Kinetic future of out of home media patrick barrett at the royal institute 2011

Investment, Technology

and the Consumer

by Patrick Barrett,

Simpatico PR on behalf

of Kinetic Worldwide

At the Royal Institution of Great Britain

At the Royal Institute of

Great Britain

July 6th 2011

To read the full report,

please click here.

Scale and the Investment

challenges of Out of Home

p + v =

Investing in Digital

Investing in Digital

The factors driving investment in digital Out of Home

media are essentially the same that have driven all past

investment.

Improving quality of presentation: which means premium

pricing.

And:

Increasing the volume of campaigns a site can carry:

which means higher yields per site.

However, the investment equation is not that simple.

What are the challenges facing

investors?

=

What are the challenges facing

investors?

In reality the equation probably looks more like this!

Setting aside the issue of local authority planning restrictions for a

moment…..

The list of factors that dictate success or failure of capital

expenditure on digital Out of Home formats goes something like

this:

• Site location – potential audience

• Future of site

• Measurement and ROI

• Site design and presentation

• Hardware costs

• Contractual obligations

• Technology life-span?

• Scalable, compatible, up-gradable?

• Maintenance costs

• Advertising market conditions

• Overall economic prospects?

What are the challenges facing

investors?

A recipe for growth

A recipe for growth

The attraction of High dwell time locations has also stimulated

investment in entirely new poster advertising networks.

The in-store environment is, on paper at least an ideal location to

capture people’s attention. And they are fast becoming a major new

component of the Out of Home landscape.

However, the failure of digital screen networks in supermarket chains

is testament to the fact that the devil truly is in the detail when it comes

to creating new digital poster Capex projects.

Issues such as: Site positioning, queuing systems, ease of installation

and data transmission are critical to the success or failure of new interior

site networks.

Quality of audience and measurement are also critical factors if new

networks are to prove sustainable.

A recipe for growth

A recipe for growth

Most of these criteria are just as true for the other main area of

digital poster and billboard investment:

Bespoke or iconic, roadside digital screens.

Cherry-picking small numbers of high-value locations and

installing sites that become in effect local landmarks - has

attracted new investors along with established media owners.

The proposition combines large audience reach with high

quality delivery and commands a premium.

However, this sector will remain a niche relative to the total Out

of Home universe. Kinetic calculates that there are

approximately 400 locations nationally that could sustain this

kind of investment strategy.

Urban Planning

Urban Planning

The biggest restraint on investment in digital screen

inventory is of course local authority planning restrictions

This is a significant problem for investors seeking to

develop national roadside networks …..

…there is no single uniform approach to urban planning.

Criteria for developments are set at a local authority

level.

Public safety, particularly for drivers who might be

distracted by moving images is always going to remain

an obvious restraining factor on investment.

Unless your site is in a primary location, it’s unlikely

investment in a static screen running a real can be

justified until hardware prices fall to a sustainable level.

Steve Davis

Clear Channel

Local authorities have

become wiser to the

potential of Out of home

Urban Planning

However, our consultation with the industry reveals there may be

considerable scope for greater flexibility from local authorities,

which could unlock significant future investment, particularly in

roadside sites.

The bottom line is that financially squeezed local authorities are

likely to look to their property portfolios - to bolster their incomes.

Kinetic expects future Out of Home media contract tenders to

open up investment opportunities.

The question is though - who will be in the driving seat?

The investor or the landlord.

Investors may indeed face pressure to over invest and over-

deliver on digital advertising revenues.

Pricing and the risk of cannibalisation

Pricing and the risk of cannibalisation

But as we emerge - at snails pace from the economic slump how

much new money will digital out of home networks generate for

media owners?

And what level of pricing is sustainable? Our consultation drew out

two clear points that investors must consider:

The first is that calculating a realistic long-term pricing structure is

essential. Digital sites typically carry a premium. But a premium

based on what?

Clearly a combination of high quality presentation, flexibility and

audience reach will naturally command a higher prices

But - here’s the thorny question: The basic rules of supply and

demand will come into play as the supply of digital sites increases.

Neil Morris

Grand Visual

Really dynamic ideas are

uneconomical to deliver if

you don’t have big networks

to play them over and the

capability to reach massive

numbers.

Pricing and the risk of cannibalisation

This will be mitigated by the roll-out of

national digital networks, which will clearly

answer a demand from advertisers and re-

enforce the value of digital posters.

Pricing and the risk of cannibalisation

Pricing and the risk of cannibalisation

But again, will advertisers who had been able to

buy a 6 sheet network exclusively….

