Another roadside attraction
The outdoor advertising market is suffering from the same malaise as all other advertising sectors in Poland, but the arrival on the market of two multinational media giants - Clear Channel and News Corporation - could herald a new wave of buyouts and consolidation in the crowded billboard business.
By Aleksander Nowacki and Timothy Sifert
After a loss-making 2002 when the outdoor advertising market shrank by some 5 percent and some of the disaffected players pulled out of the country, ad agency executives seem to be brimming with enthusiasm about the prospects for this year and next. Nonetheless, that optimism should be tempered by economic realities and displeasing dynamics particular to the outdoor market that will continue to see it lose out to other ad market sub-sectors and stay stagnant for some time to come, say critics.
Ströer Out of Home Media, which led the consolidation process last year to become the largest company on the market, recorded a net loss of several million złoty in the first quarter of this year.
However, Janusz Malinowski, the company president, insists that this was purely the result of the direct costs of last year's acquisitions.
"Besides, the first part of the year is always the worst time for outdoor advertising," Malinowski said. "The latter half is bound to be better."
The other company most active in acquisitions, Art Marketing Syndicate (AMS), is equally optimistic.
"There's no reason for euphoria, but the market is clearly picking up," said Piotr Parnowski, AMS president. But before anyone starts thinking that the picture is all rosy and billboards across the land will start popping up like flowers in spring, other market insiders are distinctly less enthusiastic about the prospects of the outdoor segment.
"They have a lot of hard work to do," said Lucyna Koba, media manager at Pan Media Western. "Most important of all, they have to improve their image and reawaken the clients' confidence in the quality of the business they can provide."
Paul Latham, president of Town & City, the fourth-largest outdoor advertising company, agrees.
"There have been signs of stabilization on the market but it is still too early to say whether it's a trend," he said. "Improving the quality of the service is the prerequisite of any price rises."
In a market spoiled by the ongoing price war among TV stations and by exorbitant discounts offered to advertisers, delivering value is a burning issue. Broadcasters are now talking of raising prices and other sectors are thinking of following suit, developments that are welcome news to the outdoor advertising sector.
"I have very serious doubts whether the movement that has been (seen) on the market justifies contemplating price rises in the outdoor segment," Pan Media Western's Koba said.
The talk of clients being refused contracts due to insufficient supply of billboards is also strange to Koba. She sees the outdoor agencies as being in danger of losing some of their major clients if they put prices up without backing the decision up with improved quality of service. Koba pointed out that supermarket chains, which have been spending substantial budgets on outdoor campaigns, have been increasingly moving into smaller towns, where billboards occupy less of the landscape. And as TV has a far wider territorial reach than outdoor ads, Koba sees supermarkets moving their budgets to that medium as a logical step.
"It is, however, hard to tell if that's the right direction until you see the new rate cards of both TV stations and outdoor agencies," she concluded.
A lack of good research
Although the outdoor segment accounts for as much as 6 percent of total ad spending, as opposed to as much as 9 percent found typically in western European countries, its growth in the immediate future is by no means assured.
And some market watchers say some of their reasons for pessimism stem from systemic industry problems.
"What, in our opinion, is the most important (impediment to market development) is the lack of serious research of this kind of advertising," said Marcin Suszycki, project manager at Expert Monitor.
But ad agencies are becoming more aware of this objection.
In that vein, Ströer has recently joined forces with AMS to set up the Polish Outdoor Advertising Research company.
The problem is, however, that Ströer and Cityboard, the number five player on the market, also conduct their own research activities according to differing methodologies, while Clear Channel Polska, the country's third-largest player on the market, is looking to introduce yet another monitoring scheme.
This multiplicity of research tools makes for informational chaos rather than reliability. It is hardly surprising that Suszycki concludes "advertisers still prefer (the more easily) measurable television, radio or press."
