Hispanic Yellow Pages: Big Investors Bet on a Still-fragmented Sector

Major players have entered the Hispanic Yellow Pages market in the last few years bringing much needed capital and expertise into the sector. “I do believe the entry of Telmex may bring a level of funding and professionalism that could transform the market,” says Charles Laughlin, SVP and Program Director, The Kelsey Report.  Last fall, Blue Equity, LLC and Teléfonos de México, S.A. de C.V. announced that the Mexican telecommunications company Telmex acquired an 80% stake in Enlace Yellow Pages. Enlace, a publisher of over 32 Spanish-language directories in 18 states, was re-named Seccion Amarilla USA.

There are close to 200 Hispanic Yellow Page books all over the U.S., most run by very small companies. Private equity-backed operators play an important role in the wave of consolidation currently taking place in the market. “Small family-owned publishers are threatened by consolidation. The entry of Telmex is evidence of this,” says Kelsey’s Laughlin.  However, independent publishers have a long tradition and strong involvement with their community and this can be an asset for the acquiring company. One example is Casablanca, a company that published an Atlanta Hispanic Directory for 18 years before HYPN purchased the company. “Casablanca had a strong and loyal customer base and was the premium Hispanic Directory in Atlanta. HYP "Directorio en Español" is building upon that historical strength,” says Ted Jones, General Manager of HYPN Atlanta.

Hispanic Yellow Pages Network (HYPN), backed by Boston-based private equity house ABRY Partners, is  attempting to become an independent provider of Hispanic Yellow Pages directories throughout the U.S. Led by Yellow Pages industry veterans Patrice Listfield and Luis Bermudez, during the last three years  HYPN acquired independent Hispanic Yellow Pages businesses including Chicago, Dallas, Houston, Tampa, Atlanta, DC/Maryland/Virginia/Baltimore, Miami/Ft. Lauderdale, New York, Orlando  and Phoenix.

Another private equity backed operator is Chicago based HYPA (Hispanic Yellow Pages of America). Its expansion is financed by Hispania Capital Partners and Robert Armband, publisher of Chicago’s La Raza (Impremedia, circ. 200,000, weekly, Spanish), is among its main shareholders.  HYPA owns Spanish-language Yellow Page Books in Denver, Las Vegas, Chicago Metro, Colorado Springs, Phoenix and Milwaukee.


…National Platforms|

To increase national advertising by offering a nationwide footprint is one of the main objectives of the major players.  Typically, 15% of the advertising in a yellow pages directory is national. For independent publishers that proportion is lower, approximately between 5% and 8%. Due to its large degree of fragmentation, the Hispanic Yellow Pages Sector has a ratio closer to 5%. However, this range varies a lot from publisher to publisher. Mario Echevarria, Director of Marketing and Sales at HYPA, tells Portada that for his company national advertising hovers between 15% and 20% of total revenues. He sees a lot of growth potential in the following categories: Automotive and related industries, insurance, pizza chains, medical and dental chains, educational and instructional institutions.

According to Echevarria, the majority of HYPA’s advertisers are English-speaking businesses. “About 70% of our business comes from the bigger Anglo companies that want to reach the growing Hispanic market. The remainder comes from the Hispanic community,” he says. National Yellow Page Advertising is bought by CMR’s Certified Marketing Representatives. CMR’s are members of the Yellow Pages Association and work for companies advertising in a large number of directories.

To Juan Reffreger, Sección Amarilla's CEO in USA, insurance, automobile parts and supplies and
cellular phone equipment are the main categories for growth in national advertising. According to
Reffreger, national advertising amounts to approximately 6% of Seccion Amarilla USA’s total
revenues. Last summer, Seccion Amarilla partnered with Directory Marketing Inc., a firm that
handles national advertising for yellow page books, and joined with its in-house national team
to build its national account business line. “We want to be a national company either through
further acquisitions or by launching new companies. Our sales force will not change significantly,
although it may grow,” says Reffreger.

Seccion Amarilla is well known among Mexican-Americans living in the U.S, particularly to first generation Mexican immigrants. In Mexico it publishes 135 directories and the company's print and digital yellow pages revenues in Mexico and Latin American amount to approximately $300 million a year. By expanding north of the border, Telmex Seccion Amarilla also targets Mexicans north of the border. Telmex Seccion Amarilla will now be able to offer a large U.S. Spanish-language Yellow Pages footprint to Mexican advertisers who want to market to Mexican immigrants in the U.S.


