We all know that a recession is looming for the U.S. economy – but what will the impact be on the billboard industry? American billboards have been around for over 100 years and have weathered every major recession in U.S. history, all the way back to the Great Depression. And the results are pretty remarkable. Billboards have proven to be highly successful during times of economic strain. Here’s a description of how billboards react to economic downturns, as found in a textbook for mobile home park valuations that is sold to appraisers:
Revenue to billboard companies tends to be relatively steady, although there are modest cyclical trends that follow general changes in ad spending. The stability comes in part from certain advertisers that depend on billboards. Many of the signs on highways provide the major source of advertising for nearby motels, restaurants, and gas stations. Their ad spending does not fall sharply even during recessions because they need to maintain this type of advertising. While occupancy of billboards, or “utilization,” always rises and falls to some extent during economic cycles, the fluctuations tend to be mild. Occupancy might remain steady at 80% to 85% for a billboard plant during typical economic expansions and fall to 75% during recessions. Of course individual companies will vary, but this is typical of many firms in the U.S. Revenue growth in the industry was robust even in the recession years from 1980 through 1982, with spending growing at 10% to 15% each year.
So why is it that billboards still do fine during recessions? Let’s expand on this topic:
- Billboards act as an extension of the premise signage on many businesses. Billboards tend to be a significant part of the “identity” of many businesses who rely on the sign to send in customers as much as they do on their on-premise signage. There are many advertisers out there that have had the same billboards in the same spots for decades. As a result, they are unlikely to cancel their billboard lease even when times are tough because it literally becomes a part of their business.
- Billboards are the lowest cost form of advertising for many businesses. One of the premier strengths of billboards is their extremely low cost per thousand exposures. When times are tough, advertisers tend to cut off their most expensive advertising first and billboards are always at the bottom of that list.
- Billboards offer “point-of-purchase” selling power that pays for itself. There is no form of advertising more effective than a properly placed billboard. Even Harvard’s marketing text book once stated that the most powerful words in all advertising are “exit now” – and only billboards can direct the customer to your business.
- Billboard leases are lengthy and can’t be cancelled. Billboards are traditionally rented by the year and all other advertising options are often rented by the day. As a result, advertisers who are trying to make quick adjustments in their ad budgets are going to cancel all of the daily stuff (newspapers, radio, etc.) first simply because they can.
The bottom line is that billboards perform fine during times of economic crisis, with a long track record of weathering the storm better than most other media options.
And recessions are an excellent time to enter the billboard business for a number of reasons:
- Property owners are more concerned about finding ways to extra money with their land. When times are good, property owners are fat and happy and could often care less about the concept of adding a billboard to their property. But when times are tough, property owners are more receptive to any concept that helps make them a little extra money to pay property taxes, etc.
- Property owners are satisfied with smaller lease amounts. When times are tough, property owners are more happy with smaller lease amounts, as they are more appreciative of the simple fact that the billboard helps them pay bills. When times are good they always want an arm and leg because they feel they have more negotiating power.
- The competition is lower as most big companies stop looking for new sign locations. In recessions the larger billboard companies are too distracted with trying to maintain their current signs to bother with trying to build new ones. This gives small operators a tactical advantage.
- The cost of building signs is reduced. It’s a supply and demand world, and when the economy is down the cost to build new signs is always lower. Steel prices go down, wood prices go down and labor cost goes down.
- Everyone is more accessible to learn from because they have more time on their hands. One of the great things about recessions is that the pace slows down, and people are willing to talk more. I have learned most of everything I know from talking to people during tough times when they are more open and willing to answer questions – whether it’s from property owners, sign fabricators, advertisers, or even your competitors.
When you add it all together the truth is that building or buying billboards is still a great investment plan even when the U.S. economy is down in the dumps. With a major recession thought to start in 2024 this is a great time to start your learning process on the correct way to identify opportunities, evaluate them, negotiate them, build or buy them, rent the ad space and operate billboards. And the best way to gain this knowledge is with our Billboard Boot Camp. It’s the only course of its type in the U.S. and was written by the guy who built from scratch the largest privately-owned billboard company in Dallas.