One important downside of the paucity of research in the industry is that many billboards are placed in disadvantageous locations, Suszycki pointed out. That inevitably translates into higher costs for advertisers who expect a lot of potential customers to see their brands - especially as they cut back on ad budgets.
Big names in a small market
While many predict that the outdoor market will consolidate to just around five participants in the coming years, that does not mean that market leaders Ströer and AMS - grown large off acquisitions and control of 60 percent of the market - can rest on their laurels.
Town & City, owned by Rupert Murdoch's News Corp., is one company that is trying to get a larger piece of the market.
"We want to continue to grow our company, improve both the variety of our product and the quality of services to back it up," said Town & City's Latham. "We have substantial funds for that purpose from News Corporation."
Latham offered precedent for why Town & City might be able to get a leg up on the market.
"News Corporation owns the largest outdoor company in Russia, one of the largest in Romania and other countries of the region," Latham pointed out. "So an interest in the outdoor segment of the market is there. There is also investment in developing the service."
He was keen to emphasize the importance of extra services to back up the product, saying that mapping services and IT systems can add up to 50 percent of the product's value by laying out in certain terms how many people will see specific billboards.
Curiously enough, another media giant, Texas-based Clear Channel, has decided to enter the region and the country through the same market. Neither corporation is usually associated with the outdoor advertising market as a rule, but this is the market through which they decided to enter central and eastern Europe.
Representatives at both companies said they have decided to put resources into developing the quality and size of their services rather than the sheer numbers of billboards they can offer.
"The larger panels are more prestigious," Pan Media Western's Koba pointed out. "They are easier to notice for drivers, who are the more desirable target, less susceptible to damage, (and) typically they are lit. It's a different ballgame (from the standard 10-square-meter billboards)." She went on to say that the smaller standard panels have gone out of favor with advertisers in western Europe and it is likely that a similar development will take place over here.
Latham said that the larger panels could be placed in better locations, as their higher rental prices allow outdoor ad agencies to pay landlords more. Because of this factor, market watchers say that the current market leaders' strategy of expansion through acquisitions of smaller companies with less prestigious locations and smaller billboards will end up working against them.
Koba said that Town & City's strategy of focusing on quality billboards, rather than quantity of billboards, has already paid dividends and the company has established a strong position on the market.
"So long as they don't try and compete in the smaller format segment of the market, they have excellent growth prospects," she said of Town & City and Clear Channel.
For the market leaders it has not always been easy.
"It turns out that AMS is in worse financial condition than we expected," Piotr Parnowski, the company's president, has said. He referred to the period directly following Agora's acquisition of the company last September. "We devoted the first three months to simply surviving."
Industry professionals unofficially take it as an indication that the company has overstretched itself in its acquisitions strategy. But Radosław Solan, market analyst at PKO BP banking brokerage house, took a more benign view of the situation.
"Agora has never concealed that the restructuring process in the case of AMS would be a difficult one," he said. "The first signs of profitability could be expected in 2005 at the earliest. That is a clear indication that the situation AMS has found itself in is by no means rosy."
He refused, however, to comment on whether the company's troubles derived from its spending spree at a time when the market was shrinking.
"It is not unlikely that the company expected a quicker return on its investments," Solan said. "At a time when the economic slowdown makes for a stagnant market, it is easy to fall into the trap of paying too high a price." He said that the market has already priced in the damage done to Agora's financial situation because of the AMS purchase.
Beer brings (some) hope
There is, however, at least one symptom that better times are coming for outdoor businesses, as beer advertisements are set to return to the streets across the land. The restrictions were formally lifted on May 24, but the market is waiting for the prime minister to sign secondary legislation that would give beer companies the green light to promote their brands outdoors.
"That is the only sign of improvement on the market I can see," Koba said.
Expert Monitor's Suszycki is skeptical about anything that would be deemed an improvement this year.
"We do not expect significant changes in the outdoor advertising sector in the course of this year," he said. "Some increase will be brought about by the beer advertisements. But even that is not likely to cause any (substantial) change."
