Clear Channel Outdoor Holdings, Inc. (CCO) Earnings Call Transcript & Summary

Good afternoon, everybody. Welcome back. I'm Ben Swinburne, Morgan Stanley's media analyst. Quickly want to read a disclosure statement. Please note that important disclosures, including my personal holdings disclosures and Morgan Stanley disclosures, all appear on the Morgan Stanley public website. Excited to welcome to the conference this afternoon, Scott Wells. Scott is the CEO of Clear Channel Americas. He runs the business, really covering the top 44 markets that Clear Channel operates in the U.S., and is someone that I have learned a lot from, particularly on the technology front. So Scott, it's great to have you. Thanks for being here.

Thanks for having me, Ben. Great to be here.

Why don't we start on the technology front. I was actually corresponding with an investor this morning who was asking me about the risk of technology disruption and disintermediation in out-of-home. I know that you are a big believer in the benefits that technology can bring to the industry. So maybe we can start at a high level. How would you describe how technology has changed the business while you've been involved in out-of-home? And what are you sort of most excited about in the future?

That's a big question. Like many businesses, technology touches every part of our business. It's funny because people very much focus on our digital sign conversion, which is certainly the most visible aspect of it. But a lot of what's going on behind the scenes is equally as important and is what I'm excited about. So I guess the couple of big things I'd call out, automation as a theme. Programmatic is a subset of that. But automation in terms of how we actually transact with our partners, automation of how we handle campaigns, whether they're digital campaigns or printed campaigns. Automation is a huge theme. We've made big progress. Second area I'd call out would be data, where the ability to bring an internet-like set of insights to the out-of-home space is something we've been demonstrating the last couple of years and we're making good progress on. The industry is coming along on that as well, and I think advertisers are starting to appreciate how out-of-home can be part of an omnichannel solution, omnichannel digital solution. And then I'd be remiss if I didn't talk about the digital conversion. I mean it is the most visible part of what we do. But it gives us a lot of ability to be flexible and to do creative things that were unheard of 5, 10 years ago, where an advertiser can dominate a geography for 20 minutes by having all the digital signs in a given DMA representing their message. That's something that people never really contemplated doing prior to these capabilities. So it touches every aspect of the business.

And Scott, when you look at the growth, I mean, we sort of have to take 2020 kind of out of the analysis for a minute. If we go back to kind of '18, '19 particularly in '19, you guys were growing in the U.S. really substantially. How would you -- what technology drivers would you attribute the growth we saw back then in terms of the things you just delineated for us?

I mean I think the 2 big ones were the programmatic piece of it. So literally a new channel where we were presenting our inventory and we are presenting our inventory in the digital display marketplace alongside other digital media. That's a channel that, again, didn't exist 5 years ago. And we were really getting some great traction on it. And one of the reasons we were getting it was the second piece, which was the data element. And we -- our data -- we talk a lot about our RADAR suite of solutions. It impacts both our printed sort of static displays as well as our digital, but it's most impactful, in a lot of ways, alongside those programmatic campaigns. And we really had great traction on both of those fronts. And I'm seeing it build back up now, and I'm confident that we're going to see us pick up in a good place in those areas as COVID starts to be in the tail lights. It's not there yet, but we're certainly working on it.

Yes. Before we get to RADARs, I want to talk about that in some detail with you. On programmatic, by implication, you're suggesting that's bringing in new advertisers or at least bringing in more budget of existing advertisers. Can you talk about sort of the sources of share gains that may be programmatic unlocks for the industry and for Clear Channel?

