Direcrt Challengers

Directory publishers believe their industry is a pariah of the media world, ignored by advertising agencies and media buyers, who perceive it as deeply unexciting.

Yet the industry is at the forefront of new media publishing, and of the marriage of traditional marketing skills with sophisticated database analysis techniques which experts acknowledge will be the wave of the future.

The Directory Publishers Association (DPA), the UK industry body that represents the interests of directory publishers, points out that in 1994 Britain’s advertisers spent 589m on advertising in directories. This means directories now form the sixth largest share of UK media, taking more advertising revenue than consumer magazines, outdoor, radio and cinema.

Nor is advertising revenue the sole source of income for directory publishers – indeed, some receive no income from advertising, relying instead on sales of the directories, either in paper form or as computer discs, tapes, CD-Roms or even online.

The third income stream that directory publishers can exploit is list rental – the sales of names and addresses to companies wanting to use them for direct marketing campaigns.

Trevor Fenwick, managing director of Euromonitor and chairman of the DPA, says the DPA estimates that the total worth of the directories publishing industry in 1994, including the 598m in ad revenue, was 725m. The extra 127m came from cover sales (sales of the directories themselves) and from data sales.

With the development of new media, however, these two revenue streams – directories as reference works and as sources of names and addresses for new business purposes – have begun to merge. The latest CD-Rom directories now include extensive search facilities, allowing users to analyse the information they carry in great detail.

Fenwick says only about ten of the DPA’s 75 full members get no revenue from advertising at all (one of them being Euromonitor, which specialises in international market research and directories of companies in particular market areas).

“Advertising plays an important role for many DPA members, although many also derive major sources of income from the sale of lists for direct marketing or from sales of the directories themselves,” he says.

Business and computer magazine publisher VNU, for instance, has a database division that has been publishing directories for at least 11 years. Its flagship products are The Computer Users Year Book and The Software Users Year Book, both of which are available in paper form or on CD-Rom.

Melanie Williams, publisher in VNU’s database division, estimates that roughly 65 per cent of the division’s revenue comes from cover prices of directories, ten per cent from advertising within the directories and 25 per cent from list rental to direct marketers.

She says: “We’ve been getting better advertising revenue. I think it’s because we’ve been selling it better. Advertisers are waking up to the fact that it’s cheaper than magazine advertising and can be much more cost effective.”

Terry Procter, managing director of Procter & Procter Media, an advertising agency specialising in booking, managing and consulting about directory advertising, says: “The directory industry has crept up on everybody. It’s now worth in excess of 600m a year – but it’s always been a Cinderella industry: telephone listings are not the most sexy thing in the world.”

Susanna Smart, head of corporate communications at Reed Information Services and a DPA board member, agrees that too many potential users of directories as advertising media see them in the wrong light. She says: “They think they’re a big tome that sits on a dusty shelf. They think we’re not as sexy as a glossy magazine. That’s changing, though – especially since CD-Rom came along.”

As she points out, almost every business person in the UK will have at least one directory which they refer to on numerous occasions – even if it is only the telephone directory. “Half the time, they don’t ever think ’I’m a directory user’.”

However, Procter argues: “As the telephone becomes a major advertising medium, where to find such basic information as company telephone numbers becomes ever more important.”

The biggest share of the directories advertising cake goes to telephone directories, and in particular BT’s Yellow Pages. BT also has the Business Pages (a new business to-business classified directory with pink pages, currently only available for London and a couple of other major cities), the business and services directories (the White Pages) as well as Talking Pages, the recorded service.

The DPA estimates that BT – which is not a member of the association – would have taken around 390m of the 598m in advertising revenue in 1994. As Fenwick says: “This is a substantial proportion of the market.”

The Office of Fair Trading referred the issue of classified advertising within the directories industry to the Monopolies & Mergers Commission in March 1995. Sir Bryan Carsberg, then director general of fair trading, said the move was prompted by Yellow Pages’ continuing dominance in the market. (See “Classified information”, p61).

Many national advertisers feel that they have to be in directories such as Yellow Pages or the rival Thomson.

Matthew Martin, advertising adviser at British Gas Service, which began advertising in the Yellow Pages in September, says: “We have to have a presence where all our competitors appear. We already have a sizeable chunk of the gas service market, but we had not previously appeared in Yellow Pages. We felt it was a good strategy to be in there we felt we needed a national presence. We’re also doing a few tests with Thomsons.”

Martin says the initial results have been quite encouraging, but that “directory advertising takes a long time before you can make a proper study – it’s a full year before you can get in every issue of the Yellow Pages, and then it will be another year before we can do any serious analysis”.

Another company that has recently increased its spend on directory advertising is coach company National Express. Kevin Bennett, director of marketing, says: “We have many infrequent users: lots of students, lots of new users coming to us all the time. They need to be able to find us.”

National Express has set up talking timetables for the top ten destinations from each of the UK’s major cities, with the numbers in the relevant local directories. This is because demand for information is sea sonal, Bennett says, and at times offices have been unable to cope with the volume of calls received “particularly if there’s a rail strike on”.

Malcolm MacMillan, advertising and media manager for courier company DHL International, agrees with British Gas’s Martin. “Why do we use directories? Because we have to. People expect you to be in there, and they don’t want to have to look too hard for your number either. We have to be in there – and I think Yellow Pages knows that.”

