Magazine article Marketing

Amanda Andrews on Media: Yell's Structural Flaws

Magazine article Marketing

Amanda Andrews on Media: Yell's Structural Flaws

Article excerpt

The directories group is suffering, but its problems were there before the recession struck.

When JR Hartley found a copy of his book Fly Fishing in the well-known 1983 television ad, he had Yellow Pages to thank.

At the time, the phone book took pride of place in households throughout the UK; when difficult times struck, the last thing businesses cut back was on their Yellow Pages ad. However, times have changed. The business model of the directories company is unlikely to survive in the long term.

In a world dominated by Google, the likes of may eventually shrink into insignificance - and the printed version of the Yellow Pages is nowadays often used as a doorstop, if not dumped straight into the recycling bin.

Yell and its cousins were once the darlings of private-equity investors, who acquired them because they were lucrative and resilient. Yet all good things must come to an end, and this is certainly the case with Yell's model.

Last week, it emerged that Yell plans to initiate talks with lenders about restructuring its near pounds 4bn debt, just eight months after a previous covenant renegotiation. It also warned that earnings would fall by almost a third in the second quarter.

While the recession may be partly to blame, Yell's problems are deeper than the financial tide. They are structural, and many of its issues will still be there when the economy recovers. The internet has transformed the directories market. While Yell has made efforts online, it will never conquer Google, which offers businesses a global brand, worldwide exposure and easy navigation - all for relatively low prices. may have attracted 20% more advertising sales in 2008, and now offer 2m UK business listings and 217,000 searchable advertisers, but this is by no means enough.

The company's debt pile will eventually catch up with it. Its stock market value is now just pounds 206m - a fraction of its pounds 4bn debt load.

Yell made the mistake of acquiring TPI, the Spanish directories business, in 2006. It was the biggest deal the directories group had struck since it was spun out of BT in 2001, costing it pounds 2.3bn - and it admitted earlier this year that it has already written down its Spanish arm's value by pounds 1.27bn.

Yell believes it has solutions. It seems to have adopted the mentality of 'If you can't beat 'em, join 'em' by opting to work with its apparent enemy, Google. This is a welcome move, but should have happened a lot earlier. …

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