Billboard Mastery Podcast: Episode 84

The Whole Industry In One Simple Formula

The fundamental law of economics is “supply vs. demand” and that same formula holds true for every aspect of the billboard industry. So how can you apply this metric to every single part of the billboard business to determine what’s of value and what’s not? That’s our topic for this Billboard Mastery Podcast discussion.

Episode 84: The Whole Industry In One Simple Formula Transcript

I can sum up the entire billboard industry into just three words, supply and demand. This is Frank Rolfe with the Billboard Mastery podcast. We're gonna talk about supply and demand and why the entire world of billboards revolves around that very simple premise. Now, let's start off with how billboards came to be valuable anyway. Because if you look at back in the beginnings of time, back in the 1800s, the 1900s, all the way through about 1960, there was no money in the billboard industry. And that's because anyone could build a billboard anywhere they wanted. If I had a restaurant and I wanted to put up a sign that said, "Exit now from my restaurant," I just would paint it on a piece of plywood and I'd nail it to a tree. Or if I wanted to make it bigger, I'd put in a couple old telephone poles and attach it to that. Or maybe I'd paint it on the roof of a barn or on the wall of a building because there were no ordinances back then. Nothing.

You didn't need a billboard company because any idiot could just go out and paint their ad and place their ad anywhere they wanted. You probably have seen photos of Route 66 back in the day, it's a just a giant barrage of signs. So much clutter, you can hardly not even read them because they kind of all just blend together. And then what happened? In the 1960s, you had Lyndon Johnson as president, and then he had a wife named Lady Bird. And Lady Bird got upset about billboards. She didn't like them, and she felt there might be some built near her ranch in Austin on the highway. So, she convinced the government to pass the first ever national billboard ordinance called the Highway Beautification Act. It was utter genius. In one foul swoop, the US government suddenly made the entire world of signs federally regulated.

And from that moment on, that was actually the catalyst that made signs worth something. Because now if the restaurant wanted to build a sign, it couldn't. It would have to rent a sign from a licensed billboard company who had a licensed and permitted sign location. And therefore, profitability was finally created. And that's what made the industry happen. And to this day, billboards are always profitable because we are a federally regulated industry. Now, the government has also regulated other things in the past. It regulated the airline industry at one time, regulated the trucking industry, but they always later deregulated them. So after they got people all excited about how much money they could make, they would deregulate them and everyone would go broke. Now, in our case of billboards, they can't deregulate them, that's because most people still do not want to have an endless proliferation of signs like they had on Route 66.

As a result, you don't have to really worry about that. It's been tried over and over again for the last 70 years, and no one has ever succeeded and even be remotely beginning to bend the ordinance nationally on signs. And then you also have the fact that some cities are even more restrictive than the federal government. The federal government allows signs in certain spacings and certain zonings, but some cities say, "No, that's not enough. We want even bigger spacings. We want even fewer zonings." And that creates even more value for the sign owner. There's nothing better than owning a billboard in an area that just doesn't allow any at all. Even if it's a small sign, if it's a little tiny, 10 by 20 sign is all you can get in some city, and they ban every other sign, and there's no other locations you can find. And there's just that one zoned property that will allow it. That little 10 by 20 sign may be as valuable as a giant 1448 on some highway where there's a whole lot of signs. So, supply and demand is really what brings forth value to billboards.

But there's still more than that. Also, how much value there is, what the ad rates are on that sign also is related to supply and demand. The first issue is how many signs are there on that section of road, whether it's a highway or a secondary, how many raw billboards do we have there? Because the fewer the signs are, the more value your sign will have. Even if it's a much bigger, larger interstate highway, if there's tons and tons of signs assigned every 500 feet, both sides of the highway, that might have less advertising value than at a smaller road with less traffic that has much fewer signs.

So, the sheer number of signs would influence the supply and demand, and therefore the ad cost. But another one is how many advertisers there are, and particularly how many advertisers there are in the vicinity of the sign. And even then, more particularly, how many at the exits near the sign? Because we all know billboards are at their best when they say things like, "Exit now." So, how many businesses can you say exit now? You can have a billboard out in the middle of nowhere with perfect visibility, no blockage at all, and you still can't get a lot of money for it 'cause there's no one who really needs to rent it. And even if you go to the fuel stop 40 miles away, well, what if there's just that one fuel stop, they may say, "Well, look guys, I have monopoly. Every truck, every car coming down this road, they're gonna have to stop here whether I have a billboard or not, because I am the only name and game in town." And they're partially correct. So, how many advertisers also have to do with what the sign rates are? And that's why billboards in city environments rent for far more than in rural areas.

The bottom line to it is that supply and demand, if you understand that formula, just that one formula, you really can understand the sign business. You can understand what makes signs valuable, what makes signs not as valuable, what creates ad rates, everything. The whole industry is encapsulated just in those three words. Now, what does it all mean? It means that everyone out there looking at buying or building a billboard needs to heavily think through those issues. How much supply of signs? How much supply of signs in that state? How many advertisers nearby? How many signs there are? If you always stay looking and aware of that fact, you'll do just fine in determining values. This is Frank Rolfe, the Billboard Mastery Podcast. Hope you enjoyed this. Talk to you again soon.