On last Friday’s earnings call Lamar Advertising CEO Sean Reilly broke out the economics of a digital billboard conversion. Here’s a review of Reilly’s comments, sponsored and analyzed by SignValue.
When we take down a static unit on average it’s doing about $3000 a month…replace that with digital unit that… costs…a little over $200,000…your revenue lift is give or take 5 or 6 times so you’re you’re going to do something in the neighborhood of of $15,000 a month on that board…It’s been very gratifying for us to see that that those economics have held up…over the decades…From the advertiser’s point of view…they’re paying about $3,000 for the space for a static unit but they then have to…buy the vinyl and amortize that cost over the the length of their contract….When they move over to a a digital unit they’re paying about the same absolute dollars. They’re paying about $3000 for the slot… but they don’t have to pay the production and they can of course change their copy… from their desktop at will and that flexibility is why they’re willing to share space with other advertisers. So their absolute dollars in terms of the cost of the space stays about the same. Their cost per thousand impressions goes up.
SignValue has prepared a consvervative economic analysis of Lamar’s return on capital on the conversion. The analysis assumes lease costs are 20% of revenue and sales commissions are 20% of revenue. This is conservative because Lamar tries to fix lease costs before it converts a static sign to digital. In addition, Lamar’s sales commissions run about 7%. The analysis assumes $250/month in electricity for the digital plus $75/month in software and monitoring costs. A static to digital billboard conversion has a 43% return on capital.
| Item | Static | Digital | Increase |
| Annual Revenue | $36,000 | $180,000 | $144,000 |
| Sales Commissions | $(7,200) | $(36,000) | $(28,800) |
| Lease Costs | $(7,200) | $(36,000) | $(28,800) |
| Utilities | $(600) | $(3,000) | $(2,400) |
| Software/Mngt | $0 | $(900) | $(900) |
| Cashflow | $21,000 | $104,100 | $83,100 |
| Capital Required | $200,000 | ||
| Return on Capital | 42% |
SignValue can be reached at (480) 657-8400 or info@signvalue.com for a confidential consultation.
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Good analysis on the revenue multiple as it reflects what I have found in strong markets with good demand for both static and digital and the market demand is in balance and no over or under supply of both types of billboard. The 5-6 multiplier may be different when demand for either forms of billboard are not similar…ie; small markets may have a preponderance of local advertisers that call a board “their own”. Digital tends to be more like spot ads.
Ronald Borree
Ronald Borree Consultant, LLC