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Content Rules: Digital Signage Isn't About Signs

The fact that digital signage is a booming market doesn't guarantee fat margins. Companies need to embrace a turnkey business model if they're going to succeed. 2/02/2011 10:16 PM Eastern

Content Rules: Digital Signage Isn't About Signs

The fact that digital signage is a booming market doesn't guarantee fat margins. Companies need to embrace a turnkey business model if they're going to succeed.

Name: Matt Oswalt
Title: President, Vizionefx Location: Baldwinsville, N.Y.
Need to Know: Vizionefx got into digital signage after years of integrating AV for healthcare facilities. Recently, it took its expertise to Le Moyne College in Syracuse, N.Y., where the company designed digital menu boards for the student caf© and a touchscreen program for the athletic department.

Credit: Noah Kalina

First, the good news: digital signage is a boom market worth $3.9 billion in 2009 despite the recession and is growing 20 percent annually through 2013, estimates IMS Research. The bad news? Growth doesn't always guarantee fat margins. Take the market for displays and digital signage players. Here, pricing pressureincluding pressure from consumer-grade products (and not just consumer TVs; there are installs out there driven by Sony's PlayStation 3 game console)–has AV integrators and vendors looking for new ways to turn a decent profit.

Increasingly, those new ways involve creating and managing content for their clients. In a few cases, that content includes advertising.

"It's much easier to do a hang-and-bang and then walk away," says Sam Taylor, executive vice president of Almo Pro A/V, a value-added distributor with experience in digital signage technology. "But in the long run, the integrators that are going to be the most successful in this space are the ones that embrace the whole business model. That includes advertising revenue."

Integrators as Mad Men?

Much of the bullishness around digital signage comes from its role in enabling digital out-of-home (DOOH) advertising. Despite the recession, the U.S. DOOH market grew more than 14 percent in 2010 to $2.07 billion, according to PQ Media, a research firm.

At the very least, that growth benefits AV integrators because someone has to sell and install that signage. But it's anyone's guess whether integrators can reasonably expect to get a sizeable cut of signage advertising revenue, or whether that money will wind up in the pockets of OOH incumbents such as JCDecaux.

There's also the hurdle of fragmentation: As the number of digital signage installations grows, so does the challenge of aggregating them. Through aggregation, brands and agencies can buy ad space conveniently, instead of working individually with hundreds or thousands of bars, malls, hospitals, and other signage owners.

NEC Display Solutions' Vukunet platform aims to capitalize on the fragmentation problem by providing a solution–one that potentially benefits AV integrators. Announced in November 2009, Vukunet is a content-management system that signage network owners can use to provide advertisers with a one-stop shop for identifying locations and then buying space at each location.

Vukunet could benefit AV integrators on two levels. First, if it reduces fragmentation to the point that digital signage becomes attractive to more advertisers, then integrators should benefit as more clients deploy or expand signage networks. Second, and on a more lucrative level, Vukunet could make it easier and more cost-effective for AV integrators to grab a piece of the advertising pie by brokering space on their clients' behalf. But this opportunity has costs and risks that integrators would have to weigh against the revenue potential when deciding whether they should pursue it.

It depends on whether "they are willing to front some of the costs associated with the networks, either in cash or in kind, on the bet that advertisers will come and, when they do, it will more than offset their investment," says Joyce Vogt, a business development manager for AVI-SPL. "I think the industry needs to see more demand for advertising inventory before integrators will be taking this gamble."

NEC isn't the only vendor betting that they will.

"Integrators typically don't want to get too much into the business of advertising," says Mike Marusic, vice president of marketing and service for Sharp. "It's very time-consuming.

"A lot of vendorsSharp includedare looking to aggregate that information and create almost a Chinese food menu of what you want to take. Absolut, Budweiser, Procter & Gamble, they already have content and the agencies. What the [AV] manufacturers can do is provide the integrator with the ability to access that and provide it in the right format locally."

Yet it's probably far-fetched to envision even a large integrator wresting advertising business away from companies like JCDecaux in large venues such as airports and malls. At the same time, signage is increasingly showing up in smaller public venues, such as hospital lobbies. Those locations could be where integrators have a better chance of positioning themselves as providers of advertising-related services.

"The big places are taken," Marusic says. "What you're now seeing is the secondary markets being approached: places like dry cleaners, where you've got people waiting. It's a revenue opportunity."



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Content Rules: Digital Signage Isn't About Signs

The fact that digital signage is a booming market doesn't guarantee fat margins. Companies need to embrace a turnkey business model if they're going to succeed.

