Competitors knock city deal for digital billboards
BY FRAN SPIELMAN City Hall Reporteremail@example.com November 11, 2012 7:18PM
A new digital billboard is shown Monday, Dec. 12, 2011, along Interstate 80 west of Larkin Avenue in Joliet, Ill. Twenty more are pending. | Matthew Grotto~Sun-Times Media
Updated: December 13, 2012 10:23AM
Chicago taxpayers will lose millions of dollars a year — and billboard clutter will remain — if the City Council goes along with Mayor Rahm Emanuel’s plan to give one company a 20-year electronic billboard “monopoly,” according to competitors and industry analysts.
“Hasn’t the city learned from the parking meters and the Skyway that, if you get locked in, it doesn’t always turn out the way you want?” said Andrew Polonsky, owner of Evanston-based Surface Advantage, a firm that creates advertising revenue-sharing programs.
Polonsky and billboard giant Clear Channel Outdoor argue that a 20-year agreement with a 10-year renewal option is too long to keep pace with fast-changing digital technology. They say there should have been a request for proposals to give taxpayers the best revenue-sharing deal.
They further contend that Emanuel’s plan gives entirely too much control to a partnership that includes the French company that holds Chicago’s controversial bus shelter contract.
The agreement calls for JCDecaux and its partner, Interstate Outdoor Advertising, to put up 34 digital signs on city property adjacent to the Kennedy, Dan Ryan, Stevenson and Eisenhower Expressways, as well as the Chicago Skyway and Tri-State Tollway.
In exchange, the joint venture would guarantee Chicago taxpayers $15 million in 2013 and $154 million over the 20-year contract. The city hopes to generate as much as $270 million over the first 20 years through a revenue-sharing arrangement that starts with a 50 percent cut of the first $25 million.
To reduce ad clutter, billboard companies would be invited to exchange up to five vinyl signs on private property for every one new digital billboard on city land, provided they share their revenues with the city.
But there’s a catch: JCDecaux would have “first right of refusal” over digital billboard sites chosen by competitors, said Jim Cullinan, vice president of communications for Clear Channel Outdoors.
“All of the good spots that are worth it and drive advertisers to locations, JCDecaux will take, and they can veto us trying to get any other good locations. That’s a bad thing for the city,” Cullinan said. “They’re leaving money on the table — a couple of million dollars a year — because other companies won’t have the incentive to go digital. We won’t do it. It doesn’t make sense. Right now, we have good locations. We’ve been there over 50 years. Why give up a good location to go to a substandard location because that’s the only location we can get?”
Cullinan accused the city of “giving a foreign company a monopoly on digital billboards” for as long as 30 years in an industry where five- to seven-year deals are the norm.
He noted that electronic billboard technology is changing so fast that consumers can literally “make a purchase directly from a sign” they pass by pointing their smartphones at a billboard with a built-in code.
“You’re stuck with one business. That doesn’t give you flexibility. We’ve never seen a contract that long. It locks you in and locks out competition,” Cullinan said.
Polonsky agreed that 30 years is too long. “What do you do five years from now when you find out the electronics are obsolete? Are you stuck with signs that aren’t as clean or crisp? Times Square signs are getting $46,000 a minute. Are you gonna get that kind of traffic in downtown Chicago today? No. Twenty years from now, who knows? I just don’t think 20 years is the way to go. There are too many unknowns,” he said.
Lois Scott, Chicago’s chief financial officer, said the contract requires JCDecaux to maintain all of its digital signs and to replace them regularly.
“The life of digital billboard is 110,000 hours. They have to completely replace that technology on their dime — not ours — with a complete replacement at the end of nine years,” she said. “There are incentives built into the contract that really motivate the vendor to keep technology current. Advertisers will want to be advertising on good technology. And because we split the revenue 50-50 on the first $25 million, there’s a strong motivation to make sure the technology is consistent with where the ad revenue is going.”
Scott said the city’s underlying goal was to avoid advertising “clutter” while “creating a new revenue stream to protect essential services and avoid tax increases.”
She added, “Rather than put advertising on every building and vehicle, we chose to pinpoint a very limited network. There were only a couple of firms willing to partner with us in generating revenue. The other firms wanted the opportunity to expand their own business franchises. They were not putting taxpayers at the center of what they’re doing. Somebody had to be the winner. Every single firm out there had the same chance. I don’t know where these people are coming from.”
Drew Katz, CEO of Interstate Outdoor Advertising, agreed, saying the company’s Chicago Digital Network initiative will “generate even more revenue” with no cost to the city or taxpayers.
“We know firsthand that the selection process was conducted with integrity and a focus on even-handedness. It was competitively bid through an extremely intense, thorough, fair and objective bidding process. The integrity of that process will ensure substantial benefits to the City in the years to come,” he said.