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1 SUMMARY Practical Measures to Increase Transit Advertising Revenues Overview Transit advertising is currently less than 0.5% of U.S. advertising spending. As a small source of operating revenue for public transit agencies, transit advertising has not received much focused attention in the past. However, with the current shifting of media dollars out of traditional media, like television, and into the so-called "non-traditional media," like on- line and out-of-home media, transit agencies are now shrewdly asking whether their adver- tising assets could be making greater contributions to operating revenues. Currently, however, transit advertising revenue growth is lacking upward momentum. After exceeding the $1 billion threshold in 2003 and 2004, thanks to the long tails of lucra- tive contracts signed during the Internet boom of the late 1990s, transit advertising revenue fell to roughly $800 million, and has remained there for three years running. During the same period of 2005 through 2007, all out-of-home advertising grew 8% on a compounded annual basis. To what can this lack of performance be attributed? Is the image of transit advertising tar- nished? Are the unique benefits of transit advertising unclear? Is the product offering not compelling? Are sales efforts falling short? The purpose of this study was to (1) understand advertising decision makers' perceptions of transit advertising and (2) develop strategies for improving these perceptions and increas- ing transit advertising revenues. To this end, the research team conducted a quantitative study of media planners as well as interviews with advertisers, sales contractors, and market- ing representatives of transit agencies. What follows is a top line summary of the findings, conclusions and recommendations. Issues Market conditions suggest that transit advertising is well positioned to grow. The outlook from organizations that track media trends is that the shifting of dollars out of traditional media and into non-traditional formats will continue, despite an overall decline in advertis- ing spending due to the current recession. In particular, out-of-home media, as a category, will remain one of the fastest growing sectors of advertising spending. This forecast is com- patible with the belief that the benefits offered by transit advertising can be made to align well with the needs of advertisers. However, as a medium in competition with billboards, newspapers, place-based advertising, the Internet, and other new media still in development, transit advertising still has quite far

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2 to go to be in full competitive form. The study concluded that the following issues are at the core of transit advertising's growth challenge: 1. Transit advertising's positioning--the benefits its target audience perceives it to offer--is neither highly motivating nor differentiated from billboards. 2. Transit advertising has serious image and product deficiencies. 3. The level of product innovation is insufficient to generate interest and enthusiasm among media planners and advertisers. 4. Aside from sales activities, there is no promotion of the product to its target audiences. 5. Transit agencies not in top 20 media markets face greater obstacles to growth than those in the top 20. 6. Transit advertising sales materials are not as effective as they could be at "making the case." 7. The overall level of satisfaction with transit media sales representatives is low. Findings So, while transit has the makings of a sought-after medium, in its current shape, it lacks credibility, relevance and distinctiveness in today's advertising market. These conclusions are synthesized from many individual findings from the research. A few of the most signif- icant findings are these: Transit advertising's greatest perceived strength is in reaching captive audiences. With the exception of reaching captive audiences, billboards are perceived to fulfill every func- tion that transit media offer, only better. Transit is seen as a supplemental, second tier medium. Transit media's strengths are not aligned with the features that are most important to media planners. Perceptions that transit media are effective, reliable and efficient are moderate to weak. Perceptions that transit media are expensive are prevalent. Perceptions that transit media are not clean are prevalent. Perceptions that transit media are innovative are not prevalent. Perceptions that transit is a downscale medium are not prevalent. Media planners' experience with transit media is largely positive. The media planners with the most opportunity to recommend nontop 20 market transit advertising have the least favorable view of transit media