Clear Channel Outdoor Holdings (CCO)

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[edit] I do have a billboard location in California and interested to get some ...

Suggestion by 98.210.58.137 on 2008-04-19 18:34:15

I do have a billboard location in California and interested to get some information. Thanks,Alex

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Clear Channel Outdoor Holdings (NYSE:CCO) is the world's largest outdoor advertising company, providing advertisers with space on billboards, street furniture displays, and transit displays in 50 countries across six continents.

CCO generated revenues of $2.9 billion in 2006, and it has a market cap of $10B.

Clear Channel Outdoor split from parent company Clear Channel Communications on November 11, 2005. Clear Channel Communications continues to maintain a 90% controlling share of CCO.

[edit] Business Overview

Clear Channel Outdoor was formed when parent company Clear Channel Communications began acquiring smaller outdoor advertising companies, beginning in 1997 and mainly over by 2002. On November 11, 2005, Clear Channel Communications spun off its outdoor advertising division in an IPO in which 10% of CCO common stock was sold.

CCO derives revenues from selling advertising space on the over 910,000 advertising displays which it owned or operated worldwide as of December 31, 2006. These displays consist mainly of billboards, street furniture displays, and transit displays. In addition, CCO has equity investments in various international out-of-home advertising companies.

The innovation of digital signage is poised to dramatically increase operational efficiencies in the outdoor advertising industry.

Clear Channel Outdoor consists of two reportable operating segments: Americas and International. In 2006, CCO generated $2.9 billion in revenues. Of this, $1.3 billion came from the Americas segment, and $1.6 billion came from the International segment.

[edit] Americas Segment

As of April 3, 2006, CCO owned and operated about 870,000 displays in 50 countries across six continents; while only about 195,000 of these were in the United States, revenues from domestic displays continue to generate the lion's share of CCO profits. This segment accounted for 45% of 2006 revenues, yet it accounted for 86% of operating income.

The Americas segment consists primarily of operations in the United States, Canada and Latin America. Approximately 94% of 2006 revenues in this segment were derived from operations in the U.S. Favorable regulations and market concentration allows for substantially higher profit margins in outdoor advertising in the U.S. than in the much more competitive European markets.

In 2006, the top five client categories in the Americas segment by source of revenues were retail, business services, automotive, banking and financial services, and media.

[edit] International Segment

CCO's International segment consists of the company's operations in Europe, Asia, Africa and Australia. This segment generated 55% of CCO's 2006 revenues, while it only generated 14% of operating income. Approximately 50% of 2006 revenues in this segment were derived from operations in France and the United Kingdom.

Part of the reason for the discrepancy between the performance of the International and Americas segment is that outside the U.S. outdoor advertisers are often not allowed to own lease permits. This leaves permit owner taking a large share of profits through revenue-sharing and minimum guaranteed payment arrangements.

In the U.K., billboard contracts last only a few weeks (versus 6 to 12 months in the U.S.), increasing costs associated with changing concent. The English market has also become an oligopsony, with only four major players buying the bulk of ads.

The French operation has undergone restructuring over the past two years due to overcapacity and a flagging economy. Changes in French regulation at the began allowed retail advertisers to place some of their ad spending into television ads beginning January 1, 2007, previously not allowed. This is likely to cause advertising dollars to shift from outdoor advertising to television in France. Total retail advertising in France accounted for less than 3% of CCO's global revenues in 2006.

In 2006, the top five client categories in the International segment by source of revenues were retail, food and food products, telecommunications, entertainment and automotive.

[edit] Products

The majority of CCO's revenues come from the sale of advertising space on billboards, street furniture displays, and transit displays.

[edit] Billboards

Billboards are highly visible, large displays located along major highways (bulletins) or in commercial areas near point-of-purchase locations (posters). Bulletin rates are typically higher than poster rates.

[edit] Street Furniture Displays

Street furniture displays are ad displays on bus shelters, information kiosks, public toilets, freestanding units and other public structures. They are primarily located in major metropolitan cities and along major commuting routes. CCO generally owns its street furniture structures and is responsible for their construction and maintenance. Contracts for the right to place street furniture displays in public areas and sell advertising space on them are awarded by municipal and transit authorities in competitive bidding processes and typically last 10 to 20 years. In exchange, CCO pays the municipality or transit authority a fee or revenue share that is either a fixed amount or a percentage of revenues.

[edit] Transit Displays

Transit displays are ad displays on various types of vehicles or within transit systems, including the interior and exterior sides of buses, trains, trams and taxis and within railroad stations and airports. As with street furniture, contracts for the right to place transit displays are typically negotiated with public transit authorities or private transit operators.in competitive bidding processes. Contracts typically last up to five years.

[edit] Advertising Metrics

Clear Channel Outdoor's advertising rates are based on a measure of the relative impact of its displays. Currently, advertisers buy outdoor display space based on traffic counts, which measure gross exposure to a particular display but do not measure active viewing. However, a new system being rolled out that would provide advertisers with a more accurate measure of impact has the potential to attract more advertisers and more money from existing advertisers. The Traffic Audit Bureau, which measures traffic circulation, will begin providing not only demographic data but also "eyes-on" data that would allow advertisers to know who is actually viewing their ads. This greater amount of detail may make outdoor advertising more competitive vis-a-vis traditional media, which measure their advertising impact in terms of gross exposure.

