 36%. These rate changes make loan sharks look ethical. The effects of this bubble could be felt for some time. The bursting of this long-standing consumer bubble would dampen recovery hopes in the retail sector specifically, and the economy in general.
Energy prices will continue to rise. I am believing we will finally see oil hit consistently hit triple-digits ($100 and more per barrel). But against popular opinion, I’m not sure that higher oil prices will reduce global demand, or increase global supply. Shouldn’t that make a revival of the old “let your fingers do the walking, first” campaign slogan even better?
I also think we will see some inflation mostly in areas like agricultural products (soybean, corn and wheat). The impact is that things like wheat are commonly used in many daily products. For example, Jeff Noodle the CEO of the SuperValu supermarket chain noted that they have already seen about a 3% increase in food prices (link).
Business is slowing. The economy is clearly slowing. In the business world, profit margins, earnings estimates, and revenue projections are all turning down. Corporate spending is 15% of the economy. General earnings growth expectations for 2008 have fallen from 11% to 6%. I believe this is a bit too optimistic, and earnings will grow low to mid-single digits.
“Green Marketing" will be THE buzz words of the year. According to the first annual survey of Top Marketing Trends for 2008 of 1700 MENG (Marketing Executives Networking Group) members, conducted by Anderson Analytics, found that 32% thought Green Marketing was an important emerging concept. I think that number is low. Clearly this buzzword is going to be the trendiest marketing subject for business in 2008, no matter what business your are in.
Politics is politics is politics. It’s that favorite time of year in US politics again – a Presidential election year. While the operative word from every candidate is “Change”, the reality is that government spending makes up about 15% of the US economy. I would not be surprised to see government spending try to accelerate in 2008. However, President Bush has been hammered by conservatives for allowing non-defense government spending to skyrocket during his first 7 years in office, and only recently has he chosen to exercise some fiscal restraint to try to slow spending, especially from a Democratic led Congress. But Congress will fight back. I’m predicting mostly deadlock.
The debate on the economy seems to be whether we are going to slow, or enter a recession. Frankly, I believe much of this debate is totally semantics. To me, whether the economy is growing at X% or contracting slightly is less important than whether the economy is growing fast, declining significantly, or flat lining. Currently, we are clearly flat lining. We are not going to grow fast anytime soon, nor do I think it is likely we are going to dive into a hard recession.
But net net – fewer dollars are in the pockets of consumers, and more comparison shopping will be the norm of the day for every purchase no matter whether it be a head of lettuce or new car. I do believe consumer spending will slow, but not fall. The best evidence I can offer is that during the 2001-02 recession, unemployment rose to 6.2%, yet consumer spending never went negative.
The economy will slow in the first half of 2008 and will remain sluggish through the second half of 2008. What that means for any advertising media is that 2008 is going to be tougher, but not impossible year. With most projections running in the just under 4% growth range, clearly marketers will be cautious in how they spend their advertising dollars. Traditional media will have to fight harder for those dollars, as the allure of the Internet grows.
While this hasn’t been the rosiest picture I’ve had to paint, let me offer one final thought, derived from an old ad that United Technologies ran, updated to more current times.
In the 2004 Athens Olympics, the distance between first and last in the Men’s 100 Meter sprint was a mere .25 seconds. Hardly more than the blink of an eye. The margin between “success” and “failure” is very, very slim.
Estimates indicate there are more than fifteen million people engaged in selling in America (top 500 companies). Can you imagine what our Gross National Product would be if each of them had made just one more sale last year? In Yellow Page terms, what if we all worked towards one more of whatever we do each day – one more sale, one more ad built, one more contract keyed, one more customer service call made. Just one more. Just one.
The margin between “success” and “failure” is very, very slim.