overall. Overall satisfaction with sales representatives is low. Overall satisfaction with sales representatives is lower for the representatives who sell transit plus other media than for representatives who sell transit only. More than half of media planners are not able to agree that advertisers' perceptions of transit media are positive. Preferences for new media point to digital. The primary research conducted for this study included interviews with advertising sales contractors, interviews with advertisers, and a survey of transit agency marketing represen- tatives. The core piece of research was a 153-respondent quantitative study among both gen- eralist media planners and media planners that specialize in out-of-home media. Within each of these groups, there were media planners who served primarily national advertisers, and those who served primarily local or regional advertisers. Because media planners are essentially the "gatekeepers" for advertisers' media selections, as data in the survey confirm, media planners were prioritized over advertisers to be the subjects of the quantitative study. A fundamental finding of the media planner research is the existence of significant differ- ences among media planners. Out-of-home media planners have more positive perceptions of transit media than do media generalists. Among media generalists, those with national

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3 clients have much more positive perceptions than those with local and regional clients. By most estimates, national advertisers are purchasing roughly 40% of transit media and local and regional advertisers are purchasing the other 60%. Therefore, all three types of media planners are important audiences for transit media, and the findings and recommendations of this study have relevance for large, medium and small transit agencies. There are times when transit media are not considered. Perhaps the brand to be adver- tised has a narrow target audience that is more efficiently reached by other media. Perhaps the brand sell requires more copy space than transit ads afford. Perhaps the marketing objective is to advertise exclusively at the point of purchase. It is a positive finding of this study that media planners do not view transit media as "only appropriate for a very small group of categories." Still, however, there are cases in which transit is not an appropriate choice for the brand, the message or the objective. The focus here is what might be obstacles to using transit media in situations where they could be appropriate. In other words, the study searched for the obstacles that those who own the media, those who sell the media and those who support the transit industry might be able to influence. Conclusions Transit is well positioned to grow, yet lacks credibility, relevance and distinctiveness in today's advertising market place. Here are our specific findings and conclusions. Conclusion 1: Transit Advertising's Positioning Is Neither Highly Motivating nor Differentiated from Billboards The media planner study showed that what is perceived to be unique about transit media is its ability to reach a captive audience. This second tier positioning was echoed by the find- ing that transit was viewed by the majority of media planners as a supplemental medium. In addition, transit is viewed as being very similar to billboards in terms of usefulness in a media plan. Both platforms extend reach and frequency, achieve market saturation, and break through clutter. However, billboard advertising consistently scores higher than transit in its ability to achieve these media and marketing objectives. Conclusion 2: Transit Advertising Has Serious Image and Product Deficiencies The majority of media planners in the study said they are very familiar with transit adver- tising and have had good experiences with transit advertising. However, transit advertising has a credibility problem. Forty-two percent said that "effective"--the most fundamental require- ment for any medium--is not highly descriptive of transit advertising. Sixty-two percent of respondents said "efficient"--the second most fundamental requirement for a medium-- is also not highly descriptive. These are high percentages of media planners who are clearly not convinced that transit advertising works or is worth the money. Conclusion 3: The Level of Product Innovation Is Insufficient to Generate Interest and Enthusiasm among Media Planners and Advertisers The media planner survey showed that transit media are not widely viewed as innovative, hip or sexy. Bus wraps and station dominations* are the right idea--high impact, attention grabbing and show stopping. However, these products do not define the entire medium. * Unfamiliar advertising terms may be found in the Glossary.

