One in five Billboard Insider readers converted a static billboard to digital during the past year and one in four Billboard Insider readers expect to convert a static billboard to digital in the next year.  Here are some tips on how to create value by converting a static billboard to digital.

Build your statics to convert to digital.

Last year Billboard Insider asked Productivity Fabricators Jon Odom what trends he is seeing in construction and he said: “Almost all the new structures we design and build are digital ready.  They are built to accept digital units in the future, if not when built.”

Great economics

SignValue’s Paul Wright has prepared a conservative analysis of a typical 14 by 48 digital billboard conversion.  The analysis assumes a 4 times revenue lift from the digital, a $200,000 capital cost, 20% lease costs, 9% sales costs and $1,000/month utilities.  The conversion generates a 32% return on capital.

OUTFRONT is on record at wanting a 20% minimum hurdle rate on new digital conversions.

And digital billboard’s aren’t just for big markets.  Billboard Insider prepared this analysis of a small market 10′ by 30′  digital billboard conversion which achieved a 24% return on capital.   The economics of the conversion were help by the fact that the lease was not a percent of gross.

Think Carefully About Revenue

DDI Media SVP Real Estate Tony Mariani says make sure you are confident of your revenue forecast: “I hope this message finds you well!  One thing I would add to this article is digital conversions to increase revenue.  Whenever we buy assets, the opportunity for digital conversion is an area we focus on throughout the due diligence process.  It may take 3+ years to convert an asset, but it is very worthwhile if you are successful.”

How to avoid mistakes

Lamar’s Bill Ripp installed 2,500 digital billboards during his career.  Here’s what he told Billboard Insider about why digital billboards fail.

• The number one reason we need to reposition digitals is a mistaken belief that if one digital face is good, two will be better. There’s a tendency to want to put two digital faces on every structure.   Oftentimes it’s hard to get the permit.  Financially sometimes negotiations are tough.  Yet not every location justifies two digital faces.  In a large market, left hand reads can be harder to sell.  For local sales, a digital sign performs better with traffic moving in the direction advertiser’s want.  For example, if advertiser’s prefer inbound traffic, outbound traffic will be a harder sell.
• Another reason is unanticipated road modifications.  Road projects take years and a fraction of the traffic goes by the board.  This creates underperformance.  A digital billboard is a perishable inventory.  It won’t last forever.  A major infrastructure spending initiative by the federal government could impact digital billboards by impacting traffic.
• Development.  Someone builds a building in front of a digital billboard.  The billboard’s performance suffers because it is blocked.  You need to carefully review development risks when you are evaluating a new digital billboard.
• Competition.  First-to-market digitals do very well but will inevitably attract competition which can impact the market. Three digital billboards within a mile can be a problem.  Often, It’s the middle board which suffers.  If its three boards in 5 miles you’re probably OK.

What have you learned about digital billboard development?  Email davewestburg@billboardinsider.com and we’ll run a followup article.

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