A bird's eye view — advertising that still works
02 February, 2016
Australian Senior Portfolio Manager, Manuel Greenland, discusses the logic behind our investments in the out-of-home media sector.
Acclaimed television drama Mad Men depicts 1960's New York through the lens of a racy Madison Avenue advertising agency. In its first episode lead character Don Draper states, "Advertising is based on one thing: happiness." Of late, advertising executives have found happiness somewhat elusive, as changes in technology and consumer behaviour have made it harder to reach advertising audiences.
Cable and satellite television, and PVR recorders, have turned the one large television audience advertisers used to easily address, into a host of smaller ones. People spend less time on traditional media like television, magazines and newspapers, and more time on the internet. Even internet habits are changing as users' access content less on computers, and more on mobile devices. Audiences themselves have become more sophisticated, increasingly adept at ignoring adverts they don't find relevant.
So how might advertisers find happiness? Out-of-home media like signs, billboards and light boxes present them with a solution. As populations urbanise, people spend more time on streets, in cars and in retail environments, so the out-of-home audience is growing. Out-of-home adverts enjoy higher levels of audience engagement because they can be relevant to specific consumer occasions, such as a billboard advertising car hire at an airport, or a light box advertising perfume in a department store.
Technology is making a positive difference for out-of-home media as traditional signs and billboards are digitised. A traditional billboard advert takes weeks to prepare, and remains on the sign for a similar length of time. In contrast a digital advert can take just days to prepare, and can be played at times relevant to target audiences; the same sign might advertise coffee in the morning and wine in the evening. Recently, in anticipation of severe hailstorms in Queensland, insurance companies used digital roadside billboards to quickly warn motorists to get their vehicles under cover. Far fewer vehicles suffered hail damage, and the insurance companies saved on claims expenses.
Digital signs are also increasingly intelligent. One sign in Sydney played a specific advert only when it recognised vehicle brands with which the advertiser wanted to compete. So the very factors hurting traditional media — technological change and hard to reach audiences — are in fact enhancing the attractiveness of out-of-home media. Advertisers have noticed, and advertising dollars are quickly flowing to the sector.
Our holdings in the sector, APN Outdoor and Ooh! Media have shown impressive sales and profit growth by offering advertisers effective ways to engage with outdoor audiences. We chose to own both businesses because they are complementary, with APN dominating billboards and transit locations, and Ooh! Media dominating the retail environment. In combination the two enjoy strong market share, ensuring they compete rationally for sites and advertising dollars.
With half of all advertising dollars still spent on traditional media, advertising executives like Mad Men's Don Draper are keen to find ways to better reach audiences. Solving advertisers' problems with an innovative and effective solution provides a solid long-term growth opportunity for our portfolio companies.