Outdoor Advertising, a Media Anomaly, Knocks on the Digital Door

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Times Square. New York City 2005Billboards, like most things in our lives, are getting smarter. Those signs sitting over overpasses or above the escalators in malls or on the broadsides of buildings — the ones we often pass by without giving a second thought — are turning into computers. And soon, they will be able to communicate with the rest of the digital world.

The industry behind those billboards is a legacy media anomaly. As print and radio and other legacy local media companies have watched revenues slow, then slip, then plummet over the past decade, the out-of-home industry has hummed along — no massive increase, but no cliff either.

Today, digital signs account for one of every three dollars spent on out-of-home advertising. A report released this morning by PQ Media, an out-of-home analyst firm, estimates that digital out-of-home advertising in the U.S. generated $2.37 billion last year, or 32% of the $7.4 billion of the total outdoor advertising market. (That’s a billion shy of what marketers spent of mobile advertising last year.)

Without a specific consumer to serve, the industry has invested in digital at its own pace. The digital out-of-home sector has grown at an annual rate of around 9% since 2008 — a healthy number but well below the astronomical growth seen in other new mediums during their heyday.

The incentives implicit in a digital transition are more or less working in favor of the legacy stakeholders. Digital signs are an operational windfall, reducing the marginal cost in the businesses — the task of replacing the posters with new advertisements — to near zero. And thanks to an explosion in Chinese and Korean manufacturing, the cost of digital billboards has dropped by nearly two-thirds since 2008, according PQ Media vice-president Leo Kivijarv.

But, here’s the statistic that will roil media executives: Kivijarv says that a digital billboard is making between “4 to 12” times as much in ad revenue as its static predecessor. The demand from advertisers for digital billboards has far exceeded the growth of supply, making the digital transition far less painful for out-of-home than it has been for the rest of the media industry.

However, the smaller downside of the digital shift also comes with a relatively smaller upside. Kivijarv says that the growth of the digital segment appears to be slowing, particularly among billboards, in part because the market is reaching saturation. As the installation of new digital signs slows and a spike in digital pricing flattens out, so will the top-line growth of the market.

“We’re starting to see that the number of deployments is also slowing because they’re getting close to market saturation,” he said earlier this week.“[Out-of-home companies] already in the prime traffic areas in their main markets, so they’ve dropped the number of new signs their deploying every year.”

Carving out a home in the digital ecosystem
The process of replacing print billboards with digital signs has not come entirely easily. Last year, a Los Angeles judge shut down over 100 digital signs in the city operated by Clear Channel and CBS Outdoor, two of the largest operators, in response to complaints by residents over so-called “light blight” where the glow of the sign was too invasive in residents’ living rooms.

In lieu of the difficulties with the large-format billboards, companies like Clear Channel have invested in smaller, eye-level signs above train stops, in malls, and even inside retail locations. These smaller format signs, which increasingly include touch screens and interactive features, grew at a faster rate than the broader billboard segment last year, according to the report.

The growth of these more personal signs comes as many of the providers look to hook into the digital ecosystem. Earlier this month, Clear Channel Outdoor, the out-of-home affiliate of the media conglomerate, announced a new program called Connect that uses QR codes and near field communication (NFC) to allow passers-by to interact with a sign via their mobile device.

Josh Kruter, vice president of digital product, at Clear Channel Outdoor, says that the industry has started to position digital billboards as an extension of the digital ecosystem. He points to a recent campaign by Coke, in which the beverage company collected photos that customers posted in its Share a Coke campaign, and used them on the company’s billboards in New York City.

“Both out of home and mobile share these really wonderful intersection points for makrketers because its all about proximity and location,” said Kruter. “The best billboard or digital signage experience is coming to life on person’s device in a location to get them to take an action.”

Connecting the signs to phones nearby is a harder problem to solve. The Connect program uses scannable QR codes and near-field communication to share information from screen to devices, but Kruter says the company is working on a system that uses more seamless and ubiquitous beacon technology.

Measurement is key
With more than two thirds of digital advertising spending going to performance-based pricing models, the lack of data on who sees which billboards at what time is still limited. Today, the majority of inventory is sold based off of measurement services from companies like Nielsen, but the accuracy of the tools pales in comparison to more direct metrics available on desktop and mobile, says Kivijarv.

For out-of-home operators, the push into mobile is a matter of marketer’s mindshare. With a large amount of spending shifting mobile, companies like Clear Channel need to tap into the ever-expanding mobile budgets of brands, agencies and even local advertisers.

In one light, these digital billboards are on the vanguard of an emerging “internet of things.” They’re struggling with issues in developing a framework for managing the ways in which our mobile phones should interact with other machines in public.

But they’re also just another screen bidding for our attention — one that we don’t have the option of turning off.

Steven Jacobs is Street Fight’s deputy editor.