Market Insight

Digital signage market ready for consolidation

September 28, 2008

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Software specialist Stratacache announced last week the creation of a $25m acquisition fund targeting technology and media companies in the digital signage and digital out-of-home (DOOH) markets. The focus of the fund will be products and solutions that compliment Stratacache's digital signage offering, ActiVia. Stratacache cites falling advertising budgets as forcing many early stage companies in the marketplace into financial difficulty.


Screen Digest predict that there will be a quadrupling in DOOH revenues in Western Europe over the next five years, indicating the market is still evolving and in early stages of growth. That is the equivalent to a compound annual growth rate (CAGR) of 32%. The hardware sales generated from DOOH in Europe are estimated to be EUR 127m in 2007 (excluding server technology) increasing to EUR 297m in 2012, a CAGR of 19%. By 2012, we believe DOOH will represent approximately 10 per cent of the total OOH revenues in Western Europe.

The trend for consolidation can be seen across both technology suppliers, such as Stratacache, and DOOH networks across the industry. NeoAdvertising, an operator of DOOH networks throughout Europe, for instance, has recently taken a minority stake in Avanti ScreenMedia, an operator of DOOH networks in bars and clubs in the UK and has also done deals in Portugal, Spain, Canada and Sweden this year. Other M&A deals this year include Zoom Media's acquisition of North American digital signage operator ClubCom, Australia's oOh! Media's acquisition of Sports & Outdoor Media and China's AirMedia Group's acquisition of Excel Lead International and Flying Dragon Media Advertising. This reflects a wider land grab among networks where companies are competing for the 'digital rights' to advertise in particular locations.

While older established out-of-home advertising contractors (eg. JCDecaux, CBS Outdoor) are concentrating on updating their static sites to digital, newer start-ups are creating new networks, such as in-store and on-street TV, that were not possible before digital signage. The multitude of networks reflects the range of business models being employed to monetise this new way of advertising; including interactive screens, the use or lack of audio and new locations and content. It is likely that once these new networks are proven revenue generators they will be consolidated into the incumbent advertising industry.

DOOH networks have traditionally struggled with low success rates for a variety of reasons. Poor business models saw networks overpay for the 'digital rights' at premium locations while the prohibitive cost of creating and repurposing content specifically for DOOH networks kept margins low. The continuing trend of falling hardware prices (large LCD/LED screens in particular), however, has re-energised the industry. We expect a 33 per cent fall in the average price of display panels between 2007 and 2012, which will help fuel the installation of new networks. It is the premium charged for using these networks that is generating interest in DOOH. Installations, such as the Cross Track Projection (XTP) recently installed in the London Underground can generate up to 10 times more revenue than their static equivalent and this boosts the overall OOH sector growth.

It is unclear how long these high premiums can last. This highlights the importance of auditability, accountability and traceability in the implementation of these networks to ensure any premium charged is justified beyond the technology being a novelty. The conservatism of the advertisers threatens to temper the growth of digital signage; risk averse agencies will be slow to commit important accounts to digital signage without the comprehensive proof that the medium works. Advertisers also need to be educated on how a dynamic screen offers many more options than its static equivalent; the benefit of the multitude of content, location and interactivity options available will need to be understood before they will whole heartedly commit to the technology.


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