• by Erik Sass , Staff Writer @eriksass1, November 12, 2008

Digital out-of-home is still, by common agreement, one of the most promising new media, enviably poised for long-term growth. But that doesn't mean things are going to be pretty in the near term; in fact, given the unprecedented and unpredictable economic situation, how could they be? The current financial crisis has already laid low one big DO network, halted the roll-out plans of a second, and claimed a promising DO research initiative to boot.

The research concern went under last Friday with the Nielsen Co.'s announcement that it is shutting down its digital out-of-home research operation, a cooperative venture with Integrated Media Measurement, Inc. using specially modified cell phones to measure exposure to TV programming outside the home. The short-lived Nielsen Out-of-Home Report attracted such big clients as Zenith Media Services, ESPN, and Turner Sports with the promise of more precise measurement of out-of-home TV favorites like professional sports. However, the fledgling research service, which launched in April, survived just seven months before the sour economy brought it tumbling to earth, with Nielsen explaining: "It has become clear that in the current climate, there is limited economic support for this new measurement service."

Also last week Lamar Advertising, one of America's leading out-of-home companies, announced it would be suspending the expansion of its digital signage network in 2009: the cutback means it will probably only introduce 100 new digital billboards next year, in comparison with 400 unveiled this year. That reduces the new 2009 target from a total of 1,470 digital billboards to 1,170, lowering the network's target size by about 20%. Lamar made the announcement during its quarterly earnings conference call, which showed business already suffering with a 5.5% decline in net revenues, to $312.5 million.

The wave of bad news began with the closure several weeks ago of Reactrix, an out-of-home network whose technology allowed users to control the motion of digital displays in public places, drawing them into interaction with an advertiser's brand with games, art, and other options. The network's big-name venue partners included National CineMedia, which signed a deal with Reactrix to bring digital displays to its partner's theaters in March, and Clear Channel Airports, which followed suit with a similar deal in May. However Reactrix burned through four progressively larger rounds of funding from venture capitalists worth a total of $85 million or more, with the last round delivering $45 million in February, 2007.

While it may be cold comfort for DO network owners, out-of-home advertising in general has slowed noticeably. Second quarter data (the most recent available from the Outdoor Advertising Association of America) show that revenue increased just 1% compared to the same quarter in 2007; that's down from 3% growth in the first quarter and an overall growth rate of 7% in 2007.

The economic downturn is also hitting other digital media hard, especially the Internet. A recent projection from Borrell Associates has local interactive advertising growth slowing markedly over the next year, from 47% in 2008 to just 8% in 2009. Meanwhile in October Google revealed that Internet ad revenues increased 31% in the third quarter, down from its 57% growth rate in the third quarter of 2007, and Yahoo revealed that ad revenues grew just 1% in the third quarter.

The Internet comparison also holds out some long-term hope, however. Like the Internet, the basic value proposition of digital out-of-home remains undiminished, despite the current economic situation. With luck the medium is merely experiencing the same kind of painful but transient setback that Internet advertising had to negotiate in 2000-2001: in the wake of the dotcom boom and bust, as the economy in general headed south, the promising new medium saw year-over-year growth rates plummet from a 127% increase in the second quarter of 2000 to a 7.8% decline in the first half of 2001, with steeper declines to follow. But Internet revenues eventually rebounded, beginning with an 11% year-over-year increase in the first quarter of 2003. Subsequently, total annual Internet ad revenues grew from $7.2 billion in 2003 to $21 billion in 2007, an increase of over 200%.