Have you tossed around the idea of converting to a Digital Billboard? Not sure if your location would support a Digital structure? Over the past two-decades Stark Capital Solutions has advised numerous Outdoor Advertising Companies on if they should convert their signs to digital structures.
Author’s Note: Chris Stark has been in the Billboard/Communication Tower Industry since the late 1990’s. The following blog information is intended to highlight his experience inside the industry and provide value to independent operators. The following information is based solely upon the experience of the Author and should not be used for legal or financial advice.
The development of digital billboards has been sweeping the outdoor advertising industry since the early 2000’s. Leaving the question to billboard operators: “Should I convert my signs to digital or not?”
Before we dive into converting or not converting in today’s marketplace- lets give some brief history of the digital billboard era.
Prior to the late 1990’s many companies manufactured LED screens primarily for indoor use only. After recognizing the major application for outdoor use (i.e. billboards, stadiums, etc.), the race was on to perfect viewable outdoor LED screens. The earlier challenges included the high cost of producing the screens and the difficulty getting blue and green colors to be viewable in sunlight.
Our experience with outdoor advertising digital signs began nearly two decades ago- a privately owned billboard company made the decision to upgraded one of their static faces to digital in Las Vegas, Nevada. Similar to most new-technology, the LED upgrade was extremely expensive. We financed the project and the 10’x10’ billboard cost over $750,000 to renovate! In addition to the marginal quality of the image and significant cost to convert, the early adopters also struggled converting national advertisers to spend precious advertising dollars on the new format. Due to digital signs being so limited, the agencies simply did not know how to effectively blend them into a traditional outdoor campaign.
As the LED technology improved, costs came down, and advertiser demand surfaced, the digital billboard trend began sweeping the industry.
The following article is aimed to highlight the major factors a Billboard Company needs to consider when evaluating whether they should or shouldn’t upgrade to a digital billboard.
On average the capital required to develop a two-faced digital billboard can cost up to 5x’s compared to a basic static sign. The capital needed to develop these signs can simply be out of the budget for many billboard operators.
Although in the appropriate location, digital billboards have been proven to generate more cash flow and sell for a much higher value, many risk-adverse operators don’t like the idea of investing or borrowing the significant capital required to finance an upgrade to digital.
Unfortunately, due to restrictive zoning, not every city allows digital billboards. In addition, those that do allow digital billboards usually have more restrictive rules for the location of digital signs. Opponents of digital billboards say that the signs cause more distractions when driving, decrease property values of nearby home-owners, and significantly increase energy consumption.
It is critical to do your local due-diligence prior contemplating an upgrade.
One of the primary reasons why operators don’t convert their sign to digital is because the location may not financially support the upgrade.
Similar to a multi-family apartment building- if the demand for tenants (advertisers) isn’t high in the area, a real estate investor would never build a multi-level apartment complex. In other words, if the demand for billboard-space isn’t high, or the market is saturated with competition, the risk of high vacancy may not support the significant cost a digital upgrade.
After converting to a digital billboard- most state and local rules allow up to EIGHT advertising spots cycling every EIGHT seconds on each face. Compared to the a static sign, that allows for an increase of 8x’s gross revenue!
The additional revenue alone makes converting a static billboard to digital seem like a no-brainer!
With digital signs becoming more popular in today’s marketplace, more advertisers are only wanting to be advertising on digital displays. In addition to the eye-catching display, advertisers have more flexibility and are able to create targeted ads based off the time of day, local events, etc.
For example: McDonalds is able to create a breakfast ad to display from 6AM-10AM, and then a lunch ad to display from 10AM-2PM. This would have never been possible with a static sign.
Due to the nature of a static billboard, every time an advertiser wants to change out an ad, a contractor has to climb up onto the sign and manually change out the vinyl display. With a digital billboard, the operator can sit in an office and simply upload a new image to be displayed on the sign immediately.
The process of changing out ads with a digital billboard is quicker, more cost-efficient, and minimizes liability risk tremendously, all increasing the ease of operation.
The valuation of a billboard is directly tied to the sign’s cashflow. With the significant upside in revenue, and lower operating expenses, the valuation of digital billboards is typically substantially higher than static billboards. It has been Stark Capital’s experience by providing brokerage-services to many billboard companies, that a number of acquirers are much more interested in acquisition transactions that have digital assets included in the portfolio.
Ask yourself the following questions if you’re contemplating whether your location would support a digital billboard or not:
If you answered YES to the majority of these questions- converting from a static sign to a digital sign may be a wise investment for your company!
If you are interested in learning more about financing options for upgrading your Static Billboard to Digital- Click below to read more:
How do I obtain a Billboard Loan?