Family offices and investors often ask Billboard Insider to identify the strengths and risks of the out of home business.  We tell them that the industry has the best returns for the least risk of any industry that we’ve been involved with.  Here are the four industry strengths and the five industry risks we talk about.

Out of Home Strengths

• Barriers to entry.  It’s hard to get new billboard permits.  Leases can be difficult to write as well.  This limits the number of competitors.
• Simple business model with high margins.  The out of home business generates 40-60% cashflow margins.  Out of home is a simple business: one part real estate, one part sales with a dash of creative.
• Technology creates upside.  Tech has hurt most legacy media companies by diverting ad spending and attention from newspapers, radio, TV and magazines to websites, social media and online ads.  Tech helps out of home grow by converting static faces to digital faces.  Some people are concerned by the tech threat posed by autonomous cars but we think ( and the market thinks) that this risk is exxagerated.
• Attention exclusivity.  Billboard codes usually limit the setback between signs to 500-1,500 feet.  A billboard in a physical location has a monopoly on the consumer’s attention.

Out of Home Risks

• Cyclicality.  Advertising spend fluctuates with business cycles.  Spending drops fast during a recession and recovers slowly.
• Regulations.  State and local initiatives like permit moratoriums and amortization can impact growth.  Taxes and permit fees can impact the cost of doing business.  Ad content restrictions can reduce revenue.
• Weather.  Wind can damage billboard structures.  Lightning, hail and fire can damage digital billboards.
• Debt.  Too much debt can leave a company exposed to interest rate risk or to a default if revenues decline in a recession.
• Lease renewals. Leases are subject to renewal risk.  A new landlord may not like billboards or may have unrealistic expectations are to rent.  If a lease has a development clause a sign might have to be taken down when a property is being developed.

What do you think is the biggest strength and the biggest risk in the out of home business.  Take our poll below or email davewestburg@billboardinsider.com

We will write a series of columns in which we discuss each of these strengths and weaknesses.

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