Despite the positive outlook, the digital out-of-home business faces challenges," the report warns. "In the short term, the sector is untested in an economic slowdown, although it was holding up well in the first half of 2008. Second, while major brands are pressuring their agencies to take a closer look at digital OOH, agencies are demanding more and better measurement on the effectiveness of digital out-of-home advertising. This will be key to the struggle [of] digital out-of-home."
While macro economics may be somewhat out of the control of digital outdoor media purveyors, VSS notes that the industry is taking proactive steps, including efforts by the Outdoor Video Advertising Bureau, the Traffic Audit Bureau, and individual companies, to accelerate better measurement and ROI metrics.
"Cutting-edge measurement, particularly engagement metrics such as new 'eye-dwell' technology, has the potential to make digital out-of-home spending a prominent component of media plans in the future," the analysts predict.
Improved metrics, and accountability, coupled with increasingly mobile consumer lifestyle patterns, and a shift away from static video advertising, meanwhile, is expected to accelerate digital out-of-home advertising's share of the outdoor medium, as well as the overall advertising marketplace.
VSS projects the "alternative" out-of-home media sector will grow at a compound annual rate of 22.5% through 2012, which is considerably faster than the overall growth of the U.S. advertising marketplace, and only a slight slowdown from the 24.6% annual rate of growth the medium experienced over the past five years.
Based on those projections, VSS estimates alternative out-of-home ad spending won't be so alternative by 2012, when it will total nearly $6 billion, and account for nearly half (46.4%) of the entire out-of-home advertising marketplace. That compares with a tepid 3.8% rate of annual growth for traditional outdoor ad spending through 2012.
While the VSS report does not explicitly breakout the future growth of the sub-segments of alternative out-of-home media -- video advertising networks, ambient advertising, and digital billboards -- it finds that digital video networks are currently the lion's share of the market, accounting for $1.285 billion, or 59.4% of the $2.165 billion total alternative marketplace during 2007.
"While video ad networks remains the largest alternative OOH category, digital billboards and displays grew the fastest in 2007, due to the strong rollout of new at-road signs, primarily from Lamar and Clear Channel. Spending on digital billboards increased 59.7 percent in 2007 to $372.0 million," the report found.
Interestingly, the time Americans spend with out-of-home media has also been growing at healthy rates, due to the increase in digital out-of-home locations, as well as changing lifestyle patterns. But VSS actually projects it will decline slightly this year (-0.3% to 135 hours per average American), though that is likely a short-term blip related to the impact of increasing energy costs.
"There is a little bit of a deceleration going on," says Leo Kivijarv, vice president-research at PQ Media. "People are taking fewer flights and driving fewer miles" due to rising energy costs. He calls this a short-term cyclical development, and that on a long-term basis, digital out-of-home media is expected to increase the share of time consumers spend with media.
U.S. Out-of-Home Ad Spending (in billions), Annual Growth Rates
2007 Ad $
2002-07 (annual growth)
2007-12 (annual growth)
Projected 2012 Ad $
Source: Veronis Suhler Stevenson, PQ Media