Less than a month after its peer company Idearc Media emerged from bankruptcy with a new name (SuperMedia) and a new lease on life, R.H. Donnelley has done the same thing. Freshly out of bankruptcy and US$6 billion lighter on its balance sheet, RHD has shed its historic corporate name in favor of DexOne, which will trade on the NYSE as DEXO.

We spoke with DexOne CEO Dave Swanson this morning about the name change, the company’s going forward strategy and the outlook for the small-business economy in 2010.

Right out of the gate the new company is making changes. Besides a new name and a new board of directors, it is also forming new partnerships. Swanson told us DexOne has inked a deal with Yelp to incorporate Yelp reviews into the DexKnows.com IYP.

Swanson told us the name change had several purposes. The first was that the name R.H. Donnelley, for all its history, is too closely tied with the print Yellow Pages business. And Swanson made it clear that, “Strategically our business is no longer Yellow Pages. It is marketing services.”

He added that because the company is the product of so many acquisitions (Sprint, Quest Dex, Business.com), it made sense to get the whole company behind a single name. And finally, the “One” in DexOne is meant to invoke the idea that DexOne is a one-stop solution for small-business advertisers.

The DexOne vision for a sustainable future is similar to what other companies are trying to execute — provide local advertisers with a mixture of advertising and service products that help them drive and manage new business leads.

This means selling everything from print Yellow Pages to its own IYP to others’ IYPs (Yellowpages.com and SuperMedia) to voice, online video, SEM and so on. Then, DexOne takes the complex melange of lead sources and boils it down into simple packages, or “matrixed pricing.” Swanson compares this approach to how cars are sold — there is a base model, a mid-range model and luxury model.

Given the obvious effort to distance his company from the traditional Yellow Pages label, we asked Swanson where traditional Yellow Pages fits into DexOne’s long term plans. He says print YP remains the predominant source of leads for most top categories, but each year, that becomes slightly less so.

“If all a company does is sell Yellow Pages, it will be difficult to grow over the next 10 to 15 years,” Swanson said. “The product is in slow secular decline. But that doesn’t mean our business has to be in slow secular decline.” Still, while conceding a secular decline, Swanson says he believes print will be relevant for at least another 20 years.

As for the cyclical element, Swanson see only modest improvement in 2010 over 2009.

“The local business economy is not recovering at the rate that financial services and some other segments are recovering,” he says. “And as goes the local business economy, so goes our business.”

One day after R.H. Donnelley released its 2008 results showing a sharp drop in ad sales, Idearc followed suit today with annual results that also reflect a very tough Yellow Pages environment in the United States. The big news in the release is the acknowledgment of the possibility that Idearc may seek bankruptcy protection. From the earnings release:

Idearc has evaluated various options for restructuring its capitalization and debt service obligations to alleviate these covenant issues and to create a capital structure that will permit the Company to remain a going concern. Idearc and its advisors have considered various alternatives to strengthen its balance sheet and financial risk profile. Among these alternatives, the Company is currently considering a restructuring through a “pre-packaged,” “pre-negotiated,” or similar plan of reorganization under federal bankruptcy laws. Idearc and its advisors continue to work with representatives of holders of both the senior secured facilities and the senior unsecured notes in this regard. If the Company is unable to achieve a “pre-packaged,” “pre-negotiated,” or similar plan of reorganization, it would likely be necessary that the Company file for reorganization under federal bankruptcy laws in any event.

Yesterday, RHD revealed it has retained Lazard to help it explore ways to improve its capital structure. There was no specific mention of bankruptcy in RHD’s announcement or on its earnings call. RHD executives did not take questions during the call. Idearc did not conduct an earnings call or webcast.

Idearc generated GAAP revenues of US$2.97 billion in 2008, a decline of 6.8 percent for the year. This translates into a 7.9 percent print decline to US$2.67 billion, and a modest 5.3 percent increase in online revenue to US$300 million.

As with RHD, the picture is more stark when looking at ad sales, which reflect the value of all revenues sold during the year, some of which may not be booked until the following year due to the amortization accounting method. Ad sales showed an overall decline of 9.8 percent to US$2.74 billion, with print dropping 11.4 percent to US$2.44 billion. Online sales were the same US$300 million based on this method.

