Long-term vision for JCDecaux is of a great outdoors in the Middle East
Global outdoor advertising group's regional CEO Martin Sabbagh is confident about the prospects for his business
Martin Sabbagh comes across as quite comfortable in his own skin, a confident chief executive unfazed by but equally realistic about the current challenges facing his firm JCDecaux in the region with advertisers holding back as the fallout from low oil prices makes other CEOs hesitate over spending.
This calmness may be because executives at the global outdoor advertising group have to think long-term even amid short-term turbulence. Firstly, the infrastructure assets JCDecaux owns across thousands of the world’s cities require years-long contracts to provide the appropriate returns. Secondly, these deals are not simply about servicing clients looking to earn money from advertising, they are typically partnerships with public authorities that are ultimately providing services to their populations. In this context, 20 years is not a long time in the thinking of the company. Its own beginnings go back some 53 years when the eponymous founder Jean-Claude pushed ahead with the "street furniture" concept of bus shelters financed by advertising in its home market, France.
In its more recent history, the company entered the Middle East region in 2007 and when it comes to "out of home" (OOH) advertising here, JCDecaux’s presence can primarily be felt in major airports in Dubai, Abu Dhabi, Saudi Arabia and Oman.
It also has roadside assets in Muscat and Doha, recently having more aggressively moved into roadside in Dubai, too. Last year, it signed a deal with the Tecom Group for the development of digital advertising solutions in Dubai Media City, Dubai Internet City and Dubai Knowledge Park. In the next few weeks, JCDecaux will begin working with Dubai’s Roads and Transport Authority (RTA) to install, operate, and maintain 418 advertising lamp posts along the Jumeirah Beach Road, as well as 50 fully-interactive "e-Village" products around the city.
These deals – in particular the most recent with the RTA – are why JCDecaux is confident on its commitment to the UAE and wider region.
“Long-term investment hasn’t been happening too much in our industry [in the region] and little by little it is changing,” says Mr Sabbagh, the company’s chief executive responsible for the Middle East, Egypt and Pakistan. He took on the role over two years ago.
The duration of the RTA deal – agreed for 10 years – is a good example of how change is happening in the OOH industry, he says.
“Previously it would have been signed for five years, which is preventing significant investment,” he says. “His excellency Mattar Al Tayer [the RTA’s director general] understood they needed to change to have access to the long-term partnerships that are happening in other cities in the world.”
There is a kind of competition between cities around the world when it comes to infrastructure such as outdoor advertising installations from billboards to interactive “big iPads” like the e-Village product, according to Mr Sabbagh. This is one of the drivers behind JCDecaux’s growth. The overall wave of urbanisation that has gathered pace in emerging markets in recent years is another. It has helped JCDecaux to spread its network from Sao Paulo to Chicago to Shanghai.
“Out of home is a growing industry… more people are spending time in transport, the cities are becoming quicker, the urbanisation rate is growing, here in this region and across the world in general, so the audience is growing,” he says. Worldwide JCDecaux estimates it reaches an audience of 400 million people every day.
Still none of this is on a smooth trajectory, with the recent crash in commodities prices and the overall economic and political uncertainty acting as dampeners on growth everywhere.
This was evident in the group’s last full year earnings. While the €3.4 billion (14.65bn) in revenue JCDecaux reported for 2016 was a rise of 5.7 per cent year on year amid a challenging market, particularly in China, its net income fell. For the first quarter of this year revenue growth was slightly negative on global economic and political uncertainty.
That is in line with how the first three months of the year seemingly panned out in the Arabian Gulf region in terms of advertising spend which was down 22 per cent compared with the same period of 2016, according to the agency TBWA Worldwide. Anecdotal evidence indicates it was a very difficult start of the year for many businesses still grappling with the economic fallout from lower oil prices.
“Our numbers are better than the wider market but we are in that mood. It is clear the market is tough and we are part of it but we are getting short-term gains from our conversations with clients,” says Mr Sabbagh.
Globally, the rest of this year is forecast to remain slow as advertisers hesitate over spending, especially in an underperforming Mena region, according to ZenithOptimedia.
“You have two really different dynamics, you have the short-term dynamics, which is advertising is very sensitive to the economy and is a bellwether, it is pure discretionary spend and in very tough times it is easy to cut on advertising, even though it is not the right way to protect your business, but it is an easy call,” says Mr Sabbagh.
“The consequences are ad revenues are going down but the long-term trend is positive, when [my team] talk to clients they can really feel there is eagerness because it makes sense on a pure marketing standpoint but when it goes to the CFO/CEO discussion then there may be a different trade off,” he says.
“This trade off of short-term versus long-term is a reality, let’s not deny it, but we remain extremely confident about the long-term prospects of our business, specifically in this region.”
JCDecaux expects the OOH ad spending growth rate to pick up globally next year, partly driven by big sporting events such as the World Cup and Winter Olympics, but it will be at 3.2 per cent, little more than this year’s rate of 2.9 per cent, according to data from Dentsu Aegis.
