Tough times for billboard market

n the surface, the UK outdoor advertising market was one of the few bright spots in a tough year for the media business. Advertising revenue for all outdoor media - including billboards, small-format panels and digital screens - enjoyed annual growth of 6.5 per cent in 2005, according to industry estimates.

Despite this, Maiden Outdoor, the largest UK-owned outdoor contractor, with an 85-year history, ended the year in danger of going to the wall and is now likely to be sold to one of its competitors. The story of what went wrong reveals the colonisation of the UK outdoor industry by multinational companies and the pitfalls for a smaller company trying to compete. But it's also about a series of specific miscalculations that left Maiden stranded when the market took an unexpected downturn.

Maiden, which has declined to comment for this article, was the last UK independent of any significant size remaining after a wave of consolidation dating from the mid-1990s that led to the disappearance of names such as Town and City, Allam Group, Postermobile and Score Outdoor. The US-owned Clear Channel and Viacom Outdoor and the French-owned JCDecaux control about two-thirds of the market in revenue terms between them, with Maiden a distant fourth.

Maiden has been dogged by takeover speculation for at least five years; however, it is understood that a formal offer was never put to the board. It is widely believed that the chief executive Ron Zeghibe, who is also the largest single shareholder, rebuffed all approaches, including one from Viacom reputed to be in the vicinity of £6 a share.

This time five years ago, Maiden was trading at more than £5 a share on the London Stock Exchange. Even one year ago, its trading price was well over £2 a share. Now, the company share price is hovering around 70p and many believe that Viacom is the most likely buyer in the sale being run by N M Rothschild.

Alan Simmons, chairman of Concord, a company that buys outdoor advertising space on behalf of clients such as Nestlé and MasterFoods, says it was unlikely that Maiden was ever going to have enough resources to compete. "Ron Zeghibe could be accused of being a bit like King Canute in not seeing the tide of consolidation coming in," Simmons says.

Maiden seemed to start 2005 on a high, winning several important contracts including the prestigious Network Rail tender, worth about £350m over 10 years. Yet, by December, after piling up debts of £40m, it was breaching its banking covenants and being forced to forfeit the contract for that state-owned Irish transport operator CIE after failing to agree terms.

Maiden appointed Rothschild to conduct a "strategic review". In effect this means a sale - a speedy one. Rothschild invited indicative offers and by the 24 January deadline about half a dozen bidders had responded and are now conducting due diligence.

It is believed that Viacom, the Spanish outdoor company Cemusa and the US-based Titan Outdoor are in the running, along with private equity bidders, although none has confirmed.

Neither Clear Channel nor JCDecaux submitted offers and it is thought that both companies would have faced competition concerns over their existing strength in roadside billboards, Maiden's main business.

Viacom is currently waiting on a decision by Transport for London on the London Underground advertising concession, worth about £1.2bn over 10 years. If it loses the TfL pitch, buying Maiden would ensure a continued presence in the UK. However, if it retains the contract, the profits could subsidise the alleged high costs of Maiden's contracts. For Cemusa and Titan, both of which have worked with Maiden in the past, this is the last big chance to buy into the UK market.

Tim Bleakley, joint managing director of Viacom Outdoor, declined to comment on Maiden but makes the general point that consolidation is an ongoing trend in outdoor, on the buying side as well as among media owners.

Two outdoor media buying specialists - Kinetic, which is half-owned by Sir Martin Sorrell's advertising giant WPP, and Posterscope, owned by rival network Aegis - now control more than 80 per cent of outdoor advertising budgets.

The outdoor industry has also become a much more cash-intensive business in the past decade, with landlords commanding higher rents and media owners ploughing money into improving the product. "As each contract comes up for renewal you have big companies with deep pockets competing aggressively for the business," Bleakley notes. "There are a number of situations where you have in effect a Dutch auction and it means the cost of the right to advertise can increase significantly."

Meanwhile, advertisers now favour premium opportunities such as super-size billboards with backlighting. Gone are the days when it was enough to whack up a paper-and-paste billboard for £1,500; instead, you need £60,000 for a scrolling panel or £120,000 for a digital plasma screen.

Bill Wilson, operations director at trade marketing body the Outdoor Advertising Association, says the sector has benefited from long-term investment by media owners. "A 96-sheet with a light-box costs a lot of money but if you are going to have it for 10 years, it's worthwhile," he says.

Although Maiden was investing in new product, it lacked the financial clout of its international competitors. Compounding the problem was the company's heavy exposure to the UK billboard market, the worst-performing sector in outdoor over the past few years. Recent growth has come almost exclusively from the smaller six-sheet format. If Maiden had pulled back and focused on organic growth - as Scottish Media Group has done with its outdoor division Primesight - there is a chance it might have survived. Instead, Maiden played a high-stakes game and lost. It competed aggressively for almost every significant tender, including the separate TfL Underground and bus shelters contracts.

Concord's Simmons says that a sudden downturn in the market last autumn played a large part in Maiden's downfall. Although growth of 6.5 per cent is stronger than in any other medium bar online, Simmons says that most outdoor companies were forecasting 9 per cent at the start of the year.

"With long-term contracts you can afford to take a loss for the first two or three years," says Simmons. "They're taking a gamble commercially and it might be a sensible one at the time but then the market falls away. It's either bad luck on timing or you could say it's naive because they didn't see the downturn coming."

Either way, the situation looks set for a speedy resolution with final bids due at of the month and it's Maiden's multinational rivals that stand to benefit the most.