Digital placed-based network (DPN) revenue growth once again outpaced that of the broader U.S. economy and advertising industry in 2011, but sharply decelerated from the 2010 pace, leaving industry stakeholders wondering what the future holds for this emerging medium. While growth accelerated in the first half of 2012, several key challenges facing the DPN industry prior to the Great Recession remain. And with a nebulous economic outlook for 2013, these hurdles will prove tough to clear for DPN operators that don't differentiate their assets, prove value propositions, and establish unique roles in the multimedia ad mix.
Following a 15.3 percent growth acceleration in 2010, DPN revenue expansion decelerated to 7.5 percent in 2011, hindered by negative cyclical trends that affected all ad-based media in the second half of the year, according to PQ Media. Growth in each of the five major venue categories, particularly cinema, slowed in 2011, as the industry generated total revenue of $1.41 billion for the year. Total U.S. DPN revenue increased at a compound annual growth rate (CAGR) of 10.7 percent from 2006 to 2011, driven primarily by double-digit expansion in the corporate & healthcare, entertainment & education, and transit categories.
DPN revenue, however, grew only at a single-digit pace in three of the four years from 2008 through 2011. While the profound recession clearly hampered industry growth in this period, following the lofty double-digit peak of 2007, a deeper dive inside the DPN business reveals a set of challenges that must be overcome for this industry to evolve into a mature growth business.
The 5th edition PQ Media Global Digital Out-of-Home Media Forecast 2012-2016 identified eight major challenges to the growth and health of the U.S. DPN industry, all of which were based on extensive input from PQ Media's Global Opinion Leader Panel (GOLP). This panel, which includes high-level executives at network operators, media agencies, brands and investment firms, came to consensus on the following growth hurdles:
- Lack of Strong Audience Metrics & Research
- Weak Awareness of DPNs Among Agencies & Brands
- Conveying DPN Benefits to Agencies & Brands
- Lack of Scale & Reach
- Industry Fragmentation
- Creatively Integrating Mobile & Social Media
- Facilitating the DPN Planning & Buying Processes
- Developing Stronger Content & Creative
PQ Media's GOLP overwhelmingly agrees that DPN operators should be more focused on the strategic objectives of advertisers, particularly how their networks can help brands engage target consumers in the right mindset at critical times during their daily routines. DPN advertising reaches consumers in attractive venues, such as theaters, professional offices, taxis, airports and big-box retailers, and tends to be less invasive than most conventional media. DPNs also allow advertisers to reach desirable demographics and psychographics in contextually relevant settings where consumers are often more receptive to advertising.
The primary advantage DPNs have over traditional print and broadcast media is their ability to engage target audiences in appropriate locations to seed their next buying decision. The key challenge — and opportunity — going forward will be for DPN operators to effectively differentiate their networks, positively convey end-user benefits and successfully position their assets versus traditional and other emerging media. In order to accomplish these important objectives and gain a meaningful share of brand budgets, DPN operators need to sharpen their pitches and prove their value as part of integrated media solutions.
U.S. DPN Landscape by Venue Category
Cinema DPNs, which account for nearly half of industry revenue, endured a series of negative cyclical events in 2011 that severely hindered growth, following a strong performance in 2010. Cinema revenue increased a mere 1.7 percent in 2011 compared to 12.7 percent the prior year, due to the impact of a record broadcast and cable TV upfront in the second quarter and an unexpected downturn in global economic sentiment in the third quarter, according to PQ Media. Recession fears mounted in the third quarter and, consequently, brands tightened their remaining ad budgets.
Excluding cinema, however, the deceleration in overall industry growth was much less severe in 2011, as combined operator revenue in the other four venue categories — retail, corporate & healthcare, entertainment & education, and transit — increased 13.2 percent to $736 million, according to the PQ Media Global Digital Out-of-Home Media Forecast 2012-2016. Double-digit expansion was fueled by relatively strong growth in the transit and entertainment & education segments, although all four categories decelerated from the 2010 pace due to the aforementioned headwinds.
While cinema's 2011 performance was its worst in the 2006-2011 period, in-theater nets remain the gold standard of the industry as a result of their highly captive audiences, long dwell times, reduced noise level and clear sight lines. As a result, cinema nets command the industry's highest CPMs with an average of $25 in 2011, followed by corporate & healthcare nets ($20), transit ($15), entertainment & education ($8), and retail ($6), according to PQ Media.
Cinema is also the most consolidated segment of the U.S. DPN industry, with only two major operators — National Cinemedia and Screenvision — generating almost 90 percent of all cinema ad revenues. And this consolidation has enabled the major in-theater nets to offer brands the closest thing any venue category has to national scale.
Meanwhile, retail DPN revenues increased 8.4 percent to $242 million in 2011, PQ Media estimates. The retail category, which includes operators like IZON Media and AdSpace, accounts for nearly half of all networks operating in the U.S., but they command the lowest average CPMs. Retail-based DPNs also represented the majority of networks that were consolidated or shuttered over the last five years as a result of major obstacles they need to surmount in order to survive industry consolidation.
Independent retail networks, in particular, face considerable challenges due to intense competition from other advertising and marketing options in these venues. Retail nets are also challenged to create more engaging content and ads, as well as more interactivity and audience metrics, to prove connections and engagement with transient shoppers. Providing compelling content and metrics is essential for retail DPNs because of competition from traditional point-of-purchase displays, product sampling and event marketing. On the upside, retail nets have the advantage of engaging consumers at the point of sale with mobile and social media to extend brand experiences through sales promotions and loyalty programs.
Corporate & healthcare DPN revenue expanded at a brisk 12.5 percent in 2011 to $208 million, according to the PQ Media Global Digital Out-of-Home Media Forecast 2012-2016. Growth in this category, which includes operators such as Captivate Network and Care Media, was driven by specialty medical care centers for men, women, children and pets, as well as doctors' offices, clinics and hospitals geared to specific demographic groups. Like cinema, the healthcare sub-segment benefits from relatively captive audiences and long dwell times, but also highly targeted content at the point of care.
Despite some DPN difficulties in the entertainment & education category, network operators combined to generate strong growth of 17.8 percent in 2011 to $191 million. Leading operators, such as Zoom Media and AMI Entertainment, fueled the segment's growth with investment in acquisitions, new networks and local sales forces to expand their reach in fitness clubs, bars/restaurants, casinos, arenas and college campuses.
Transit DPNs posted the fastest growth of all venue categories in 2011, expanding 19.7 percent to $96 million, PQ Media estimates. Transit nets, including those at airports, on planes, in taxis and at gas stations, continue to attract new advertisers and investors due to their captive, transactional and interactive nature. Taxi and gas-pump DPNs, in particular, are driving the strong growth of the overall transit category, as leading operators like Creative Mobile Technologies and Gas Station TV expanded their nets, launched new services, and forged partnerships to provide brands with the ability to geo-target, day-part, customize product messages and deliver mobile coupons.
Note: This article is the first installment of a two-part series, to be continued in the next issue of the Digital Signage Connection e-newsletter. Part II will discuss industry fragmentation and consolidation and provide a peek at the year ahead.
Patrick Quinn is president of PQ Media and publisher of the Global Digital Out-of-Home Media Forecast Series. Quinn will deliver the "State of the Global Digital Place-based Network Industry" at the 4th Annual Digital Place-based Advertising Summit on February 26 at the Digital Signage Expo in Las Vegas. For more information about the research and insights included in this article, please visit the following hyperlink: PQ Media Global Digital Out-of-Home Media Forecast 2012-2016.