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4 The new product ideas that rose to the top of the media planner study involved digital technology: digital displays on platforms and in stations, as well on buses and trains. In interviews with advertising sales contractors, there was some mention of exploratory work in the digital realm, especially among the larger contractors. Conclusion 4: Aside from Sales Activities, There Is No Promotion of the Product to its Target Audiences Target audiences need to hear marketing messages--the high level benefits associated with purchasing or consuming the brand, as expressed in the positioning statement--as well as sales messages--the detailed features and specifications of the product. To the knowledge of the research team, there is little communication of transit's benefits, aside from what individual transit sales representatives convey. Certainly, there is no single mes- sage being consistently conveyed. Nor did the interviews surface any other promotional activities intended to generate awareness of or interest in transit media among media planners and advertisers. Conclusion 5: Transit Agencies Not in Top 20 Media Markets Face Greater Obstacles to Growth than Those in the Top 20 General estimates hold that 40% of transit media is purchased by national advertisers and 60% is purchased by local/regional advertisers. The opportunity to sell more transit advertising to national advertisers is great: national advertisers are putting more and more marketing dollars into non-traditional media. For nontop 20 markets, however, the upside potential is less clear. These cities are typically not highly in demand by national advertisers. The generalist media planners who work for local and regional advertisers have the least favorable views of transit media. And the advertising assets, themselves, most likely cover the spectrum from very attractive (e.g., a highly populous second-tier city with a large bus system) to not-very attractive (e.g., a very limited bus system serving a widespread rural population). Conclusion 6: Transit Advertising Sales Materials Are Not as Effective as They Could Be at "Making the Case" An important finding regarding the sales process is that media planners' needs for demo- graphic data on target audiences and other selling materials are not being met. Lack of demo- graphic data ties to the lack of an audience measurement system, and is a serious deficiency for transit advertising, affecting its credibility and therefore its usage. Lack of other selling materials is an issue for individual transit media sales representatives, who would benefit from support from an industry-wide marketing resource. Conclusion 7: The Overall Level of Satisfaction with Transit Media Sales Representatives Is Low Media planners find transit sales representatives, on the whole, to be knowledgeable, responsive and reliable. Media planners give transit sales representatives credit for taking time to understand the business issues that the media planners are trying to address, rather than going straight to space availability and pricing. However, when asked about their overall satisfaction with transit sales representatives, media planners' scores are low. Also, the 52% of respondents who have sales representatives that sell transit along with other media are significantly less satisfied than the 48% of media planners with transit-only sales representatives.

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5 Recommendations Recommendation 1: Reposition Transit Advertising to Differentiate it from Billboards, Elevate its Importance and Update its Image The upside growth opportunity for transit is greatest if the most significant perception issues are addressed: (1) transit media are viewed as a substitute for billboards, in the sense that they deliver the same media objectives (build awareness, extend reach and frequency); (2) transit media are viewed as supplemental to a media plan, i.e., a "nice to have" if there's budget available, instead of as a core part of a media plan; and (3) transit media are not per- ceived to be innovative, exciting or contemporary. The research team recommends that transit evolve its "captive audience" positioning to become the medium that surrounds consumers, touching them multiple times during their daily travels. Through repeated eye-level encounters, transit media offer advertisers the chance to let their consumers experience their advertising/offering several times on a daily basis. Transit media will come to be seen as a critical part of any audience exposure experi- ence. A positioning along these lines differentiates transit from billboards, elevates transit media's importance, and updates transit media to today. Recommendation 2: Promote Transit Media among Both Media Planners and Advertisers Transit media would benefit significantly from an advertising campaign communicating the new positioning of transit to media planners and advertisers. With both groups, the goal would be to convince them of the benefit of using transit advertising and to overcome some of the negative beliefs and imagery they hold about transit media. An advertising program is a needed