Sure. I mean it does a few things for us. First off, I'm sure you remember this well. In the sort of 2011 to 2017-ish era, you had a lot of advertisers leave traditional media, including out-of-home, because they wanted to have ROI stats. They wanted to have that ability to transact and they wanted more flexibility. And what we have seen -- so the first set of advertisers we got on programmatic when we announced programmatic were people who loved out-of-home but had left because it didn't have data, it didn't have the flexibility. And so that's been a big growth area. And it's people that were maybe out-of-home advertisers in 2009 or 2010 that came back. That's one area. I think a second area is we've done a really good job as an industry, laying out how complementary out-of-home is alongside social media and alongside mobile and frankly along just mainstream digital display. And so through those case studies, we were able to get advertisers to come in and include out-of-home in budgets that might not have included it otherwise. And through the success that they had during that time, it just becomes a virtuous cycle. And so it was probably in that growth, it was probably half-ish people coming back to the category and half-ish people adding us to digital display programs. It was not a lot of cannibalization. I think in the future, that dynamic will shift, but we're still in a stage where programmatic is almost entirely incremental.

Right. And when we think about improving yield on your existing asset base, your existing structures, is it the same tech drivers you just laid out that are going to be key to making that happen? Or do you think maybe the data analytics kind of audience targeting piece might be more substantial? How would you talk about -- how do you describe sort of the key drivers for yield optimization as we exit this pandemic?

I mean the key is getting the advertiser where they want, when they want at the highest value. And so there's a big part of this that is the feedback mechanisms we provide to our account executives. So just in terms of helping the account executives understand pricing optimization on deals because there's a lot of advertisers that want to lock in those positions. They don't want to leave it to a programmatic marketplace. And we're going to be innovating and having different types of programmatic that maybe will have guarantees associated with it. But we'll also be doing deals where they're just conventional deals with the advertiser that, having good price optimization data in the hands of the account executive, will help with that. And it's a 2-way street that if we have good data about the audience that the advertiser is trying to reach, we're able to then optimize our pricing proposition, and it's a win-win because they're getting the audience they want and we're getting it sold to the highest-value advertiser at the right moment.

Maybe picking up on that or building on that advertiser offering. What does RADAR offer an advertiser? It's a sort of a suite of products. But if you can distill it down for us, understand what it does for the advertiser, we can maybe start there.

Sure. I mean what we're aiming to do is we're aiming to provide an experience that's similar to other digital media when you look at the life cycle of the campaign. So from planning to the actual campaign execution and optimization, to looking at attribution. And we've broken RADAR into 4 kind of sub-products. We have RADARView, which is the planning tool where you can go in and visualize. You say what type of audience you want. Say you want auto intenders, it will give you a heat map of assets that over-index to auto intenders. Then we've got our RADARConnect product where you can actually buy other media to retarget those audiences. And so you can look at audiences exposed to your out-of-home campaign, and you can send them digital advertising as a retargeting tool. That's RADARConnect. Then we have RADARProof, which is the attribution piece, which would give you the ability to do a variety of different attribution, whether it's footfall or watching a TV show or things along those lines. And then overarching the whole thing, we have RADARSync, where with -- a subset of advertisers will actually integrate our data with their data connecting through LiveRamp usually or a service like that. There are a few different ones that are out there, but LiveRamp is probably the most common, where they'll actually ingest our data and have the ability to look at us relative to the other media that they bought and build it in. I mean that's a subset, a very small subset of advertisers at this point, but that's the vision of where we're going to because we're aiming to make this data very accessible to help the advertisers include us in all of their different attribution tools and their different planning tools.

Sure. Sort of a custom audience product offering.

Exactly.

Yes. Makes sense. How would you describe, maybe on the attribution or measurement side, how RADAR differs from Geopath? Just to help us think about the difference there.

Yes. So we never made RADAR to be -- we're not big believers in counting our own homework or grading our own homework as it were. That's where Geopath comes in. So Geopath makes the count that underlie our -- so when we say that a sign reaches 80,000 people a week, it's Geopath that audits that and provides that. What we would then do is give a very rich qualification to that audience through RADAR where we'd be able to talk about demographics, we'd be able to talk about behavioral things. We'd be able to talk about people that are auto intenders or people that stop at Starbucks regularly or QSR enthusiasts. There's like 7,000 different segments that we have that we can do with that. And so what we're really looking to do with RADAR is speak to the language that the advertiser is of trying to match. And we can ingest their audiences as well. There's a number of advertisers where we've ingested their audiences and do our campaign planning based on heat maps using their data. So that's how RADAR fits in the mix.

