Billboards aren't cheaper with cigarettes gone Demand is high for prime spots by
Kathy Prentice In mid-April, as part of the $246 billion settlement between states' attorneys general and tobacco companies, tobacco advertising was taken down from billboards across America. The impact, it seems, has been less than monumental. American motorists are not gazing upon miles of empty billboards, as they might have expected. Nor is the cost of billboard space falling. Prime inventories are actually going up in price. One reason is that not a lot of inventory is being set loose. Tobacco held just 9 percent of billboard inventory when the settlement came, industry observers point out. "If this had happened 20 years ago it would have been a disaster," says John Hunt, Director of Research for the Outdoor Advertising Association of America. "In 1979 tobacco constituted well over 30 percent of our revenue." And not much of that space is actually going on the market. "It looks like 70 percent of what we'll lose in tobacco we'll pick up in attorneys' general options" to mount anti-smoking messages that were part of the settlement, says Jim McLaughlin, President of Chancellor Outdoor Group, which formed last year after acquiring top-ranked Martin Media and Whiteco Outdoor. The AGs may post the antismoking messages until the contracts expire. Much of what inventory remains is highly sought after. Tobacco may have diminished its share of inventory but what it kept tended to be the best spaces in the best locations. "There's a lot of demand for those prime locations," says Tom Wisz of Outdoor Systems, North America's largest out-of-home media company, operating 111,000 display faces in 48 states. According to Wisz, some advertisers like the Ford Motor Co. anticipated the tobacco settlement and had already negotiated multi-year deals on soon-to-be vacated billboards. "Available boards are going fast. People are into buy, buy, buy. The rule of thumb is a 5 percent annual rate increase and we're looking'' at increases approaching 20 percent, says Melody Willis of GSD&M. To Hunt, the rise in demand should come as no surprise. A lot of that tobacco inventory was actually under-valued, having been locked into long-term contracts since tobacco was removed from television ads in the late Sixties. "It's not a bad thing to get back your best positions from advertisers who weren't paying current market prices," he says. "It will sweeten the product mix. The going rate will be an increase." Still, prices can vary widely. "Painted boards on interstate locations sell themselves. Everyone wants them," says McLaughlin. A tougher sell are the smaller posterboards, which are usually packaged in groups. Price and availability vary in a marketplace that resembles a checkerboard, says Hunt of OAAA. "It's going to vary market to market, company to company." How long will the price bubble last? Willis thinks not long. ``At some point it's going to level out and prices will have to come down. The excitement of the new availability will wear out." But there also may be a longer-term trend in the works. Call it the Dangerfield factor. Simply put, the billboard business is going upscale, if ever so slightly . It's finally getting respect. Industries that might not have considered billboard advertising are entering the market. A study released by OAAA in March slates local services and amusements in the industry's number one slot--up from number two in 1997--at 10.6 percent, spending nearly $200 million on outdoor advertising. But not far behind were fashion, films, and hospitals and health plan—all relatively new to billboards. The departure of tobacco can only speed things along. "Billboards are finally getting away from the Rodney Dangerfield image to get some respect," says McLaughlin. "We're experiencing a great acceptance on Wall Street. The ball is finally bouncing our way." Kathy Prentice is a business writer based in Traverse City, MI. |