“Idearc’s fourth quarter financial results are disappointing as we expected,” said Idearc CEO Scott W. Klein in the earnings release. “We are making progress on our transformational and cost-cutting initiatives. However, the unprecedented economic challenges this nation is facing are creating never-before-seen obstacles for our clients and, as a result, for us as well.” 

Despite the results, Idearc is continuing to invest in advertising and promotion. Earlier this week, TM Advertising won the account to develop ad campaigns for two Idearc brands — Superpages and Verizon Yellow Pages. AdWeek estimates the budget for the campaigns at between US$30 million and US$35 million.

The news this week from Idearc and RHD has led to more predictably tough coverage of the industry in the financial press, like this write-up in Barron’s.

The Kelsey Report will release its detailed Global Directional Media forecast to its clients next week, which will give our take on how print and online directory revenues will fare over the coming five years.

As debt maturities loom in a tight credit market, the directory publisher R.H. Donnelley announced today that it has retained the financial firm Lazard to “assist in the evaluation of its capital structure, including various balance sheet restructuring alternatives.”

On a conference call this morning to announce year-end and fourth-quarter earnings (ad sales were down 8 percent in 2008), RHD CFO Steve Blondy explained that the publisher is facing “large maturities in early 2010.” He added that RHD had long assumed it would refinance the debt at maturity, but in the current environment, “refinancing may not be possible.”

Blondy says that Lazard will help the company “evaluate alternatives … with the goal of better positioning us for the future.” Blondy added that RHD will negotiate with its banks to explore “amending, refinancing or restructuring our debt.” RHD is carrying US$9.4 billion in debt, which is about 6.7 times 2008 EBITDA.

As for the earnings announcement itself, the company released sobering if not entirely surprising revenue and ad sales figures. For full-year 2008, the company recorded adjusted revenues of $US2.62 billion, down 2 percent over 2007. Advertising sales, a better reflection of current performance, were down 8 percent for the year and 12 percent in the fourth quarter.

EBITDA was also down 2 percent for the year to US$1.4 billion. The company’s EBITDA margin was 54 percent in 2008, owing to some substantial cost cutting last year, including a 20 percent headcount reduction.

On the earnings call, CEO Dave Swanson described the current economic environment as the “worst in several generations.” He said the company’s sales force is “working tirelessly” but is seeing reduced spending across all products, print and online, and all key indicators — renewal rates, bad debt, cancel and decrease, and so on, are trending in the wrong direction.

The company did express hope that its efforts to launch a new and improved IYP, a newly integrated systems environment and a sales efficiency program, as well as efforts to shore up the balance sheet, will position the company for better times when the economy improves.

The Kelsey Report will offer a more detailed look at RHD’s earnings in an upcoming Client Inquiry Brief.

R.H. Donnelley has flipped the on switch on the new DexKnows.com Internet Yellow Pages platform. We wrote extensively about this new platform while it was in beta, in a blog post as well as an Advisory from The Kelsey Report.

We have commented that the new site (a tangible outcome of the acquisition of Business.com and its team of technologists) represents an ambitions effort to address many of the widely perceived shortcomings of IYPs. Now it is time to find out if consumers and advertisers respond favorably to the effort.

The press release announcing the official launch emphasizes how the new site breaks out of many of the conventions of IYP search to make the experience closer to what consumers have come to expect from local search, such as searching by brands and attributes rather than a structured category-based taxonomy.

One of the more interesting features is the ability to search based on the service area boundaries for local service businesses, rather than the location of the business. The utility of this feature may evolve over time as businesses self-identify service areas boundaries.

From the announcement:

DexKnows.com does not follow a typical listing structure that requires consumers to drill down several levels to find what they want.  Instead, they can simply type in what they’re looking for  — whether in specific or general terms — and DexKnows.com returns relevant results.

