If you haven't heard the news, CBS just announced that they're buying SignStorey for $71.5 million and will rename the company "CBS Outernet". This is the biggest digital signage deal in recent memory (and may be second only to PRN's sale to Thomson if we consider a longer time horizon), so it deserves some attention from the industry. From the data they've disclosed, we can start to paint a picture of what's been going on behind the scenes at SignStorey. And since I'm not much of an artist, today we'll be doing some paint-by-numbers. In this article, we're going to use some highly speculative math to see what kind of revenues SignStorey might have been making, what kind of CPMs they were asking, and what their true valuation may have been.

Let's start with a few assumptions:
  1. Each store installation costs $30,000, including hardware, software, satellite installation and three years of maintenance, service costs and bandwidth.
  2. SignStorey picks up 100% of said installation and maintenance cost (which they do, as far as I know).
  3. Individual spots are sold on the whole-store level, not the individual screen level (while this is actually critically important to a digital sigange network owner's business model, it doesn't really matter for our quick-and-dirty calculations, and this assumption makes the math a lot easier).
  4. Each store runs a 10-minute loop (which is typical according to SignStorey's website), of which 40% is paid-for advertising.
  5. Spots are sold in whole-month increments, one month at a time (with no discounts for longer runs, which of course there would be in real life).
  6. Dwell time in the average store is 10 minutes, so every shopper is potentially able to view every piece of content in the loop once.
Now it's time for some math!

With these assumptions in hand, we can start making some estimates. For example, multiplying the company's 1,400 installations by the above $30,000 per install, we can guess that they've spent about $42 million on capital expenses and fixed assets directly related to running their networks. Since most of their networks are 2-4 years old, let's be generous and say all of that stuff has depreciated by only 25%. That means it has a current value of about $31.5M, suggesting that CBS felt the value of SignStorey's operations and ad sales was more like $40M. Now say that $40M represents two year's advertising revenue on the current network of 1,400 stores. $40M divided by 24 months divided by 1,400 stores yields $1,190 in revenue per store per month, which if sold as eight 30-second spots (to fill out our 40% of revenue-generating ad time), comes to $149 per spot per store per month. This is, of course, provided that the network sells its spots on the "poster model" (in other words, like static posters), which is my personal preference when it comes to putting a network together. According to our knowledge of a few networks that sell space in this fashion, $150/month per spot is a fairly typical price point.

But I know a lot of you are enamored with the CPM model. While I'm still not convinced that it's the right way to sell retail media, we can do some extrapolation for that as well:

SignStorey's website indicates that their 1,300 store network (guess it's old data) had a total footfall of 65,983,094 during a 28-day research period. Of those people, 38% saw or heard an advertisement from the digital signage network. That gives them just over 25 million viewers, or 27 million viewers if you extrapolate back out to 1,400 stores. Divide by 1,400, and you get about 19,300 viewers per store per month. When you divide that by our estimate of $149 per spot per month, you get a CPM of $7.72. This is in line with the $5-$12 CPM on Wal-Mart's Checkout TV, but is much higher than the $1.13 CPM for CompUSA's in-store network. Of course, CompUSA was gutted this year, so maybe their less-than-stellar retail business practices translated to their digital signage project as well. (Astute readers will notice that SignStorey took a 28-day sample period, while the average month has just over 30 days, so the total viewers for a normalized month would be a bit higher, leading to a slightly lower CPM than we used above.)

What does it all mean?

So what can we make from all of this? Well, for one thing, I can make up numbers with the best of 'em. It goes without saying that there's so much guesswork and conjecture in the above figures that they have little practical value, aside from being a fun academic experiment.

Much more importantly, it seems that CBS is pretty serious about the digital signage market, and believes that it can profitably run a network of screens in grocery stores. CBS Outdoor has been selling out-of-home media for a long time and has dabbled in digital media every now and again. Likewise, CBS News has been delivering news content on SignStorey's signs for a while, so they obviously see some value in added exposure to shoppers. But it's just like I always say: until you step up to the plate with a cool $70 mil or so, you're just fooling around. (What, you've never heard that expression before?) What I really think is that CBS is making a land grab, and actually got SignStorey for a very good deal. Think of it this way, as IBN's John Morgan suggested in his comment on the CBS-SignStorey coverage at Digital Signage News: $71.5M divided by 1,400 stores means that CBS effectively paid a little over $51,000 for access to each store in SignStorey's network, including hardware. If we depreciate the hardware over the next three years and assume that CBS will be at least as efficient at selling ad space as SignStorey was, they'll see a positive ROI on their acquisition in about four years. That's pretty darn good in M&A terms. In fact, the whole thing makes me think that SignStorey was either (a) having trouble selling ads and was thus valued at a relatively low multiple of EBITDA or something, or (b) looking for some big growth capital, and CBS decided it would just be cheaper and easier to buy them outright.

For me, the main thing to keep an eye on during the coming months is whether the content on the network changes. We all know that digital signage is not TV, and if CBS doesn't understand that right away, they may struggle to turn a profit on the network. I'll also be watching to see if they announce any sudden expansion plans, which would imply that the acquisition may have started when SignStorey went on the prowl for growth capital. Likewise, I wonder if they'll try to get involved with other networks, or maybe even integrate with something like SeeSaw to gain maximum exposure to the market. CBS already works with a number of out-of-home networks, including American Airlines, Royal Caribbean, AutoNet TV, the Salon Network Channel, Starwood Hotels/SPG TV, Indoor Direct, the Mall of America, RippleTV, and Simon's On Spot Digital, so what's stopping them from merging together even more networks if they prove the model out with their SignStorey acquisition? It's a little scary once you start to think about the scope of what a big media company with deep pockets could do. If CBS is on a land grab, there are plenty of other networks out there that could be bought, merged or integrated with, and CBS still has lots of money to play with. In the near future, the "Outernet" could get a whole lot bigger.


0 Rustam Mirzayev 2017-11-23 08:44
If we convert spot-by-spot basis to CPM, how long should be taken the duration of 1 spot? Is there any standards?

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