Living Economics

Sign of the Times
Digital billboards can generate more benefit at lower cost by rotating images every 6 to 8 seconds.

The 450,000 500,000 billboards in the U.S. have long been a political football between the highway beautificators and the freedom-of-speech constitutionalists. The beautificators want to cap or reduce the number of billboards while the freedom-speakers want to expand their number.

The ideal solution is to grant the wishes of both camps at once. The miracle of digital billboards has made this solution possible. Their ability to rotate advertiser images every 6 or 8 seconds means that the same billboard can be used by as many as 7 advertisers. If every 5 billboards are replaced by 1 digital billboard, 450,000 billboards could be reduced to 90,000. There will be fewer "eyesores" on the highways, and there will be more rooms for more advertisers.

In fact, this is exactly the deal struck between Clear Channel Communications, a major player in the U.S. billboard business, and Cleveland (WSJ). This is indeed a win-win solution to a long-standing problem. The billboard companies are eager to do the deal because digital billboards can generate 3 to 5 times more revenue than traditional billboards. And the profit margins on digital signs can run as high as 70% vs. 45% for static signs (NY Times). On the other hand, the city was willing to do the deal because it reduces the number of billboards and Clear Channel agreed to let city officials put up occasional Amber Alerts related to child abduction. In addition, Clear Channel is also willing to donate free billboard space for Cleveland's nonprofits.

Digital billboards provide a vivid example of how more benefits can be generated with less cost when the same resources are used intensely. Higher intensity of utilization brings in a larger stream of benefit (or revenues) in a given time period and reduces capital needs as well as capital depreciation due to technical and economic obsolescence. At low level of utilization, most capital goods are just sitting idle generating no benefit while depreciation in value. For example, how many of the cars and household appliances are actually producing benefit during office hours. But most of the time-share cars and laundromat machines are humming along generating benefit for users and revenues for owners.

References:
  • WSJ. 2/3-4/2007. "In billboard war, digital signs spark a truce."
  • NY Times. 1/11/2007. "Digital billboard up ahead: new-wave sign or hazard?"
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