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In the summer of 1941, the Bulova watch company opened an important chapter in advertising history with a short commercial aired on television during a Brooklyn Dodgers game. The world's first-ever television advertisement cost the company the princely sum of $9. Of course, TV advertising has grown immensely in popularity over the past 65 years. In fact, since the 1960's, the average length of a U.S. TV show has decreased by 15% -- time that has been used to accommodate more commercial programming. And when it comes to cost, Bulova got a bargain -- nowadays TV advertisements during important events such as the Superbowl can cost millions of dollars for a message that lasts just a few seconds. From that first $9 ad bill, TV advertising has become a multi-billion dollar business. But while it will never disappear, the TV ad business faces a few major challenges. First, the introduction of digital recording devices such as DVRs (digital video recorders) have enabled consumers to record programming and actually skip over commercials. Moreover, some research has shown that consumers simply ignore advertisements, rarely remembering the commercials they see during a particular show by the time that program has finished airing. Given just how expensive TV advertising can be, companies are often hesitant to shell out the big bucks, especially if they're not even getting the attention of their target customer base. Even more important is the challenge presented by the Internet. Advertising on the Internet and via e-mail can be more carefully targeted to a particular demographic than with TV advertising. For example, consumers visiting a stock market information website might very well be interested in discount brokerage services. Therefore, most brokers are happy to pay to have their ads placed directly on such targeted sites. This type of carefully targeted advertising typically leads to higher response rates. As such, it should come as little surprise that most major advertisers have expanded their Internet advertising campaigns in recent years, often at the expense of TV, radio and print ads. But the Internet isn't the only advertising channel that is growing rapidly at the moment. In fact, one of the oldest forms of advertising in the world is currently in the midst of a renaissance. Better still, while TV advertising is being challenged by new technologies such as DVRs and the Internet, this unglamorous advertising stalwart is actually growing faster than ever before by leveraging modern technologies.
Although that $6.3 billion is barely one-tenth the amount spent annually on TV advertising, the outdoor ad business is growing at a much faster clip. According to the Outdoor Advertising Association of America, spending on billboard advertisements jumped more than +8% in 2005. Meanwhile, spending on network TV ads actually fell, and newspaper ads grew barely 1% year-over-year. That's a dramatic outperformance. Why on earth is outdoor advertising growing so much faster than other traditional media? Several important factors are underpinning this exceptional growth . . . First, outdoor advertising is tough to ignore. Although you can skip a TV commercial by simply walking to the kitchen to grab a beverage or by using a DVR, drivers must look at signs posted on the side of the road. As such, advertisers can be sure that their billboards will be seen by a large group of awake, alert drivers each and every day. Secondly, there's cost. TV advertising is expensive, even in non-prime-time slots. In addition, advertisers often purchase large blocks of TV slots as a package. This makes such advertising affordable only to the nation's largest customers. While not exactly cheap, billboard advertising costs only a tiny fraction of your average TV commercial. As a result, even smaller companies can afford to buy billboard space. Thirdly, there's a supply issue. Thanks to a complex web of government regulations, the number of billboards that can be erected in the U.S. in a given area is limited. This keeps new entrants out of the market and benefits the established players. But far and away the most important factor supporting growth in the outdoor advertising industry is the digital electronic billboard. Traditional billboards are made from a vinyl sheet material that's actually glued to the billboard. When an advertiser wants to change the billboard's message, this involves a labor-intensive process that requires workers to actually climb onto the billboard and glue multiple new panels to the board. For this reason, traditional billboard advertisements are rarely changed more than once or twice per month; in most cases, advertisements are changed even less frequently than that. And when advertisements aren't changed frequently, they typically fail to attract as much attention from consumers. But the electronic billboard has changed all that. Digital billboards can offer more sophisticated graphics and moving pictures -- features that can attract consumers' attention more effectively than traditional static boards. In addition, electronic billboards can be connected to the Internet, enabling advertising companies to instantaneously change a particular billboard's message with the click of a button. This means that a particular advertiser can choose to rent a billboard in the morning, yet a different advertiser might pay for ad space on that very same billboard in the afternoon. What's more, individual advertisers can change their message frequently to help capture readers' interest. With all of these factors in mind, the outdoor advertising market has been red hot in recent months, and a number of well-placed ad companies have seen their share prices move sharply higher. In fact, one of the best-performing outdoor advertising stocks, which we'll profile in a moment, has skyrocketed +200% over the course of the last 12 months alone. But if you're worried that you've already "missed the boat" on the booming outdoor ad market -- don't be. The trend toward electronic billboards is still in its infancy, and a number of ad companies are just beginning to shift their focus to this new electronic format. As a result, outdoor advertising stocks should continue to handily outperform the S&P. Although hundreds of firms have a presence in outdoor advertising, my staff and I have managed to uncover what we believe are the three best-positioned publicly-traded companies in this growing market. All of our favorite firms are nicely leveraged to strong growth in billboard advertising, and all three stocks are well positioned to outperform the broader market in the coming months and years . . . Editor's Note: Throughout the remainder of this article, StreetAuthority.com founder Paul Tracy and his staff provide an in-depth analysis of their three favorite individual stocks in the outdoor advertising industry. To view the remainder of this article, you'll need to subscribe to our premium Market Advisor newsletter. Please visit one of the following links to continue . . . Good investing!
Paul Tracy founded StreetAuthority and became Chief Investment Strategist in 2001. Prior to that he spent several years as Managing Editor at a multi-million dollar financial publishing firm with over 150,000 subscribers. In addition to his role as managing editor and lead financial writer, he was also responsible for equity research and managing a team of seasoned professional financial writers, researchers and market commentators. Paul's previous experience includes a position at Robert W. Baird & Co.'s full-service brokerage operations as well as economic research work on a Money and Banking project funded by the National Bureau of Economic Research. He has also spent time doing outside consulting and research for the University of Virginia, has appeared as a guest expert on several prominent financial radio shows, and has been a featured speaker at various investment conferences across the U.S. Paul graduated with a B.S.
in Finance and Management from the McIntire School of Commerce at the
University of Virginia.
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Of
course, I'm speaking of the so-called "outdoor advertising"
industry -- more familiar to most consumers as billboard advertising.
Billboards are ubiquitous in the U.S., located adjacent to highways, on
bus stops or attached to the sides of buildings in major cities. In
fact, in 2005 alone, advertisers spent more than $6.3 billion on outdoor
advertising. And as my chart clearly shows, outdoor ad spending has been
growing steadily over the past 35 years.
