Underground Profits: Submedia's Corrigan Tunnels For Ads

Peter Corrigan of Submedia Earlier this month, Barclays Capital issued a dour forecast for the outdoor ad sector in the U.S., calling for minimal growth this year and none next year. The firm predicted a 1% revenue increase in 2008, and the category to be flat in 2009. Bucking the trend is a New York-based company that offers in-tunnel advertising in subways.

Submedia does not deal in billboards that line the waiting platforms, but a proprietary technology that takes a succession of static images and transforms them into a moving-picture-like image for passengers who speed by.

Riders on New York's PATH train, for example, could watch the Nesquik bunny chase after the chocolate drink and then take a blissful swig. The individual units that produce the "action" for passengers are overlaid on light boards--and a full "scene" lasts perhaps 15 seconds.

Submedia, which also has some above-ground displays, is on pace to double its sales this year. One theory: in markets such as Atlanta, where people love their cars, the economic downturn and high gas prices have led to ridership increases on commuter trains. And advertisers follow traffic.

Another plus: the medium is not as dependent on the struggling auto category. Movie marketers continue to gravitate to it, and believe that a moving ad is an ideal way to promote a film. On a related front, Discovery Networks repurposed an on-air spot for an Anthony Bourdain show for the Washington Metro. Some marketers appreciate not having to develop new creative, but the opportunity to repurpose TV ads.

The 7-year-old business launched on Atlanta's MARTA system in 2001 and a year later expanded to the New York-New Jersey PATH system. Chicago's "L" (which has tunnels, but is known for its above-ground tracks) went online in 2005.

Submedia has its own U.S. sales force. The current rate card is about $35,000 per display per month in Atlanta, and ranges up to $75,000 in San Francisco. Production costs are an added outlay. Buyers get discounts if they contract for multiple displays or multiple markets.

In addition, Submedia operates in all corners of the globe, from the U.A.E. to Istanbul to Tokyo. Now it's moving aggressively into China and India. Displays in Paris, Singapore and Sao Paulo are coming soon. By next year, Submedia will have 43 displays in 17 markets.

The company runs the bulk of its U.S. systems itself--it cuts revenue-sharing deals with the local transit authorities--although it has a partner, Sidetrack, in Boston, San Francisco and Los Angeles. Outside the U.S., it co-ventures with local companies.

The New York Times reported last week that Submedia's partner in some U.S. markets will be launching displays in the New York subway system next year. Submedia hopes to have a presence there in the future.

Going forward, Submedia is in the process--like many out-of-home companies--of digitizing its displays. That could boost revenues as advertisers can change creative throughout the day.

Privately held Submedia is led by Peter Corrigan, who took over five years ago as CEO. The investors turned to the former attorney, expecting him to lead a turnaround, increase value and execute a sale. But Corrigan has persuaded them to pursue a growth strategy--one that looks ripe with international opportunities.

Corrigan took some time to speak with MediaPost on a range of topics, ranging from how Submedia is prospering in a down economy to a "Star Wars" campaign in Tokyo.

MediaPost: How did the founders identify subway tunnels as a potential ad medium?

Corrigan: No one was there. JC Decaux and Clear Channel have all the airports locked up; the big media players have all the malls locked up. The subway tunnels were a place where no one thought to go back then.

MediaPost: How has Submedia continued to grow with all the turmoil in the ad market? Have high gas prices been a factor?

Corrigan: I can't point to that trend and say that's the entire reason why our sales doubled in the first six months of this year. But it's an important factor. Transit authorities are hit with higher oil prices--and they're looking for ways to get more non-fare-box revenue. Advertising is an option.

MediaPost: What's the company strategy?

Corrigan: Local companies have local pull and understand the market, so we've teamed up with them. And we find that's a much better way to grow the business. On the ad sales side, we sell together, so we've done some global deals. We've done deals that cover the U.S., U.K., Hong Kong and Tokyo all in one shot. So, we have sales coordination among all the Submedia partners around the world. But otherwise, we're operating on licensing or joint venture scenarios.

MediaPost: Digital out-of-home displays are sweeping the industry--how does it apply to your business?

