After rates went as high as $100,000 a month for certain prominent outdoor board positions in California, observers say prices have settled back to ordinary levels, creating a buyer's market in high-traffic zones that were nearly impossible to purchase just a year ago.
A steady progression of mergers and consolidations in the outdoor ad industry also is having a sobering effect on billboard companies, which are cutting operating costs and trimming staff.
CATEGORY FALLOFF, BUT DOLLARS UP
Outdoor revenue from Internet-related advertisers fell by more than 35% in the first quarter of 2001 compared with last year, according to Taylor Nelson Sofres' CMR. However, the news is not as bad as it sounds, says Diane Cimine, exec VP-marketing for the Outdoor Advertising Association of America. "Our overall revenues increased nearly 2.5% during the same period [to $1.25 billion], which is better than many other media categories during the current downturn, and now we're more diversified than ever," she says.
Although the dot-coms made a big impact on billboards, Internet-related companies never represented more than 1% of the outdoor industry's total revenue, says Ms. Cimine.
But the dot-com dollars certainly helped soften the blow when the spigot of money from tobacco advertisers was shut off in April 1999 by a federal ban on tobacco billboard ads. In 1998, before the ban took effect, tobacco accounted for 9% of the $2.3 billion spent on outdoor advertising, according to the OAAA.
To hear outdoor ad executives tell it now, losing the tobacco money was the best thing that ever happened to their industry.
"A lot of tobacco companies had locked up prime locations for billboards at lower than market rates because of the volume and deals they had cut," says Bill Hooper, exec VP of Clear Channel Communications' Phoenix-based Eller Media Co., one of the world's two largest outdoor media companies.
The timing was perfect for kissing the tobacco money goodbye; an influx of dot-com money appeared, with many advertisers willing to pay top dollar for the very same prime locations on high-traffic highways such as U.S. 101 in Silicon Valley, where 200,000 motorists crawl through bumper-to-bumper traffic twice a day between San Francisco and San Jose.
Wally Kelly, president-CEO of Viacom's Phoenix-based Infinity Outdoor, billed as the largest outdoor ad company in North America, agrees that the run-up in billboard rates in certain markets, particularly in northern California and the East Coast, helped offset the loss of tobacco ad revenue, but he says "we saw the tobacco ban coming for five years and we were ready."
Now that the dot-com spending boom is over, outdoor has become "a buyer's market" in major cities and a number of national advertisers are moving in to take the place of dot-coms, Mr. Kelly says.
Outdoor ad categories on the rise include telecommunications with a heavy emphasis on wireless services, financial services and package-goods advertisers, says Simone Davis, manager of media buying company Outdoor Services, Seattle.
Kraft Foods, M&M/Mars, Pepsi-Cola Co. and Procter & Gamble Co. are among package-goods marketers ramping up outdoor advertising this year, say outdoor media planners and buyers. Entertainment-particularly mov-ies-plus travel and retail are top categories for the outdoor industry overall, Ms. Cimine says.
And dot-com advertising has not dried up completely. In the first quarter of this year, outdoor spending by dot-coms in the financial services sector increased, according to CMR's recent report. Core technology companies like Oracle continue to rely heavily on billboards in Silicon Valley, say outdoor ad executives.
"We've still got technology and dot-com advertisers on billboards, just not as many as before," says Stan Nygard, a partner with Outdoor Vision, Los Angeles, which handles outdoor media buys for Omnicom Group's Goodby, Silverstein & Partners, San Francisco. E-Trade, one of Goodby's clients, was one of Silicon Valley's heaviest outdoor advertisers in 1999, reportedly paying $155,000 for a three-month spot on a certain high-profile board.
PROJECTED PRICES WERE INFLATED
Mr. Nygard says the eyebrow-raising figures reported for billboard ads at the height of dot-com mania were inflated. Today, at least one billboard for E-Trade lingers in Silicon Valley-at a reasonable rate. Although Mr. Nygard won't disclose his clients' rates, media buyers say a typical billboard costs around $20,000 a month in a high-traffic zone and can go for much lower in multi-location volume deals.
Pouring money into billboards was always a questionable strategy for dot-com advertisers, says Christopher Roe, VP-marketing for Seattle-based Ackerley Group and AK Media, which claims to own 95% of the billboards in Washington, Oregon and Massachusetts, a total of 6,360 boards. "A vast chasm existed between the business models of 99% of the dot-com world and the reality of human purchasing behavior," Mr. Roe says.
Rick Davis, president-CEO of the bid-for-work site Ants.com, says he considered, and rejected, outdoor advertising.
"They wanted something like $60,000 for three locations over a week or two, which was ridiculous. Something that pops so briefly like that doesn't work anyway if it's not part of a larger, integrated media campaign," he says.
Outdoor advertising has always been a cyclical industry, says Infinity's Mr. Kelly.
"We took a much bigger hit in 1991 when the tobacco companies made their own advertising cutbacks," he recalls, "and today we're more diversified than ever. This will go down as the year outdoor advertising stabilized and positioned itself for the future."