The dot-com phenomenon is fuelling growth in the poster industry. Along with the rest of the ad sector, it has certainly swelled the coffers of the UK’s only major independent, Maiden Outdoor.
But the group needs sustainable streams of revenue to help it combat potential acquisitors and aggressive foreign multinationals. Is the dot-com influx enough?
Maiden’s results for the year ended December 31 were announced last week with, presumably, some relief by chief executive Ron Zeghibe. After three profit warnings one in September 1998 and two in the first half of 1999 Zeghibe was able to announce a return to the black for the company.
Maiden reversed first-half pre-tax losses of &£2.66m, with profits of &£1.62m for the year, after &£2m of goodwill amortisation, and record second-half operating profits. Turnover was &£67.2m.
But 1999’s turnaround performance compares with profits of &£4.47m in 1998 on a turnover of &£65.3m. It is also in stark contrast to analysts’ forecast of &£5m full-year profits, which was downgraded from &£8m after the first-half results.
Maiden claimed its 1999 first-half profits suffered from the economic slowdown. This, it claimed, prompted advertisers to slash their outdoor budgets. The move hit Maiden’s core business 48-sheets hard.
The poster industry is experiencing growth: the Outdoor Advertising Association (OAA) says the market was worth &£595m in 1999, compared with &£563m in 1998 and &£500m in 1997. There was no growth in the first half of 1999, it says, but the second half saw a 13.4 per cent rise, making an average of 6.6 per cent for the year. Maiden’s annual sales were up five per cent.
Zeghibe is upbeat about the future: “The strong performance in the second six months of last year has continued into the first half of the current one. Revenues were up 24 per cent and we have already booked second-quarter revenues in excess of those for last year.”
The OAA confirms the same pattern of growth across the industry. Revenue is up more than 20 per cent up on last year, fuelled by dot-coms.
But Maiden managing director of sales and marketing David Pugh points out that the 1999 results were not overly reliant on dot-coms. They accounted for only two per cent – &£1m worth – of business. Food advertisers increased their spend by 40 per cent over 1999, while tobacco advertising is still strong, with the ban not expected to come in to force until June at the earliest. “The dot-com business is significant but financial services, motors, media and entertainment are bigger categories. However, dot-coms are here for the long term,” says Pugh. He predicts the sector will eventually account for 15 per cent of overall outdoor business.
TDI marketing director Mike Baker says revenue from dot-coms has increased from &£150,000 in 1998 to &£2.1m last year and is expected to be &£7m this year. He believes the “second wave” of dot-coms -established firms setting up Internet arms – will help sustain growth. “Outdoor is a genuinely broadcast business – it gets the message out to all people but can be targeted as well.”
More Group sales and marketing director Julie France believes some dot-com rationalisation will occur but revenue from the sector is sustainable. She says other sectors – packaged goods, food, and financial services – are turning to outdoor as TV prices increase and audiences fall. “Outdoor is more flexible than many people have realised,” she adds.
OAA director Iain McLellan denies dot-com revenue will disappear if the Internet bubble bursts: “This is not a blip. It might drop back a little, but dot-coms will have to continue advertising services after they have made themselves known.” He says the industry has become more “sophisticated, professional and transparent” and, as a result, is winning a greater share of the total advertising market.
He attributes the increase in professionalism partly to the US and French conglomerates consolidating the UK outdoor industry. Two years ago, the OAA had 13 members; today it has six. Advertising Association figures for 1999 give outdoor a 7.3 per cent share of market, compared with six per cent five years earlier.
Last year’s deal, which saw French giant JC Decaux buy Mills & Allen, increased pressure on Maiden to sell out to a larger group. More Group was acquired by US group Clear Channel in June 1998. The image of a “for sale” sign still hangs over Maiden, making the company’s future look uncertain, according to observers. Lack of investment is also cited as a problem.
JC Decaux is investing &£50m in a five-year redesign and upgrade scheme for Mills & Allen’s panels, while the More Group is spending &£10m on upgrades. Maiden, on the other hand, is spending &£5m on updating its sites and is launching a new 48-sheet scrolling format.
Where will Maiden go from here? Observers believe the UK’s limited potential will force it to look to Europe for growth. The move could also help it fight off predators, or at least scotch the “for sale” rumours.
Pugh claims Maiden’s independent status is an advantage, saying specialists are glad to be dealing with a UK company. Yet only time will tell whether Maiden has the resources to fight off its giant rivals and successfully exploit the growing outdoor sector.