SAN FRANCISCO (CNN/Money) -
Waaay back in 1948, the Kinsey Institute published the groundbreaking "Sexual Behavior of the Human Male." In it, the institute reported that 54 percent of men think of sex every day or "several times" per day. That number might be trending downward lately, as investors of all stripes rack their brains each day to find gold in some decidedly unsexy locations.
The business world has gotten a lot less sexy in the last couple of years, and that's actually a good thing. That brief blip when business and businesspeople were considered "hot" was an anomaly that's better forgotten. After all, look at where it got us.
In retrospect, the bubble-era investment world looked a lot like a clutch of Britney Spears fans pressed against the dotcom limousine, clamoring for a smile or a wave. Frankly, I feel more comfortable entrusting my money to a staid old geezer than to Boo.com's electric boogaloo crew.
This is all a roundabout way of saying that vanilla is back. The fickle tastes of the business world have returned to the unflashy, and investors would be wise to follow suit.
Case in point: Last weekend, R.H. Donnelly purchased Sprint's (PCS: down $0.06 to $1.83, Research, Estimates) phone book business for $2.23 billion. Is there anything less exciting than the thud of the Yellow Pages? (Well, actually, there is, but we'll discuss that in a minute.)
What makes it sexy, however, is the thud of the cold hard cash generated by the Yellow Pages and phone directory business. They are cash cows, and not surprisingly, a lot of companies are jumping for them now that many distressed telecoms are looking to shed assets. In August, Qwest (Q: up $0.04 to $2.30, Research, Estimates) sold its directory business to a group of investors, including the Carlyle Group, for $7.05 billion.
Sure it's old media, but it's also old money. Total Yellow Pages ad revenue for 2001 was $13.6 billion, far more than the $5.8 billion spent on Internet advertising, according to the Newspaper Association of America. And what's the biggest marketing segment of all? It's that old granddaddy direct mail, with $44.8 billion, or 19.3 percent of all advertising dollars.
Cable television ad spending was a healthy $15.5 billion in 2001, according to the NAA, and that's another area where we've seen some recent moves back toward proven models. Gemstar, the company that publishes TV Guide, is in a world of hurt right now, having not filed its latest 10-Q report on time. The stock is currently trading near a 52-week low. Recently, Gemstar largely handed over control of the company to Rupert Murdoch and News Corp. (Murdoch was a 41 percent shareholder prior to the handover.)
In the last few years, Gemstar had pushed its interactive TV listings, defending it mercilessly (and expensively) in patent litigation and touting it as the future of the company. Meanwhile, TV Guide, its premier print product, lost subscribers and watched its revenues diminish. Not any longer, according to reports. Murdoch is moving the company away from the interactive guide and returning the focus to its weekly print publication. And for good reason: The TV Guide division of the company recorded $212.8 million in revenue for the quarter ending March 31, 2002, while the interactive division reported just $83.8 million.
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Sometimes even sexy companies adopt unsexy strategies. Take Hewlett-Packard (HPQ: down $0.29 to $11.74, Research, Estimates). Its jet-setting CEO runs a company that makes hot technology products. Its unsexy secret? Fifteen percent of its revenue -- and most of its net income -- comes from the sale of ink and toner cartridges.
On the surface it might be surprising to hear that a new-economy company like HP relies on an age-old business model used by companies from Gillette to McDonald's: Sell consumers something relatively cheap (printers, razors, hamburgers, respectively) to up-sell them something with high profit margins (ink cartridges, razor blades, and sodas).
But hey, it works -- and that's something that few of yesterday's sexy highfliers can say these days.
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