The Digital Signage Insider

After attending the Strategy Institute's Digital Signage Investor Conference, two observations stuck out in my mind. First, there is a lot of M&A activity going on right now, both inside and outside of our sector. Second, most of the perceived value of these acquisitions still lies in the pursuit of scale, not synergy. The drive towards scale makes sense from an investor's standpoint: synergy has gotten a bad rap lately, and many companies sitting on piles of cash probably like knowing that they're simply buying more of something that they already have and understand, rather than creating a "new" value that wasn't there before. But the pursuit of scale got me thinking... particularly during RMG (formerly Danoo) chief Garry McGuire's keynote on the first day of the conference. RMG has its sights set on becoming the biggest and most integrated DOOH network in the United States, and has the clout to do it. But what does this mean for small niche networks, DOOH ad sales brokers, network aggregators, and even us software guys? My crystal ball is fuzzy, but we should all start thinking about some of the possible outcomes.

In my best Sean Connery voice... "There can be only one"

Opposing forces battling it out in dazzling displays. Would-be enemies forming alliances to fight off stronger foes. Winners absorbing the power and might of the losers. It could be a plot of the 1986 sci-fi/action classic The Highlander. Or it could be the state of M&A activity in the DOOH space -- metaphorically, at least. To date, companies like Zoom and RMG have gained scale by purchasing smaller network operators (or just their assets) and adding them together, or by forming sales alliances that allow them to sell onto a much larger number of screens than they own themselves. These practices make DOOH more attractive to advertisers who are accustomed to purchasing both reach and frequency in very large numbers. Of course, the flip side is that by using this approach, it's difficult or impossible to value the clientèle of one venue (or type of venues) over another.

Let's say GlaxoSmithKline's agency wants to put up a DOOH ad for their latest wonder drug. They can either deal with the few large networks that can yield big reach and low CPMs (but for somewhat untargeted audiences), or else they can buy more expensive time in much more targeted venues like doctors' offices and pharmacies (but have to deal with a larger number of small network owners). Neither is ideal from the advertiser's perspective. Certainly, even the big guys (who aren't that big in the grand scheme of things) would cut deals to sell time on the more targeted screens for a higher CPM, but at some point that starts to undermine their value proposition.

The solution, of course, is for there to be only one national (or even global) DOOH network, right? One company operating all of the screens, collecting all of the money and placing all of the ads can maintain the value of scale for those brands who need massive reach. If an advertiser with more specific customer requirements wants to buy time on only a subset of screens in more targeted venues, they can simply choose their screens, pay whatever higher rate the company dictates, and otherwise know that everything else from content ingest to reporting will work the same.

While such a prospect might pique the interest of some advertisers and media planners looking for an easier way to do business, I think most would see the glaring number of problems this kind of ecosystem would create. First and foremost, a single mega-sized DOOH network would have no competition in its space, and could set prices accordingly. This isn't a big deal now, when many networks are just about giving away space because it's so hard to sign up advertisers. With increased scale, however, comes increased spending (or so the theory goes), so this would eventually become a problem.

At this point, I know what you're thinking. Isn't this really a job for the network aggregators like SeeSaw, who can help buyers purchase time across a whole range of disparate networks? Yes, that is their function today. And I don't think anybody would dispute that their existence has brought more advertising money into our space. However, how would somebody like SeeSaw compete if suddenly 25% of the available screen real estate in the US belonged to a single network operator? What about 50%? This mega-net would neither need SeeSaw to get visibility with major advertisers, nor want to share any of their revenues with them.

Who will become the Clear Channel of DOOH?

The DOOH-side of our industry is starting to remind me of the radio industry before Clear Channel came to town. Many small operators across the country were serving their local niches and areas, sometimes making a tidy profit, and sometimes going under due to poor management or unforeseen risks. As Clear Channel bought up station after station, they were able to streamline operations, cut costs and increase profitability by making radio easier and more valuable for advertisers to buy (arguments about the decreased quality of radio programming notwithstanding). Today, there are still plenty of independent radio stations, and there are a few other, smaller conglomerates, but Clear Channel is the 800 pound gorilla of their industry. The same thing will happen to us.

And before you rejoice, think about what that means. Mega networks, even if there are several of them, will have preferred vendors who will consequently control the lion's share of the hardware, software and services purchases -- in the digital out-of-home advertising market, anyway. Content producers may start to see their creativity curtailed as they have to work inside the mega network's box -- or perhaps even with the mega network's own agency. And of course, small niche networks that prefer not to sell will face an uphill battle as mega networks apply pricing pressure with the goal of making business so unprofitable that it'd be better to simply sell out.

Those last few points rang true for me as RMG's McGuire finished up his speech, saying that he expected 25% of networks to merge or be acquired in the next year or two. He would very much like that to become a self-fulfilling prophecy, since his company will be on the buying end for some time to come. In short, if you're not prepared, what's good for RMG (or any other mega-network in waiting) -- and what may in fact be good for the DOOH industry -- may not be so good for you.

Are you worried about the consolidation of today's smaller DOOH advertising networks into a few mega-networks? Or, does a bigger pie mean there's more slices to go around? Leave a comment and let us know.

Nonsense FTC disclaimer: I don't work for the Strategy Institute and they're not paying me for this post, but I did attend the Digital Signage Investor Conference at the Strategy Institute's invitation.