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Learn from Jonny the consent process, pitfalls, potential revenues and fixed rental versus revenue share.
We hear all sorts of stories about the revenues generated from billboards. To better understand billboard companies' arrangements with property owners, the revenues that can be achieved, the process of placing a billboard on your building, and static versus digital, I sat down with Jonny Drumm. Jonny is the Managing Director and owner of the nationwide billboard company Jolly Billboards. With over 15 years in the industry across various companies and owning a specialist ancillary revenue company, Auctus Media, he is your go-to man for answers to all your billboard questions.
What is the first and most important thing a property owner should know when placing a billboard on their property?
Resource consent is the big one.
If the site does not have consent for a billboard, gaining consent is a very painful process. Unless there is a long-term opportunity for the billboard to remain in place, sometimes it is not worth pursuing. It is not uncommon for people to try for 6-12 months, spend a lot of money, and not gain consent.
I know of a property owner who tried to do it themselves with no previous experience. They worked on getting consent for 12 months, and after a lot of frustration, they walked away. It also cost them a pile of money. One recently took us 12 months. The site will be up this side of Christmas. Can’t wait, as it is a killer site.
What is the process?
The first step is to select a billboard company and agree to the terms.
The next step is obtaining consent. The process of getting approval and installation can be quite long and arduous. To minimise the time and cost, choose a billboard media partner with a history of delivering on gaining consents. An experienced operator will be able to let you know about the chances of obtaining consent, the approximate cost involved, and the timeline.
They will have good relationships with councils and NZ Transport Agency, reducing the cost and time involved.
Billboard companies are being offered new sites each day, so landlords are in a competitive situation and need to think on what incentives they can offer billboard providers. Discuss with the billboard company how you can best work with them to speed up the consent process.
What is the approximate cost of obtaining consent?
This varies from as low as $4,000 to $5,000 for a simple code of compliance (static) to $170,000 plus for some digitals.
Who pays for the cost of obtaining consent?
Typically, it is the property owner, but at times, we have covered the cost.
This is usually when the site is one where we have favourable license conditions, we know it will sell well, have other sites in the area, and obtaining consent is more or less a certainty.
Who pays for the installation and removal of the structure and panels?
For digital, the billboard company may cover it based on the agreed license terms.
However, if a property owner wants a higher rate of return, they can fund the structure and installation for a better overall return on investment.
Who owns the billboard?
Sometimes it is the billboard company; sometimes, it's the property owner.
What you have to understand is that everything is negotiable. Usually, the property owner is in it for the best rate possible, which sometimes also means funding the digital structure/panels. There are no hard and fast rules here, and the more open-minded a landlord is, and the more they can share about their immediate and future goals for the property, the better the result.
I guess if it is a digital billboard, the property owner pays for the cost of power?
Again, negotiable. In around 50% of my portfolio, the landlord pays for this.
What information does the council or NZ Transport typically require?
The short answer is plenty. To start off, they will more than likely require a traffic and environmental report and, of course, the full resource consent application. What makes it hard is that each council is different, and not all reports given to councils are at the same level of detail. We have found that some want much more detailed reports than others.
Furthermore, in many instances, they do not take into account international studies and specialist reports and try to put in place some unworkable conditions, which renders the site unable to be sold or sold at a reduced amount. Very frustrating.
What are the potential pitfalls?
There are many.
A major pitfall is not having control of the the eyesight lines. We have been offered plenty of sites where a tree, aerial, flagpole, power pole, temporary or permanent building, or truck park has or may impede view-ability or prevent the site from being safely used and maintained.
Also, be aware of air rights (overhanging on other people's land) or needing access for changing of skins or changing out digital panels. A new issue these days is cycle lanes. This has now made several sites unable to be accessed, maintained, or installed from the street, instead needing a pricey abseil installation, which leads to increased costs on an advertiser. Believe me, they will book something else if it is cheaper! I have also had billboards on two-way streets become one way (the wrong way), which has destroyed revenue. Be sure to understand the city’s long-term plan and whether any of the above is possible.
Another pitfall often not realised by property owners who do it themselves is the challenge of selling the billboard to advertisers. The majority of larger advertisers have an advertising agency that looks after billboard placement. These agencies deal daily with billboard companies and tend to book spots nationwide. They cannot be bothered or have the time to contact individual billboard owners.
What form of agreement is used between the property owner and billboard companies?
Companies like ours have, over a long period, developed, with input from property owners, councils, and solicitors, an easy-to-read license that sets out the responsibilities of each party and the fee. It's not too dissimilar to a carpark license. In the past, at the insistence of some property owners' solicitors, we have used an ADLS that the solicitor has adapted. These have mostly been cumbersome and open to misinterpretation. Jolly's typical license is simple to read and is usually about 3-5 pages.
What is the normal license period?
This varies. Typically today, they are initially 8 to 10 years for a digital billboard with rights of renewal thereafter. This aids in the return on investment; any shorter, and it negates the return.
I am wondering what the property owner can do regarding the billboard agreement if it is no longer clearly visible or cannot be serviced.