DexKnows.com allows consumers to:

– Search by specific neighborhoods or landmarks. The site’s “hyperlocal” search capability enables users to pinpoint their search area. Search by specific neighborhoods or landmarks. The site’s “hyperlocal” search capability enables users to pinpoint their search area.

– Search by descriptive phrase. Consumers simply need to type “clean house” or “fix sink” to yield relevant results that present them with a myriad of options to meet their needs.

– View results that accurately reflect both business location and local service areas.  Sometimes, consumers may seek the physical location of a local business, for example, to find a dry cleaner in close proximity to their homes.  Other times, consumers want to see which local businesses support their area, such as what plumbers provide repair services in their neighborhoods.

The new site provides consumers with more relevant options to choose from. While it may take some time before it is fully formed, all in all, this is a worthy effort at improving the IYP product model.

In a significant move, AT&T Interactive and Idearc Media announced today that they will extend each other’s reach by allowing business profiles on one site to be distributed on the other.

Here is a quote from the press release:

“Cross distribution of advertisers across YELLOWPAGES.COM and SUPERPAGES.COM creates even greater value for each company’s advertisers,” said David Krantz, president and CEO of AT&T Interactive. “Ad networks and distribution are critical elements for digital advertising. Extending our local search ad network through this agreement helps us to connect advertisers with more consumers.”

We believe this deal is driven by the following expected benefits:

• The deal will help reduce the amount of excess traffic the two publishers are currently buying through existing distribution deals.
• The two can negotiate more effective traffic deals by working together.
• The agreement creates another incentive for advertisers to sign up — if they buy one site, they get access to traffic on the other.

The deal raises some intriguing questions. First, is this agreement the beginning of a deeper relationship between the two entities, such as a shared technology platform? Something of that order could make sense, particularly in a challenging financial environment. Another question is how this deal affects other players in the U.S. IYP arena, notably R.H. Donnelley, which could be left at a disadvantage in acquiring traffic now that AT&T and Idearc are cross-distributing their advertisers.

The movement to compel Yellow Pages publishers to make it easy for consumers to opt out of receiving telephone books and punish unwelcome distribution gained some momentum last week with legislation introduced in Minnesota and the city of Albany, New York. In the meantime, directory publishers continue to refine their own programs in the hope of demonstrating genuine self-regulation, thus avoiding having regulations imposed on them.

The Minnesota bill calls for telephone directory publishers to prominently publish a statement on their directories directing consumers who do not wish to receive a phone book, and offer a toll-free number and a Web site that can be used to opt out. The penalty for a violation, presumably the delivery of a single book to someone who has opted out, is $500. That could add up quickly, though a delivery in error can be offered as a defense. The bill also calls for publishers to maintain a database of names and addresses of all those who opt out of delivery.

The proposed ordinance in Albany is essentially a repeat of an earlier proposal. Recent complaints about directory deliveries to abandoned buildings, which resulted in an unsightly mess, led a city council member to dust off the ordinance. It now adds telephone directories to the media covered under a law banning the unsolicited distribution of handbills. The ordinance prohibits distribution in public places, to abandoned or vacated homes, and for five years to any home or business that has opted out through a required toll-free number, posted on the directory cover.

Both bills would impose some cost and hassle on the directory industry at a time when they are cutting costs. However, we think at least some of these measures are inevitable. It is unclear what the odds are that these bills will pass, but it does seem to be getting more difficult for the industry to fight these off.

The Yellow Pages Association’s public policy director, Amy Healy, told us the industry plans to continue fighting to defeat each bill rather than just trying to make them more palatable.

“We are still trying to stop all of these,” she said. “We are committed to a self-regulation approach.”

Many publishers offer serious measures to facilitate opt-out, though critics complain the measures are not widely promoted.

One example of a serious opt-out platform is R.H. Donnelley’s “Select Your Dex,” which is an online tool that is easy to use and allows consumers to enter their ZIP code, view the directories that are currently delivered to their home and modify the mix of books to request more copies of one, fewer of another or none at all.