Can you talk a little bit about scalability of this suite across your advertiser base? I mean I'm sure you have large, national, sophisticated advertisers and agencies, but I'm sure you also have some very small businesses that are important to driving the business over time. How broad can RADAR be applied across your customer base?

So it's interesting. It's -- I would say extensively. I mean, I think about the services that SMBs use from Google or from Facebook, which our toolkit is not as robust as either of them. I don't want to create the wrong impression there. But small advertisers are more sophisticated than they tend to get credit for. And what we have seen, as we've proliferated RADAR, is that some of the people who've been most excited, particularly about RADARConnect, RADARView and RADARConnect, the sort of planning tool and the selling the other media alongside it, have really done well with the small advertiser. They really like that. A lot of the larger advertisers will have agencies and the agencies have invested billions of dollars on their own and their data platforms. And so oftentimes, what we end up doing in those situations is actually using RADARSync to connect and to sort of optimize. So I'd tell you it works up and down the stack and that over the next few years, you're going to see us doing more to make it accessible to that small and medium advertiser so that they can access it maybe in a self-serve way or in something along those lines. That's an area that I think there's real opportunity in.

Makes sense. You guys, I think, spend about $200 million of CapEx. And I'm just wondering the kind of capital needs of this kind of technology platform as you look out to make this much more -- it's already a substantial driver of your business, but to make this even bigger over the next several years.

Yes. I mean the capital isn't -- it's honestly more of an OpEx conversation in a lot of ways. The capital, yes, there's some development costs that we would capitalize. There's some infrastructure for our connections to the SSPs that enable programmatic, the connections that we're doing with agencies to have automated direct, those are things that would be capital. But they're not going to be -- I mean, relative to our digital conversion and sign development budgets, they will be very small. It's more of an OpEx question about data sources. Do you actually manage your own data lake and have data scientists, that's where you can spend a lot of OpEx. We have striven to be OpEx-light in our development of RADAR, and we do a lot of partnerships as opposed to building a lot of those things in-house. So we've tried to be very cost-conscious. But the thing is, is that the product ends up being a premium enough product in our margin structure and our digital sign is good to a degree that this business, as long as we keep it pretty heavily incremental, is really very attractive. And we watch that like hawks in terms of making sure that we're not just taking business we were going to get otherwise and adding a bunch of cost to it.

Yes. So what would you say is the governor to making this even more substantial in your business? Is it about educating the client base? Is it more about developing the self-serve tools? All of the above? Are you guys constrained at all from a spending point of view on what you need to do?

I mean we definitely don't spend everything we'd like to. That's for sure. We have -- I've been in the role a little more than 5 years at this point. And one of the things that we've made a big focus since I've been here has been our direct-to-advertiser outreach. And it's something that we've seen bear a lot of fruit because a lot of advertisers had no idea and still have no idea we can do what we're able to do with data and with flexibility and things along those lines. And so I think a lot of this -- you hear us talk on our earnings calls about growing the pie. A lot of this is an industry, we need the industry as a whole telling the story and amplifying the story so that the agencies are aware, that the advertisers are aware, and that we bring people along. That is the constraint is just the bandwidth that you can get with the advertisers and the agencies and the number of times you can tell the story. But you referred back to the '18, '19. That's where it really did feel like the flywheel was kind of catching. And I'm pretty optimistic that as we put COVID behind us, we'll be able to get that flywheel moving again. And the agencies, in particular, have made a lot of focus on automation and on ways to work in more efficient ways with their media partners. I think that's going to be an opportunity for us because we've done a lot of the plumbing to make it possible for us to interact in a much more automated way with our big partners.

Yes. It's interesting you mentioned agencies and data. We had IPG's CEO this morning talking about the sort of data ethics, privacy as a growing area of focus for advertisers. I would imagine, as you think about your data position, you have this debate over whether you need to have your own, want to have your own or outsource to others. Does there a need to be an industry solution there, Scott, to make this thing -- make the flywheel, to use the phrase, work? Particularly at the agency level, where they're dealing with probably you and your other major competitors?

