The Digital Signage Insider

Want to Hedge Your Media Buys? Try Digital Signage Advertising

We're in the middle of our busy season right now, so this week's post is going to be short and sweet -- and nearly as speculative as the returns on a government bailout plan. I was looking at some of the recent forecasts for advertising spending in the US and came upon an interesting question: Can ad buys on digital signage networks work as a hedge against purchases of TV, newspaper and magazine ads -- similar to how stock options can be used to hedge against falling share prices?

To answer this question, let's start with some market data. PQ Media estimates the total size of the US digital out-of-home (DOOH) market at $1.3B, but only about $330M of that represents advertising revenue, with the rest going to capital and maintenance costs. To put that in perspective, the total US advertising market is about $120B, which means that less than 0.3% of ad dollars go to digital signage right now. By comparison, the TV advertising market that Google is chasing does about $77.5B, accounting for about 65% of the total. Thus, the TV market (including the broadcast, cable, local and Hispanic segments) is more than 200 times the size of the digital signage market.

Most TV advertising generates a net loss for the advertiser

Now for the really speculative part. Research suggests that CPG companies are only paid back $0.49 for every $1 spent on TV advertising. Non-CPG advertisers do almost twice as well, but still "break the buck," earning only $0.81 for each $1 spent. So if we put TV advertising in its own little box, disconnected from other parts of a brand campaign, it's a losing proposition. In other words, TV is only profitable when working in conjunction with other media to influence the viewer.

As far as I'm aware, there is no similar statistic indicating the relative "payback" for advertising on digital signage projects. My own gut feeling is that it's slightly positive, perhaps yielding an average return of $1.07 or $1.08 for each $1 spent. There's also huge variety, with some ads producing $3-$4 in value for each $1 spent, while others show much poorer performance. But unlike relatively staid and standard 30-second spots for TV, advertisers have their choice of formats and venues when it comes to digital signs, making any kind of like-like comparison very difficult. Further, TV advertisers have had a long time to hone their craft, so it's unlikely there will be a dramatic improvement in performance anytime soon. In comparison, the ongoing refinement of digital signage design techniques continues to produce better ad performance.

Digital signage ads provide a better return than TV

So what does it all mean? Simply put, if we assume that my estimate above isn't wildly off the mark (and it might be), then for every dollar that comes out of TV advertising and gets put into digital signage advertising, a CPG advertiser would "recover" the entire $0.51 loss and then generate a small profit on the original amount spent. (This is based on an average return of $1.08 for digital signage versus $0.49 with TV, each on a per-dollar basis.) For an advertiser that spends $10M a year on TV, simply moving 10% of that into digital signs would be like reducing their ad budget by $590,000 without sacrificing performance. In fact, there would probably be a performance boost, since their skills with designing and deploying ads for digital out-of-home environments would improve with experience. If we extend this trend to the advertising industry as a whole, moving 10% of TV ad spend into digital signage would save $4.5B per year, with no loss of performance and lots of upside potential.

What's stopping this from happening? For starters, the pivotal number in my argument is made up. I don't know for sure that there's a net positive return on most digital signage advertising -- I just think there is based on my own experience. Likewise, the amount lost or returned for TV commercials is a subject of much debate, so we can't count on it either. But I'm confident that dollar for dollar, a well-designed spot running on a well-placed digital sign should outperform a similar TV commercial by a wide margin. While I doubt there's any consensus from the industry at large, I'd like to know your thoughts on the matter:

All else equal, will a spot on a digital signage network "do" more than a spot running on TV? And where does the bulk of an in-store ad's value come from: "hard" sources like sales lift, or "soft" sources like brand recognition?


