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Media Outlook: Outdoor - Outside Help

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New technologies are creating targeted opportunities for out-of-home.

The outdoor business used to mean primarily static billboards and posters. While those still make up 60 percent of the business, outdoor is rapidly incorporating new, electronic technologies that give the outdoor business a greater degree of flexibility and targetability. "Minority Report isn't that far off," says Stephen Freitas, chief marketing officer of the Outdoor Advertising Association of America. "Outdoor has been thought of as a mass medium, but because of these new technologies, it's becoming a targeting medium. That's where we're headed: targeting the individual consumer."

New technologies, along with the imminent arrival of an outdoor ratings service, is causing advertisers to spend more money in the oldest medium. John Miller, managing partner of out-of-home at Mediaedge:cia, says his clients will collectively spend 18 percent more in outdoor this year. "A couple of markets are completely sold out," he says. "If you told me that would be the case a few years ago, I'd laugh."

"Our client base has been expanding by two or three clients every year," adds John Connolly, svp of out-of-home media at MediaCom, which buys for Warner Bros., the liquor company Diageo and pharmaceutical giant GlaxoSmithKline. "Pharmaceuticals is a category that is coming out of nowhere."

After a slow start in the first quarter of this year, the three largest outdoor companies, Viacom, Clear Channel and Lamar Advertising, reported strong revenue growth in the second quarter, with Viacom and Clear Channel posting double-digit growth due to healthier demand from national advertisers. At the half-year point, outdoor was up a healthy 5.3 percent, setting the stage for a solid comeback in the second half of the year that is expected to carry over in 2004.

The OAAA, which originally forecast 4.3 percent growth in 2003, is now forecasting a stronger end to the year. For 2004, the OAAA predicts 5.7 percent growth. Similarly, PricewaterhouseCoopers has forecast even more robust growth of 5.9 percent to $5.95 billion. Veronis Suhler Stevenson is forecasting outdoor will grow 3.9 percent to $5.5 billion, coming off a 2.6 percent increase in 2003.

Although local advertising represents the lion's share of total outdoor revenue—about 60 percent to 75 percent—national advertising has led the recovery. "National can get really big really fast," says Jim Matalone, president of NextMedia Outdoor. "It can make the difference between 3 percentage growth points and 10."

Part of the reason for the comeback in national is consolidation, which has made outdoor much easier to buy. "I can make three phone calls and cover 70 percent of the country," says Miller.

Outdoor advertising has been buoyed by strong demand from the telecommunications business, especially wireless, as it is a natural fit for wireless and cell-phone providers such as Verizon, AT&T, and Nextel. There is also renewed interest from fast food. McDonald's, which continues to be the largest user of outdoor nationally, stepped up its spending in 2003 by buying a poster in every U.S. market to promote salads, dollar menus and griddles. As a result of the spring campaign, the company saw a 12 percent bump in sales.

Another fast-food advertiser, Red Lobster, increased its outdoor investment. "They're looking to get more bang for the buck," says Howard Greiner, president of Buntin Media. "There are a lot of advertisers like that. When the economy is sluggish, you're looking to squeeze efficiencies."

There was also robust growth from automotive, entertainment, computers and office equipment. New categories, such as financial services and pharmaceuticals, also are poised to spend more dollars in the medium. "Part of the reason so many advertisers are discovering or rediscovering outdoor is the realization that people are so mobile," says Freitas. "The average American commutes 54 minutes to and from work."

Also fueling outdoor's growth are cash-strapped municipalities in the nation's largest markets, which have been granting more franchises for street furniture and transit placings. Last year, the city of Los Angeles awarded Viacom and JCDecaux a 20-year street-furniture deal that includes bus shelters and public toilets; JCDecaux also won a similar contract for Chicago. New York is now accepting bids to build out its street-furniture franchise. Airports, which were a $25 million business a decade ago, will bring in more than $200 million, Miller predicts.

The explosion in new types of outdoor advertising has made outdoor a much more targeted medium. Bathrooms, gas stations, baby boards and even bridal shops are potential places for ad placement. Allstate Insurance purchased baby boards and bridal shops with a "these hands" campaign to reach young parents and brides. Mediaedge:cia's Miller developed an outdoor program in skateboard parks to reach young men.

With Arbitron and Nielsen competing to set up an outdoor ratings service, the medium, which currently gets only 2.5 percent of advertising dollars, will soon have a powerful tool for generating revenue and quantifying its reach compared with other media. "The missing link is to be able to compare outdoor with other media," says Matalone. "If we can break it down to specific demographics, that's going to be a big impact for us."