Show Me the Money

Name: Jeff Dowell Title: Vice President for Digital Signage, LG Electronics Location: Chicago Need to Know: LG came out with turnkey digital signage solutions that include hardware, software, and content so that small and midsized businesses can get up and running quickly, but also so that AV integrators can make money. They can lease the solution to clients for three years.

Name: Jeff Dowell
Title: Vice President for Digital Signage, LG Electronics Location: Chicago
Need to Know: LG came out with turnkey digital signage solutions that include hardware, software, and content so that small and midsized businesses can get up and running quickly, but also so that AV integrators can make money. They can lease the solution to clients for three years.

Credit: Nick Burchell

DOOH's nascence adds to the uncertainty about whether integrators can make money in signage advertising. Despite all the buzz that it's generating, DOOH is a relatively new, unproven market. It also lacks Nielsen- and Arbitron-style metrics so that brands and agencies can measure the effectiveness of digital signage advertising.

Until those standards exist and are widely accepted, it's tough for integrators get a sense of how much they can reasonably expect to make from offering advertising services, such as ad management and even creation.

"Integrators typically don't have the sales background in advertising required to make those successful," says Lance Hutchinson, vice president of Alpha Video's CastNet group. "And I haven't seen a third-party network, such as Vukunet, that has offered good returns for resellers."

Vukunet divides ad revenue among at least three parties: The signage network's owner gets 70 percent, while NEC and the integrator share the remaining 30 percent. (NEC won't say exactly how that 30 percent is divvied up, except that it's not necessarily equally.)

But even with Vukunet, an AV integrator still would have to add expertise and relationships–either with staff or by partnering with, say, a marketing agency–in order to line up enough advertisers. The effort and resources required also increase based on the size and number of the metro areas where the integrator operates.

"That's really hard on a local level," says Mike Zmuda, NEC's director of business development. "That's a knocking-on-door type of thing, getting the cleaner down the street."

Advertisers Come Knocking

But in some verticals, it's the advertisers doing the knocking. Healthcare is a prime example.

"Hospitals are getting warmer to advertising," says Matt Oswalt, president of Vizionefx, a Baldwinsville, N.Y., integrator that branched into signage after years of providing bedside TVs and patient phone services. "Five years ago, you couldn't even say the word because the drug companies had given everybody such a bad taste with it. But now you're starting to see the Pampers birthing center at this hospital or the Johnson & Johnson wing at that one."

Vizionefx leverages those relationships as a source of advertising for its clients' signage networks. This makes it easier than if Vizionefx had to go out and round up those advertisers on its own.

"A lot of what we'll do is work with the hospitals and say, 'You have people that you work with. Help us help you," Oswalt says. "They seem to be more comfortable with that. They know who they can go to."

Vizionefx uses growing client receptiveness to advertising as a way to create recurring revenue streams and fatter margins. For example, in some cases, Vizionefx gets a percentage of the client's ad revenue. In others, it might get the lion's share of that revenue.

"We could use that to offset the cost of putting in the network for them," Oswalt says. "We structure our contracts that we have some ownership of the network. I don't want to go all over hell's half acre screwing displays into walls. We're not an integrator on that level."

The more that its clients warm to advertising, and the more companies that want to advertise on those clients' signage networks, the easier it is for Vizionefx to come up with new business models.

"I would love to get to a situation where we say to a hospital, 'We're going to put this wayfinding solution in your lobby and a few 42-inch displays in your common areas, all for free," Oswalt says. "I think that day is coming. They're starting to get more warm to it."

Others agree that the healthcare vertical is fertile ground for advertising-centric solutions and business models. "If you have a doctor's office, and somebody said to you, 'I'm going to put a screen in your office, and studies have shown that they increase customer satisfaction while they're waiting, by a certain percentage, and by the way, you're going to get X dollars per month for having this [screen] there,' it's pretty hard for a doctor to say no to that," says Almo's Taylor.



Content Rules: Digital Signage Isn't About Signs

The fact that digital signage is a booming market doesn't guarantee fat margins. Companies need to embrace a turnkey business model if they're going to succeed.

Selling Content

Advertising ultimately is just another type of content, which is something that a growing number of integrators are adding to their signage port­folio. "Selling the hardware and network without considering content is like installing plumbing in a house and not hooking it into a water source," says AVI-SPL's Vogt.

Name: Vince Faville Title: Digital Signage Market Development Manager, Advanced AV Location: West Chester, Pa. Need to Know: The AV integrator long ago set up a unit that handles digital signage. It used to refer clients to a thrid-party content provider but now sells that partners services under the Advanced AV brand.