Border town directories

As to whether there will be any advertising sales synergy between Seccion Amarilla Mexico and Seccion Amarilla USA,
Reffreger says, We will engage in some cross-selling between entities, particularly on the border town directories (e.g. El Paso/Ciudad Juarez). We’ll try to make it easy for customers on both sides of the border. Also, for companies that are already reaching the Hispanic market, it will be a great service, with a lot of synergies not only from the user side. It could be a doctor in the border town to a dentist, or a big-box retailer. With the recent acquisition, we now have access to their database, so we can reach any customer we want.”


Undivided attention

A factor favoring the increase of advertising dollars spent in Hispanic Yellow page books is the increasing amount of publishers which focus exclusively on serving a Hispanic audience. “We don't have to worry about anything but our Hispanic Yellow Pages and we can move fairly quickly. In addition, we are very well known by our end users - the Hispanic community - as we have no other product for reaching a Non-Hispanic end user. The only disadvantage I see is the lack of large cash resources for advertising in the market place,” says Ted Jones, General Manager of HYP Network Atlanta.

Take Verizon en español as an example: while it has more than respectable annual sales of between $30 million-$40 million a year, these sales amount to less than 1% of the close to $4 billion of advertising Verizon directories sell annually. Verizon’s current sales force is predominantly English-speaking. By having Yellow Page publishers exclusively focusing on the Hispanic market they will tend to have more Spanish-speaking sales forces. Kelsey Group’s Laughlin tells Portada, “not all of the sales personnel selling general market Yellow Page books speak Spanish, which means they may not be fully optimizing the opportunity among Spanish speaking businesses.” 


Flip books

Telecommunication companies who want to reach Hispanics, like Verizon,
often use the flipbook design for their bilingual directories. The flipbook reads in English from one direction and in Spanish if you flip it and start from the other side. These bilingual directories are distributed in neighborhoods where the Hispanic penetration is 50% or higher. For example, Idearc Media, the official publisher of Verizon Print directories, recently started to distribute 168,000 copies of bilingual flipped directories for heavily Hispanic areas in the Greater Tampa area covering 10 different zip codes, says Andrew Shane, spokesperson for Idearc Media.

Flip book directory and general market directory publishers often can provide Hispanic directory advertising at a competitive rate, as in the case of United Yellow Pages Inc., a publisher of 43 English-only editions, 4 Bilingual (Spanish & English) and 6 Spanish-only directories. Advertising in the English section qualifies advertisers for free and/or half-off ads in the Spanish-anguage section.

Idearc, the directory publisher that Verizon recently spun-off, is one of the largest publishers of Hispanic directories in the United States, with 54  directories featuring advertisements in both English and Spanish, and Spanish-only. Dex Media, which is owned by R.H. Donnelley (Cary, NC), publishes 20 bilingual directories. AT&T Yellow Pages (St. Louis) publishes 21 bilingual directories and BellSouth Advertising & Publishing (Atlanta) publishes 15 bilingual directories with a circulation of seven million in four states.


Strong Content

Not surprisingly, publishers of Spanish-only Yellow Pages claim that Hispanics don't like flipbooks. According to HYPA’s Echevarria, “Flip books are simply translations of some of the general market or English-language content or advertising. Hispanic, Spanish-language directories are generally community directories and resource guides that provide critical and helpful information to the Hispanic communities they serve, along with support and commitments to those communities by the publishers and their yellow pages organizations.”

Seccion Amarilla’s Juan Reffreger says “Spanish-language-only directories have proven to be a more long term solution in the Hispanic Yellow page market than flip books. Users have a greater sense of loyalty to a directory that is in the native tongue of the end user” (For more information on the advantages/disadvantages of flipbooks, see box on page 22).

One strength of Hispanic directory publishers is that they tend to have strong content in the form of resource guides that provide critical and helpful information to the Hispanic communities. “We are monitoring usage with studies and audits to document the impact we are making for businesses and for users,” says HYPA’s  Echevarria.

Ambassador Yellow Pages launched a Spanish-only directory with 200,000 circulation in 2005, and in 2006 introduced Spanish-only directories in Queens, Brooklyn and the Bronx.


to  increase usage…

Charles Laughlin from the Kelsey Group notes that Hispanic Yellow Page publishers face a usage challenge, since it requires substantial investment in promotion and distribution to generate brand awareness and drive usage.  Low usage may be a reason for the fact that directory distribution per capita in the Hispanic market is less than half that of the general market. While in the general market 1.85 directories per person get distributed a year, only 0.84 directories get distributed in the Hispanic market, according to the Kelsey Group.

