National Academies Press: OpenBook

Transit Advertising Sales Agreements (2004)

Chapter: CHAPTER EIGHT - CONCLUSIONS

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Suggested Citation:"CHAPTER EIGHT - CONCLUSIONS." National Academies of Sciences, Engineering, and Medicine. 2004. Transit Advertising Sales Agreements. Washington, DC: The National Academies Press. doi: 10.17226/23381.
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Page 48
Page 49
Suggested Citation:"CHAPTER EIGHT - CONCLUSIONS." National Academies of Sciences, Engineering, and Medicine. 2004. Transit Advertising Sales Agreements. Washington, DC: The National Academies Press. doi: 10.17226/23381.
×
Page 49
Page 50
Suggested Citation:"CHAPTER EIGHT - CONCLUSIONS." National Academies of Sciences, Engineering, and Medicine. 2004. Transit Advertising Sales Agreements. Washington, DC: The National Academies Press. doi: 10.17226/23381.
×
Page 50

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39 CHAPTER EIGHT CONCLUSIONS A number of conclusions can be derived from the informa- tion collected in this study, with perhaps the most impor- tant for most transit agencies concerning revenue from the sale of advertising. • The display of advertising represents a small but sig- nificant source of revenue for transit agencies. Among 43 transit agencies surveyed for this study, total reve- nues from advertising sales were 1.5% of total operating funds, with a range of 0.1% to 3.2%. However, advertis- ing revenues appear more significant if compared with fare revenues. Advertising revenues for transit agen- cies surveyed totaled 4.4% of revenues from fares. At some agencies, advertising revenues are between 10% and 20% of fare revenues. Overall, advertising provides hundreds of millions of dollars in revenue to transit agencies in the United States. • Revenue potential is affected by the size of the transit agency (e.g., the number of buses, and rail and bus ridership), presence in a top 20 media market, con- tractor capabilities, and the level of competition for the advertising sales contract. Generally, advertising revenues are greater at larger agencies, which can of- fer more buses and trains and exposure to more con- sumers. Beyond simple size, however, lie several other important factors. Agencies in top 20 markets have greater potential advertising revenues because of the heavy amount of advertising by national com- panies in these markets. In 2002, large agencies in top 20 media markets averaged 3.5 cents per passen- ger trip compared with an average of 2.2 cents per trip for transit agencies not in the top 20 media mar- kets. The level of competition for advertising sales contracts is also important. Until the economic down- turn in 2001, vigorous competition for contracts also helped drive revenues significantly upward. • Other factors affecting advertising revenue include the timing of requests for proposals (RFPs) and re- strictions on billboards. Some agencies in the San Francisco area, for example, have benefited from billboard restrictions, which make exterior bus adver- tisements more valuable as a venue for outdoor ad- vertising. Transit agencies issuing RFPs or negotiat- ing contract extensions have realized much lower revenue levels since 2002, because of the downturn in the advertising market and, in general, the econ- omy, compared with the preceding boom years. Agencies that signed contracts with record high reve- nue guarantees before the downturn continue to bene- fit from the timing, but only if the advertising sales contractor remains financially healthy. • More generally, transit agencies have benefited from the increasing attractiveness of outdoor advertising. The outdoor advertising category includes billboards, newsstands, phone booths, and taxis, as well as tran- sit. Outdoor advertising has benefited over the last decade from the fragmentation of the television audi- ence; outdoors’ ability to reach a mass audience, tar- geted by location; consolidation of outdoor advertis- ing sales contractors that have brought increased resources to expand and promote the outdoor cate- gory; and new technologies for production and dis- play of advertisements. New audience measurement technologies, which can produce detailed audience demographic data, promise to put outdoor advertising on a level playing field with radio and television. • Future revenues from advertising sales will be deter- mined by a mix of factors, some positive and some negative. Although transit agencies have generally benefited from the rising fortunes of outdoor adver- tising, a variety of other factors will also influence future advertising sales revenues. The overall econ- omy is one major factor. A renewed economy will vi- talize advertising sales generally and transit sales in particular. Another factor is the success and reach of nontraditional forms of advertising. Specific conditions in the transit market will also be important. For large agencies in major markets, the dominance of one advertising sales contractor raises the question of whether competition for these con- tracts will be as vigorous as it was in the mid- to late- 1990s. In medium and small markets, there is sub- stantial variation in advertising revenues, suggesting that the market is more competitive in some places than others. It should be noted that well-established contracting procedures in the transit industry, specifi- cally high guaranteed revenue levels, are not the prac- tice elsewhere in the outdoor market. It is possible that this limits the number of advertising contractors who may choose to bid on transit contracts. • Nontraditional forms of advertising have the poten- tial to supplement the revenue of existing advertising