….be happy to share those sites (on a reel) and

pay more because it is now an LED screen?

Pricing and the risk of cannibalisation

Pricing and the risk of cannibalisation

The second issue is that not every pound generated by digital will

be new. Digital sites will to some extent cannibalise static poster

inventory.

The central theme of this report and one which we will return to

again provides an answer over the long-term – to these two difficult

challenges.

Kinetic’s view is that if Digital technology is to drive total Out of

Home market share: media owners must extend the proposition of

out of home media to one that can deliver : highly targeted, highly

dynamic campaigns outside the home.

And media owners must position this alongside the traditional

strength of Out of Home - broadcast audience reach….

..to do that digital networks must be sold flexibly and their full

technical capability must be unleashed.

Pricing and the risk of cannibalisation

Pricing and the risk of cannibalisation

If technology is used simply as a better way of distributing and

showcasing creative…..

…..the industry will miss a massive opportunity and many

investments may fail to generate a sufficient return.

Media owners must use technology to create a point of

difference.

Matthew Dearden

Clear Channel

If all we do is take

paper and turn it into

pixels, we’ve burnt a

lot of CAPEX to no

advantage.

Pricing and the risk of cannibalisation

A new capability that will drive new revenues and make

premium prices sustainable

– in return advertisers will get to communicate with consumers

in ways and in places they’ve never been able to before…..

This is an enormous opportunity…

….and is a clear reason why the vast majority of Out of Home

stakeholders see digital investment as the key driver for future

growth

- but advertisers will only care if it adds value!!

Russell Davies

Ogilvy and Mather

I think a lot of the people are

assuming a sort of linear, nice,

comfortable, transition to digital.

To me the only certain thing is it’s

not going to be like that.

Staying ahead of the technology curve

But if revenue growth depends on capability and efficiency…

…then over the coming decades Out of Home media may

experience something of a technological arms race.

In fact if all the other ingredients for investment success

weren’t enough, the final one could arguably be the most

important:

Staying ahead of the technology curve.

Staying ahead of the technology curve

Staying ahead of the technology curve

Investing in kit that will enable you to create a point of difference not

just next year,but in three to five years will be an on-going

conundrum.

We are for example three and a half years away from a point where

Enders Analysis estimate 75% of the population will carry a

smartphone.

When will be the right time to invest in interactive technology across

national networks?

What is the potential for electronic ink? Could I use e-ink to digitise

the rest of my static network.

The only certainty in all of this is that the evolution of poster

technology and its deployment will be unpredictable.

Kinetic View – Investing in Digital OOH

• Urban planning restrictions are a natural barrier – but

greater flexibility expected

• Technology lifespan and upgrades

• Price depreciation is inevitable - examine the long-term

sustainability of investments

• Real potential for cannibalisation of revenues

• Don’t invest just to create a new delivery system

• Do invest to unleash the potential of flexibility and

targeting capability

• The new Out of Home landscape must be defined and

marketed effectively

Technology and the

Consumer

David Fletcher MEC

Technology allows Out of

Home to compete on an

equal footing with what in

effect are the two

mainstream mediums of

today; TV and online.

The Technology Curve

Investment in digital posters is not a parochial trend that is happening

in isolation.

The arrival of digital posters can and should be seen in the context of

the massive recent growth in internet connectivity, mobile

communications and the digitisation of other media.

Digital Out of Home is also inextricably bound to trends in the

advertising business….

……whether that’s social communications, mobile technology or the

consumption of content.

In compiling this report we deliberately set out to create a realistic

picture of the future and considered technologies that will have an

impact within ten years.

The Technology Curve

State of the art

Text

Bluetooth

LCD screens

QR codes

Augmented reality

3D screens

Wi-fi

Near Future

Consumer recognition

Individual recognition

NFC

RFID

e-ink

The Technology Curve

Perhaps what is most surprising though is that

much of what would have been deemed

science fiction even two years ago, is

becoming a reality and could be deployed in

numbers within ten years.

Technology and the Consumer

Technology and the Consumer

Perhaps the way to look at the newer technologies is to

consider how and why they might be deployed.

Some may simply enhance presentation.

Others could help change the game for the medium and for

advertisers.

Technology and the Consumer

11 million per hour

Technology and the Consumer

It’s worth remembering that good old

fashioned text messaging has already

forged a relationship between mobile

phones and posters.

And with good reason:

The latest figures from the Mobile Data

Association show consumers in the UK send

11 million text messages an hour.

Technology and the Consumer

Technology and the Consumer

QR codes are also becoming part of the out of home technology

landscape.

