Advertising on Triangle Transit: A Revenue Forecast & Policy Analysis

Abstract

EXECUTIVE SUMMARY POLICY ISSUE (PG 1) Triangle Transit is interested in how much revenue could be generated by the placement of interior and exterior advertisements on the buses and para-transit vehicles that it manages and operates. It would also like to know the impacts of advertisements on Triangle Transit’s brand. In order to answer this question, several major concerns must be addressed:

What impacts will an advertisement program have on the agency's brand? What is the most cost-effective way to manage advertisement sales: in-house or under contract? What advertising policy should be issued to avoid future legal challenges to advertisements placed on buses? How much revenue could be generated by allowing interior and exterior advertisements to be placed on Triangle Transit and DATA buses? How much more revenue could be generated if the five transit agencies in the Research Triangle advertise together versus Triangle Transit alone? The answers to these questions will inform the policy positions that Triangle Transit could adopt if the agency pursues on-bus advertising. This report reviews the existing literature and presents original research, including interviews with transit and advertising officials, revenue forecasts, and policy recommendations. A complete review of the research methodology for this report can be found in Appendix C. REVENUE SIMULATION SCENARIOS (PG 44) Four revenue scenarios are considered in chapter 8 and provide high and low estimates of average annual revenues from advertisement sales. The scenarios include 1) Triangle Transit alone, 2) DATA alone, 3) Triangle Transit and DATA together, and 4) the Triangle Region. These scenarios were constructed using the included Microsoft Excel file found under the Attachments tab. The revenue simulations constructed for this study produced the following findings: Triangle Transit alone could earn revenues ranging between $55,953 – $129,859 if it manages advertisement sales in-house, or it could earn revenues ranging between $94,102 – $153,226 if it contracts for advertisement sales management. DATA alone could earn revenues between $23,060 – $77,397 from in-house advertisement sales and between $67,787 – $111,257 from contracted sales. Triangle Transit and DATA together could earn $117,753 – $231,462 from in-house advertisement sales management, and between $161,889 – $264,483 under contract. Finally, the Triangle Region could earn cumulative revenues between $394,872 – $792,275 under in-house advertisement sales, and between $610,678 – $977,511 under contract. All figures are based on a mature advertisement sales program. Based on the results of the revenue forecast models, Triangle Transit should pursue contracted advertisement sales versus an in-house program. Triangle Transit should also pursue individual advertisement contracts for itself and DATA to maximize total revenues. Separate contracts are recommended due to the differences in markets served between the two carriers. ADVERTISEMENT IMPACTS ON TRANSIT BRAND (PG 5) Brand image has become a growing concern for transit agencies, encompassing not only the appearance, but also the reliability of the transit system. Maintaining a strong image for a transit agency helps reinforce ongoing relationships with riders and with the public. Some research presented in Transit Cooperative Research Program (TCRP) publications finds no negative relationship between advertisements and the transit agencies that carry them. However, many transit representatives interviewed for this report believe that there can be negative impacts from carrying advertisements. Several strategies are used to mitigate these potential impacts:  Draft and enforce a well-defined advertising policy  Maintain or enhance the elements of brand that pertain to public perception, such as: reliability, frequent service, safety and cleanliness, service hours, and cost and savings.  Prohibit the sale of interior advertisements to bolster the experience of transit commuters. The appearance of the buses and transit facilities is an important aspect of brand management as well. Many transit agencies promote their visual brand by doing the following:  Limit the number of buses that can be fully wrapped, usually at 10% of the fleet.  Limit the number of buses in the fleet that can carry advertisements. Raleigh and Chapel Hill limit advertisement placement to 50% of their fleets; this number is a good target for Triangle Transit.  Create specific design standards for full bus wraps to avoid negative impacts on transit brand. These standards may limit the prominent placement of human faces or questionable and offensive images or text.  Consider the inclusion of advertisements in any future rebranding or redesign efforts. This will ensure that color scheme and logo appearance are optimized.  