5 Things to Consider Before You Go Digital

By Bob Klausmeier

In the summer of 2013, I embarked on a new venture, a ground-up new billboard company comprised entirely of digital billboards.  As of this writing, the new venture has built and installed eighteen digital billboard faces on nine, well-placed structures in southern Michigan.

The company is thriving and growing.

In the decade prior, I had served the out of home industry as a supplier of digital technology, selling more than 1,000 digital billboards to the outdoor community.  I worked closely with the early adopters as they developed new digital marketing concepts.

As advertisers began to embrace the versatility of the medium, I was like a carrier pigeon ferrying queries from outdoor operators, forwarded from their clients to the engineering staff of my company.  Most inquiries started with, “Can you make it do…”  In most cases, the answer was “yes.”  And so the operating software and control functions of the new media grew organically, with ad agencies driving the capabilities of the new medium.

With that in my rear view mirror, I was confident in our budding new venture.  Partnered with one of the best lease guys in the business, my role was to manage the sales process and the inventory.  I had sold ads in multiple media formats and felt that I knew the landscape.

But there are always things you don’t know, that you can only learn through experience.  And so I began my task of learning the ropes, selling space on an emerging new medium in competition with large and experienced operators.  This is a taste of some of the real world practicalities I faced when entering the digital marketplace.

Things to consider:

THE REAL ESTATE EQUATION

Whether it be a land lease or a permanent easement, the valuation is traditionally tailored around a percentage of anticipated revenue.  Last week’s  Billboard Insider featured comments from Sean Reilly of Lamar in which he commented on the percentage of a lease: static v. digital.  Mr. Reilly noted 20% of revenue as the benchmark for a static billboard, but only 10% for digital.  This is a critical consideration as your real estate transaction directly impacts your profitability for decades into the future.  Contracting with a property owner for a digital location based on 20% of revenue can place you in a hole before you sell the first ad.  If your lease agreement has a cost-of-living escalator, your problem is compounded.

OCCUPANCY

Note:  Never base financial calculations on 100% occupancy.  It never happens on a digital with multiple advertising clients.

Static billboards ads generally run for a longer duration than digital ads.  In most cases, the billboard operator has a good feel for what will happen with that space once the ad is completed.  But with digital, there are at least six advertising spaces facing each audience, each with its’ own schedule and creative package.  Rarely do two ad campaigns end simultaneously.  Consequently, the operator faces a continual challenge, matching disparate end dates with new advertisers.  Adding to the complexity are the number of very short-term ads, wrapped around special events.  Once the event is over, it is hard to replace the high-paying event ads with new, without leaving gaps in the schedule.

Even for the most sought-after billboard space, 100% occupancy is unrealistic.  Best to base your calculations on 70%, with everything over as bonus money.

SELLING TIME

Because the digital ad space is frequently sold in short term increments, the sales process is never-ending.  Your sales folks will be replacing ads on each digital every month, if not every week.  Not something to be intimidated by, as long as your team is prepared.

OPERATIONAL EXPENSES 

With static advertising, once an ad is posted, there is a significant time lag before the next engagement on behalf of that advertiser.  With digital, most advertisers change messages frequently, creating a continual dialogue between the client and the operator.  If the client develops its’ own creative, then you still have to schedule it.  But, if you are creating or modifying creative for the client, the time must be budgeted for your creative team as well as the sign programmer.

THE COMPETITIVE MARKETPLACE

Never under-estimate the power of the larger, out of home companies.  Lamar, Clear Channel, Outfront, Adams and YESCO now have a long history of operating digital billboard media.  Those folks approach ad sales, creative and scheduling from a team approach that cannot be replicated by a small operator.   Likewise, in the markets where each is prevalent, there is a likelihood that the larger competitor has an extensive inventory.

If you are to develop new locations in competition with larger players, you need to have a firm understanding of how to sell the medium, as well as the business types most likely to be candidates for your new placement.   Don’t expect to lure national brands or major advertisers to your location, just because it is superior.  The major advertisers like to buy from the big guys, if for no other reason than familiarity and confidence in performance.

OK, SO SHOULD I BUY A DIGITAL?

If the location is good, with high traffic and clear visibility you should strongly consider it.  If there is little competition for the eyes in your audience and there is a path to permitting, then by all means.

But, the key to success is to set realistic expectations based on achievable sales goals.  Know your market, your competitors and the advertisers you intend to target.  Do not expect immediate sales success.  Plan on less than 50% occupancy for the first six months.

For more practical considerations regarding digital billboard placement and ad sales, call me.  I would be pleased to share my knowledge and experience.

Bob Klausmeier operates a consultancy oriented around the emerging digital out of home media.  He is available to share his experience and expertise in digital outdoor with advertisers focused on out of home media and operators interested in developing a new digital outdoor platform.  You can reach Bob at bob@klausmeierassociates.com or 317-690-6760


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