They’re becoming ubiquitous across advertising channels,

packaging and content…..

But there’s some debate about whether QR codes are here to

stay and what consumers really think of them.

Kinetic recently ran some consumer research to find out.

Emerging technologies

44% say they’re familiar

with QR code images

39% think they know what

to do with them

Source: Kinetic Panel, May 2011

Emerging technologies

Source: Kinetic Panel, May 2011

We found:

44% of consumers across all age groups say they are now familiar with QR codes

12% of consumers have successfully scanned a QR code

This increases to 20% amongst 18-24 year olds and 15% for 25-34 year olds.

People are open-minded about using QR codes

37% of consumers think they could be useful, while 35% are not yet sure – 39% at least

know what potential they can offer.

Of the possible content delivered by QR codes,

49% said they would like a product voucher or brand information,

42% said a link to a website could be useful and 26% would like exclusive content.

In the short to medium term QR codes are likely to be a primary vehicle for poster

interactivity.

Technology and the Consumer

Technology and the Consumer

Out of Home is also experimenting with Augmented Reality.

Many of you will have seen the brilliant Lynx execution at London

Victoria and Birmingham stations where angels dropped to the

ground and appeared to interact with consumers.

In the US retailers are already mixing social media, posters and AR

to signpost virtual pop-up stores visible only through mobiles.

Of all the technologies already in use AR probably has the furthest

to go in terms of its potential evolution.

And is perhaps the least predictable in terms of impact.

Technology and the Consumer

Technology and the Consumer

Near Field Communications or NFC is beginning to grab

the technology headlines.

In a very real sense NFC could be the technology that

transforms our mobiles into a universal device.

A device which could interact with pretty much anything.

A swift tap on the appropriate surface or terminal is

enough to buy or receive information.

As such it could become as important to out of home

media as LCD screens.

Technology and the Consumer

Technology and the Consumer

Since 2002 when The Minority Report was first screened the Out

of Home industry has been plagued by questions about if and

when, it would become possible for a poster to identify and target

an individual passer-by.

This year both NEC and IBM were reported to be close to

bringing this technology to market.

Science fiction has become science fact in less than ten years

But will we really see this deployed?

The fact is there are serious practical, legal and ethical issues

that come with individual targeting.

Kinetic’s view is we won’t see it deployed in meaningful

numbers anytime soon.

Consumer-type technology

Consumer-type technology

However, we do think that in the medium we could begin to

see large numbers of “consumer-type” recognition capable

posters in use.

Posters that will react to passers-by according to age, sex and

mood..

The technology is ready:

The question is when will media owners, agencies and of

course advertisers be ready too?

The behavioural trends affecting Out

of Home

The behavioural trends affecting Out

of Home

But what about consumers – do they have a say in all

this?

Technology is in fact just one of a series of long-term,

deep rooted patterns of change in our lifestyles and in

our environments…..

……that are directly relevant to the performance of Out of

Home media in the long-term.

Evolving Lifestyles and Environments

Evolving Lifestyles and Environments

The last hundred years or so has seen waves of new media

technology influence consumer behaviour, our attitudes to and

our awareness of the wider world.

News print, cinema, radio, TV and the internet have all helped

shape modern lifestyles and the rhythm of modern life.

Arguably, Out of Home is the one medium that hasn’t impacted

directly on social behaviour.

A moving world

A moving world

Posters have instead been a constant – an accepted and

appreciated aspect of our urban landscapes delivering huge

audience reach and with the right creative – powerful engagement.

However, it is also arguable that Out of Home is the only medium

that has consistently grown its audience as a direct result of wider

external trends occurring in developed societies.

A moving world

A moving world

Kinetic’s global Moving World programme of research has

highlighted the changing face Urbanisation.

Half of the world’s population now lives in towns and cities

and earlier Andrew described the move towards the smart-

city environment.

We are travelling more by train, by road by air – taking

more journeys, travelling further and spending time in

places where we are more relaxed and generally happier.

Retail and leisure pursuits have become enmeshed in our

culture.

People are simply out and about enjoying themselves and

their surroundings more.

Mobile computing

Mobile computing

The growth of mobile computing is just the latest external

trend to impact on out of home media.

It’s probably time to stop thinking about the device in you

pocket as a phone.

There is now a mountain of evidence that suggests that

our computer usage is shifting from desktop to mobile.

Mobile computing

Mobile computing

Kinetic’s research in May suggested smartphone penetration

is at 45%. A recent study by Essential Research found almost

40% of smartphone owners use their device to access the

internet every day.