In a situation like this, where, for example, the direction of the traffic changes and the billboard is no longer visible or partly obscured, both parties tend to agree to terminate the arrangement or renegotiate to a much lower level that ensures some value for each party if booked to the perfect client who understands the limiting factors.
What are the most common financial arrangement options?
Like with some of your earlier questions, there are no hard and fast rules. It's negotiable.
The two most common are where the billboard company pays the property owner a fixed annual amount; alternatively, they both share in the revenue earned from the billboard. Obviously, with a fixed fee, the risk is greater for the billboard company, and therefore, the fee would potentially be a lot less than what the property owner would receive from a shared income arrangement, which may be, say, 50/50. We have a mixed bag of agreements.
Some of our clients prefer a fixed fee, even though the income is certainly lower, as the certainty of income is more recognized by their bank and valuer.
What are your options if it is a vacant site you may want to develop later?
Normally, in a situation like this, there would be a termination clause, and often, because the installation is cheaper, it would be a static billboard. Also, the property owner would more than likely pay for the cost of obtaining resource consent and erecting the site, but like I said before, it is all negotiable.
What are the best sites?
High traffic and high pedestrian visibility, slow-moving traffic, long dwell times, and long viewing corridors. "Long dwell times" is the amount of time someone can see the billboard while stopped at lights or a pedestrian crossing or intersection.
Also, some locations still fit into this, like our Adelaide Road digital billboard, as cars are often backed up here. Sites with long viewing corridors—able to be viewed from far away—leading toward the billboard unimpeded. The angle and height of the billboard are also important. Finding this sweet spot is key: too low, and other cars/vans/buses interfere with the message; too high, and you lose visibility as you approach (sun visor getting in the way effect).
The biggest bugbear is always a new lamp post, a traffic sign, or a tree that suddenly decides to flourish after being put in near a billboard. Believe me, trees always grow towards the sun UNLESS a billboard is nearby, in which case they grow towards the billboard—don't ask me how.
Static versus digital. How do you choose which is the best for your property?
A billboard operator who works in both markets can give you the best advice. Generally, a billboard operator will always want to digitise if the location and sight lines warrant it—it gives a landlord a better return, and generally, a billboard operator can make more money from it if done correctly. Jolly works in both markets.
Keep in mind that if there are plenty of billboards in a street or location, the market chooses the best billboard—no one wants to have the 3rd best billboard on the street. It becomes tough to sell and results in low returns for the owners. There is only so much money floating around for advertising, and people would rather pay more for the best billboard, giving them the best efficacy.
Can you give some examples of the revenues achieved from some Wellington billboards?
Kevin, I can't tell you the rentals we pay our landlords. We are in a very competitive business like yours, and every company knows the sites each company has. However, to give your readers some idea, I know of one portrait digital billboard site on Victoria Street which was for sale in recent years, here in the city, where the property owner receives a fixed fee of $80,000 per annum. It's a great site—protected with air-rights and a sightline license with the neighbor, seen by many pedestrians each day and with a high vehicle count.
This license was done in the heyday (gold rush days of digital). Furthermore, there are other digital sites in Wellington from around the same time or earlier where the media companies paid too much initially, and the returns have not materialised (paying too much for sites) and have already signaled intentions that they will not be renewing (end of license term).
I should also add that digital sign revenue is double, triple, or sometimes more than the revenue previously obtained from a static billboard in the same location. That's why digital is becoming so popular with landlords. In fact, in one location, I know the gross revenue from the digital sign is eight times what it was from the static sign.
What about motorways? With so many vehicles driving past, surely they must generate the highest income.
They can, but not always. It still depends on the vehicle count, speed of vehicles, and line of sight, as well as the conditions of the resource consent.
Is there anything else you would like to say, Jonny?
I could go on for hours. It's a business that I can say is challenging and keeps me fully engaged.
The diversity of dealing with landlords, my team, while still dealing with key large direct clients and large advertising agencies keeps my finger on the pulse. In my view, there are only a handful of media companies worth doing business with. Many smaller players promise a big game and do not deliver, and many larger companies do not offer a personalised service to understand a landlord's investment profile. Jolly has a great niche here.
In many instances, if my offer does not suit a landlord, I have referred business to the right media company—this has always helped me maintain my company's integrity. This is a very small industry, and integrity is everything. In the past, when I have grown other billboard companies, my smaller competitors, I have ended up buying, had key people come across from bigger companies and work for me. People gravitate to trustworthy ideals, a bit like trees to billboards.
There is one thing your readers may not know, Kevin: when some councils grant resource consent for billboards, there are often conditions. For example, there may be limitations on the colours that can be used in the advertising, the number of characters, how long an advertisement must be up for as a minimum—all of these factors lead to reduced revenue on the billboard. The more conditions, the less revenue can be derived.
I have recently been made aware of consent in greater Wellington where the conditions imposed by the council were too onerous, and Jolly would not touch it as it is. Another media company has signed it up, and believe me, I can’t wait to see how the site will be able to be sold to some advertisers with the conditions imposed. The best thing to do in this instance is resubmit under section 127—extra cost. Hence the reason to engage with a billboard company at the beginning.
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