RHD has maintained a database of individual customer delivery records for the past 15 years, and the infrastructure that had enabled it to maintain special requests, like receiving extra copies of a book, has made it easier to set up a robust online opt-out tool. When consumers do opt out, RHD leaves a door hanger at the house confirming that they did not want a book, and giving them a number to call if they change their mind. Maggie Stonecipher, AVP for print and delivery services at RHD, said some consumers do call for delivery after having opted out. You can see an image of the door hanger below.

Stonecipher also told us that showing the online tool to legislators and regulators has made a difference in dampening the fervor to impose draconian opt-out measures on the industry.

Healy says the ultimate objective is for the industry to create a single online opt-out site with wide industry participation that allows consumers to opt out or get opt-out information for any location.

“The industry needs to move to a centralized site where information on how to opt out is listed, something that legislators can point to when their constituents call.”

R.H. Donnelley has recently opened up the beta version of its new DexKnows IYP platform (the new search box is above right), known internally as DK2, which TKG previewed last week with Brian Barnum, president of RHDi, and Jeff Porter, VP & GM and the one charged with product development for DexKnows.com. This project has been under way for well over a year, and RHD is relying on the new platform, as well as a new SEM platform called Dex Net, to propel RHD from its current second-tier digital position among directory publishers.

Barnum, who came to RHD through the Business.com acquisition, stressed that the platform is a transformational change, not an incremental one. “Everything but the listings is brand new,” he told us. Much of the development muscle behind the new IYP came out of the Business.com team in Santa Monica, including former Rent.com VP of Product Management Mark Eastwood, who was in charge of crafting the new user interface.

While the beta still has a few quirks, it is clear the new DexKnows is much more robust than the previous version, though a user will need to invest a little time in the site to fully appreciate the difference. The Kelsey Report will provide a more detailed review in an Advisory after the first of the year, but for now here are a few images and highlights of the new site.

One key difference with the beta of DK2 is that it makes a distinction between service area-based businesses like plumbers and fixed location-based businesses like restaurants. So if a user searches for a plumber serving the 60048 ZIP code, the result will show the business’ defined service area rather than its physical address. If executed well, it could represent a significant edge over the aggressive map-based approach many take to local search, where plumbers are plotted on maps based on their physical location, which is irrelevant.

In the early stages, Dex is using the existing print directory coverage area as a default “service area,” but advertisers will have the ability to draw their own service boundaries to overrride the default setting. Dex explained that the print boundaries were the best available default, but the hope is over time to have more precise advertiser defined boundaries.

These images show the new Dex (top) displaying a result for a plumber in the Chicago suburbs with a designated service area (though it seems to cover most of Chicagoland), and the image below from the current site shows a map with the notation “not enough information to locate the business on the map.” The service areas still need refinement, but the idea of making a distinction between outbound and inbound businesses is an important step.

Another new feature we liked was the ability to search by landmarks. We typed in “restaurants, Wrigley Field” and got a nice result. When I typed in “restaurants near Wrigley Field,” however, the results were a little kludgey. Some refinement needed is here, but again it’s a nice feature. When I tried this on the current site, it produced a result, but with several listings many miles from the friendly confines. On Google, this query produced a somewhat better result, but at least the new Dex is offering a similar experience and it can further refine this feature.

We encourage you to try the beta and post your comments on your experience with it.

Here is a collection of newsworthy Yellow Pages and directional media items that I’ve noted over the past week or so.

Got this press release in my inbox from Yell Group this morning, showing some creativity in linking the print directory with the mobile Web:

INTERACTIVE SMART CODES TRIALLED ON YELLOW PAGES FRONT COVER

In a UK directory industry first, Yell is to trial innovative smart codes on the front covers of two editions of its Yellow Pages directories, enabling consumers to obtain the latest local cinema and weather information via the mobile internet.

The press release goes on to note that there are roughly 25 million handsets in the U.K. that are capable of accepting the i-nigma reader required to use the smart codes.

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A Texas-based hedge fund has upped its stake in R.H. Donnelley, making it the third-largest shareholder in the directory publisher. The fund, with the vaguely Jetsons-like name Amalgamated Gadgets (so far, no word if Spacely Sprockets has an interest in investing) now owns 5.34 million shares, or a 7.76 percent stake.

