Outdoor media or ‘out-of-home’ (OOH) media refers to advertising material displayed in the public domain. The key market segments are Billboard, Roadside/Street Furniture, Transport (including Airports) and Retail.
Despite the rest of the media market being hammered by the structural headwinds of digital disruption and slowing to 0.5% CAGR, growth in the outdoor media market has accelerated over the last 5 years to a 7.3% CAGR (2010-15).
The ongoing shift in consumer engagement away from print towards digital and online channels has prompted marketing agencies to improve marketing efficiency by appealing towards mass markets and turning towards the unmissable nature of outdoor marketing, which avoids issues such as click-through rates, ad-skipping and ad-blocking. This has fostered OOH’s continual rise in advertising expenditure share, reaching 5.3% in 2015. This is to be contrasted with the decline in commercial television and print media’s share which was recently highlighted by SWM’s and TEN’s disappointing 1H17 results. However, OOH’s market share is still below the 7.5% international average.
Whilst the rest of the market tackles digital disruption, OOH has embraced it with the digital conversion of outdoor media sites proving to be a key driver of the industry and the main reason behind its recent outperformance. In fact, digital revenue now accounts for 40% of industry revenue. This growing reliance on digital revenue can be attributed to the fact that advertisers are willing to pay more (on a per unit time basis) for digital advertising spaces given its clear benefits. These benefits include:
Therefore OOH operators are able to charge a premium for these digitised sites. In fact, according to Credit Suisse estimates, conversion of a static billboard generates an earnings uplift of 3-5 times and offers an EBITDA payback of 18 months. Other benefits for OOH operators include:
Digital conversion to date has largely been focused on the retail, street furniture and transport segments due to their close proximity to point of purchase and lower associated regulatory burden. Furthermore these locations are often sheltered and thus there is low risk of damage/depreciation of digital displays. However operators have begun shifting this conversion process towards marquee large format billboards.
One key trend in the industry has been the increasing industry consolidation, which reflects the industry’s heavy reliance on inventories of physical assets and revenue-securing contracts. This has been evident with the swathe of acquisitions undertaken by industry leaders OML and APO in 2014-16. However this trend has arguably reached its peak following OML and APO’s announcement of a merger last December. With the two commanding 30% of market share each, this would create a $1.6bn outdoor media conglomerate. Given that these two players specialise in different market segments - APO in billboards and OML in retail/place screens - this merged company would be dominant in all market segments. Consequently the market reaction was highly positive. However, with such potential dominance comes regulatory intervention with the ACCC issuing a Statement of Issues on 4th May 2017, indicating concerns that such a transaction would lead to anti-competitiveness and lower rental outcomes for siteowners. Both parties have indicated a willingness to work with ACCC to resolve the matters raised, and have previously argued that the deal should be considered in the context of the wider advertising market rather than the outdoor media industry specifically. However, it does seem that the ACCC has taken the latter view and consequently their respective share prices have taken a tumble since this release. Nonetheless, this is still a preliminary view and a final decision date has been marked for July 6th.
In other news, APN News & Media, the owner of outdoor media competitor Adshel, has recently rebranded to ‘Here, There and Everywhere’ to reflect its updated business model and move away from traditional print media business which it divested a year ago. This could therefore be an effort by management to alert the market to its new business mix, which arguably has not been priced in, with the share price floundering at the $2.50-$3.00 range since November last year.
Given that both OML and APO have decided not to provide earnings guidance given the merger, the outdoor media industry has started 2017 well with OMA reporting a 5.7% YoY increase in the first quarter.