Note: This article is the second installment of a two-part series, continued from the previous issue of the Digital Signage Connection e-newsletter. Part I, which discussed digital placed-based network revenue growth, can be found here.
Shakeout: Industry Fragmentation & Consolidation
PQ Media identified 217 U.S. DPN operators running 499 ad-based networks in all five venue categories in the first quarter of 2012. More than 1.5 million digital video screens were installed in these venues. Compared with prior years, these data suggest the DPN industry is consolidating, albeit relatively slowly and network operators are gradually expanding their footprints in an effort to offer advertisers better scale.
Nevertheless, PQ Media’s research indicates further consolidation is expected and needed to defragment the DPN landscape into a smaller group of stronger operators providing better scale, metrics, content and value propositions for incorporating DPNs into multimedia campaigns. As a result, the industry’s shakeout and consolidation period will continue in the midterm, as leading operators strategize to develop stronger, more efficient networks around target audiences in order to capitalize on the unique advertising opportunities afforded by out-of-home venues.
Despite dozens of mergers, acquisitions and bankruptcies from 2006 to 2011, PQ Media estimates the top 10 DPN operators still accounted for only 62 percent of total U.S. revenue in 2011. In a mature growth business, it’s typical for the largest three to five companies to comprise 90 percent or more of total industry revenue. In addition, PQ Media estimates 84 percent of the 217 U.S. DPN operators generated less than $10 million in annual revenue and 58 percent produced under $1 million in 2011.
PQ Media’s research indicates the DPN industry was in the first of four key phases of successful emerging media — the gold rush — from 1998 through 2007, a year in which total revenue grew 25.2 percent to $1.06 billion. In the second half of 2008, however, the Great Recession began to negatively impact the broader U.S. economy, overall ad-based media and DPN operator growth, which decelerated in 2008 and 2009 as the industry moved into the second phase of emerging media evolution — shakeout and consolidation, a phenomenon that accelerated through the first half of 2012.
While leading DPN operators in major venue categories moved to shore up their core market positions and expand into new venues in 2011 and 2012, some high-profile industry operators were among those that were shuttered, reorganized or acquired, a vital component of the shakeout and consolidation phase of new media. Perhaps the most telltale trend in 2011 was the fate of ad network aggregators SeeSaw and AdCentricity, whose assets were acquired in April 2012 and folded into a location-based mobile ad platform. PQ Media’s GOLP was clear in its consensus that the DPN industry was not quite ready for this type of aggregator model, due to leading operators managing their own sales forces and client relationships, as well as the lack of remnant inventory.
The lack of broad scale and reach among most DPNs has been another important obstacle to growth. Cinema net operators are unique compared with other major venue groups, due to their consolidated landscape, control of venues, and ability to provide captive, measurable and coveted audiences through relatively broad national networks. Cinema DPN operators also worked closely with major brands over the past decade to extend and activate other media as part of integrated brand campaigns. As a result, in-theater advertising grew every year from 2000 through 2011.
Meanwhile, leading operators in other categories that don’t have cinema’s advantages have been expanding and acquiring complementary networks, local sales forces and new technologies in an effort to develop broader footprints. For example, Zoom has expanded its fitness nets significantly in the U.S., Canada and Europe, while RMG has built out its in-airport and in-flight nets, and Gas Station TV added 50 new markets in 2012.
U.S. DPNs on Pace for Double-Digit Growth Again in 2012
Economic and advertising indicators were encouraging in the first half of 2012, although PQ Media expects a relatively slow and choppy economic recovery through 2013. Meanwhile, PQ Media’s 6th edition Forecast (to be published later this year) will reveal whether record increases in political and Olympics ad spend in 2012 squeezed TV inventory enough to crowd out brands in the second half and lead them to consider investments in alternative video platforms. The flip side is how this trend contributed to another strong TV upfront, which may have strained second-half ad budgets again.
Based on first-half pacing and projected second-half trends, PQ Media in mid-2012 expected U.S. DPN operator revenues to increase at an accelerated 10.5 percent in 2012, driven by the transit, entertainment, education and health care categories. Taxi, gas station, fitness and point-of-care networks, in particular, are expected to be leaders going forward due to their transactional, interactive, demographic and dwell-time profiles.
In 2013, DPN operators need to concentrate their resources on stronger metrics, industry consolidation, greater network scale and selling their value as part of integrated media solutions. In this increasingly competitive media landscape, it is imperative for network operators to prove their value to agencies and advertisers, improve the efficiency of media buys and position DPNs as a valuable complement to other media. As more advertisers explore alternative media options, DPNs need to do a better job of pitching their key advantages of targeted environments, longer dwell times and contextually relevant content.
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 at Digital Signage Expo on Feb. 26 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.