New Moves Into Great Outdoors
A decade ago, the forest of billboards standing alongside busy highways was dominated by such brands as Marlboro, Winston and Kool. But the Tobacco Rows have given way to a new crop of advertisers that includes such mainstream brands as Taco Bell, Omega Watches, Lexus and Old Navy.
The industry has done more than simply kick the smoking habit. It’s also found a way to get around the hard reality that zoning restrictions effectively prohibit construction of new boards. While the value of existing boards in high-traffic locations is soaring, the industry expects most of its future revenue growth to be fueled by “out of home” advertising--signs placed inside transit shelters, airports and, most recently, shopping malls.
Technology also is playing a role in the ongoing evolution. Hand-painted signs largely have given way to brilliant four-color panels produced by computer-controlled machines that make it economically feasible for advertisers to change billboard ads more frequently. Billboard operators are experimenting with video billboards that would offer even more variety--as well as attract younger consumers whose eyes are attuned to television and computer screens.
And, mirroring activity in other segments of the media, the outdoor business is being reconfigured by consolidation. Infinity Broadcasting Corp., the radio division of CBS Corp., last week acquired Outdoor Systems Inc., the nation’s largest outdoor company, for $6.5 billion in stock. A day later, Chancellor Media Corp. agreed to sell its billboard advertising unit to a competitor for $1.6 billion.
The business also has grown increasingly global in nature. Eller Media Co., for example, recently acquired London-based More Group, one of the largest outdoor companies in Europe and Asia. And Paris-based JC Decaux, which three years ago broke into the U.S. market with a contract to sell advertising space in San Francisco, now is competing for similar municipal deals in Boston and Chicago.
The stage is set for more wheeling and dealing. Big players such as No. 1 Outdoor Systems are growing larger through acquisitions and mergers, but 65% of the industry is still controlled by local and regional billboard companies. “Go outside of the big cities, and billboards are still very much a local medium,” said Nancy Fletcher, president and chief executive of Washington-based Outdoor Advertising Assn. of America.
Most observers expect the consolidation to continue. Five years ago, 75% of the industry was in local hands, and Fletcher expects the ratio to fall to 50-50 within three years. The consolidation is being driven by national advertisers who “don’t want to have to make 30 phone calls to put together a deal,” Fletcher said.
Spending on billboards grew 9.1% to $2.3 billion during 1998, and the broader out-of-home category grew by 9% to $4.4 billion. But when the domestic outdoor advertising sector is compared with other media, there’s obviously plenty of room for growth. Outdoor ads accounted for just 1% of advertising dollars spent 10 years ago, and although the total rose to 2.2% in 1998, the U.S. lags such countries as Japan, where outdoor accounts for 12% of all advertising.
In the U.S., interest in billboards is being driven up by soaring media costs that are out of reach of many smaller retailers. But outdoor ads also have an appeal for such deep-pocketed companies as Buena Vista Pictures, Chevrolet and Anheuser-Busch Cos. that use outdoor as an important adjunct to radio and television advertising.
Billboard operators have managed to keep revenue growing by igniting interest in new categories of advertisers who, for the most part, had never before used billboards. Just 10 years ago, tobacco companies, which in April agreed to drop outdoor advertising, accounted for nearly a third of overall billboard revenue.
Hot new billboard advertising categories include amusement parks, hotels and resorts, Hollywood and restaurants. The Beverly Center shopping complex, for example, has moved much of its advertising away from print and into billboards in a bid to speak directly to affluent Westsiders who spend so much time in their automobiles.
There are nearly 400,000 billboards lining federally controlled roads, according to the Federal Highway Administration. And, operators say, there are thousands of additional signs situated on less-traveled roads or painted on the sides of buildings.
While the value of some billboards is expected to grow, the industry expects future revenue growth to come from what’s called street furniture--kiosks, trash cans, transit stops and other civic necessities upon which outdoor companies can plaster advertising.
JC Decaux, the Paris-based company, recently won a contract extension to build and maintain kiosks, restrooms and other civic necessities in San Francisco. The company earns a profit from ads incorporated into the kiosks and turns a percentage of its take over to the city.
The concept works well in European cities where pedestrian and vehicle traffic is concentrated, and competition is heating up for municipal contracts in such cities as New York, Minneapolis and Boston.
But the number of downtown districts in the U.S. with heavy pedestrian and vehicle traffic is limited, so outdoor competitors are battling for potentially lucrative contracts to install similar amenities inside American malls. JC Decaux, for example, recently signed an exclusive agreement to install advertising-supported telephone booths, ATM machines, newsstands and other improvements at Minnesota’s massive Mall of America.
And, in a twist, billboard operators are working with developers to incorporate signage in new retail projects such as the Block in Orange, where billboards are incorporated into the design process.
“Outdoor is increasingly a prime tenant in retail and entertainment developments,” said George Manyak, president of Phoenix-based billboard operator Eller Media’s Southern California division. “We’re trying to become part of the attraction, part of the ambience. And developers like that because we also become an incremental cash flow.”
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Billboard Spending
Billboard advetising expenditures ranked by total spending, in millions:
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Category Total (millions) Percent of total Local services/amusements* $190.9 10.6% Public trans, hotels/resorts 176.8 9.9 Retail 162.7 9.1 Misc (includes tobacco) 161.7 9.0 Restaurants 158.1 8.8 Media** 143.5 8.0 Auto dealers/services 120.3 6.7 Insurance & real estate 94.6 5.3 Auto accessories/equipment 90.2 5.0 Financial 73.6 4.1 Top 10 categories 1,372.4 76.5
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*Services include medical/dental practices, beauty salons, etc.
**Media includes TV, radio, magazines, newspapers, motion pictures, etc.
Source: Competitive Media Reporting
