by all | 5 September 2014 1:34 pm
Photo courtesy Samsung Canada
By Alan High
The digital signage industry, comprising a wide range of deployments, formats and venues, continues to enjoy unprecedented growth. Across North America, there are currently an estimated 250 networks playing more than one million advertising spots on more than 900,000 displays. The annual revenues generated by digital out-of-home (DOOH) ads were estimated to top $1.4 billion in 2013, having sustained an annual growth rate of 13 to 15 per cent over the past five years.
As the costs involved in installing and operating digital signage networks continue to decline, there has been a dramatic increase in the number and types of networks. Retail outlets, hotels, shopping malls, airports, banks, gas stations, office building elevators, sports stadiums, bars, restaurants, schools and college campuses are just a few of the venues where digital signage is now common. Anywhere there is an opportunity to reach large numbers of consumers, in fact, digital signage is either already present or being planned for deployment.
Additionally, people are spending more time out of their homes—travelling, studying, working, shopping, dining and enjoying leisure activities. It is inevitable marketing dollars will gravitate toward locations where these consumers congregate and spend time.
Digital signage is now common in stores, malls, restaurants, hotels and schools, among other venues. File photos
Avoiding mistakes
While many digital signage deployments are internal, non-revenue-based networks, DOOH networks tend to be more mass-consumer-related and, by definition, depend upon advertisers to underwrite a portion of their costs. Yet, despite the significant success the DOOH sector has achieved to date, strategic planning has taken a secondary position behind deployment issues for many of these networks. There appear to be far too many ‘if you build it, they will come’ assumptions toward revenue generation with DOOH networks.
The ‘glamour’ of digital signage can lead many companies to short-change the process of properly evaluating their real revenue potential. They can make mistakes by overlooking the key elements of success for digital signage, which in turn will hinder their ability to optimize profitability.
DOOH network operators must be thoughtful, focused and diligent if they are to maximize revenues. There are no guarantees their revenue-based deployment model will be successful, but valuable insights can help avoid potential mistakes and oversights during the evaluation process.
The five following key success factors have been identified as essential components in the process of assessing a DOOH opportunity and achieving its maximum revenue potential:
In an airport, business travellers typically dwell for at least 40 to 45 minutes, so the DOOH loops tend to last 30 to 45 minutes, featuring plenty of commercials and full newscasts.
1. Objectives and key communication issues
As with any new business venture, a DOOH deployment needs to begin with a business plan, reflecting a careful review of goals relating to the network, the audience and the market.
Most digital signage networks involve a combination of objectives. Besides the advertising components, many also serve to inform, train and/or entertain their audiences.
All such goals should be ranked in order of importance, with a ‘weight’ applied to each. This will help clarify how the network should be designed and operated. Research of the audience, based on industry-acceptable metrics, is fundamental to the success of selling ads on a DOOH network. The more dependent the network will be on revenue, the more important this research becomes for the project.
Determining long-term revenue-generating forecasts for a new DOOH network can be very challenging, especially if there is only limited information about the advertising potential of its market segment. One recommendation is to look elsewhere, as other DOOH networks have likely already been deployed in similar venues, perhaps in different regions or countries. By taking time to analyze those networks, it will become easier to replicate their success or avoid their mistakes.
Other helpful resources are the potential advertisers for the DOOH network. They should be asked about their marketing objectives and investments—and what it would take to move their budgeted dollars from other media formats.
Another key indicator of revenue potential is other signage. Static signage is common in many public venues, after all, and it is not difficult to estimate the associated ad revenue. If a DOOH network is being introduced somewhere it will need to compete with an existing, non-digital out-of-home (OOH) ad network, then its inherent value proposition—such as greater flexibility—may not necessarily translate into new revenue. It could instead add to confusion and the ‘cannibalization’ of ad dollars.
Financial considerations should not be allowed to drive the revenue estimates. Rather, all components should be analyzed carefully to help develop a revenue model first, which can then be applied to the targeted financial thresholds.
With a longer-than-average dwell time, banks typically need higher-quality, timelier content than other venues.
2. Role of the venue
The nature of the venue will have a significant impact on the revenue-generating capabilities of a DOOH network. Understanding how consumers interact within a given environment will help determine the best combination of content and ads.
In an airport, for example, passengers have considerable dwell time near departure gates and in baggage claim zones. An airport’s DOOH network can therefore run more content with longer commercials, much like broadcast TV. Conversely, in a public transit station where riders only have a 10- to 15-second viewing opportunity, displaying a 30-second TV spot will fragment the message and lessen its impact.