So it's a great question, Ben. And a lot of the times when we do our analytics, we will actually include our competitors' assets in the analytics. And so we're -- with RADAR, we make that seamless for our advertising partners. But I do think the industry solution on the currency, what we were talking about what Geopath does is something that is incredibly important for us to get right and for us to get more robust because it's currently not as real time, it's not as flexible as it needs to be. So there are definitely industry solution elements, and certainly, I've been very open with my colleagues in the industry that we're very open-minded about cross-licensing and sharing IP because I do think a lot of this is about growing the category as opposed to winning individual deals. There's a big part of it that is educating your sales force. And having sellers that are actually able to go in and meet with those IPG executives and their advertising clients and be credible, that's not straightforward, and that's not what they were doing 10 years ago in out-of-home. And so there's a learning curve element to it that I think is really important. But I think there are -- if you look at every other media, there are things that are industry things and there are things that are company things. And I think that we'll continue to try to strike the right balance there. But we're very open-minded about sharing to grow the category.

And maybe just -- maybe the same question, Scott, on the programmatic front. I mean my sense is in talking to yourselves and Outfront, Lamar, there's different approaches and you're at different places in terms of how you're plugging in from a channel point of view. Does there need to be harmonization there? Or do you see that maybe as an area where there's maybe more competitive differential than what we see on the measurement attribution side?

Well, programmatic is ultimately a standards-driven exercise. The data that you layer on top of it can be different, but in order to plug into a supply-side partner, you're embracing a bunch of protocols that are quite consistent with what digital display programmatic has in it. And so in a lot of ways, that space, that particular space, the sort of real-time bidding space of programmatic, is probably more consistent than a lot of the corners of data usage that we could talk about. So I think that area is fairly far down the line. You're right that we're in different places. I think one of the big differences among us is how much we're actually out evangelizing and how much we're investing in that aspect of it versus how much we're relying on the demand-side partners to do the lifting. That's an area that we've been leaning in pretty aggressively on, and I think it's served us well. But it's essential for this industry to make this move is for the advertisers to become aware of what's possible.

Yes. So how far does programmatic go in out-of-home? I mean we -- like in television, we've talked about it for years. And even in the streaming world, like a Roku, it's still mostly a direct business. And that's just kind of how advertisers have grown up and what their muscle memory is around. But you -- I know you're a believer in this. Do you see this becoming the predominant way out-of-home is bought and sold? And maybe you can give us a sense for how substantial the business is today as a percentage of your overall revenue.

So you need to start with how you're defining programmatic. And I would think of it as a subset of automation. I talked about that at the front end. I think advertising is 50 years behind grocery retail in transacting efficiently. EDI came out in the early '70s, and it's evolved a lot since that time. But you've had, in a much less s*** business, we've had much more advanced technology. I think that we are at a point where people are ready to have that conversation about how do we transact in an automated way together? That's not just programmatic. That's how we actually build pipes between us and the big agencies and things like that. And that, I think you're going to see over the next few years. Programmatic will being an important part of the digital business. I think eMarketer puts it at about 3% of digital out-of-home currently, and that's not a bad cut, plus or minus a couple, relative to where we are. I mean we haven't been very forthcoming on our numbers on that, but it's small, but it's growing really fast. And I think 5 years from now, the conversation is going to be programmatic was a -- if you just think about digital display, digital display went from something in the $10 billion or $12 billion range in 2011 to $70 billion-something in 2019, ballpark. And the direct portion of digital display was almost identical in 2019 as it was in 2011. So that part of it held steady. The rest of it all was programmatic, defined in my broad automation way programmatic, probably half of it was the automated direct type of stuff that I was talking to a minute ago, half of it is the real-time bidding type of stuff that is the primary part of out-of-home right now that's going on open exchanges and private marketplaces. So will it become the predominant, probably not in my tenure. Will it become an important part of our mix, no question. I mean I'm not going to call the kind of growth that digital display had from '11 to '19. There's different inventory characteristics, there's lots of differences that go on. But we have a fantastic asset base that doesn't have brand safety issues. It doesn't have a lot of the issues that you get on the Internet. And I think advertisers are only just starting to appreciate how powerful that is.