MacMillan is one of a number of advertisers using directories who is less than happy about Yellow Pages’ flat ratecard policy. A company such as DHL, advertising in most if not all of the UK regional editions of the Yellow Pages, will have to pay the same rates as a plumber advertising just in his local edition. MacMillan says: “It operates a non-negotiable rate card, which I find frustrating as an ex-media person. You don’t get discounts for block bookings, for example.”

He says that DHL uses both Yellow Pages and Thomson, and adds: “Some of our research suggests we’re getting more responses from Thomson, though it’s unverifiable.”

According to Procter, “People like British Gas or the National Rivers Authority have to be in these directories – and it’s a nightmare job dealing with all the different editions.”

Research conducted for Procter & Procter suggests that the Yellow Pages, phone book or Thomson Local directory is the first port of call for people looking for phone numbers of such businesses as car dealers, accountants, computer systems, double glazing companies or mobile phone firms. For other types of business, however, phone directories are left till last.

Procter says: “Companies could lose business if their telephone numbers are not where their customers expect them to be. If they find the number quickly, where they expect to find it, the company has a better chance to gain a good impression with the caller.”

Not all ads in directories are in phone directories, of course. There are a large number of industry specific directories which take advertising as well, as Gary Zabel, managing director of Hollis Directories and a vice president of the DPA, says. “Virtually every sector has its own specialist directory, often known as the ’bible’ of the industry.

Directories should be the first name on any advertising schedule, because you have a captive audience. They are specifically searching for your product or service, not scanning a magazine, browsing a newspaper, opening their often untargeted mail, having their radio listening interrupted and all the rest.

“Directories are successful because they work. We want to get that message over to more people, especially when deciding on advertising budgets. Few, if any, advertising agencies understand the value of directories, and they are letting down their business-to-business clients if they don’t suggest us.”

Zabel is about to approach the Audit Bureau of Circulations about the possibility of an ABC audit of directory circulations (a handful of publishers already get the ABC to conduct annual audits for them). He says: “Most directory publishers don’t bother with ABC because it’s only understood by agencies, and agencies don’t give us any business. We’d be happy to pay commission, where appropriate.”

As has been already established, some directory publishers get no revenue at all from advertising sales, relying instead on cover prices and on list sales. The issues that worry them are slightly different. They are more concerned with paper price increases; with the theft and abuse of their data; with the impact new media will have on the industry (see box); and with regulatory issues affecting how they can collect, store, protect and sell their data.

Paper is perhaps the most immediate issue. The recession hit demands for paper very hard, forcing manufacturers to close or mothball paper mills around the world. Over the past year, demand for paper has risen as business confidence has begun to return. Paper manufacturers have been taking the opportunity to claw back some of the margin they lost during the recession, with the result that paper prices have more than doubled in the past 18 months.

Steve Cook, director of Dun & Bradstreet UK’s business marketing services division, says that Dun & Bradstreet, for example, gets all its income from subscription sales and from list rental, which contribute roughly equal amounts. It has not been able to pass on paper price rises to its customers, which means it has had to take a substantial hit against its margins.

He sees the future bringing “increasing revenue, from all sides. The biggest challenge facing our industry at the moment is distribution. We would hope to increase the distribution of paper based-directories as well as CD-Rom directories.”

VNU’s Williams has certainly noticed the paper price rises. “They have been astronomical,” she says.

While Fenwick admits: “Our mem-bers are certainly mindful of paper price rises. But directory publishers are further ahead in terms of new media than other publishers – we’re used to storing data electronically.”

Richard Laven, sales and marketing director of DMS, says: “Directories must move into the electronic age, electronic data now accounts for more than half our business. I can see that gathering pace over the next few years.”

But most directory publishers do not believe that new media systems will ever take over completely from paper-based products. Patrick Cangley, electronic publishing director at Reed Information Services, says: “There are lots of benefits to paper that CD-Rom can’t match. CD-Roms are highly unportable, and the initial access time is extremely slow – you’ve got to get the disk off the shelf, stick it into your computer, do a search… It’s much quicker to just pull a book off a shelf and look something up, if you just need an address.”

He points out directory publishers tend to segment their markets by price, with books providing the “entry level” products and CD-Rom titles at premium prices. It is likely, however, that further paper price rises would encourage directory publishers to increase the speed at which they are mi-grating their products onto CD-Rom and other new media.

That in itself leads to other questions. European Union directives, including the Data Protection directive (enshrined in UK law as the Data Protection Act) and others currently under discussion, may curb the collection and use of data. Although such directives are usually meant to protect consumers, they can have knock-on effects for business users as well.

The DPA has been lobbying the UK Government and the European Commission hard over the issue of copyright protection. Fenwick sees the theft of data as a major problem for the industry. He says: “People stealing or abusing data is a big threat to directory publishers. One of the most important roles the DPA has is to influence government and the European Union to protect international property rights.”

All directory publishers take steps to protect their products from theft or unauthorised use. The main tool they use for this purpose is the “seed” – usually a fake name and address, although sometimes a real one, with some sort of identifying code showing which directory it comes from: any material sent to this address will be checked to see whether it results from legitimate activity (list rental or sale) or not. Publishers are much more willing now to take legal action over data theft than they have been in the past: this is probably because developments in new technology have made it extremely easy to scan in data from a page.

So there are a number of challenges ahead for the directory publishing industry: on the one hand, it has to get itself taken more seriously by the UK’s media buyers and major advertising clients, while on the other, it has to steer a careful course between the demands of traditional paper-based products and new media.

If it can do so, then there seems to be no reason why it cannot continue to maintain the growth in revenue which it has seen in the past few years.