Another consideration is sound. Compared to an airport lounge where sound is considered essential for digital signage, transit stations are noisy, so audio content may not be necessary or even viable.
‘Visually busy’ environments are similar to noisy ones, as they detract from the screen viewing opportunity, necessitating shorter, more focused messages and/or larger displays to break through to the audience.
In cinemas, many advertisers run customized commercials that are longer than those on TV, as there is a better opportunity to have an impact on a captive audience. The combination of large numbers of consumers in a captive situation with long dwell times is usually a strong formula for success.
Digital signage also needs to fit into the environment esthetically, but be visible enough to deliver results. Ideally, screens should be located where consumers congregate or pass. For ‘dwell environments,’ where consumers can sit, watch and listen with minimal interruptions, screens need to be large enough for exposure to multiple viewers, but not overwhelming.
In ‘transient environments,’ viewing opportunities are shorter, which usually necessitates larger signage and shorter—but more visually impactful—ads.
Most retail DOOH networks are in ‘transactional environments,’ where there is significant dwell time for consumers, but not in one location. Rather, as a store’s customers move around during the course of their visit, they are exposed to multiple screens and, potentially, multiple messages from the same advertiser. Shorter spots with higher frequency will be more effective in this context than longer spots with lower frequency.
Access to product sales data in retail environments is vital for demonstrating the effectiveness that advertising on the network has on influencing sales. This data and other research unique to the venue, including traffic flow and customer profile information, can be used in marketing support efforts.
The landlord is often a key stakeholder and/or influencer in many DOOH networks and it is critically important to establish a clearly defined agreement to ensure protection for the network operator, especially with regard to advertising exclusivity and payment thresholds. Working closely with the landlord will help prevent deployment-related and operational challenges.
In the negotiation stage, most landlords tend to overvalue their real estate. It is common for them to request guaranteed revenue streams and/or a percentage of sales revenue. Building flexibility into the financial model early on could be the determining factor between the network’s success and failure, as most DOOH networks involve significant upfront capital and high operational costs. Revenue often falls short during the startup phase, so a conservative approach to sales early on is recommended.
The revenue model should establish three thresholds, i.e. for low, mid-range and high revenue expectations, which all parties need to agree to in advance. Many DOOH networks that have failed did so because their operators committed to unrealistic revenue projections.
Once the network is up and running, content and ad approval issues will constantly need to be addressed, as the creative approval process can be challenging and time-consuming, which could affect revenues negatively.
Digital billboards typically run a loop of eight-second static ads, with six to eight advertisers represented within each loop.
3. Using content effectively
The digital signage industry has focused heavily on content as the key element to maintain audience interest—i.e. ‘content is king’—but this is not completely accurate. The other key variable that is often overlooked is the length of the viewing opportunity (i.e. dwell time). As the viewing opportunity increases, goes the simple rule of thumb, so too does the importance of content.
Digital billboards, for example, offer a very short viewing opportunity and little or no content. They typically run a loop of eight-second static ads, with six to eight advertisers represented within each loop. One example of suitable content would be a news organization downloading headlines throughout the day, reinforcing its core business.
As dwell time increases, so too does the length of the exposure opportunity. Most sports venues, medical offices, airports and banks need more venue-specific and timely content. In an airport, by way of example, business travellers typically dwell for at least 40 to 45 minutes, so the DOOH loops tend to last 30 to 45 minutes, featuring plenty of 15- or 30-second commercials with sound and longer content pieces like business reports and full newscasts. The focus should always be on developing effective communications with the audience by capturing attention and interest.
Networks hosting broadcast-quality content require significant bandwidth and dedicated wiring, making them inherently less flexible than other digital signs in terms of content and ad delivery. Conversely, networks using Flash-based spots require relatively small files that are simpler to create and can be transmitted through hardwired or cellular phone links. Individual screens in these networks can be set up with their own Internet Protocol (IP) addresses, providing almost unlimited flexibility for content and ad delivery.
Most DOOH networks use landscape mode, especially in retail stores, where screens are often suspended from the ceiling.
It is important to determine which of these types of network setup is best for a project at the planning phase. This should involve a thoughtful review of the key communication objectives and the operational costs associated with the network.
Another factor affecting content is whether the screens will be installed in landscape or portrait orientation. The vast majority of DOOH network operators have chosen the landscape mode, especially for retail venues where screens are often suspended from the ceiling at a convenient viewing height. The portrait format has also proved popular, however, for mall, transit and other pedestrian-facing applications where suspension may not be practical and floor space is at a premium.
