The publisher of Verizon phone books has filed for Chapter 11 bankruptcy protection, a victim of towering debt, a slumping economy and a declining industry.
Idearc Inc. of Dallas, which surprised many local business people this week with letters asking if they had claims to file in the bankruptcy case, will use the respite to reinvent itself for a future when even more people skip the white and yellow pages and head straight to the Internet.
The company acknowledges it "cannot continue to be your father's phone directory." But it has been hobbled by $9 billion in debt Idearc inherited when it spun off from Verizon Communications Inc. in 2006.
"Essentially, we have a company with good potential being held back by a terminally ill balance sheet," said Scott Klein, the 51-year-old former consumer-packaged-good industry executive who took over as chief executive officer last year.
Idearc, which had operating income of $926 million on revenue of $2.9 billion in 2008, said it generates enough cash to stay in business while its debts are reorganized under a judge's supervision.
The phone book business has been shrinking at accelerating speed. Between 2005 and 2007, the number of yellow pages printed shrank by 1 billion to 13.4 billion industrywide. In a plan circulated to creditors, Idearc estimates its printed book revenue will be cut by more than half to $1.6 billion between 2004 and 2013.
Managing the transition, however, has been tough. It's a business that lists business numbers free, but makes all its money charging those who want to stand out with bigger print, display ads or paid search.
In 2008, Idearc's online Superpages.com fielded 23 billion network searches. But revenue has only grown to $300 million, 10 percent of the company's revenue, while print ads provide the rest. Yet even by 2013, a shrunken Idearc sees about a third of its revenue coming from the Internet.
Part of the transition means cutting the 6,000 employee head count 20 percent by the end of 2009. So far 570 have lost their jobs. Idearc, which has rights to use the Verizon name until 2036, hires other companies for printing but one of its seven warehouses is in St. Petersburg.
It's quite a reversal from 15 years ago, when phone deregulation opened access to phone number lists to all. The words "yellow pages" and "let your fingers do the walking" lost their trademarks, so anybody could use them. That unleashed a flood of rivals — in some cities Idearc competes with up to eight books — selling ads that pay for 90 percent of the business. Now other big players face a similar transition: R.H. Donnelley Corp. and Yell Group, publisher of Yellowbooks.
Klein kicked off two initiatives to set Idearc's directory services apart from the other books stacked at your front door.
One is a SuperGuarantee for advertised services such as contractors, plumbers and car repair shops. Idearc promises to mediate consumer complaints with companies willing to post a SuperGuarantee "shield" on their advertised listing.
The company also initiated a business-to-business barter system. Businesses can trade services or products with those offered by other members in a swap mart in which Idearc prices goods and collects a fee. So far, 24,000 business have signed up.
Klein is refocusing the sales force to market ads to its 770,000 ad-buying businesses in all places it sells exposure: phone books, online and through its direct mail post card service.
"We intend to become more like an ad agency for small and moderate-size businesses," said Idearc spokesman Andy Shane.
Mark Albright can be reached at email@example.com or (727) 893-8252.