Bracing for the recession, out-of-home media companies are making adjustments in the hopes that the business will survive the turbulence, if not come out ahead. While out-of-home has held up better than most other media through the first half of the year—posting modest, single-digit growth—the third quarter was a different story.
In second quarter, advertisers in categories such as automotive, real estate and telecom began canceling contracts for third and fourth quarter. By third quarter, the nation’s three largest OOH companies reported negative growth, despite growth among digital assets, a small percentage of the overall business. Clear Channel Outdoor’s Americas business dropped 4 percent to $370 million. CBS Outdoor’s North American business reported a similar 4 percent decline to $338 million. Lamar Advertising net revenue was down by 5.5 percent to $312.5 million.
Fourth quarter looks even more grim. Lamar is expecting a 9 percent drop, blaming the weakness in auto, real estate and media advertisers. To save capital, Lamar temporarily suspended its digital rollout in 2009 and will convert only 100 next year compared to the planned 400. The company also plans to reduce head count. To keep business rolling in, Lamar is dropping rates to move inventory and sell inventory for shorter durations.
“After 9/11, that third- and fourth-quarter time period was a difficult one, and we sold short and pre-emptable where we needed to move space,” said Sean Reilly, president and COO for Lamar. “And when demand came back, we were able to get rates back to where they needed to be.”
For now, it’s a buyer’s market. “There has been a decrease in pricing for fourth quarter and first quarter next year,” said Chris Gagen, senior vp, managing director at Posterscope, noting those declines in the high double digits. “For those advertisers coming in now, they’re getting a great value for their investment, and it’s not just distressed inventory.”
Because the downturn in out of home coincided with the time of year when more than one-third of the business is being negotiated for ’09, it’s created some opportunities for new advertisers looking to get in or steady advertisers looking for a new deal. “We’re making decisions a little bit differently,” said Jill Nickerson, vp, director of OOH at Horizon Media.
“We’re going for fewer boards, more quality,” she added. “We’ve also been renegotiating.
That’s a first in my career, but vendors are willing to do it because of market conditions.”
It’s unclear how much out-of-home will be down, if at all, in the coming year. “We’re hoping for visibility by the end of first quarter,” said a cautious Paul Meyer, president/CEO of CC Outdoor. “The good news is a lot of business will be there.”
Forecasts vary, depending on how they’re calculated. Lee Westerfield of BMO Capital Markets predicts a 1.5 percent increase in ’09, up from flat performance in ’08, and a rebound in 2010, with 4.2 percent growth. PQ Media’s preliminary year-end estimates are rosier. Reflecting an 11.2 percent growth in digital OOH this year and 9.1 percent growth in ’09, PQ Media forecasts the segment will grow 4.5 percent to $8.3 billion in ’08 and 3 percent to $8.5 billion next year.
“Although the trends in this business are better than the other mass-media segments, especially on the digital alternative side, 2009 will be a tough year for everyone,” said PQ president and CEO Patrick Quinn.
After examining ad trends for the past 30 years, including four financial downturns, the Outdoor Advertising Assn. of America expects a turnaround in 2010. “Historically, the industry has bounced back from decline in the third year of an economic slowdown, and the correction has been 4 to 5 percent growth,” said Stephen Freitas, chief marketing officer for the OAAA.
There are some signs of life in fourth quarter. “After pulling back, alcohol is coming back for the holidays, as are movies. Media is still gangbusters,” said Nickerson, who buys for media client A&E TV Networks. The OAAA’s Freitas said fast food has also remained strong.
With digital and the Traffic Audit Bureau’s “eyes on” ratings methodology coming in early ’09, there’s some optimism amid the belt-tightening. “It will be a challenge, but in tough times, out of home has attributes that can be more appealing, such as high reach and low CPMs,” said Gagen. “When people are trying to gain efficiencies, out-of-home has a great proposition.”