Digital Signage Fails Over And Over Again Until...

This is Can TV Save Itself By Becoming An Out-Of-Home Medium? Part II, The Prequel and Maybe The Sequel.

(Kind of like how in The Godfather, Part II, Francis Coppola so artfully went back and then forward in time. Except this column will not be quite so artful.)

A couple of months ago, this space was filled with my bullish takes on ad-supported digital cinema and mobile video. And I promised to look at digital signage soon after. The NAB show got in the way, but now on to digital signage. And on to being even more bullish than for the other two opportunities above.

Yet, so far, digital signage has performed far worse than these other new media, despite the fact that digital signage is the oldest of them (in the U.S.) by a long shot. There’s probably been half a billion dollars wasted in digital signage since it began around 1990. So why are we bullish now?

Some boosters of new media would say that TV is failing so badly at delivering ads to eyeballs—what with DVRs, downloads and multichannel fragmentation—that advertisers just have to go somewhere else. That argument makes sense only up to a very limited point, a point that will not do digital signage much good for quite some time.

Advertising CPMs in digital signage are now about $2. They’re typically $15 in broadcast daytime, $23 and up in primetime. Catastrophic underdelivery for broadcast would maybe lower CPMs by five bucks. Which would still be revenue per eyeball well beyond the biggest dreams of the digital signage guys. In the current network upfront ad season, the big nets—especially NBC—are certainly dropping their prices. But they remain an order of magnitude higher than digital signage’s ad rates, which means TV is still offering plenty more value to advertisers.

Meanwhile, advertisers are experimenting more than ever with other media. Significant additional dollars are flowing to traditional outdoor (with CPMs of about $6), which now includes some very in-demand digitally programmed but distinctly non-video signs owned by Lamar and Clear Channel. These are digital signage, sure. But they’re not anything like TV. They’re full-color, high-res electronic billboards.

Nonetheless, the digital-signage crowd believes they have the answer for advertisers who want to catch audiences that may be watching TV, but aren’t watching spots anymore. And they’re right. But they don’t know why they’re right.

Yes, there really is a New York-area diner video network. You can buy ads on that for roughly the price of an ad on a placemat. And the programming between the ads? Not quite as satisfying as what’s on the placemat.

Don’t think diners reach your demo? How about the auto-shop network, the bar network, the gas-pump network, the health-club network, the grocery store network or the elevator network? I’ve been generic about all these media avails, because there are some negatives discussed in this column and nobody should take them personally, but at least one example of each of these network types really exists.

In several cases, heavy-duty media companies are involved: Thomson owns Premiere Retail Networks, the largest digital signage company by revenues, with networks in Wal-Mart, Best Buy and many other store chains; CBS provides programming to SignStorey, which has screens in hundreds of retail stores; ABC provides programming to Gas Station TV.

Many technology vendors you know and trust have developed products aimed at the growing digital signage business: Chyron, Harris and Focus Enhancements, to name just a few. 3M, which used to be a big name in video technology and sold out of our industry a few years ago because it was only getting 11% growth, is now in the digital signage business, offering software. These are all savvy and serious players, and they wouldn’t be in the business if they didn’t have good cause.

Our research group has studied digital signage for three years running now. The successes are, for the most part, in a few areas: sports, sports and more sports.

We measured about $1.6 billion in 2005 ad spending for digital signage in the U.S. (That’s about 2% of what’s spent on network TV, but it’s growing rapidly.) About $1 billion of that was for sports media. In stadiums and arenas large and small, on the scoreboards, outdoor signs, screens in skyboxes and screens over the snack counters, sports works for out-of-home TV. There’s a captive audience, it’s well qualified, good demographics, happy to watch some ads interspersed with bloopers or classic plays or score updates. It works like in-cinema advertising works. And advertisers love to be associated with sports stars, like movie stars.

Compare this with video showing recipes over the deli counter, or showing movie trailers over the checkout lane, or music videos in a food court, or local news while you pump gas, or promos for tourist traps while you ride in a taxi. None of these is a total loser of a concept, but none has programming as compelling as seeing a touchdown while waiting in line for a hot dog, either. None offers an easy opportunity for annoyance-free use of audio (which is no problem in a stadium—already a cacophonous place). None can boast solid audience data for huge audiences that actually want to look at the screen for some length of time. Most digital signage companies are so small that a media buyer wanting to assemble a reasonable-sized audience would need to study dozens of separate buys. Yet without solid numbers from most digital signage, media buyers would break their fiduciary duty to clients if they spent their money on it. So digital signage companies approach marketers directly, who bypass their agencies and throw some experimental promotional dollars digital signage’s way.

Yet again, all of these problems will be solved.

Cable TV once had tiny, unproven audiences, too. But the volume of research about those audiences gradually grew, and suddenly, about 20 years ago, agencies turned on the money tap. And as ad money flowed in, the programming improved, enticing more ad money to flow in.

Far more than cable ever was, digital signage growth is driven by cost declines in its enabling technology. At some point in a few years, it will be cheaper for a grocery store to install and program video screens all over its premises than to employ the full-time labor to print and put up and take down sale signs every week. At some point in a few years, complex software to schedule ad play among thousands of screens for optimal reach and frequency will be common and cost-effective.

Digital signage is, precisely, still in its early days because those tech costs haven’t yet gotten low enough. But most of the cost of a signage network is in the displays and servers, and those pieces are declining in cost very rapidly.

Eventually, with video screens ubiquitous throughout the public environment, somebody will figure out moderately compelling programming to put on them. News, weather, traffic and sports all make lots of sense in most signage contexts; how-to home improvement, cooking or talk may make sense in others. And spots make far more sense shown close to a buying decision than shown on a TiVo.

Signage video is thus quite likely to be a major component of any local station’s or national network’s audience in a few years. After all, much of the same programming works well in both environments. At the very least, program producers will need to repurpose live or near-live content for signage venues. But harder links to stations are likely. For one, signage will typically be in HD, which is more than can be predicted with total confidence for the average cable signal. Ad avails on signage will likely be conformed with complex audience measurement algorithms into overall viewer totals that advertisers require to hit their own metrics for reach, frequency and whatever the latest media buzzword is then, such as today’s “recency.”

And, as in every other form of television over the decades, lots of people will have lots of fun building those networks.

Neal Weinstock is editor-in-chief of Weinstock Media Analysis and can be reached through