All of these factors play an important role in determining the right presentation and mix of content for a DOOH network. If the mix is wrong, then revenue projections could be compromised for the long term.
4. Sources of revenue
Ad budgets and media selection are not as fluid as one might assume and the inherent advantages of digital signage are not necessarily exploited by many advertisers. To be fair, the medium offers much more flexibility than most advertisers can realistically accommodate.
The capability, for example, to change an ad four times a day for a fast-food chain, with different content for breakfast, lunch, dinner and drive-thru menus, is only helpful if the advertiser is already in a position to promote all four product lines. Most are not. It will take time for ad agencies to accommodate this increased flexibility in their media strategies.
Many DOOH network operators also make the mistake of depending too heavily on ‘traditional’ ad revenues while ignoring other lucrative sources of funds:
5. Marketing the network and selling ads
Marketing a DOOH network is an investment in its future success. It involves establishing competitive ad rates, correctly positioning the network and using research to support all audience/viewership claims.
Without research, there are no metrics to help ad agencies establish the relative value proposition or assess the audience coverage and effectiveness of a DOOH network. High traffic counts alone may not be sufficient to obtain advertisers’ support. Rather, they will also require demographic information about the audience, including age ranges, gender split, income levels and common occupations. This data will allow them to align their communication objectives with those of the DOOH network.
One of the challenges facing the industry has been a lack of standardization in both formats and measurement metrics. The Digital Place-based Advertising Association (DPAA), for one, has established guidelines for conducting audience studies and is continuing to research the impact and effectiveness of DOOH media. In the long term, it will be essential for the industry to adopt common standards for comparable metrics across all aspects of DOOH networks.
In the meantime, networks can benefit from metrics that are already in place. Airports, for example, have definable gross audience measurements based on ticketed passengers. The larger and more quantifiable the audience, the better the revenue opportunity.
Other marketing elements are also vital to revenue generation. One of the most important is the rate structure. Detailed operation, sales and administration costs, along with a basic understanding of other similar and/or competitive media, will help create a viable rate structure for the DOOH network that is competitive with other paid media on a cost per thousand (CPM) basis.
Research focusing on the viewing opportunity is helpful if it can determine the average number of exposures per screen, from which the CPM can be calculated. The quality of the venue’s demographics and viewing opportunities will also play a role in determining rates.
It is important to avoid making rates too complex, especially early on in the launch phase. The sales cycle should represent the norm for other media, which is four weeks for OOH ads in North America. For the retail sector, promotional cycles are often shorter, so the selling cycle should be shorter too.
The temptation to promote the maximum flexibility of the network should also be resisted. One example would be trying to sell specific dayparts or time frames, e.g. to a restaurant that only wants to buy time in the morning hours to promote breakfast items. This limits reach, leaves the remainder of the day to be sold to other advertisers and makes both the sales and inventory management processes much more challenging.
In some cases, digital signs complement static ads at the same venue.
Support materials—including both print and video materials in a marketing kit—need to reflect the vision of the DOOH network. As the network gains traction, information about advertisers’ successes and their own testimonials, along with measured results, will help generate interest from more potential customers.
Of course, no matter how good the network and its audience are, revenue will depend on the quality of the sales team’s efforts. Setting up a dedicated sales force is an expensive proposition and represents a long-term investment, but there are also other options. Representative agreements with digital signage sales specialists are already common in the industry, as are aggregators.
Some aggregators are currently developing multi-venue and multi-platform DOOH networks. Their advantages are that they offer a single source, simplify the buying process and have no ownership stake, since their role is predominantly sales.
No shortcuts to success
The success of a DOOH network results from the interaction between a wide array of factors. There are no easy shortcuts to success. A combination of careful and thorough planning, common sense and understanding how to apply the aforementioned five key success factors will be needed. With the right ‘component mix,’ a DOOH network will be in a strong position to maximize revenues and profits and achieve long-term viability.
Alan High was formerly president and general manager (GM) of OOH firm Clear Channel Outdoor’s Spectacolor and mall divisions. He was instrumental in launching digital signage at Toronto’s Yonge-Dundas Square and Pearson International Airport. For more information, contact him at alanhigh@optonline.net[8].
Why do airports earn much more DOOH revenue than shopping malls, even though their pedestrian numbers are roughly the same? For Alan High’s special bonus real-world comparison of how metrics impact profitability, click here[9].
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