Digital Outdoor Advertising

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Andrei Popovici

Digital outdoor advertising is turning old media into new media and a sluggish outdoor advertising industry into a growth industry. With digital signage becoming a growth area for traditional outdoor advertisers such as Clear Channel Outdoor and Lamar Advertising, even Google is set to get in on the action. The outdoor advertising industry, until now dominated by large roadside billboards, is experiencing a paradigm shift as static ad displays are being converted to digital - and in the process becoming much more lucrative for advertising companies. In a bygone era, billboard advertisements stayed up for one to twelve months before being manually changed. Now, converting the old vinyl displays to digital ones allows outdoor advertisers to rotate images from several different advertisers throughout the day, called "day-parting" in industry parlance.

The outdoor advertising industry stands to gain a lot from converting traditional static billboards and posters to digital signs. The Highway Beautification Act of 1965 limits the number of new billboards that can be built and makes market entry difficult.^[1] While this gives current market players pricing leverage, in effect it also caps the supply of billboards in a now saturated market. This leaves outdoor advertisers two ways to stimulate profits: increase efficiency and grab market share from other media. Digital signs have the potential to help them do both.

The ability to update ad displays quickly and frequently will herald a transition from a business model based on selling display space to one based on selling time on multiple displays. It also has the potential attract more types of advertisers to outdoor advertising as well as to increase display utilization rates.

Drivers of Digital Outdoor Advertising

The success and speed of adoption of digital signage is likely to depend on the continued generation of a high return on investment due to increased operational efficiency among outdoor advertisers, while potential obstacles are legislation and capacity constraints.

Higher Revenues, Lower Costs

With initial results from digital sign installations by outdoor advertisers showing revenues increased by 6-10x, superior efficiencies for outdoor advertising companies will continue to be the most significant driver of digital sign adoption. LCD and LED digital displays allow for higher quality, faster time to market, and better customer targeting. They also promise to significantly cut costs. For a higher initial capital investment, digital displays will cut industry operating expenses by allowing outdoor advertising companies to update displays at the click of a button rather than through regular and labor-intensive on-site visits.

What Regulation Gives, Regulation May Take Away

The outdoor advertising industry owes its profits in good measure to the 1965 Highway Beautification Act, which limited billboards to major U.S. highways and industrial areas and regulates the locations of outdoor displays in the U.S. The limit on billboard placement has created large barriers for new entrants into the highly consolidated market, leading to high billboard profit margins that analysts and companies alike agree would not exist under more competitive conditions such as those seen in Europe. On the other hand, four states--Vermont, Alaska, Hawaii, and Maine--have banned billboards altogether.

The biggest potential obstacles to the widespread adoption of digital billboards remain new regulations targeting the new types of displays. A handful of jurisdictions have already placed bans on digital billboards, citing their brightness or power to distract highway drivers. Industry watchers are still waiting to see how different jurisdictions will react to new installations and results of studies about their safety.

Supply Bottlenecks

The growth spurt in digital outdoor advertising has so far been tempered by a need for greater production capacity. Daktronics (DAKT), the largest supplier of digital billboards, has a $93 million order backlog across its product lines and is in the process of doubling its factory floor space.

Many other smaller niche manufacturer are filling the void such as Unilumini out of Ontario, CA.

Outdoor Advertising Spend Sensitive to Economic Downturns

Outdoor advertising is highly correlated with and sensitive to GDP growth and decline. Small downturns in the economic performance lead to disproportionately large overall declines in ad spending, while ad spending tends to increase sharply during boom times.

In addition, revenues in the outdoor advertising industry are highly seasonal, following consumer spending trends. The third and fourth quarters typically generate the strongest performance as retailer advertising is cut back after the holiday shopping season.

As this chart demonstrates, Outdoor Advertising spending upswings and downswings are magnified compared to GDP growth and declines

Companies that Stand to Gain

Consumers of Digital Signs

• Clear Channel Outdoor, CBS (through its CBS Outdoor division), and Lamar Advertising are the top three players in the outdoor advertising market and combined account for over 85% of industry revenues.
• Clear Channel Communications (CCU), which owns a 90% stake in Clear Channel Outdoor, stands to gain from any boost to the outdoor advertiser.
• Google (GOOG), the largest Internet advertising company, is getting into outdoor advertising as it expands its reach across other channels.

Producers of Digital Signs

The pool of static displays awaiting conversion to digital is very large and not likely to be exhausted any time soon, with only about 450 of roughly 450,000 U.S. billboards converted to digital so far.

• IAOTO^[2],

 AOTO was founded in 1993, has 18 years’ experience in LED display industry  Background stable, the first listed led display manufacturers in China  Strong R&D Capabilities, customer oriented innovation concept: until November of 2010, AOTO has applied for 61 patents, 20 software registrations and copyrights.  21,000 sq. manufacturing and R&D base in Shenzhen; planning 90,000 sq. manufacturing base in Nanjing and Huizhou.  Established global marketing network, exports to more than 70 countries and areas.  Build global service platform in America, Europe, Asian pacific and China, provide 24/7 technical supports.

• Daktronics (DAKT) is the world's largest maker of electronic scoreboards and digital signs. Producing around half of all U.S. digital billboards, in FY 2007 DAKT's orders from outdoor advertising companies more than doubled over the previous year. The company is currently constrained by production limitations and is looking to quickly expand manufacturing capabilities.
• LSI Industries (LYTS) is a producer of indoor and outdoor digital signs.
• Optec Outdoor^[3], a privately held company, is currently expanding it's production capacity by 5 times and looks to challenge Daktronics' dominance in the outdoor advertising market.
• QST* ^[4], 55 million in sales in 2009, poised to challenege the market with cost-effective and innovative products such as the Digiglass which turns any window panes into a LED display.
• LCD Enclosure^[5], manufacturer of outdoor digital sign enclosures, protecting the hardware from the elements and vandalism.
• Infinitus^[6], specialist supplier of highly reliable all-in-one large format LCD displays for sun exposed and shaded areas.

Companies that Stand to Lose

Outdoor advertising competes for advertising dollars directly with other forms of media, such as radio, television, newspaper, and the Internet. Outdoor currently only has only about a 2% share of total domestic advertising revenues, significantly lower than in many other countries. For example, outdoor advertising comprises 12% of total advertising spending in France, 10% in the UK, and 8% in Spain.

In the U.S., outdoor advertising already boasts a substantial cost advantage over competing media. Outdoor display costs per thousand impressions (CPMs) range on average between $1.50-$5.00, while media like network TV have CPMs close to $25. With the new versatility provided by digital signs and with digital display sites already generating much more revenue than static sign sites, outdoor advertising may grab market share from other media.

References

1. ↑ You must specify title = and url = when using {{cite web}}.mammon (September 18, 2008). . The Form of Money. Retrieved on April 26, 2009.
2. ↑ http://www.szaoto.com
3. ↑ http://www.optecoutdoor.com
4. ↑ http://www.qstled.com
5. ↑ http://www.lcdtvenclosure.com
6. ↑ http://www.infinitus-outdoor.com