Comments   

0 mary anne fleisher 2008-10-14 11:18
speaking from a completely different level of digital signage (cpg's verses local advertising) the economy today has set our revenue back a bit. But it has really set back revenue for radio, tv and newspaper. For the first time in history radio revenue is going backward. Layoffs are huge and their big ego's are shrinking. We are doing a great job taking a share and as you pointed out even a 10% share can be big even with local advertising. Its a hard way to go the revenue generating digital signage, but testing the results is very exciting. The best thing going for us is 80% retention.
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0 Bill Gerba 2008-10-14 15:03
Hi Mary Anne, Thanks for the info. I'm not surprised to hear that your clients have been cutting their ad budgets, but rest assured it's across-the-board and not exclusive to digital signage, in-store media, or alternative media (not that that should make you feel any better :) I agree, 80% retention is excellent, and surely that should help you to build strong, long-term relationships with your advertisers. I also **do** believe that more companies will experiment with digital media, which is relatively cheap compared to above-the-line media buys, and has consistently shown better returns in the past few years. Good luck!
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0 Gaurang Shah 2009-02-22 09:10
hi bill tks for your post. while we all talk of declining ad revenues across the board, and propose moving budgets from traditional to newer media for better efficiencies, i have yet to find few really good case studies that we can show our advertisers the merits of our medium/industry. You mentioned that from your own experience you think the return is 7-8% with sometimes even 300-400% - could you provide some details on these cases? for e.g. we've done work in India where we worked with advertisers to double the traffic to their website in 2 weeks what they could not achieve in 2 months. Would be great to get your thoughts! best, Gaurang
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0 Bill Gerba 2009-03-02 21:54
Hi Gaurang, Part of our problem is that ad performance is very inconsistent, partly because the networks themselves are inconsistent, and partly because much of the content being produced today is still pretty bad (TV advertisers have had 50 years to perfect their skills. We haven't ... yet.) The 400% example I cited was from a client of ours - Bass Pro Shops, which are a chain of sporting goods stores that are about 200,000 sq.ft. (VERY big), and have very loyal shoppers. This particular case was for a type of fishing line, which was on the shelf with approximately 30 other similarly-packaged types of fishing line. When advertised on the in-store network, sales of the product jumped 400% versus other brands of fishing line, none of which were advertised. The ad ran in 22 stores, and was not featured in another 25, yielding a statistically significant result. Was it typical? No, of course not. Most ads in that chain had nowhere near that kind of impact. But it does show what's possible.
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0 Mel L. 2009-05-11 19:31
Hi Bill. Quick question- If $1.3B represents total market of US DOOH and only $330M of that represents advertising revenue- and I assume (based on industry news) as of 2008, there were approximately 837K total screens in the US- approximately 43% (or 359,910) of them ad supported, that means each of these ad supported screens only accounts for $917.00 per screen? Am I missing something? I would think DS ad revenue would be much higher. Any insight? Thanks for the blog- best spot for DS education by far!
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0 Bill Gerba 2009-05-12 14:09
Hi Mel, I certainly can't vouch for everyone's network, but my feeling -- based on anecdotal evidence as well as a spot-check of some networks I'm close to -- is that this isn't too far off the mark. We've done a number of models based on impressions, CPM and the like, and found that the average screen on a "good" network can draw in somewhere between $110 and $150/month, which puts it above your $917, but not by a huge amount. Especially when you consider that there are still a lot more "bad" networks with poor sales characteristics that make up for the "good" ones. Prices will start trending up soon, though. There's an over-supply of inventory, and under-demand (fueled by difficulty buying, lack of agency awareness, etc.). That's already starting to change, so I'd expect that $917 to double to an industry average closer to the $1800 that a "good" network can achieve today in the next 3-5 years.
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0 Viv 2009-08-19 21:26
Hi Bill, Isn't $110-$150/month number for one ad per screen. Assuming that a reasonable sized network would attract 5-8 ads per month, the annual advertising revenue per screen would be much higher than the $917 number that Mel L refers to. May be I am missing something here. I am new to the industry and still figuring out the financial aspect of it.
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0 Bill Gerba 2009-08-21 14:00
Hi Viv, Am I doing my math wrong? Say an average of 8 paid spots per screen, at our ideal rate of $130/month, halfway between the $110 and $150 I mentioned. That would turn into: $130 * 8 = $1,040/month. ( (1040-917)/917 ) * 100 = 13.4% 13.4% isn't huge in my mind. Especially when you consider that at the lower end of our estimate range 8 * 110 = 880, which is of course 4% below the $917 mark.
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0 Douglas DeRosa 2010-04-04 01:46
Hi Bill, In my area of NY and the demograghics I have found a sharp difference from radio, TV, billboard, phonebooks, and newspaper ads to Website SEO and google ads. The cost to properly SEO your own site (with a little education) along with properly targeted google ads have produced results in impression and phone calls to the level you describe above. I believe the world is moving to a move digital information based way of life. We are doing to try digital ads in area locations this month. We are anticipating great results if only to increase our name recognition. Do you see this type of marketing getting as costly as to older versions as time progesses? Thanks for yur great insites!
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