July 19, 2003

When several Yellow Pages publishers came up for sale recently, something interesting happened: Investors paid huge sums for them.

The Yellow Pages, possibly the least glamorous backwater of the media business, remain one of the most profitable. Sure, the Internet poses a long-term challenge, but the business model of selling ads to local plumbers and pizza
joints still has an amazing staying power.

People use the Yellow Pages less frequently than they did before the Internet arrived, but that decline has leveled off in recent years, and more than half of all adult Americans still use the Yellow Pages at least once a week, down only
slightly from a decade ago, according to Knowledge Networks/SRI, a research group. . . .

Investors are finding out what phone companies knew all along: Phone directories are lucrative. With profit margins of 50 percent or more, they vie with local TV stations as some of the most profitable media businesses.

At $14 billion a year, the advertising spent on Yellow Pages is larger than all of local TV advertising, and about the same size as the magazine industry. Plus, since advertisers are local businesses, they are less likely to pull out in an
economic downturn as national brand advertisers do.

However, the Internet has been taking its toll. The frequency of Yellow Pages use has been declining, from nearly 20 billion look-ups per year in 1994 to about 15 billion last year, according to the Yellow Pages Integrated Media Association, a trade group.

But that use has been essentially stable since 1999, suggesting the damage from the Internet has been done -- that is, until looking up phone numbers on the Internet is always easier, more reliable and accessible than reaching for the
phone book. . . .

Burt Michaels, a researcher with Knowledge Networks/SRI, which compiles statistics on directory use, said the Internet has accounted for only some of the decline in Yellow Pages use, since the kinds of things people shop for most online -- books, music, toys and sporting goods -- never were big categories for Yellow Pages look-ups anyway.

What's more, people still use the paper Yellow Pages to look up local businesses such as restaurants and pizza places, contractors and doctors. "It's hard to find those things on the Internet," Michaels said. "It has to do with
the Yellow Pages being seen as local, and the Internet being perceived as global."

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