Our consultation across the industry identified the future

relationship between mobile technology and posters - as one

of the most important challenges and opportunities the sector

faces.

But what is the challenge? We think its this:

To create a consistent opportunity for advertisers to use

seamless, transactional, high-volume “Poster-to-Mobile”

advertising.

Why mobile matters to Out of Home

Why mobile matters to Out of Home

Why does mobile matter to Out of home media?

What kind of relationship could a poster have with a person

and their mobile beyond the established one?

Of all the medium term emerging technologies: NFC

provides the answer. It enables instantaneous download

from say a cash till or any surface to a mobile.

Critically for Out of Home media NFC sidesteps the issue of

dwell time.

Technology and the Consumer

Technology and the Consumer

Instead of luring small numbers of consumers into lengthy rich

media experiences via a poster….

…..NFC creates the possibility of a high volume of instantaneous

brand transactions.

The typical scenario might see shoppers strolling through a mall;

spot a price promotion on a digital 6 sheet for a retailer 25 yards

away - and casually tap the site to take a voucher as they walk

past on their way to Boots or Next.

Perhaps that 6 sheet is smart, perhaps it spotted the group

walking towards it were women and tailored the display

accordingly.

Richard Metcalf

Joule

The smartphone will mean

every single site is going to

be (effectively) digital.

Technology and the Consumer

Integrate that with real-time planning linked to stock

management - or the weather and you have an

advertising platform in urban spaces that can deliver

highly targeted campaign……

……taking the relationship with consumers to an almost

intuitive level.

In effect the creation of a very different form of poster

advertising is potentially a few short years away.

Changing behaviour

Changing behaviour

It’s worth remembering people adapt rapidly to new technology. Here’s

a couple of recent examples of rapid technology – driven behaviour

change:

Ten years ago Big Brother and similar reality TV shows pioneered the

use of text messaging to create a consumer interaction with content.

After Big Brother it became normal to interact with a brand by text.

Likewise the Oyster Card introduced Londoners to the concept of the

pay as you go touch travel card.

According to Transport for London pay as you go Oyster cards are now

used in 2 million journeys a week in the capital.

It’s not inconceivable then to anticipate that consumers might get

used to tapping their phones against different surfaces.

Especially if an instant reward is being offered for minimal effort.

Mike Baker

OMC

People are beginning to recognise

the fact that there is linkage

between social media, instant web

access, 3G mobile, location and

brand or retail proximity and that

outdoor has got a potentially

significant role to play.

Changing behaviour

So does Out of Home have a viable opportunity to tap into

interactive and social media exchanges - does iOOH have a

future?

To get an early view on that question, Kinetic carried out a wave of

national and London-only research in May.

The results provide strong indications that not only do most

people like digital posters, but they can already see the potential for

entertainment, information and interaction at digital poster sites.

Consumer affinity with Digital OOH

• 50% of consumers say they’ll

download promotions from

posters to their mobiles

• 75% expect to carry a

smartphone or tablet computer

• 66% expect to see digital

screens in most city centres

• 70% think digital posters

beneficial in high-dwell time

locations

• 20% expect posters to recognise

them in the future

Source: Kinetic People Panel, February 2011 / Future of Out of Home

Source: Kinetic People Panel, February 2011/ Future of Out of Home

• 66% of people expect to see digital

screens in our city centres in future

• 47% of people agree that digital poster

screens make shopping malls more

interesting and attractive

• 58% say that it makes public transport

environments more attractive

Digital screens make environments

more attractive

Great Potential for interaction

• 20% believe that in the future, digital poster sites

would be able to recognise who they are

• 26% expect posters to be able to target them with

ads or information relevant to what they are

doing at the time.

• Around 20% of consumers already expect that

they will be able to interact with most advertising

in the future.

• 11% said they expected to buy a product or

service directly from an interactive poster

Source: Kinetic People Panel, February 2011 / Future of Out of Home

Kinetic View – Technology and the

Consumer

• The technology will facilitate a transformation of Out of Home

• All the indications are that NFC or similar will become a mass

market mechanism

• We anticipate that the big opportunity will be in instantaneous

downloads via people’s mobile devices; Out of Home media will

have thousands of relevant locations across the UK.

• Interaction could be applied just as easily to a static poster as a

digital screen.

• Consumers will interact with posters given the right incentive.

• OOH has the opportunity to reshape itself into a dual proposition:

− Offering broadcast reach through large numbers of well-placed

static sites and highly targeted and dynamic campaigns.

• It’s a big challenge, but there’s every sign the industry will grasp

the opportunity and re-shape the media landscape.