Require the placement of the agency logo on all exterior advertisements. MANAGING ADVERTISEMENT SALES (PG 18) The management of transit advertisement sales can either be managed in-house or contracted with a third-party agency. Transit agencies must decide which option will best fit their needs and desires. If Triangle Transit choses to allow advertisement sales, it should pursue an advertising contract. Advertising contractors have a comparative advantage when it comes to advertisement sales. They will manage all aspects of the advertisement process, from sales and collections, to application, maintenance, and removal of the ads. Not to mention insurance and sales staff expenses. Triangle Transit can expect to receive a minimum guaranteed annual payment with a revenue share of 50% to 60% if revenues exceed the minimum. Most advertising contracts last for three to five years. Triangle Transit and DATA should pursue individual advertising contracts. Each agency can maximize potential revenues by focusing on the specific market it serves. REGIONAL ADVERTISEMENT SALES (PG 26; 51) Triangle Transit has expressed interest in a regional advertisement sales plan, which would place advertisement sales for the five local public transportation agencies under a single authority. Many local transit administrators are interested in this idea but would like to see discussions on this plan begin far in advance of its realization. A great deal of planning and coordination would be required before a regional option would be viable. The transit agencies would need to unify their advertising policies but most local administrators are content with their current policies and are hesitant to make changes. Administrators voiced concerns about revenue sharing, authority over a sales force or a contractor, indemnification, and Title VI issues. Plus, if regional sales were managed in-house, management, staffing, and funding for the office would need to be arranged. Though a regional plan is not feasible at this time, Triangle Transit should create a working group among the transit agencies to identify the challenges, costs, and benefits associated with regional sales. This group could issue a request for information to transit advertisers to understand the issues identified by contractors. In order to facilitate regional advertisement sales in the future, Triangle Transit should consider the inclusion and placement of advertisements in efforts to create a regional brand for buses and transit property. ADVERTISING POLICY (PG 29) If Triangle Transit chooses to allow advertising on its buses and property, it will need to implement an advertising policy. Triangle Transit should ensure that its advertising policy includes a Statement of Purpose, a list of restrictions and prohibited content, and a clear review and appeal process for advertisements. The Statement of Purpose should convey the following information:  Triangle Transit property and vehicles are a nonpublic forum open to commercial speech, government speech, and nonprofits engaged in truly commercial activities.  Nonprofits offering noncommercial services to the public can advertise so long as their advertisements do not contain prohibited content.  Political candidate advertising that does not state any candidate positions or party affiliation is acceptable so long as it does not contain any prohibited content. The advertising policy needs to establish a clear body of guidelines in keeping with the definition of commercial speech. These guidelines should address:  Illegal, indecent, libelous, and obscene materials  Ads that ridicule individuals or groups  Advocacy or opposition to any religion, denomination, gender, race, sexuality, ideology, or nationality  Violence and crime  Adult, sexual, or pornographic materials. Finally, the review and appeal process should clearly state who approves advertisements, who audits approvals, and what staff or supervisors will review advertisements that violate the restrictions. A board of officials should be defined to consider all appeals. This section should also grant the agency the power to approve, reject, or remove nonconforming advertisements at the advertiser’s expense. Triangle Transit should establish a regular, periodic review of its advertising policy to consider future legal or legislative changes. The periodic review could allow for incremental changes to the policy to bring it in line with the policies of local transit agencies. REQUESTS FOR PROPOSALS (RFP) & ADVERTISING CONTRACTS (PG 36; 42) If Triangle Transit pursues an advertising contract, it should issue a request for proposals (RFP) or a more preliminary request for information (RFI). These documents should be in keeping with Triangle Transit and DATA’s procurement procedures. This report presents several key findings to improve the effectiveness of the RFP and subsequent advertising contract.  Deliver the RFP (or RFI) to multiple advertising contractors to increase competition for the contract.  Allow for multiple contracts to be signed based on one RFP. For example, a separate contract may be signed for physical advertisements and another contract for audio advertisements.  Ensure that the advertising contracts provide a desirable payment package. This may translate into a minimum payment with additional revenues for sales in excess of a certain threshold.  Allocate all responsibility and cost for vehicle maintenance and repair associated with advertisement installation, upkeep, and removal to the contractor.  Set specific response times for the contractor to repair or replace damaged advertisements.  Ensure that all Federal third-party contractor provisions are covered in the advertising contract.  Establish a mechanism for auditing the sales and promotional activities of the contractor.