Name: Vince Faville
Title: Digital Signage Market Development Manager, Advanced AV Location: West Chester, Pa.
Need to Know: The AV integrator long ago set up a unit that handles digital signage. It used to refer clients to a thrid-party content provider but now sells that partners services under the Advanced AV brand.

Credit: Mike Morgan

Nonadvertising content includes just about everything under the sun, such as video of a client's CEO presenting a keynote at a trade show followed by reminders about health insurance open enrollment. Regardless of what it is, somebody has to create and manage it.

"Four years ago, we started a content division, and that's been growing steadily," says Alpha Video's Hutchinson. "We've had another record year with that. We probably wouldn't close 50 percent of the business that we close without our content division."

Why? Although small businesses might seem like the most likely candidates for outsourcing content–and they are–integrators offering this service say that midsize and large enterprises also are highly receptive. One reason is that, especially in this economy, those enterprises often prefer not to add or retask staff for tasks that don't generate immediate revenue.

For clients who are deploying an extensive signage network, another reason is that they want the content to be impressive from day one, but they don't have anyone in-house who is capable of producing a splashy launch. In some cases, they'll pay their integrator to create the initial content set and train their staff to take over creation and management six months or a year later.

Like their clients, integrators also have to decide whether to hire content experts or partner with a company such as a graphic design firm. Advanced AV of West Chester, Pa., went the latter route: After initially referring signage clients to the third party, the integrator now partners with that firm and offers its services under the Advanced AV brand.

"That gives me an opportunity to say, 'Sure, we do content," says Vince Faville, Advanced AV's digital signage market development manager. "It's been very successful for us."

Such partnerships can also help position an integrator to expand into the advertising market itself. For example, an advertiser or its agency might not understand signage's unique requirements. Having a partner serve as the technical intermediary can make it easier for both the integrator and the advertiser or its agency.

"If I go to an advertiser and say their ad needs to be 1368x1080, they're not going to know what that means," Faville says. "Then I've got to explain to them computer resolutions in the digital signage space and what clients are expecting out of digital signage."

For integrators, content creation and management also provide both a recurring revenue stream and one that helps offset commoditization on the display side, where competition–including from consumer TVs–as beaten down margins.

"It's a good ongoing revenue generator," says Alpha Video's Hutchinson, whose custom software sits atop products such as digital signage specialist Scala's platform and handles tasks such as importing content streams for display on the signage network. "A large degree of our profitability is in our software."



Content Rules: Digital Signage Isn't About Signs

The fact that digital signage is a booming market doesn't guarantee fat margins. Companies need to embrace a turnkey business model if they're going to succeed.

Package Deals

Some vendors have begun providing turnkey signage packages that include content, reducing the cost and risk that their channels would incur if they had to cobble together everything on their own. For example, LG's SuperSign Premier-s package includes 14 CNN news feeds, 100 stock photos, and more than 50 templates designed for various business verticals, such as corporate communications, finance, retail, and quick-serve restaurants.

LG says Premier-s is aimed at integrators that are new to digital signage and want to sell something that's prepackaged. After the sale, Premier-s also is supported entirely by LG rather than the integrator.

"It's designed to make it extremely simple for our channel partners to go out and buy a solution that works right out of the box and represents no long-term liability for them," says Jeff Dowell, LG's vice president of digital signage. "They make a little less margin–I can't say what it is–than they would if they did all of the integration themselves and were able to charge margins for a customized solution."

LG also positions Premier-s as a way for integrators to turn a profit in the small and medium business (SMB) market. "Experience has shown that it's very difficult for value-added resellers and integrators to make money in SMB on customized solutions," Dowell says. "Typically it's an awful lot of work to get all of the content streams and all of the other things to make a turnkey experience for the SMB and still be able to charge enough to make margins."

Another important benefit of turnkey packages, including those that integrators create themselves: It's tougher for clients to haggle over the price of hardware, where margins are already anorexic.

"The displays and even players are becoming a bit of a commodity," says Faville, who never puts line items in his signage bids. "I'm selling them the magic and voodoo," he says. "If you want to get content all over your buildings, we can do that. … Let me explain how. [But] everybody's smart enough with the Web that if I put in an NEC display and you Google it, I guarantee that it's gong to be cheaper than I could ever buy."

Almo's Taylor agrees. "If an integrator is selling by line items, they're going to lose. They're stuck in the '90s and won't be around for long because you can go to the Internet and look up all of that stuff and find somebody who's selling it inexpensively."

In other words, selling digital signage isn't the same as selling digitial signs. "It needs to be a solution," Taylor says. "If the integrator can throw in some advertising revenue that will help offset that cost, they can make a really compelling story to the end user."

Tim Kridel is a freelance technology writer, industry analyst, and frequent contributor to PRO AV.



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