Market Watch

UK OOH Slowdown Ahead of Olympic Boost


Display Driver IC Forecast

UK out-of-home (OOH) advertising revenues increased by one per cent year-on-year in Q1 2011 according to the latest figures released by the Outdoor Media Centre (OMC, formerly the Outdoor Advertising Association). Excluding agency commissions, IHS Screen Digest estimates net market revenues totalled £159m for the quarter.

This is the fifth consecutive quarter of revenue growth after the 2009 recession. Whilst digital out-of-home (DOOH) revenues continued to increase double-digits (32 per cent), primarily driven by traditional panel conversions during the quarter, estimated sales generated by traditional formats were down two per cent.

Digital advertising displays generated 12.2 per cent share of total OOH, which is by far the highest share in Europe. OMC also reported a breakdown of digital revenues across environments, showing transport as the dominant environment with half of all digital sales, followed by digital roadside (billboard and street furniture) representing 28 per cent share of total digital.

Analysis
On the back of a double-digit market recovery rate in Q1 2010 (14.6 per cent), this quarter's slowdown in yoy growth was to be expected. Last year's first quarter was underpinned by a number of one-off factors including high COI spend ahead of anticipated government advertising cuts; as well as election spend in large formats and billboards. Individual segment growth in Q1 2011 was relatively in line with the overall growth, but billboards are estimated to have slightly underperformed.

International media owners did not report UK revenues during their Q1 results release, but CCO quoted the UK as one of its international markets performing well this quarter and we estimate double-digit growth for JCD UK revenues favoured by the integration of Titan rail assets to JCD's portfolio since last year's acquisition.

Among key contract changes in Q1 was JCD's win of the East Coast Main Line rail contract (formerly held by CBS) and the new contract for High Speed 1 rail stations which are to play a significant role during next year's Olympics. Digital continues to play a central role in media owners' strategies, with continued investments in traditional inventory conversion. Emblematic of this trend was JCD's switch-off of its remaining Trivision billboards this quarter. The media owner converted approximately 150 of these three-sided rotating units, some of them to digital displays, over the last year. The Trivision format was seen as having limited appeal, especially now that digital opportunities are far more flexible to both advertisers and media owners. Clear Channel and Primesight are also planning to gradually phase-out or convert their own three-sided displays.

Looking forward, both traditional and digital formats will come across increasingly unfavourable comparatives in Q2 2011. Last year's Q2 traditional format revenues increased by 12 per cent, and digital by as much as 79 per cent. That combination of high comparative and softness of the ad market (e.g. in television) may lead to total OOH to decline by one per cent in Q2 2011.

The beginning of this second quarter was also marked by the launch of an auction process selling 4,000 units of outdoor space available during the 2012 London Olympics. The process is sequentially open to global and tier one Olympic sponsors, tier two and three sponsors, then to non-sponsors for the remaining inventory. The auction, managed via online trading platform Media Equals, started in April and is still ongoing, but buyer feedback on the running of the process has been positive. Sales booked during this auction will only be completed next year, contributing to OOH revenues during the Olympic period.

We maintain a cautious one per cent growth forecast for FY2011 amidst uncertain economic prospects for H2 and, possibly, advertisers holding back part of their OOH spend for the Olympics, as well as UEFA football championship next year. We forecast net OOH revenues to reach £737m for FY2012, a 7.5 per cent yoy increase should H2 2011 maintain the anticipated course.

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