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Investors are swirling around a unique sub-sector of the media landscape. The out-of-home media industry has attracted billionaires and activist hedge funds alike, and insiders say the attention is just getting started.

Why it matters: The so-called OOH sector is a hot spot in an otherwise drab media climate — an industry hammered by the drying up of ad dollars.

Zoom in: OOH is comprised of companies that provide advertising on billboards, posters and screens at highways, bus stops, airports and elsewhere.

The sector is dominated by a few publicly traded heavyweights.

Included on that list are Baton Rouge-based Lamar Advertising ($11.1 billion market cap), Paris-based JCDecaux (€3.8 billion), New York-based Outfront Media ($2.3 billion) and San Antonio-based Clear Channel Outdoor ($898.4 million).

Some of these incumbents are struggling under heavy debt loads while simultaneously losing market share to smaller upstarts. They're also seeing a range of investors piling into their shares.

Details: Activist Legion Partners revealed a campaign against Clear Channel in May and presented a detailed deck with its arguments at a fund manager event in New York in October.

The firm, which owns a 5.5% stake, is pushing the company to sell more assets. Starting in March, Clear Channel sold businesses in Switzerland, Italy and France, but the stock has barely stayed above $1 per share.

"The fundamental question of the company is: Does the announcement of a transaction in Europe send the stock price up?" posed Chris Kiper, Legion's chief investment officer. "If you do that and you still have not unlocked enough shareholder value, you need to be open to considering other transactions in the U.S."

Meanwhile, wealthy businessmen Arturo Moreno, Ernie Garcia and William Pope acquired stakes in Clear Channel and Outfront.

Moreno's Clear Channel stake is 6.8%, per an SEC filing. Pope's is 1.9% via his SunChase Investments. Garcia owns 1.9% as well. The three men filed as a joint group earlier this year. The latest filing shows that they are no longer a group and own the shares separately. 

Moreno, owner of the Los Angeles Angels, and Garcia, the co-founder of Carvana, own 0.8% and 4.4% of Outfront, respectively, according to an SEC filing.

Moreno, who made his fortune on billboards, declined to comment. Garcia and Pope did not respond to requests for comment.

The big picture: The attention on these OOH companies comes as their stocks hover near historic lows and amid an industry transformation.

The static billboard that defined the industry for generations is transitioning to multilayered digital screens, making ads more targeted and measurable. The ads also are becoming easier to buy through programmatic platforms.

Digital out-of-home is expected to grow 26.1% to $13.3 billion this year, according to ad agency GroupM. That projection excites investors with near-term growth opportunities and is what hangs in the balance of these companies' future success.

Digital "changes your ad inventory from only being able to show one static ad a day to [selling] ... to multiple advertisers," says Michael Dominguez, Providence Equity Partners' chief investment officer. "Particularly for high-value locations, that's ... where you can get outsized growth."

A disrupter in this sector is a subset of small, digital-focused players that operate screens inside elevators, gas pumps and other spots where eyeballs are trained.

Details: Below is a look at a few of those players, including recent growth statistics from their CEOs:

Captivate operates 28,350 screens within offices and residential buildings in North America that feature content and ads, along with 33,800 screens in Europe with just content.

The New York-based company's revenue is up 65% year-over-year, driven by a 90% return to work attendance across its network of Class A buildings, CEO Marc Kidd says.

GSTV manages more than 260,000 screens across 29,000 fuel and convenience retailer sites in 49 states.

The Detroit-based company reaches more than 115 million U.S. adults per month and has more than doubled its revenue over the past few years, CEO Sean McCaffrey says.

Atmosphere operates TVs at more than 60,000 venues such as restaurants, bars and gyms.

The Austin-based company recently touted reaching more than 130 million U.S. adults (about 50% of that population). Its number of advertisers has nearly doubled year-over-year, CEO Blake Sabatinelli says.

Exclusive: Raising for screens on water fountains

Hope Hydration is raising $5 million in seed funding to build ad-supported water fountains, CEO Jorge Richardson exclusively tells Axios.

Why it matters: The New York-based startup is betting on advertisers' interest in digital out-of-home and in turn supporting water access.

Details: Richardson says the idea for Hope stemmed from his prior startup, Closca, an app for finding water fountains.

"To build a business at scale, we can't rely on water being the funding source, nor do we want to. Water should be free," Richardson says.

Ads offer an alternative. He launched Hope in May 2020. Hope piloted the product with Nike and Advertising Week New York in 2021. This year, it partnered with Cannes Lions and Ultra Music Festival. It's launched in Times Square and Central Park.

Prior to this round, Hope raised $800,000 with a pre-seed round led by Boost VC in 2022.

How it works: Hope, which is a B Corp, partners with venues to access about a square footage of the property. It covers the installation costs and maintenance costs and then shares a percentage of ad revenue with the property owner.

Richardson says fountains start becoming profitable in under six months.

In Hope's Times Square location, the average refilling takes 14.1 seconds. That's far longer than the estimated ad consumption for connected TV.

The OOH sector is ripe for consolidation, analysts and investors say, as the sector's massive growth in digital ad revenues is tempered by the fragmented market.

Why it matters: A single deal could be a catalyst for others, spurring more M&A across the sector as a way to better compete with Big Tech and other ad businesses.

Zoom in: The most obvious M&A target is Clear Channel, where the billionaire investors appear to be awaiting the chance to strike some kind of deal. So far, they've remained mum on their intentions.

Potential buyers could be JCDecaux, which has a history of acquisitions.

Legion's Kiper says Lamar could be interested in parts of Clear Channel. Private equity could also swoop in.

"Private equity has been very active around the space because it's a great business," Kiper says. "It has huge barriers to entry. ... There's a long-term really nice growth story about out-of-home advertising."

The potential for long-term cash flow attracted Generation Partners to Captivate a decade ago. "Everybody was focused in on digital properties, and people were ignoring this, I would say, unsexy, probably still unsexy digital out-of-home space," managing partner Andrew Hertzmark says.

Details: Recent PE-backed transactions include Blackstone acquiring a majority stake in New Tradition Media, which owns billboards in Times Square and other major U.S. cities. Providence Equity Partners acquired a 49-year lease for some other Times Square billboards in January.

The pandemic hit the OOH sector hard, which created investment opportunities, Providence's Dominguez says.

The intrigue: The upstarts that are focused on smaller digital screens do not necessarily have the scale or desire to go public yet, industry sources say. Instead, they remain focused on grabbing market share across OOH and beyond.

"The market opportunity for Atmosphere, in our mind, is a lot bigger than just out-of-home," said Roberto Avila, a principal at Sageview Capital, which co-led the startup's Series D this year. "We're just getting going."

Editor's note: Paragraph 11 was updated to reflect the latest filing regarding Moreno, Pope, and Garcia in relation to Clear Channel Outdoor. 

Deep dive: Investors eye out-of-home advertising

The OOH sector is a hot spot in an otherwise grim media climate.

Advertising

Investors are swirling around a unique sub-sector of the media landscape. The out-of-home media industry has attracted billionaires and activist hedge funds alike, and insiders say the attention is just getting started.Why it matters: The so-called OOH sector is a hot spot in an otherwise drab media climate — an industry hammered by the drying up of ad dollars.

Deep dive: Investors eye out-of-home advertising

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