RHD shares closed at 0.37 on Nov. 26, about 99 percent off its high. Amalgamated gave no indication of the reason for investment, but has said it has no intention of “changing or influencing the control of the issuer of the securities.”

Both RHD and its peer Idearc have received notice from the NYSE that they face delisting due to noncompliance with requirements for listing on the exchange. Idearc has entered a quiet period in order to sort out its options for improving its financial position going forward.

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AT&T has made public its plans to change the name of AT&T Advertising & Publishing to AT&T Advertising Solutions, and reorganize into more distinct sales and product development silos. TKG broke this news here a while back.

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Cincinnati Bell has announced a new Smart Home Phone service, using technology from Casabi, that allows landline users to access features normally found on mobile phones, like get SMS messages (converting voicemails to text) and browsing online content, including Yellow Pages listings, news, weather and sports.

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The 4A’s has hired the agency Connect FKM to develop a print and online Yellow Pages program for 4A’s members. According to the press release, “The goal of the program is to create agency brand differentiation in the Yellow Pages for agencies wishing to distinguish themselves as 4A’s members. Member agencies will appear in a 4A’s trademark, a call-out box that will allow higher visibility and credibility within the print Yellow Pages.”

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Atlanta-based Metro Directories had signed on with Boomdash to sell a packaged SEM product to local businesses. Metro is widely known for its guaranteed ad program, but was relatively late to the online party, launching its IYP in 2007. Ann Arbor, Michigan-based Boomdash has been targeting independent publishers as resellers for its local search offering.

Dex announced today that it is packaging its local search functionality into a series of widgets.

This will allow users to plant mini search boxes in different places where they might prefer to do local searches, other than the IYP site itself (DexKnows). It will include both Web widgets that can be affixed to personalized start pages like iGoogle and My Yahoo!, as well as desktop widgets (PC and Mac) that let users access local search directly from their desktops.

Overall, a smart move that makes Dex more accessible and extends its usage beyond the IYP site alone. From a branding perspective, this also makes Dex seem more on top of it when it comes to “Web 2.0.”

The development of verticals is an obvious growth strategy for newspapers, Yellow Pages, search engines and as standalones. The Kelsey Group projects that verticals and classifieds will make up 25 percent of interactive local revenues by 2012.

But nothing happens overnight. And at this point, still early in the game, there have been some initial disappointments with vertical results.

Teresa Lawlor, a consultant who specializes in vertical development, is a former VP of marketing for MediaNews Group (and before that, with Dex Media.) She has lived through a number of vertical start-up efforts and learned that it is going to require a lot of patience, determination and luck.

“I definitely think there is a slow transition toward the verticals being the next big wave,” says Lawlor. “The opportunity is there. It has the potential to build audience, engagement, loyalty, partnerships and new revenue streams. But it requires a commitment to spending some time working out what verticals will be most easily and profitably leveraged, building community around them and hiring staff … a little more open-minded about change and risk.”

Newspapers, in particular, are “scared to take the plunge because they don’t have the mind-set nor the personnel that know anything about this stuff. But I truly believe that this is the first step toward direct marketing for the newspapers,” she says.

The Yellow Pages is in a similar boat. “When I was at Dex Media [now R.H. Donnelley] about six years ago, we were just bringing on verticals [health, auto, b2b, wedding, legal, dining, travel]. It was a great idea — partnering with Edmunds, OpenTable, etc., to try to get a piece of the transaction and revenue share and introducing new products.”

But Lawlor notes that it was doomed to failure. “It failed because of changed leadership but also largely because we didn’t integrate — the content wasn’t integrated with the listings and the self-serve piece. So users never saw them and we had so many legacy data issues and conflicts with the sales force around self-serve advertising and the low price point of online products vs. print. Sound familiar?” she asks.

Lawlor still believes verticals are going to be a critical part of the future. But getting them started in a time of crisis is going to be all the harder since there is less patience in tweaking things, looking at the analytics and getting them right. “Being a change agent in an industry that is treading water is a very challenging thing and takes time,” she says.