complement to the one-on-one efforts of the sales force. Done properly, adver- tising heightens the media planner's or the advertiser's interest in the product and generates receptivity to receiving a sales call. Recommendation 3: Create a Transit Media Trade Group The creation of a transit advertising industry group that exists to promote the medium-- just like the Interactive Advertising Bureau, the Outdoor Advertising Association of America and the Cable Television Advertising Bureau (all outlined in Chapter 1)--is recommended. Implementation of the core recommendations of this growth plan is wholly dependent on the formation of this group. The research team knows of no organization currently in a position to drive the efforts required to produce growth of the magnitude desired. The American Public Transportation Association has many more issues on its large plate than growing advertising revenue. Establishing an entity focused on promoting transit advertis- ing gives transit the attention it needs and puts it on an even playing field with its many media competitors. The media trade organization also might conduct outreach to transit general managers, board members and other transit decision makers to help emphasize and explain the changes that are required to drive growth in advertising sales. Recommendation 4: Develop a Credible Audience Measurement System As noted among the findings and conclusions, transit media's image suffers from skepti- cism about its effectiveness, its reliability, its efficiency and its value for the money. All of these concerns will be addressed if/once transit media becomes measurable. For this reason, the research team posits that if instituting an audience measurement system were the only

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6 recommendation the transit media industry achieved, there would still be a great impact on transit advertising sales. The billboard advertising industry is scheduled to launch its audience measurement sys- tem in fall 2008, which is expected to more than double billboard sales, adding $7 billion of revenue. The bad news for transit media is that the advance of the medium most closely associated with transit will emphasize transit media's deficiency. Recommendation 5: Introduce Digital and Interactive (Experiential) Technologies to Transit Advertising A positioning is only credible and sustainable if it is true. Transit advertising, as known today, certainly is "up close and personal" with consumers by virtue of being at eye level and often close enough to touch. However, two-sheets and bus kings are no longer enough in a media environment that is already embracing digital and interactive formats. Transit advertising needs to become digital and interactive, itself, as soon as possible. To be too far behind this important trend will only reinforce some of the unhelpful imagery already associated with transit media. Success in introducing new products and technologies will require stronger partnerships between transit agencies and sales contractors than, by many accounts, exist today. Recommendation 6: Address Transit Media's Product and Image Deficiencies There are additional product and image issues that require individual attention. Transit media's lack of cleanliness is one. This issue could very well affect many other media planner perception and attitudes, including being somewhat difficult to sell to advertisers. Another issue is the perception of high production costs. The third issue is media planners' percep- tion that advertisers have negative perceptions of transit. This perception could explain why two-thirds of media planners are either on the fence or in agreement with the statement "It's difficult to sell transit media." Recommendation 7: Develop Specific Strategies to Promote Ad Sales of Transit Agencies Outside of the Top 20 Markets The first strategy for nontop 20 markets is to tailor communications to the correct target audience. Another strategy is to bundle nontop 20 markets into unique, high-value offer- ings. For example, all of the markets that serve colleges could be bundled and offered as a package. Another recommendation is to create a centralized, searchable electronic data base including profiles of all public transit agencies' advertising inventory. Recommendation 8: Arm Sales Force with Information, Research, and Case Studies (and Ultimately, Measurement) The transit media sales force (comprising all advertising sales contractor representatives as well as transit agencies' in-house sales teams) needs more effective sales materials as soon as possible. In the absence of an audience measurement system, transit could conduct a multi-site effectiveness study quantifying the impact of transit advertising campaigns. The results of this study could be developed into a brochure articulating the new positioning of transit advertising and using the creative approach developed for the national (or top city) advertising campaign. Along with this brochure, case studies showing transit advertising at its most fresh, most exciting, and most high impact should be told. Transit also needs to take the first step to developing credible demographic information.