And maybe taking this back to where we started, you were laying out all the technology drivers of the business. On the digital display, digital board conversion front, how much is your ability to leverage technology impacted by whether you're selling digital versus static boards? And if there is any gap, can you eliminate that over the long term?

So this is a question that we spent a lot of time fighting about, because I am a believer that if we can come up with a non-light-emitting changeable copy solution, that we could dramatically change that dynamic. But state to state, the answer would be different because some places, it's the light-emitting that causes the regulatory heartburn; some places, it's the changeable copy that's the regulatory heartburn. So let's just not -- let's not go down that one. I think what's going to happen coming out of COVID is a lot of cities are going to be looking for new revenue streams. And cities that had been more hesitant about allowing digital signs will become more embracing of it. Now whether that's on public property, whether that's on private property with some sort of a community benefit associated with it. I think we're going to see all kinds of innovation in the ways that cities participate, and that will create opportunities for more conversion. But your core question about the impact of technology, I think that static will remain a really important part of our business because I still get nasty calls from advertisers when we convert somebody's preferred location from being a beautiful printed location to being a multiplex digital location, that all of a sudden they're staring at, they don't control that access point to Route 80 that they used to control. And that's important in how the business works in the United States, at least. And so -- and that -- and data helps us with that, and technology helps us with that, because I would fully expect we will convert how we transact those printed. Even just things like getting -- one of the things that people forget is that we are an in real-life business and that every time you do a big campaign printed, you have to collect that copy and you have to get it on the right signs. Only in the last year or 2 have we been in a situation where we're contemplating end-to-end digitization of that process where you have -- it's not reliant on people reading an invoice and putting it on the right truck and then putting it on the right sign, but it's actually got a scan code on it that lets you make sure that all those things happen in an automated way. I mean that sounds incredibly primitive to people who are used to dealing in physical logistics, but it's the reality of the world that we're just applying those technologies now. And that makes us more effective, it makes the advertisers more confident in us. So technology impacts every part of our business. Long answer to you short questions, sorry. I get really fired up about this.

Light emitting and non-light emitting. That's interesting to debate with our municipal partners, I'd imagine. Maybe in our last few minutes, Scott, I wanted to just come back. And we obviously are still in this pandemic, we're in this virtual conference, but we are optimistic we're coming out. How has -- when you step back and think about the last year -- or I guess, year. How has the business been impacted in terms of the implications for long-term change? Are all the things that you've been talking about with me over the last half hour all accelerating? And if that's the case, are you guys able to harness that acceleration for the business? Or anything else you would highlight about how the pandemic has impacted the out-of-home industry?

Well, it has definitely forced us to get a lot more flexible. I can tell you, we're a lot better positioned to deal with work from home and with actually transacting virtually versus having paper and all those things like it. So that has accelerated. I think interestingly, we probably made more progress with our account executives in the last year in having them understand data than we had in the 3 years prior because they had to because all of a sudden in March, people were saying, "Well, God, everybody is working from home, nobody's going past my sign. How should I continue paying you?" And so we had to bring them down the curve and say, "No, actually, traffic is only down about 30%, and you actually still are getting a great audience and let us dimension it for you." So I think that there have been some silver linings out of it. And certainly, our business practices, we've accelerated things like what I was describing on the scanning in, copy and things like that. So we made big strides in our back-office operations that I think are going to pay off for us. And I think that those will be real positives. And I think that the advertisers, as we see lockdown stopping and reduced congregation slowing down and eventually going away, we're going to see a real nice renaissance here.

That's great to hear. That's a good note to end on. We're at 4 o'clock. Scott, thanks so much for your time. It's great to see you. We really appreciate you spending time with us this afternoon.

My pleasure, Ben. Thank you so much. Have a good conference.

Absolutely. Thanks, everybody, for joining us.