Kinetic Deal Could Spark Wave Of Outdoor Mergers

Kinetic, the new out-of-home ad venture between WPP Group and Poster Publicity, could mark the first step in a new wave of consolidation among outdoor advertising shops, according to industry executives.

With a stroke of the pen, WPP and London-based Poster Publicity have created what they believe is the world’s largest out-of-home ad agency, with more than $2 billion in billings worldwide and $350 million in North America, says Kinetic CEO Steve Ridley.

Stephen Freitas, chief marketing officer at Outdoor Advertising Association of America, agreed that Kinetic is No. 1 in North America, but couldn’t confirm the worldwide claim. “It is not unreasonable that they would be the largest in the world as well,” he said.

The launch of Kinetic comes amid projections that out-of-home advertising will be the fastest-growing traditional medium over the next two years on a percentage basis, albeit on a smaller base of ad expenditures than TV or print.

The growth is coming as the out-of-home medium is undergoing a transformation driven by digital technology that has created the ability to rotate ads on posters, and to use video for screens in elevators and taxis as well as so-called street furniture. It has also garnered more interest lately as advertisers seek alternatives to attract and engage consumers as the effectiveness of TV has dwindled in the face of fragmentation coupled with the emergence of commercial-skipping technologies like TiVo.

“The out-of-home world is diffusing wildly, and it hasn’t jelled yet into what this media is going to be about,” said Jack Sullivan, senior vice president, out-of-home media director for Publicis’ Starcom.

Adam Smith, head of knowledge management at Publicis Groupe’s ZenithOptimedia, predicted that the growth of out-of-home advertising worldwide will outpace both TV and print from 2005 through 2007. During that period, he said, outdoor ad billings will grow an average of more than 6 percent annually, to roughly $25 billion. TV spending, by comparison, will grow around 5 percent annually during the same period to $167 billion, while newspaper ads will grow about 4 percent a year to $125 billion.

And in the U.S., some ad executives are predicting double-digit growth for out-of-home advertising over that same period. Among them is Starcom’s Sullivan, who said the Publicis media agencies (which include the MediaVest, Zenith and Optimedia agency brands, among others) are considering the possibility of combining their outdoor operations. “There will be efficiencies with consolidation,” he said, “and we will continue to look at it,” although there is no commitment to do so at this point.

Freitas noted that further consolidation is likely. “It’s very plausible that we will continue to see consolidation globally,” he said. The reason: Outdoor messages more readily transcend language and culture. “It’s a natural media format to buy globally,” he added.

Other holding companies have already consolidated their out-of-home operations. Omnicom Group, for example, folded the out-of-home operations of OMD and PHD two years ago into an umbrella agency called the Outdoor Media Group, while Interpublic Group acquired Outdoor Services a couple of years ago to provide outdoor buying for Initiative and Universal McCann.

Part of what has driven the consolidation of the buy side is the worldwide consolidation that has taken place on the sell side, where three companies—Viacom, Clear Channel and JCDecaux—have emerged as the dominant players. Ridley said out-home-advertising “is the most consolidated medium in the world,” and estimated that the three big vendors control about 33 percent of the market between them.

“With Kinetic, we’ve created an agency that matches in buying power” the sales clout of any of the big three sellers, Ridley said.