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7 Recommendation 9: Address Media Planners' Dissatisfaction with Sales Representatives A striking finding of this study was the significant difference in media planner satisfaction with multi-media sales representatives versus transit-only sales representatives. The study offers a clue: multi-media representatives do not give as much sales time to transit as they do to other media. Sources have reported cases in which multi-media representatives are offered a greater commission for selling other media than for selling transit. The difference between the sales contractor's margins on transit sales (at best 15% to 20%) versus on sales of media they own (40%) lend credence to this report. A sub-recommendation, therefore, is to call on sales contractors to remove any financial disincentives to selling transit media. Recommended Next Steps The most critical activities that the industry must pursue in the next six to nine months are listed below: 1. Conduct qualitative research with media planners to explore several issues in greater detail: Confirm the proposed positioning; Inquire about the media planning tools, resources and information about each city's transit media opportunities (for the searchable data base) they would find most useful; Explore dissatisfaction with sales representatives; Explore perceptions of high production costs; and Explore media planners' perceptions of negative advertiser perceptions of transit media. 2. Establish the transit advertising trade association. 3. Develop and launch national advertising promoting the benefits of transit media (as expressed in the new positioning). 4. Develop a sales brochure that expresses transit advertising's new positioning and showcases transit advertising's best usage. 5. Explore opportunities for transit's participation in out-of-home industry events conducted for media planners and advertisers. 6. Commission multi-market research measuring the effectiveness of transit advertising. 7. Develop the national searchable data base of transit agencies' advertising opportunities. 8. Develop the transit advertising website, populated with resources for media planners as well as for transit agencies and sales contractors. 9. Establish an industry-level project team for development of an audience measurement system. 10. Establish an industry-level work group to develop strategies for aligning transit agencies' and sales contractors' incentives to pursue new product and technology development. 11. Encourage transit agencies to generate plans with their sales contractors to better maintain the cleanliness of their clients' ads. 12. At the transit agency level, gain the explicit commitment of transit general managers, board members and other decision makers to the efforts required to drive significant increases in advertising sales. A brief summary of each stakeholder's responsibilities in implementing the recommen- dations is as follows: APTA--The research team recommends APTA either form or endorse formation of an inde- pendent transit advertising trade association (Recommendation 3). Proposed Independent Transit Advertising Trade Association Develop the national transit media advertising campaign (Recommendation 2). Provide guidance (e.g., selling messages about the benefits of transit advertising) for the development of sales tools and materials to help sales representatives be more responsive to media planners and advertisers (Recommendation 8).

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8 Commission market research documenting the effectiveness of transit advertising (Recom- mendation 8). Lead the effort to establish a more effective way to portray demographic information depicting transit advertising's audiences (Recommendation 8). Organize conferences that showcase transit media to media planners and advertisers, including competitions that recognize best-in-class transit advertising (Recommendation 2). Lead the effort to develop an audience measurement system (Recommendation 4). Develop tools and information for media planners to make it easier for them to use transit media (Recommendation 2). Advocate for legal and regulatory changes necessary to permit new product development (Recommendation 5). Develop "package" offerings comprising the advertising space of multiple transit systems (Recommendation 7). Charter a work group to develop strategies to expedite the introduction of new technologies (Recommendation 5). Transit Agencies The leadership of transit agencies must decide that they are committed to supporting the internal effort required to drive advertising sales growth. This commitment requires the following: Management's willingness to make themselves available for decision making on such topics as introducing new advertising platforms (e.g., digital) and pursuing lucrative, but possibly new, opportunities with important advertisers Appointment of an entrepreneurial advertising director within the transit agency whose charge is to drive sales as high as possible, within reasonable limits Institutional tolerance for the degrees of risk that typically accompany new business development efforts. Transit agencies need to urgently address with their sales contractors all issues pertaining to the performance of the sales force, including sales incentive programs. Transit agencies need to do a better job holding their sales contractors accountable in general (e.g., for timely completion of new product initiatives). Transit agencies need to address how to work more effectively with their advertising sales contractors in the introduction of new technologies. Advertising Sales Contractors Advertising sales contractors need to reenergize their selling efforts with improved sales tools and materials that better meet the needs of media planners: A brochure with an updated message about the benefits of transit advertising Studies proving the effectiveness of transit advertising Better, more detailed demographic information on transit advertising audiences Examples of particularly effective transit advertising campaigns. Advertising sales contractors must also now take advantage of the data in this study that profile types of media planners to tailor their sales pitches by type of media planner. Advertising sales contractors, as well as transit agencies, must become more aggressive and per- haps more accommodating about the development and introduction of new technologies. Advertising sales contractors need to enhance efforts to keep their clients' advertising clean, i.e., as free as possible from vandalism, as well as the negative effects of exposure to the elements. Finally, sales contractors must discontinue any practices that disadvantage the promotion of transit media relative to other media the contractor sells.