Corrigan: We could put in 30 different ads per day in a given display. You could have one train seeing a commercial, and another train seeing another. It allows us to tailor to advertisers and makes it more attractive for an advertiser to buy the medium. It's going to help with the movie category, which needs flexibility with dates. Separately, once we have all our displays converted to digital, our company will be totally green. We will not be involved in the printing process.

MediaPost: How has the in-tunnel medium been received overseas?

Corrigan: We've had some great creative all over the world. And I love the fact that we're getting more movie trailers. In one case in Tokyo, we had some footage from "Star Wars" that was actually not in the movie. People came on the train just to watch the technology. We're just providing a blank space for advertisers, and the creative people recognize that. They try to get bits out of their television commercials that will really blow people away on the train.

MediaPost: What's the relationship with Sidetrack in Boston, San Francisco and LA?

Corrigan: We work together to offer one complete buy to the advertisers--so they can buy multiple markets. We're not really competing; we're working together. I may have New York, Chicago and D.C., and they may have Boston. And if the advertiser wants Boston and New York, they can do that with one ad buy. So, we kind of have a fren-emy thing going on. We compete for the space (to get the transit authority contract), but when we get the space we sell it together. We don't want to be in a position where advertisers need multiple contracts for tunnel advertising.

MediaPost: You've done deals with General Motors, Ford, Toyota and Honda. How has the decline in auto advertising impacted your business?

Corrigan: Although we have seen some automotive revenue this year, it's been a fraction of the past. The reason why the automotive industry loves us is--we have one of the few places where you can show the car moving.

MediaPost: Much has been made about the possibility of congestion pricing coming to New York, where drivers would be charged a hefty fee for driving into Manhattan during the business day. If it does, ridership on the PATH and other trains is almost certain to grow -- probably not bad for your prospects? Corrigan: That's not only here (New York). London does a good job with that and it's actually made the city more manageable. You're going to see that in Chicago and D.C.

The other place you'll see it is in L.A. Five years ago, they would say no one uses transportation there, but that's not the case today. They're building parking lots for people to park and hop on a train to get around, and I think you're going to see more of that in major cities.

MediaPost: The L.A. market is always intriguing--with the perpetual question of whether people will ever give up their cars. They seem to complain about the traffic, but still put up with it. Where does Submedia fit in there?

Corrigan: We have a joint venture with Sidetrack and have one display. We tend to build one display and see how sales go in a market before we build another. That's what we did in New York and Chicago.

MediaPost: Is the recall rate for your moving images really better than TV? You offer sight and motion. But conventional wisdom holds that the sight, sound and motion troika allows TV to trump other mediums.

Corrigan: There have been seven studies done. The first was with the launch of our first display with Dasani in Atlanta. Coca-Cola, which owns Dasani, bought TV, radio, newspapers and other out-of-home stuff, and then they went out and did a study on the effectiveness of their ad buy with us. And they found that the highest recall was subway tunnel advertising. It had a 93% recall rate, and the closest to that was TV at 13%. Two years later, we did it again with General Motors for one of their cars, and it came up basically the same. And then we did one in Hong Kong with United Airlines, which also had a very high recall rate. It's not just the medium, it's also the creative.

MediaPost: You were a lawyer for 14 years before joining Submedia at the request of the owners. What were your expectations when you moved from helping businesses grow to being responsible for doing it?

Corrigan: I expected to be in and out very quickly, just do a turnaround and then allow for a sale. But I enjoyed it so much I thought I'd stay here and build this, and that's what I ended up doing.

MediaPost: Is the goal still to sell?

Corrigan: We've had discussions with a couple of suitors over the years--and I guess ultimately, someone will buy us. But right now, there's so much achievable growth in front of us, so it makes sense for us to continue. Otherwise, we're leaving a lot of money on the table.

MediaPost: How much of your future growth do you anticipate will come from international markets?

Corrigan: We can grow a lot more in the U.S., but we've just scratched the surface in other parts of the world. In places like India, we could have 80 displays there--and we expect to get to that point. It's probably one of the biggest growth markets in the medium--and that's a product of how their transit systems are developing. In India, new transit systems are coming online and we're beginning to benefit from a giant shift in ad dollars.

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