Australian advertising’s diamond in the rough

Market insights

As many of you will recall, the Australian advertising market was once extremely attractive. Strong growth, capital light businesses, innovation, glamour and soaring share prices… it seemed to have it all. Today, however, investors commonly view the ad market as a space to avoid. Subsequently many traditional media companies share prices are at all-time lows.

As bottom-up investors, we try to avoid forming broad brush conclusions and instead look at every company on an individual basis. Focusing on the 2 or 3 things that matter we’ve identified a potential opportunity… a diamond in the rough.

The background

The Australian advertising market has enjoyed strong growth over a long period of time. It has delivered a compound growth rate of 8% p.a over the past 40 years to reach its current size of $13 billion1. However, it hasn’t been a smooth ride with the market experiencing good and bad times.

It's all digital, darling

The big growth story in advertising is the shift from newspapers to the online channel. Online is generally a lower cost medium to reach audiences – and so advertisers can spend less to achieve the same outcome (at least in terms of how many people they reach). The online channel has grown rapidly over its short life, becoming the single largest advertising medium in 2014.

Australian advertising market share - major categories

Source: CEASA and Macquarie, July 2015

I don't want my MTV

Much of this growth has come at the expense of the newspapers and it looks as though TV advertising will be next. Given the listed media sector has historically been dominated by TV companies (Channel 9, 10 and 7), it’s this gloomy outlook that appears to be weighing on investor sentiment.

What matters?

Looking through the gloom, we’ve identified one advertising medium that is showing no signs of a slowdown. It’s 'out of home' or 'outdoor'. It includes advertising on roadside billboards, train stations, airports, bus sides, bus stops and in shopping malls, among others. The attraction is that it is omnipresent – so it can reach audiences when the other mediums don’t. This is increasingly valuable as traditional audience’s fragment. In fact, outdoors recent strong growth can be partly attributable to the fact that it too is migrating to a “digital” medium, with billboards often being large TV screens.

The outdoor segment is still relatively under-developed. With $600 million of annual spend, it represents less than 5% of the total ad market. However it has plenty of room to grow – especially compared to what has been achieved by outdoor in many developed markets around the world.

Billboards and digital displays

oOh! Media (OML) is Australia’s largest outdoor ad company. Established in 1998 by current CEO Brendon Cook, it has grown rapidly over the years and now holds 34% market share2. It has a broad collection of sites nationally, as well as a strong pipeline of digital conversions planned. This, in combination with increasing advertiser attraction to outdoor, reinforces our conviction in the story.


The bottom line is that we aren’t optimistic about the outlook for the overall Australian ad market. In fact we believe a period of low growth is likely to occur. We are, however, confident in the solid growth outlook for the outdoor ad market.


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