40 displays; however, the scale of revenues remains to be seen. The use of in-vehicle and in-station video and electronic advertisements and in-tunnel advertis- ing has made considerable progress. Only after recent installations have time to prove their value, however, can the true revenue potential be evaluated. It should be noted that revenue may not be the sole or even primary objective of these new systems, which are often designed to provide customers with travel in- formation and entertainment. Other nontraditional forms of advertising such as bus wraps and station dominance are more proven. While generating substantial advertising rates, these forms of advertising are inherently limited because most advertisers benefit more from running a larger num- ber of conventional advertisements than from running these more intensive types of advertising. For the foreseeable future, conventional bus exterior, station, and rail car advertisements will continue to generate the bulk of advertising sales revenue for transit agen- cies. Other conclusions concern the acceptance of advertis- ing, methods of selling advertising space, other uses of the space, and advertising acceptance policies. • The vast majority of transit agencies currently accept advertising on their property, and some of those that do not are reconsidering their policies. The societal acceptance of advertising, the need for revenue, and the ability to integrate advertising with agency brand- ing has encouraged agencies that do not accept ad- vertising to reexamine their policies. • All large transit agencies in top 20 media markets contract out advertising sales, whereas agencies in small- to medium-size markets may elect to sell ad- vertisements though in-house staff. Contracting out in big media markets is virtually mandatory to tap na- tional advertisers. Some large agencies do sell some advertisements internally, however, such as space on transit maps, schedules, and passes. Transit agencies in small- and medium-size markets can generate as much or in some cases more revenue (on a per- vehicle basis) through in-house sales as compared with contracting out. Actual experience depends on the skill and energy of the sales staff and agency sup- port for entrepreneurial in-house activity. • Co-promotions, media trades, and public service an- nouncements (PSAs) can be an effective means of raising the profile of transit agencies in their com- munities and of promoting ridership. Although some transit agencies focus on maximizing revenues from advertising sales, others have found important value in promotional uses of the space, from co-promotions with local television and radio stations to building community support through offers of space for PSAs for community groups. Given this experience, the value of advertising space should not be assumed to be only its revenue-generating capacity. At the same time, agencies should consider whether accepting PSAs may establish their property as a public forum and eventually enmesh the agency in unwanted con- troversies over advertisements they choose to display or reject. • Transit agencies can avoid becoming enmeshed in controversy over advertisements that deal with such things as abortion, various sexual topics, and graphic violence by examining in advance their deci- sion-making process for the acceptance of advertis- ing. It is critical to have a clear approach that is ap- plied consistently to all advertising. A key decision is whether to restrict advertising to advertisements with a commercial purpose. Doing so eliminates most types that generate controversy, but also prevents agencies from accepting some PSAs and other view- point advertising that they may want to accept. • Few transit agencies conduct stringent audits of ad- vertising sales contracts, and a number of agencies do not check information from advertising sales con- tractors against independent information sources. Some transit agencies audit their contractors based on independent information such as the number of ad- vertisements displayed on buses and contracts with advertisers. Many do not, however, checking only the financial reports submitted by the contractor. Whether stricter and more uniform auditing prac- tices would affect agency revenues is open to question; however, the laxness of audits by some agencies makes this a potentially important issue. Improved and more detailed reporting by advertis- ing sales contractors is needed to establish a viable audit trail. The primary future research need is to continue to learn from transit agency experience with contracting issues and nontraditional forms of advertising. Agency experience is beginning to accumulate in two key areas: • Nontraditional forms of advertising such as bus wraps, station dominance, video screens and elec- tronic signs, and in-tunnel advertisements. • Splitting contracts among several advertising sales contractors, particularly for traditional advertising displays and nontraditional forms of advertising. Further research could follow-up these experiences and analyze their relevance to other agencies.

41 A second area for further research concerns the legal is- sues involving advertising acceptance policies. This report highlights the importance of the legal issues and several considerations, but a more detailed legal analysis of case law and agency policies could be valuable to transit agency staff. A final area of research needs concerns in-house sales. This research should involve detailed case studies of transit agencies that sell advertisements in-house and provide a guide for agency staff on identification of advertisers, ef- fective sales techniques, and fostering this type of entre- preneurial activity in a transit agency environment.

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TRB’s Transit Cooperative Research Program (TCRP) Synthesis 51: Transit Advertising Sales Agreements documents and summarizes transit agency experiences with advertising sales and synthesizes current practices for advertising sales, contracting, and display.

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