Still, the outlook will not be too much of a concern for a firm that has always had its view firmly fixed on the possibilities on the horizon. This is what underpins the culture of a company that is still at heart a family business even though it is listed on the stock market in Paris. The second generation – the three sons of the founder – have control of the group as well as top executive roles and positions on the board.
“This business was created by the family 50 years ago and that was [what caused] the first revolution in outdoor [advertising]. We were changing it from short-term billboard contracts to long-term street furniture partnerships with cities. That is still happening and it hasn’t been fully implemented everywhere in the world, specifically in this region,” says Mr Sabbagh, who joined JCDecaux as a senior analyst in 2007.
The public-private partnership (PPP) structure that it has always used also lends itself to this type of long-term thinking. JCDecaux owns - and in most cases builds - the street furniture and other advertising infrastructure for the life of a contract with its clients, during which it must get a return on its investment as well as keep investing to maintain the quality of the advertising displays. The client also gets revenue from the advertising that is displayed. That is why longer contracts are key to making the initial investment worthwhile. That has not always been a possibility in the region but as the market does change more rapidly, driven by the needs of governments, municipalities and authorities, JCDecaux will be ready to get to work because it can see that there is plenty of opportunity once new and updated standards for advertising infrastructure come into place in more countries in the Middle East.
“There is much more room for transformation [here] than there is in Europe. There are many more things we can do in this market, therefore we could invest much more money if the framework is right,” says Mr Sabbagh. “The key thing is to upgrade the requirements or the expectations from the authorities, that is going to be the game changer.”
Advertising revenues in Saudi Arabia and Egypt could be much bigger, for example, says Mr Sabbagh.
“When I look at Saudi I see a big opportunity because of the population – back to the audience point. I can see that change happening globally in Saudi in terms of Vision 2030 and new initiatives delivering more services to the people. Maybe the government less involved but working through PPPs,” he says, adding that JCDecaux’s experience of financing infrastructure through advertising could support the kingdom’s economic transformation plans.
Right now the Middle East accounts for very little of the overall group’s investment – somewhere in the low single digits. This is not enough, according to Mr Sabbagh and it will rise, together with the region’s overall contribution to the group, as the above-mentioned changes take place.
“If I call for capital from my board for the right project they would be very happy to invest in the region. The board would not be looking at the 2017, 2018 numbers and forecast, they would be looking at the long-term plan where JCDecaux could be in the region in 20 years - what kind of transformation could we drive, can we lead - and that is significant because the market is still relatively young when compared to Asia or the US or Latin America. Even some parts of Africa are more mature in our industry,” he says.
This applies to JCDecaux’s local competitors in regional markets, he says, which will adapt quickly to any changes in regulations for outdoor advertising including a focus toward digital.
“There is capital, most of the operators in the region have capital to allocate if authorities require a change in quality,” he says. His international competitors such as Clear Channel, Lamar and Outfront have not made their presence felt yet because of the region’s lack of maturity.
“A question I ask myself frequently is 'would my life be easier if I had more international competitors here in the region?' You have both sides – it would be easier because we would be pitching for the same approach. In the UK, for example, we have the same standards, which makes it easier for everyone including the landlords to decide what to do. In this region we are alone in our conversations with the authorities, the flipside is, of course, that if it works it’s better for us [if we are alone in the market],” he says.
One of the biggest challenges facing the OOH industry is the proliferation of smartphones and other devices, meaning that JCDecaux and its peers must compete for audience eyeballs with a display that consumers carry with themselves and are obsessed with to distraction.
“Out of home may be the oldest media, it existed in ancient times but it is still a very new media in the sense that technology is adding to it,” says Mr Sabbagh. “The good thing is people are still outdoors or in that environment like an airport or metro. The audience remains there. How we interact with the audience is something we have to reinvent every day.”
The consumers' love for mobile devices is changing the entire industry and in particular is almost exclusively driving the growth of digital advertising. It is the fastest growing segment with spending forecast to grow 14 per cent this year to become the number one category worldwide, according to Magna Global.
“The rise of digital advertising, specifically Google and Facebook, is putting pressure on us. Everyone knows that because it is eating a bigger part of the pie and on top of that the pie isn’t growing that much,” Mr Sabbagh says.
It is not black and white, he says, with the likes of Google and Facebook among JCDecaux’s biggest customers in markets such as China and London.
“There is space for you as a media owner to coexist with Google and Facebook [and] there are side benefits like mobile,” he says. “As you continue to invest in your solution and you have the right audience. [If you can] reinvent the way you provide your solution to advertisers there is room for growth.”
Recent data bears this out, with OOH holding its own at about 6 per cent of global advertising spend thanks to major investments in digital, according to data from Magna and the agency Rapport. The OOH market was worth US$28bn in net advertising revenues last year and is forecast to grow 4 per cent annually to reach $33bn by 2021.
Updated: August 10, 2017 10:03 AM