Wild (some might say dangerously wild) optimists always come to the fore during pitches. And that's as true of media agencies, offering to service business on wafer-thin margins, as it is with media sales contractors claiming they can deliver unimaginable riches to franchise owners or licensees.
CBS Outdoor is by no means the first company to see its fondest imaginings overtaken by events - nor will it be the last.
A question put last week by Richard Tracey, a London Assembly member, to the mayor Boris Johnson elicited an answer detailing London Underground's advertising revenue figures (handed over by its sole sales contractor, the aforesaid CBS Outdoor) for the past five years.
Revenues have been rising steadily - but that's down to the nature of the contract and its guarantees, not a reflection of the buoyancy or otherwise of the market.
Faced with adversity, supreme optimists (in all walks of life) love the "hockey stick" projection. They'll admit, if pushed, that revenue growth might be flattish in the short to medium term - but as the medium term opens out into the wide blue yonder, they confidently forecast exponential growth. Thus CBS Outdoor's promises have been loaded towards the back-end of the contract.
The CBS Outdoor payment to Transport for London was £44 million to April 2007 (the earliest period covered by the current contract) but had risen to £71.5 million for the year to April 2010. Informed speculation maintains that the figure is scheduled to rise further in forthcoming years.
Meanwhile, Nielsen analysis indicates that the money actually taken by CBS Outdoor for advertising on the Underground for the period to April 2010 was, at best, £88.75 million. Strip out commissions at the medium's historically generous 20 per cent and you arrive at a CBS Outdoor net take of £71 million.
£500,000 is modest discrepancy, you might argue - no more than the annual salary of a modestly gifted newspaper executive. But even a modest deficit equates, according to the widely used Micawber formula, to unhappiness.
1. Owing to technical problems, digital revenues (on which the whole contract was predicated) didn't come through as predicted in the early years of the contract. This means the CBS Outdoor position is likely to improve if, as expected, digital fully kicks in. Outdoor revenues are bouncing back across the board too, after a dismal 2009. Even so, transport as a whole has been losing share slightly within the outdoor medium.
2. The sector has had an unfortunate recent history with contract promises. Take Maiden Outdoor, as was, which tried to hold on to its Network Rail contracts come what may - and, when losses on the contracts proved unsustainable, Maiden was bought by Titan Outdoor in 2006. Titan inherited the Network Rail business and tried to renegotiate the contracts, succeeding in April 2009 - but not before Network Rail had tried and failed to find an alternative contractor. As the recession bit, Titan still struggled to meet its reduced commitment - and the company was sold to JCDecaux in January 2010. Decaux continued Titan's advertising contracts - and was re-awarded the contract for Network Rail's 18 managed stations on renegotiated terms back in May 2010.
3. Contractors in outdoor live or die by the pitch - they don't own any inventory and are basically sales organisations. Although huge contracts such as Transport for London's are exceptional, there's an unremitting churn of smaller contracts coming up for review. In the past few months, as well as the Network Rail re-award, we've seen Clear Channel winning a contract with the Trafford Centre in Manchester and retaining its relationship with Birmingham International Airport. Meanwhile, Decaux won BAA business at Heathrow and in Scotland. Decaux and BAA had terminated their previous agreement in May 2009 after a Competition Commission ruling that BAA had to sell Gatwick.
4. It's not the only medium to suffer from pitch burn-out. An escalating turf war in cinema in the mid-noughties saddled Pearl & Dean and Carlton Screen Advertising with impossible commitments. As a result, CSA closed in 2008, to be succeeded by Digital Cinema Media. And when Pearl & Dean was bought from STV by Image back in April 2010 for £1, its new owners still had to pay off £9.1 million in revenues commitments still owing to the Vue chain.
WHAT IT MEANS FOR ...
- The easy lesson to be learned, some might say, is that outdoor contractors have to learn to be less reckless - or risk bringing the medium into disrepute. Life is never that simple, though.
- It is sometimes implied that CBS Outdoor pitched its Transport for London offer needlessly high - but there was every indication in the aftermath that, actually, it had only beaten its nearest competitor, JCDecaux, by a mere whisker.
- And sometimes a contractor will go the extra mile on a piece of business - effectively buying it in as a loss leader - because it believes the business defines it culturally or in terms of stature or crude market share. Market share, a sales point may believe, can help leverage other more profitable contracts.
- In the past, contractors could count on inflation to bail them out in the end - and it's true that outdoor has defied all recent downturns up until the most recent one. The medium's vulnerability to recession must now be acknowledged.
- Not much. Clients don't tend to take an over-zealous interest in outdoor - it is, after all, a medium that commands less than 10 per cent of the display advertising pot.
- And in any case, there are those who argue that structural tensions within the supply side don't make a blind bit of difference to the pricing of outdoor inventory.
- That's not entirely true, however - contractors, it is possible to argue, are likely to pull every trick in the book to improve yields on the inventory on which they've bet the company.