JCDecaux, Viacom and Clear Channel have been cementing their domination of the UK outdoor advertising market over the past few years, prompting regular speculation about the fate of Maiden, the largest remaining independent contractor.
Commentators suggested that if the consolidation trend progressed to its logical conclusion, Maiden would be snapped up.
The company, which has debts of £39 million and a market value of £44 million, reported an operating profit of £3.2 million on revenues of £92 million for 2004. However, Maiden's figures for 2005 are expected to show an operating loss of up to £5 million.
So, unfortunately, Maiden finds itself on the block with a distinct lack of excitement about its sale. Only Viacom, which arguably needs to add bulk to its billboard offering, is thought to be interested. JCDecaux, on the other hand, has recently gone as far as to suggest that some of Maiden's contracts were signed on such punitive terms to make them a liability.
How times have changed. Some observers suspect this relative apathy about Maiden's fate reflects a deeper outdoor malaise - and that the sector, which only last year was the fastest-growing mainstream medium, is about to hit a wall.
The first factor is the poor performance of the 48-sheet and 96-sheet large billboard formats.
Although JCDecaux recently reported encouraging growth in revenues, the hotspots continue to be the smaller street furniture and transport formats.
Another blow is the recent departure of Stevie Spring, Clear Channel's UK chief executive. She has been an energetic spokeswoman for the whole outdoor market, but is expected to move into pastures new and will leave a void behind her.
But there is a more serious structural issue also looming on the horizon.
In the UK, the outdoor industry exists in something of a bubble. The market is dominated by a handful of specialist buying agencies that are paid higher than normal rates of commission plus extra over-riders.
The multinational media owners are being compelled to standardise their accounting procedures and make them more transparent. As a consequence, they are actively looking at changing the way their UK companies do business.
1. Outdoor has been increasing its media market share steadily since 1998, when the Postar measurement system was introduced. Total revenues then were £563 million, approximating to a 3.9 per cent share of UK display advertising. The total for 2004 was £847 million - a market share of 9.9 per cent. Revenue for the first three quarters of 2005 added up to £657 million and the sector clearly hopes to have surpassed the 10 per cent mark when the full-year figures are released.
2. Twenty years ago, the medium still relied on car, drink and tobacco advertisers - but the tobacco ad ban forced the industry to reinvent itself as a broader proposition based on higher-quality sites in good locations. In the third quarter of 2005, the medium's top categories were: entertainment and media; telecoms; motors; retail; finance; and food and drink. The strongest-growing categories were mail order, household equipment and computers. In other words, outdoor is a mainstream medium in terms of the range of advertising categories it attracts.
3. Consolidation on the buying side is now dominated by Interpublic's Magna Global, Aegis' Posterscope and WPP's Kinetic. The last two command more than 80 per cent of the market between them, according to some estimates. They react aggressively to any implications that their methods of cash-flow generation are in any way unconventional or anachronistic.
4. Media owners have been complicit in this. They regard extra commission payments as an incentive for outdoor specialists to "sell" outdoor to clients and mainstream agencies. All sides are happy with this when there is natural growth in the market.
5. Clear Channel is believed to have started to question this arrangement, especially at its US headquarters. Senior managers want to know what they are getting for extra incentive payments in the UK when the revenues on their 48-sheet and 96-sheet formats are static or declining.
WHAT IT MEANS FOR ...
- Recent events have not been good for the medium's image and have certainly conspired to diminish its sheen as a sexy, high-growth sector. Meanwhile, outdoor's success in attracting an ever wider spectrum of mainstream advertisers will almost certainly ensure it will no longer be able to insist on maintaining its commission systems.
- Specialists will resist this notion but media owners, in the light of new accounting procedures, may feel they have no choice in the matter.
- Growth is still there if the industry can work its way through an awkward phase, but one thing is sure - the cosy world of UK outdoor media is set to have a rude awakening.
- The irony is that many advertisers are absolutely convinced about the evolving strength of outdoor as an advertising medium. They like its upfront visibility and the way it can, in theory, dovetail neatly with increasingly sophisticated mobile opportunities.
- But some are already indicating to their agencies that it would make sense for outdoor to be better integrated with their overall marketing strategies.
WPP AND AEGIS
- There are worrying times ahead. Their specialist outdoor companies are important cash cows and controls on commissions could stunt this potential.