Local government in 2009 faces a major dilemma as the credit crunch bites with very tricky and potentially unpopular decisions to make over the next couple of years including the reduction of staff and increasing council tax. With planning and other revenue receipts way down, councils need to find more income – what can they do?
A central tenet of Gordon Brown's strategy to reduce the effects of recession is to stimulate consumer spending – as evidenced by the VAT reduction in November 2008. And to reach those consumers and maintain their profits and market share, retailers and producers need to advertise their wares.
If they stop spending on advertising as you might first expect in a recession, their share of sales in a shrinking market will fall as customers move to rival better advertised brands. So while they may reduce advertising budgets and drive harder bargains over the cost of advertising, the market will not dry up. The money will just shift to the best performing and most cost effective advertising options.
So what has this to do with local government?
Well outdoor advertising and sponsorship and poster media in particular have proven to be one of the most reliable ways to reach and impact consumers (as opposed to the massive expense of TV or print advertising for example).
These types of media require a physical location and as councils are generally one of the larger land and property owners in their geographic area, they could have more advertising media in place to benefit financially from any concentration in advertising spend in this particular market.
Unfortunately if you looked at a cross section of councils across the UK as we have in our advertising audit work with local government since 2006, this is generally not yet the case.
Jo Lee
We have reviewed a wide variety of advertising contracts signed historically by our council clients. Ideally one would expect the council to receive a fair share of all revenue from advertising media on their land, sensible performance management indicators enshrined in the contract, regular reviews of the revenue splits and the types of new media available. This is almost exclusively not the case in our experience.
Over the past 15 years, the advertising market blindsided councils with a variety of 'emperors new clothes' offers including free council advertising opportunities on billboards or the implementation of automated toilets in return for the exclusive right to place and sell advertising hoardings on council land.
Many councils unfortunately jumped at this opportunity without sufficient understanding of what they were really committing themselves to: contracts where the supplier is making seven-figure incomes over the contract period and yet the council receives little or no revenue or in some cases actually loses money.
Contracts of up to 20 years that have no performance criteria, one sided contractual clauses in favour of the supplier, near impossible termination conditions, no review mechanisms or uplift in revenue shares are common place. Not even an adjustment for inflation.
The result – most councils have so far missed out on the lucrative opportunity to generate significant year on year revenue for themselves from the UK advertising spend.
This is all the more critical now in the current financial climate and because of the impending Olympic Games in 2012 which will provide a strong rise in advertising spend prior to and over the Olympic period.
A scene from Blade Runner
Of course no one is suggesting that councils want to see their streets festooned with adverts like a scene from Blade Runner. But there are still plenty of opportunities available to councils to sensitively increase the amount of advertising taking place on their land with the resulting share in revenues.
This requires strong internal leadership and vision, decisive decision making and hard negotiation with the supplier base.
Councils need to understand the true potential value of media sites on its land and the ruses that suppliers use in negotiation to ensure that councils are no longer taken advantage of.
Local government must start receiving the realistic levels of annual revenue they should be due from advertising taking place on their territory.
Although 2009 may be a tough year for the advertising market as a whole, mid 2010 should see a bounce back in revenues.
This makes 2009 the ideal year for local government to prepare a new approach to the advertising marketplace. Be bold. Negotiate hard. There is new revenue out there just waiting for you if you are prepared to challenge the market and insist on your fair share.
Jo Lee is chief executive of Pax Consultancy
