Please forgive the long pause between posts. There’s been much on my mind, but even more on my plate. Sometimes life intervenes with well-intentioned publishing plans. So it goes. During the brief hiatus, Platt Retail Institute released their 2Q North American Digital Signage Index (NADSI). For the first time since the index was launched, the vast majority of the quarter-to-quarter index comparisons were negative. In our unusually optimistic world of digital signage, this is close to apocalyptic. While the results were duly publicized in the trade press, there seemed to be little in the way of either consternation or analysis of some dramatically bad indicators for the industry. Perhaps that was because the forward looking Near-Term DS Index, capturing respondents’ 3-6 month outlook, was extremely positive, more in character with the glass-half-full crowd. So was the second quarter an anomaly, an apparition, or an advance warning of pending doom?
The index relies on quarterly responses from a cross section of vendors, network operators and a smattering of consultants and agency types. The second quarter index had 32 respondents, including my company. Each component of the NADSI showed a decline from the first quarter, with the overall index off by 11.21%. Components declining more than the average were Capital expenditures (-11.61%), Screens Deployed in Network (-16.72%), Screens Deployed in Industry (-17.67%), and New/Expanding DOOH Networks (-12.4%). Firm Sales Revenue was off 11.2%, while prices were relatively flat, down 4.98%. These are troubling numbers, particularly the number related to screens deployed, as this is about as good a bellwether as we have for real activity. This trend would seem to have two causal factors. First, existing networks are deploying at a decreasing rate, and second, new networks are not launching in quantities sufficient to pick up the slack. This would likely relate back to flat or reduced ad spending on DOOH networks, as reflected in the index, and quite possibly to the availability of new capital to launch and/or expand networks. Both factors would be worthy of sleepless nights. In somewhat of a surprise, the only industry sub-segment with a positive trend was Agency/Brand, which is odd when seen in the light of reduced spending. That being said, the forward look for revenue, capex and ad spending are all robust.
In the first quarter optimism is generally driven by the annual strong 4Q carryover and a key trade show right before the respondents are polled. But the industry clearly seemed to run out of momentum in the second quarter. The hardware firms, who have the greatest need and an organizational requirement to forecast accurately, were the most negative in the second quarter, but were in a virtual tie for the most optimism looking forward. That would mean that they see firm orders following a quarter of softness. While networks and software firms were also quite optimistic, both of their forecasts tend to get time shifted on a regular basis, and their optimism must be discounted, whereas the hardware folks generally require POs to back up forecasts. So I see the negative trend as indicative of a bad quarter in a bad economy, and a speedbump that we just have to drive over (carefully).
It is easy to blame things on the economy, and respondents seemed to do that when polled on their biggest current challenge. But in truth, the economy has been tanking for far longer than 3 months, so that feels like a cop out. Of more interest, a large number of respondents cited competition as big obstacles in the present and the future, seeming to echo the frequent cries of fragmentation, “me too” products and networks, and the resulting confusion that it causes both buyers and investors. If there is one positive thing that the tough economic situation may do for our industry, it may be the acceleration of a process of natural selection on each edge of the DOOH ecosystem. That, in what we all hope is a recovering global economy, would portend better times for the survivors. Maybe that is the basis for all the go-forward optimism. It will be interesting to see how the 3Q Index turns out, since this will be our first chance to gauge its ability to capture current performance and forecast future trends. Steven Platt, Margot Myers and the PRI team are to be commended for their ongoing contribution to the industry knowledge base.
What do you think? Was this a blip, or is the go-forward optimism unwarranted?