Published on June 29, 2016
“You see it once and it stops people in their tracks,” said CEO of Vector Media, Bill Schwartz, in a recent interview on the subject of advertising on double-decker buses. “Try to imagine the impact of 40 giant billboards at street level in Manhattan or LA all during the day. You can’t NOT see these.”
Vector is part of the out-of-home (OOH) advertising industry that not only puts advertising on buses and subways of all sorts, but advertises in airports, on bus shelters and street furniture, in movies and arenas, shopping malls and of course the traditional billboards. According to the trade association, Outdoor Advertising Association of America, there are only about 205,000 of buses with advertising. The organization claims about 2.2 million countable out-of-home displays, plus additional smaller sized ones such as news racks and ‘alternative’ ones which could be almost anything, like the side of a building.
The value proposition of OOH in general is articulated by the largest company in the sector, Outfront Media Inc. In their 2015 annual report, they say that unlike most other media platforms, OOH is “always on, viewable and cannot be turned off, skipped or fast-forwarded.” An executive at Paramount Pictures, who is deeply involved with marketing, but asked not to be named says that impact is the main consideration for large format out-of-home promotions. “We look for something that looks very special. The creative has to be really organic to the actual advertising venue–not just something re-purposed from a poster or a photo shoot. The stuntier something is, the better. Bigger is important since getting something to really stand out is key. This really helps with ‘unaided awareness’ of a movie. Whether somebody buys a ticket because of this kind of advertising is another story.”
The fact that out-of-home displays are countable is novel compared to the tens of millions of web sites and billions of unique Google GOOGL +1.46% searches where digital ads can be displayed. With U.S. ad sales at $166 billion in 2015, the industry estimates OOH as 4.4% of the total or $7.3 billion. Of this, about 18% is in transit.
And yet, despite this scarcity, buying OOH advertising remains a relative bargain. In a phone interview with Mark Boidman, an investment banker from Peter J. Solomon who has worked with companies in the OOH sector since 2008 and works with the sector’s industry groups, the current median CPM (cost per thousand people) of transit shelters at $3.45 is higher than digital advertising with a median of about $2, but compare OOH to non-primetime TV spots at $8.99 and. print magazines at $14.00.
Vector Media, with 60 employees and $70 to $100 million in annual revenue according to the company, is small compared to the big players in the field; it is less than 10% in annual revenues of the most prominent public companies in the space such as Outfront Media Inc. (NYSE:OUT), Clear Channel Outdoor Holdings (NYSE:CCO) and Lamar Advertising (NASDAQGS:AMR AAMRQ +%.) Schwartz reports that Vector has grown the top line revenue 20% between 2014 and 2015 and is profitable.
Vector works with advertisers on street furniture and events, but its bread and butter is in transit, including food trucks, taxi tops, and regular coach buses, but particularly in large format double-deckers. They have long term contracts for about 3,000 vehicles including 500 double-decker buses in the U.S. and an additionalpartnership for cross selling for another 800 throughout Italy.
Artisanal Content. The company prides itself on fulfilling advertisers’ needs through its creative, Artisanal customized approach. “We recognized quite early that the consolidation in the industry left a huge hole for us to fill as our larger corporate competitors don’t have the time or flexibility to focus on creating unique executions that is our specialty,” said Schwartz. “We like to think of ourselves as Ninjas on Jet Skis where everybody else is riding around on aircraft carriers.”
Out-of-the box requests. When Vector worked with the marketers of Sony Picture’s Angry Birds to create a memorable promotion, they needed to coordinate with suppliers and the bus companies that owned the vehicles. “We had to go to our bus partners and tell them, ‘We want to do this crazy thing and drill holes in the sides of your buses.’ They say, ‘Fine, just put them back together when you’re done.’”
This stop action video shows how the bus promotion was constructed and how it looked once finished.
Collaboration with other artisans. Vector doesn’t do the fabrication, but relies on partners. Schwartz says he works very closely with one printer, Moshe Gil from Carisma who has a special large 3D printer. “It’s a collaborative thing, and we talk to each other constantly exchanging ideas. We have worked very closely with them from the beginning. He has all the templates on file. He also basically runs a body shop, so if something goes wrong with a bus, he goes and bangs out the dents.”
Why is OOH so customized — and yet so cheap?
Schwartz says that selling transit advertising can be as Artisanal as its content creation. He calls the process “a total push-pull. We deal with agencies. We deal with clients. We deal with buying services. We deal with experiential agencies. We deal with P.R. companies. Our business comes from 360 degrees. There’s not one place it all comes from. A lot of times we’ll be reading articles or watching a show on T.V. or something, and an idea will come to one of our sales guys, and there goes the pitch.”
And the competition is brutal. Of the 800 OAAA members, 500 are U.S. media companies competing for the limited inventory of displays. Even though a particular out-of-home company has long term contracts with the venue owner, perhaps with a regional dominance – or in the case of Vector double-decker bus dominance – there are enough alternatives in a given region or for a given format, that its hard for an individual display company to maintain any kind of pricing power. And at the end of the contract, the venue owners can raise the rents which adds cost pressure as well.
For most of OOH’s life, it has been very challenging to validate who is in the vicinity of a display. “A billboard owner could tell you the number of cars that usually passed by during a commute, and some information about the demos of a working population, but that was about it,” explained Jim Dolan in a phone interview; Dolan is a Managing Partner of the investment bank, Cherrytree, and was an entrepreneur in the media industry before coming to the bank. “The way they would sell is to get a customer to try it, and if it worked, great – but they didn’t know why.”
Despite the very individualized placement of billboards and bus ads, the demographic information was so vague as to be useless, said Dolan. He thinks the newest digital technology will help make OOH more valuable to advertisers, and so the industry will begin to have more pricing power. “There are devices on billboards, for example, that read license plates, to tell who owns the car and often they pass by. And although you can’t tell who the driver is, you know about the household demographics in great detail.”
Where’s the scale?
“Scale always matters in media,” says Dolan, but it isn’t just bigger that counts. “Newspapers buying each other is not scale – it’s just addition.” So if there is consolidation in the OOH industry, that doesn’t necessarily mean great scale; Dolan sees digital technology and consultative selling as the fixed costs that companies will be able to scale.
- “Centralizing the back office operations will be the core fixed cost advantage.”
- Digital billboards which can run “time slicing and get more ads in front of audiences with the same real estate.”
- “The real scale is in the expertise of selling the technology and will be a significant advantage when a company has a sales organization that figures out how to sell to new kinds of customers with new and important insights.”
Peter J. Solomon’s Boidman also sees technology as the way to higher prices and more consolidation in the sector. He predicts that in the next five years digital technology will drive the growth in OOH. He believes that “Mobile, social internet and video will be integrated into OOH media, making it a more engaging and accountable media channel.” Boidman thinks that there is such good technology to identify who is passing by what and how long the “dwell time” is, that he claims it will be more accountable than TV measurements.
According to Schwartz, Vector’s business demonstrates that the integration has already begun.
- “We’ve got beacons and geofencing offerings, enabling advertisers to micro-target audiences, and send push notification.”
- “We’ve developed a Wi-Fi system that’s basically in every one of our bus markets, so now, you’ve got tourists up there who are visiting. They have access while they’re touring around the city and the opportunities are pretty much unlimited with what you can do with that. Last year on the Hampton Jitney [a bus company that goes between metro New York and Long Island destinations] we did something with HBO where they promoted their live streaming.”
- The company is beginning to introduce enormous digital screens on the sides of the buses, and now had 8 buses equipped in this way.