The Digital Signage Insider

Would Consolidation in the DOOH Industry Drive More Business?

Published on: 2010-05-06

Last week's article on Digital Signage Mergers, Acquisitions and Bankruptcies generated a lot of commentary, some of which either corrected or clarified the observations I made in the post. Richard Lebovitz from Digital Signage Expo also yielded further insights on the quantity and quality of business in the industry, as he passed along this quarter's DSE Business Barometer report. Our analysis last week, the subsequent reader commentary, and DSE's quarterly report agree on some things, but show stark differences in opinion when it comes to others.

In defense of "Bankrupt"

After publishing last week's article I took some flak for simply writing that a company "goes bankrupt" or "went bankrupt", instead of explaining the type of bankruptcy, primary cause, and current status of each company in that category. For example, as Matthias at 42 Media noted in a comment, they're still conducting business. So is Muzak, as Digital Signage Universe's Lionel Tepper noted. But the number of companies "going bankrupt" is an important thing to track, regardless of whether that means liquidating assets or filing for creditor protection. That's because -- aside from a tiny minority of cases where it's actually a valid strategic option -- bankruptcy is more or less an action of last resort. So while one company going bankrupt in a small industry might indicate troubles inside the company, lots of companies taking similar action points to serious health issues with the industry as a whole. And again, as a number of commenters pointed out, my list was extremely non-exhaustive. There were easily another 100 or more small network failures in the past 18 months that were too small for me to uncover.

Image credit: whatleydude
Once again, "going bankrupt" does not necessarily mean "going out of business forever." But it almost certainly does mean "taking evasive maneuvers because of extreme financial hardship," and that's what I was most interested in looking at.

In search of a forecast

I've complained about the fragmentation of the market a number of times in the past, and while the 40-odd deals noted in last week's post go a little way toward addressing the problem, it's nowhere near solved yet. Interestingly, the issue of industry consolidation was a common one in this quarter's DSE Business Barometer too, with one respondent astutely observing that "there is a lot of confusion and misrepresentation in the marketplace created by various rep agreements and aggregators. As a result, there is early evidence of mistrust in this vertical." Likewise, consolidation was cited as one of the ongoing industry "growing pains" keeping us from getting out of our own way. But on the balance, the people who responded to the latest DSE survey seem optimistic about the future, with the vast majority indicating that revenue levels and ad spend levels would remain the same or increase next quarter. Granted, respondents to this survey made similarly rosy guesses in the past four quarterly surveys as well. But if the data is to be believed, many companies are experiencing sales growth.

Whether that growth will continue through 2010 is anyone's guess. But it seems that short of another financial apocalypse, the industry should at the very least resume the 7-10% growth rate forecast by many analysts in 2008. To the best of my estimates (and in the face of more optimistic projections I made early last year), 2009 probably saw about 0% growth. Aggressive purchasing by small- and mid-size networks offset losses due to attrition and closure, but couldn't make up for the number of large (500+) venue installations that simply stalled out. Since there's little sign of slowdown on the low-end, if even a few of these larger networks resume their projects (in conjunction with the already-healthy number of large projects being floated right now), 2010 should mark a return to "normalcy." (And I use that word very loosely when describing our industry.)

Whether consolidation would actually help create new digital signage/DOOH business is another matter of debate. It seems unlikely that employees of a failed software venture would go on to start a network that might purchase technology from other, more successful companies. However, the consolidation (through merger) and dissemination (through dissolution or layoffs) of industry "experts" is surely going to drive new projects. These people will take their knowledge of digital signage business opportunities with them to future jobs and companies, and some percentage of them will successfully plant the seeds of future networks, whether they know it or not. On the flip side, as natural market segmentation and growth via organic and transactional means continues, expertise will "clump" in certain companies and segments -- which should be a competitive advantage that lets the "haves" further distance themselves from the "have-nots." And all the while, the march of progress will tirelessly continue, lowering the cost of technology and bringing more tech-friendly millenials into the job market.

Cobbling together the industry

I'm on the fence as to how far this industry can go without some kind of major, transformative event. Ten years ago, I would have expected to see a mature, multi-billion-dollar behemoth toiling along like a well-oiled machine by now. What we have instead reminds me of that 1980s board game Mousetrap, where you have to Rube-Goldberg together a contraption that barely gets the job done, only to learn that your little sibling ate some of the plastic parts, and you can't find all the marbles.

That's us. We've lost our marbles.

  While knocking on wood, I'll say it: our industry appear to be out of the danger zone. But I'll be carefully tracking the ongoing M&A in our space to try and objectively measure and monitor our health (and I know I won't be the only one doing so). We're still one big game-changer away from becoming the mature and respected industry that we should have been. Who's going to make it happen? Will it be one of the Fortune 500s who have stumbled into our space? One of the old stalwart tech or network companies? Or will it be a startup who sees the connections that everyone else overlooked, and can't understand how we've missed the forest for the trees this whole time? Leave a comment and let me know what you think.