[edit] Costs

Clear Channel Outdoor incurs three kinds of operating expenses:

• 'Production, maintenance, and installation expenses' include costs for printing, transporting, and changing the advertising copy on company displays as well as maintaining the displays. Until the recent adoption of digital displays, most advertising displays were printed inhouse on vinyl or paper.
• 'Lease expenses' for use of land under the displays. Lease contracts last between 1 and 20 years.
• 'Revenue-sharing or minimum guaranteed amounts' may also be paid to landlords leasing the land on which CCO's displays rest.

With a majority of the company's costs fixed, increased revenues to lead to subtantially higher operating margins. Decreased revenues, on the other hand, cause margins to dip. With revenue-sharing and minimum guaranteed payment arrangements more common in the International segment, International margins are typically lower than those in the Americas.

[edit] Ownership

While CCO is a public company, Clear Channel Communications continues to hold 90% of CCO shares and holds 99% of the total voting power of CCO stock. Three Clear Channel Outdoor directors continue to serve as directors of Clear Channel Communications, and four CCO executive officers continue to serve as executive officers of Clear Channel Communications. Clear Channel Communications elects all of the members of CCO's board of director and reports CCO revenues as its own. Future sales of CCO stock by Clear Channel Communications could have a significant negative impact on share prices.

[edit] Digital Signage

Recently introduced to the outdoor advertising industry, LED and LCD digital displays allow for for higher quality, faster time to market, and better customer targeting. They also promise to significantly cut costs. For a higher initial investment in the displays, 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. Messages can also be changed at different times of the day as well as instantaneously updated for price changes. CCO has already installed digital displays in the majority of its major markets.

The ability to update ad displays quickly and frequently will herald a transition from selling display space to 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. In addition, outdoor advertisers are likely to follow the lead of television advertisers in maximizing revenues by "day-parting" their advertising slots and rates for different times during the day.

CCO finished 2006 with 50 digital displays, while Lamar, as of November 2006, already had 263 digital displays installed.

[edit] Competitors & the Outdoor Advertising Industry

The domestic outdoor advertising industry is highly consolidated. The top three players--Clear Channel Outdoor, CBS Outdoor (formerly Viacom), and Lamar Advertising--together take in over 85% of industry revenue. In addition, the Highway Beautification Act of 1965 limits the number of new billboards that can be built and makes market entry difficult. This helps Clear Channel maintain its current position in existing U.S. markets and gives it pricing power.

JC Decaux S.A. is the number one outdoor advertising company in Europe, and the number two player worldwide.

In addition, outdoor advertisers compete with other media such as television, radio, the Internet, and newspapers. Outdoor advertising has only about a 2% share of total domestic advertising revenues, significantly lower than in many other countries. By comparison, outdoor comprises 12% of total advertising spending in France, 10% in the UK, and 8% in Spain. According to the Outdoor Advertising Association of America, outdoor advertising revenues in the United States increased 7% per year over the past decade.

[edit] Business Drivers

[edit] Business Cycles

Clear Channel's main source of revenue, advertising, is highly correlated with and sensitive to GDP growth. Small downturns in the economic performance lead to 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. Both the Americas and International segments have historically experienced their worst performance in the first quarter and the best performance in the second and forth quarters.

[edit] Foreign Currency Risk

With over 55% of its revenues coming from its operations abroad, CCO has a high degree of FX risk. In the first quarter of 2006, the company reported a $28.5 million decline in revenues due to foreign currency movements.

[edit] Regulation and Government

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 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, some states have banned billboards altogether.

U.S. federal, state and local regulations play an important role in shaping the outdoor advertising industry, and any changes could make a significant financial impact on CCO. In the future, digital billboards may be regulated because of their brightness or power to distract highway drivers. In addition, several jurisdictions in and outside of the U.S. have imposed taxes on gross receipts of outdoor advertising revenues, and new jurisdictions may also seek to do so.

International regulations similarly affect CCO's operations. The Law of December 29, 1979 in France, the Town and Country Planning (Control of Advertisements) Regulations 1992 in the United Kingdom, and Règlement Régional Urbain de l’agglomération Bruxelloise in Belgium regulate the extent to ad placement in rural areas, the hours during which illuminated signs may be lit, local authorities must consent to placing signs in certain communities. Regulations restricting outdoor advertiser's ownership of lease permits keep profit margins slim in the International segment.

[edit] Commuting Habits

The majority of Clear Channel Outdoor's revenues come from billboards placed along the highway, and ad rates for these billboards are determined by the amount of traffic that passes by them. Population growth and increasing drive times are CCO's key growth drivers. Thanks to urban sprawl, the search for cheaper housing outside of major metropolitan areas, and America's love of cars, commuters are spending more time in their cars than ever before.

[edit] Bulls

• Digital signage has the opportunity to substantially increase revenues and cut operating costs over the next few years.
• More accurate measurements of advertising impact may draw more advertising dollars and make outdoor advertising even more competitive with traditional media.
• With only a 2% share of advertising revenues compared with double digit shares in European countries, outdoor advertising has much potential for growth in the U.S.

[edit] Bears

• CCO generates all of its revenue from advertising. If the advertising market were to decline, CCO would be negatively affected. Overall GDP growth and consumer spending patterns drive advertising spending.
• Although digital signage presents great growth opportunities, future regulations limiting brightness or power to distract drivers on major highways may limit digital displays.
• CCO's International division, with lower profit margins thanks to heavier regulation and greater competition, continues to underperform domestic operations.