As HYPA’s Echevarria sees it, “While our directories become a more viable and critical resource in Hispanic households, this [usage challenge] will continue to evolve.  We have been seeing this with a good percentage of our advertisers who track the results and/or calls from being in our books.” Low usage can also be solved by increased research and surveys, as Seccion Amarilla’s Reffreger points out: “We have partnered with  the Certified Audit of Circulation (CAC). CAC publishes usage surveys as well as delivery verification audits for every market we service. To date, usage results typically double most general market results; in some cases they even triple the general market directories’ results.

and improve renewal rates

Hispanic Yellow Page publishers also face a sales and renewal challenge. Kelsey’s Laughlin notes that “many advertisers in Spanish Yellow Page directories are not Spanish speaking operators, and they often view the Spanish-language yellow page purchase as secondary and discretionary. These products are a tougher sell than regular yellow pages, and they are harder to renew.”

However, not all specialists agree with Laughlin: “The idea that renewal percentages within the Hispanic segment are lower than in the general market is not so much a reflection of the market as it is a reflection on of the publisher and its product,” says Juan Reffreger of Seccion Amarilla. He adds that, “in the past the barrier to entry into the Hispanic publishing market was virtually non-existent, which opened the door to businesses that practice non-conventional publisher practices. With validation of circulation and verifiable audits and overall proven ethical business practices, renewal percentage within the Hispanic market should see no difference in comparison to the general market. However, given the fact that certain markets have experienced this type of unscrupulous business behavior, a certain amount of credibility re-establishing is required to achieve industry standard results.” 
 

Online Opportunities: Local Search

Local search is both an opportunity and a threat to Yellow Page publishers. The local paid-search 
market is expected to reach nearly $1 billion ($987 million) this year, up from $418 million in 2005,
and continue to grow rapidly to 1.7 billion in 2007. By 2010, it should reach $4 billion, when it will
account for 47% of local online advertising, according to a new Borrell Associates report, entitled
"2006 Local Search Advertising."
More than 25% of all web search is seeking geographically relevant results, and the percentage 
of local queries will increase with user sophistication, better search technology and deeper local
content. Google and Yahoo web sites are the biggest participants in the local search market and
Yellow Page publishers are increasingly partnering with search engines to provide local search
online environments.
According to Kelsey’s Charles Laughlin “The best defense a directory publisher has against 
competition is a strong sales force, which is an asset few others have. Another defense is a strong
brand that has been embraced by the market. I think most publishers has the former.
None in the Spanish language space yet has the latter, but again, Telmex, with its Seccion
Amarilla
brand, may change that.”
In the general market, Internet Yellow Pages amounted to 6.7% of total yellow page revenue. 
For the Hispanic yellow pages market, that ratio is probably lower, as the sector is still in an
early stage and publishers offer online advertising as a value added service.
“Until the Hispanic consumer becomes more acculturated and bilingual in using the traditional 
search engines and portals, this is somewhat premature for the market.  Spanish-only and
Spanish-dominant Hispanics, who are the users of Hispanic directories, tend not to use the
English-language Local Search vehicles,” says Mario Echevarria of HYPA.


Print is still the industry’s bread and butter

“While our online strategy is a top focus of our business, our core business is obviously the printed directory. Bundling and packaging with both products should multiply revenues at an exceptional rate,” says Seccion Amarilla’s Juan Reffreger. HYPA’s online directories have traditionally reflected our printed books by having the visual presence or impact. For example, If an advertiser buys a full-page in our yellow pages, then they get a full page online (with URL links to their sites).  We are currently enhancing our online components to make the experience more useful and impacting for consumers and advertisers,” says Echevarria.


The last frontier of Hispanic print

In a $4.25 billion Hispanic advertising market, Hispanic Yellow Pages only account for 3.6% in advertising volume, or $165 million a year, growing to $200 million by 2009. However, other forecasts see the market growing to more than $500 million in 2009. For the general market the Yellow Page Advertising ratio is 5.7%, or more than $14 billion, according to the Kelsey Group, a Princeton, NJ, based provider of strategic research and analysis on Yellow Pages, electronic directories and local media.


Market Facts:
 
Hispanic
General Market
2006 Size of Hispanic Yellow Pages Market: 
$165 million
$14 billion
2009 Size Forecast: 
$250-$400 million
NA
Number of Yellow Page books:
200
NA
Share of Yellow Page Advertising in Total Advertising (2006)
3.6%
5.7%
Avg. % of National Advertising in total revenues: 
10%
15% - 20%
% of Online Advertising Revenues in Total Revenues: 
Below 5%
7%
Per capita distribution density 
Books/person
0.85 
1.85
Source: The Kelsey Group and Portada

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