+1 # John Moezzi 2010-05-06 16:48
I don't think its going to be one big game-changer that thrusts DOOH into a position of mature and respected industry. I believe it has been and will continue to be an evolutionary process. Having said that - I would have thought the industry would be further along in its maturation by now as well, but not quite a multi-billion dollar behemoth toiling along like a well oiled machine. Who's going to make it happen? We all are. Good followup, Bill.
+1 # Bill Gerba 2010-05-06 16:56
Hi John, I dunno, if the best we can do is keep up with the gradual evolution that we've observed the past few years, I'm going to be very disappointed. We're missing that killer app, probably because our industry is so supply-side driven. I'm looking for a demand-driven "aha" moment that will boost adoption, though perhaps not in a form we're familiar with right now.
0 # John Moezzi 2010-05-06 17:14
I'm not suggesting we should be happy with slow growth, but I do believe the process is evolutionary: technology constantly improves, consumers are increasingly tech-friendly, etc. When there is ample demand to support widespread adoption we should expect major players (think GOOG or the next GOOG that we haven't heard of yet) to be right out front with a well thought out strategy and tools they've been secretly incubating.
0 # Bill Gerba 2010-05-06 21:41
John, You noted, quite correctly, that "\\the process is evolutionary\\." I agree. But what I'm saying is that if evolutionary progress is the **best** we can do, then I overwhelmingly overestimated this industry's potential (as did many others, I'd presume). In that case, the **only** way for the industry to realize the potential I had originally envisioned would be through some heretofore undiscovered transformative event.
0 # Jeremy Gavin 2010-05-06 22:01
I appreciate the honesty in this post. "Cobbling together the industry" is right on - that's the best way to put it. In the projects we're involved in, it is just more work than it should be to put together a solution. This is especially odd since so many people are doing pretty much the exact same things with just a few wrinkles. And its true - its a supply side driven industry right now with all of us working hard to prove to the customer they need this - rather than the customer stating a need that we're filling. (though I think the merits for digital signage networks are quite strong - its just that clients don't HAVE to have them) The only LARGE set of money that can start flowing into the industry is advertising right? I imagine some event that turns the faucet on to ad revenue is the magic potion, though I hope it turns out to be something else.
0 # Tim Warrington 2010-05-31 16:23
I think the digital signage industry is still banging on the door of the sell ad space. I have been doing well selling to the stores and products for instore self advertising, this is easier especially if you provide the content for the business.
0 # Tony 2010-07-21 23:01
As a short answer to the article titled "Would Consolidation in the DOOH Industry Drive more Business", my opinion from a marketing perspective is no, excessive consolidation will kill the DOOH industry. What clients need from a media is the ability to execute substantial programs at a local level...what we call targeted contact point planning, so they need more screens, not less. The more the industry consolidates, the more "small tactic only" it gets. We are a marketing agency that also has a media buying and planning unit. We built the unit the old fashioned way, by taking hundreds of hours calling all the DOOH providers we knew of, explaining that we are an agency, and if we knew where they were, we could include them in our planning. To date we have over 3 million screens in our resource for planning, that far exceeds any aggregator or agency, in fact, the largest aggregator has only 6-7% of our reach...and we are an agency, we pay the media and are paid a commission by our client, just like any other agency. And our 3 million screens are not cobbled together from 1sies and 2sies...we have only 2.6 times the DOOH providers and yet they only have 6-7% of our volume, that means they are missing several very large and high quality players. Aggregators I see as a once useful way to make DOOH buying easier...but 175,000-200,000 screens nationally is nowhere near what is needed to attract significant client interest. They need to be able to dominate any geography/anywhere. Also, the fact of the 3 million also creates better plans...would you want a plan based on only 6% of the available resources...the volume also allows for choices so we can deliver high end plans for $7 CPM's or less. In my opinion, DOOH is the best medium for the clients future, it delivers substantial frequency, far beyond any levels reachable by mass media and it delivers it where and to whom the client most cares about, for a fraction of the TV and Radio CPM's....if it is BF said "We must hang together or we will certainly hang separately.
0 # Joey Raymond 2010-07-23 18:41
What really sets digital out-of-home apart from other mass media is the ability to very precisely target an audience within a very specific geography. From a messaging perspective this is a huge client side benefit, but from a marketing perspective it is absolutely essential ...we call it Target Contact Point Planning. Instead of the traditional shotgun approach taken by other media that cannot precisely target a small geography, we are now able to use the scalpel to reach the most desirable consumers in an area as small as a ZIP code. The geo-waste is therefore reduced significantly while providing better results. My fear is that by consolidating the industry of network providers we will lose the ability to place significant localized geo-buys, which is the wave of the future for clients as they struggle to reduce their marketing overhead and increase their return on marketing dollars. Many of the large networks we deal with do not place geo-buys because they are not set up to execute in that manner, in effect they want to be a regional/national network which we feel is completely contrary to the medium itself...DOOH is a Place Based Medium that allows for more efficient buys and more effective messaging. In fact, there are people out there supporting a position of "letTMs consolidate down to 20-30 networks". We feel this is a) counterproductive and will ruin the beauty of what DOOH is in the first place as each provider has its own personality and approach to the message delivery b) arrogant, as who is to choose who the 20-30 networks should be and c) totally misses the point of how to truly construct the best plan for your client, the less options, the worse the plan (e.g we have more than 30 different venue types...which should go away and why?). As soon as we lose the ability to scale buys to the geo-level the DOOH industry will be simply a "knock off" of TV and relegated to subordinated planning importance . DOOH will no longer be an option for small businesses with small budgets. It will no longer have the precision abilities that make it so effective. It will lose its attractive cost efficiency. Not to mention that DOOH network prices will be inflated by the ability of the dominating networks to control prices. Consolidation can be a slippery slope that could lead the DOOH industry into the same place that ad agencies fell into when the age of the Holding Company arrived.

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