The Digital Signage Insider

Making extra channels pay off

Published on: 2008-03-12

Last week, James Bickers from Networld Alliance asked a bunch of us digital signage guys for a hypothetical cost estimate to use in an upcoming article. While I couldn't provide him with a quote in time (sorry James, nasty schedule last week), one feature of his project caught my attention. Specifically, the seven or eight screens in his sample network would be running two different channels of content. It's not unusual to see multiple channels per store these days, and in some formats like grocery and big box, it's quickly becoming the standard practice. But I've never stopped to consider the true cost of adding more channels and the benefits of doing so. Even our most recent study on the cost of digital signage networks focuses on single-channel installations. So, I decided to pull together some of my thoughts on the matter, and start a dialogue among our readers about the benefits of a multi-channel network.

Since most of the technical and logistical challenges surrounding multi-channel digital signage installations have been solved, more people are quoting them, requesting them, or trying to upgrade to them from existing single-channel networks. All too often, though, I get the feeling that such systems are installed without first understanding the additional costs and benefits that they bring to the table.  Let's start with the sample quote for a single-channel network that we've been talking about on this blog for the past few years. With the cost of screens and computers coming down, but labor, insurance and shipping going up, putting a single player and single screen into a venue and running it for three years will probably cost just over $6,000 these days, assuming you're doing 100 or so of them. (That's our recent estimate of $6,750 reduced by about 10%, due to the factors noted above.) Obviously, adding a second screen won't double your cost -- you're already paying for install crews to go to each site, do site surveys, etc.  Between the screen itself and the extra cabling and installation needed, I would guess it might add another 40-50% to your bill, provided that it's showing the same content. (In this case, it's not actually another channel, but simply another display for the same channel.) Upgrading to a true dual-channel setup means beefier hardware and software, and in some cases another media player and network connection. Such an installation can easily add another 70-75% to the original $6,000/site price tag, taking it past the $10,000 mark.  And of course, that doesn't include the cost of creating additional content to fill up a second channel.

With such a significant additional capital investment, you might be wondering whether adding another channel (or several channels) is worth it -- and when you should pull the trigger on the upgrade. The answer, of course, depends on your business model and the purpose of the network. For advertising-driven networks, the benefit of another channel is the increased ad inventory it brings. Instead of being able to sell ten 15-second spots every month, for example, the network owner might be able to sell 20. For a merchandising project, another channel means being able to deliver more targeted content to a specific region of the venue, instead of simply blanketing the entire place with the same clips. Equally important is the question of when a second (or third or fourth) channel should be implemented. Many companies feel the temptation to get it all done at once, citing a (perceived) reduction in logistical hassles, cost savings from having the install teams on site already, and available credit/capital.

My advice is this: if you're already planning to install multiple screens in every venue, regardless of whether you ultimately intend to deploy one or multiple channels, install them in such a way that adding more channels later will be easy. This means cabling each screen so they're individually addressable, making sure there's sufficient power and connectivity to drive two or more channels, and placing screens so that they'll be usable in a multi-channel configuration (or easily movable if they're not). If you're not even considering installing extra screens, think about where you might want to put them in the future, and consider having your crew run the additional power/video/network lines to these locations when they install your initial screens.

There are certainly times when it makes more sense to wait. Consider the true cost of the extra upfront capital expense.  If more channels means that you're no longer qualified for your low-rate loan, or will significantly cut into the working capital you've set aside to run the network for the next few months (at least), it might be better to prove out your model on the single-channel network and deploy upgrades when it's less economically risky to do so.  If there's some economic uncertainty in your future, I'd recommend you only add multiple channels if doing so will shorten the time to positive ROI for your entire network. If you can't come up with a model that fits that trend, it's probably in your best interest to wait until you have more low-cost capital available and fewer short-term risks to worry about.

There are plenty of cases where a multi-channel installation is the best -- and sometimes only -- option available for a particular project. Given the considerable upfront expense and ongoing content creation and maintenance costs associated with more channels though, it's a choice that demands careful consideration and financial evaluation. Once that's done, you'll still be left with a non-trivial challenge: making multiple channels of content complement each other, rather than compete for attention in your venues. That, however, is another blog article entirely :)

In the meantime, I'd like to hear about your experience. How did you decide the right number of channels for your network? Was it an in-house decision, or did your advertisers, venues, and investors ask for a certain approach?


Comments   

0 Abhijit Sheth@ndtv.com 2008-03-15 15:31
Hi Bill, This is the first time we are corresonding after meeting you in Bombay. Very interesting subject of your blog and very timely as we are in the process of setting up multi channel network for a client. The only criterion I belive in setting up a multi channel network is - 1. Clients' need - as derived by you, the expert 2. ROI - in terms of ad dollars. Regards, Abhijit
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0 Bill Gerba 2008-03-17 00:37
Hi Abhijit, Of course you're right - the ROI of the thing is what really counts, and adding channels can definitely improve the **potential** for a bigger payout later on. Critically, though, it shouldn't be done at the expense of keeping sufficient working capital on hand to actually make the network run over the next 6, 9 or 12 months. Considering that so many networks run out of gas before ever getting anywhere near profitable, my advice is always going to err toward the conservative side unless a) there's plenty of money on hand to do the buildout AND run it, and b) the management team can make an effective case for why more is better.
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