Billboard Industry's Future Is Bright: Demand for Digital Displays Will Aid Growth

April 19, 2013

IBISWorld has updated its "Billboard and Sign Manufacturing in the U.S." industry market research report.

The future looks bright for the billboard and sign manufacturing industry as consumer spending and confidence improve. As a result, advertising budgets and the corporate profit that drives them have already started to recover, and outdoor advertising expenditure has started to rise, according to an updated research report from IBISWorld titled "Billboard and Sign Manufacturing in the U.S."

The report further states that manufacturing revenue will continue to grow as clients dedicate an increased amount of corporate profit toward advertising, corporate rebranding and new signage. Additionally, advertisers will continue demanding more digital billboards and digital displays. Moreover, new technologies, such as high-definition video displays and the use of LEDs, will provide manufacturers with more engaging and targeted methods of conveying advertisements.

Nonetheless, there are signs that the industry may be entering the mature stage of its life cycle, according to the report. Industry value-added (IVA), which measures the industry's contribution to the overall economy, is forecast to increase at an annualized rate of 0.5 percent during the 10 years to 2018. Gross domestic product (GDP) is expected to rise at an average annual rate of 2.1 percent during the same period. An IVA growth below GDP growth is characteristic of a mature or declining industry, the report concludes.

Editor's Note: The industry description accompanying this report indicates that it focuses on the manufacturing side of the older outdoor advertising market as opposed to the new and emerging digital signage and digital place-based markets: "This industry manufactures billboards, scoreboards, retail store signage and transit station advertising displays. Products may include non-electric signs, digital billboards, video screens and neon signs. The industry does not include outdoor kiosks, phone booth advertising, bus or taxi advertising and other street furniture. It also does not include any advertising or displays made from printing paper or paperboard."

Recessionary Challenges
Despite the positive outlook, the past few years have not been kind to the billboard and sign manufacturing industry, according to the report. In 2008 and 2009, billboard and outdoor display advertisers curtailed spending on the industry's services as total advertising expenditures dried up amid falling corporate profit. Other customers, including fast food restaurants and retail stores, also spent less on displays and signage as revenue fell.

"In the five years to 2013, industry revenue declined at an average of 1.4 percent annually to $12.6 billion," said Austen Sherman, industry analyst for Santa Monica, Calif.-based research firm IBISWorld.

Industry revenue peaked prior to the recession at $14.1 billion and then swiftly declined from 2008 to 2010, including a 10.4 percent dip in 2009.
"The declines largely occurred when the industry's key buying industries dramatically slowed purchases," Sherman said.

As demand slowed and profit fell, operators in the billboard and sign manufacturing industry cut costs aggressively, and some firms even closed their doors. IBISWorld estimates that several hundred billboard and sign manufacturers closed in 2009 alone. In the five years to 2013, the number of firms operating in the industry declined at an annualized rate of 1.6 percent to 5,765. Surviving companies adapted to the difficult times by slashing head counts, aggressively managing input costs, lowering prices or offering more high-margin digital products. As a result, industry profit margin fell during the past five years.

Digital Propels Growth
According to IBISWorld, market share concentration in this industry is low, with the four largest firms* estimated to generate less than 7.0 percent of industry revenue in 2013. These firms include Young Electric Sign Co. (Yesco), Brady Corp., Clear Channel Outdoor Holdings and Lamar Advertising Co.Most work in this industry is labor intensive, which prevents companies from realizing significant savings from consolidating multiple manufacturing locations into one large location and instead contributes to keeping employee head count low at most companies. This reflects the employee cuts that companies made during the recession.

However, a few companies, like Daktronics Inc., operate in highly specialized product niches, such as digital scoreboards, that offer a national customer base and lend themselves to large-scale manufacturing operations. Unlike local operators, these companies have the financial resources necessary to support a national presence because these specialized products can cost well over $10 million.

Revenue will continue to grow as clients dedicate an increased amount of corporate profit toward advertising, corporate rebranding and new signage. This increase in total marketing expenditure is expected to cause industry revenue to increase. Additionally, advertisers will continue demanding more digital billboards and digital displays, a trend that began in the early 2000s and offers higher margins. Companies with robust digital product offerings will lead the industry's recovery as buyers remain entranced by the clarity of digital products and their ability to target specific demographics.

*Digital Signage Connection contacted IBISWorld regarding the inclusion of Brady Corp., Clear Channel Outdoor Holdings and Lamar Advertising  among the top four "manufacturing" firms in this report, and an IBISWorld spokesperson responded with the following explanations:

  • The NAICS/Census definition includes items as general as "signs and signboards.” The analyst tries to include companies that fall in-line with what are sometimes imperfect definitions. In addition, while we work to distinguish the “four largest companies” in certain industries, the availability of financial information in regards to private companies can make it difficult. As a result, Brady has been included because of its production of workplace signs and the availability of its public information. Furthermore, while searching within the NAICS system, the analyst was unable to find any industry that Brady may be a better fit.
  • As the report indicates, neither company (Clear Channel and Lamar) produces its own billboards and as a result have a market share classified as N/A. These companies are the largest purchasers of billboards and are included because of their importance to industry performance. They purchase/lease the land and billboards to erect and then sell the space to companies and advertisers.

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