July 23 (Bloomberg) -- A battle by Los Angeles homeowners over visual “blight” that shut off digital billboards across the city is shifting as Clear Channel Outdoor Holdings Inc. seeks to restore signs that are central to its business model.
Almost 100 darkened billboards loom over boulevards and streets, switched off in mid-April after a judge rejected a deal between the second-largest U.S. city and sign-operators Clear Channel and CBS Outdoor Inc. The agreement attempted to sidestep a moratorium on digital installations except in special areas.
Los Angeles, which dealt with $1.6 billion in combined deficits over the past four years, collects no franchise fees on billboards, according to Luke Zamperini, who administers their regulation for the Building and Safety Department. Clear Channel is negotiating with City Council members on a “legislative solution” involving a permitting fee, said Greg McGrath, president of its Southern California division.
“Los Angeles is home to the entertainment industry,” McGrath said. “It’s home to the outdoor industry. We’ve been in Los Angeles for over a century. Here we are in the home of the entertainment industry, the digital industry, and we’re unable to use them in our own hometown.”
Los Angeles, with more roadway miles along which to display billboards than New York or Chicago, is defined partly by its signs. The letters spelling out Hollywood, erected in 1923 to promote a housing development, are world famous. Singer and actress Angelyne drew attention for buying cleavage-baring billboards promoting herself. She finished 28th among 125 candidates running for governor in a 2003 recall election that catapulted Arnold Schwarzenegger to the state’s highest office.
Clear Channel Outdoor, a unit of San Antonio-based radio-station owner Clear Channel Communications Inc., operates about 1,500 billboards in Los Angeles. McGrath said Clear Channel is willing to contribute permitting fees as part of a “comprehensive legislative solution” that would reduce its total number of billboards and move certain signs. He declined to say how much the company might offer. A spokeswoman for CBS Outdoor, Shannon Jacobs, declined to comment.
Mayor Eric Garcetti, who took office July 1, “supported the recent court decision against digital billboards in L.A. and is keeping an eye on subsequent developments,” said Yusef Robb, a spokesman. “His priority is to work with neighbors to keep unwanted billboards out of communities.”
The billboard industry may be encouraged because it backed three new city council members elected this year, according to city filings. There are 15 seats on the panel.
“It is a concern of ours that some of those new council members may drink the Kool-Aid that these companies are offering,” said Dennis Hathaway, of the Los Angeles neighborhood of Venice, who founded the Coalition to Ban Billboard Blight.
Residents object to digital billboards because of the light from them that streams into homes and apartments, distractions to drivers and the environmental cost of powering the displays around the clock, Hathaway said.
Clear Channel, the largest outdoor advertising company in North America by revenue, typically gets its highest rates for digital billboards, which can be changed as often as several times a minute, according to a May 17 securities filing. William Eccleshare, chief executive officer of the advertising company, has predicted that half of its business in 10 years will be digital.
The signs may generate $100 million a year for CBS and Clear Channel, based on their rate cards, said Timothy Alger, an attorney for a rival company, Santa Monica-based Summit Media LLC. Clear Channel and CBS Outdoor were forced to shut off the signs after a judge sided with Summit, which contended that a 2006 deal giving the companies a duopoly on digital signs was illegal.
Jacobs, the CBS Outdoors spokeswoman, declined to comment on the Summit figure. The company’s parent, CBS Corp., is splitting off its outdoor business, filing an initial public offering for $100 million, according to Bloomberg Industries. CBS’s outdoor segment generated $1.3 billion in 2012, 9 percent of the parent company’s revenue.
Clear Channel “does not report financial information with this level of granularity and cannot comment,” said Jennifer Wonnacott, an outside spokesman for Clear Channel at Fiona Hutton & Associates.
The company’s 1,000 digital displays boosted its Americas outdoor operating revenue 2 percent, to $286.5 million, in the three months ended March 31, according to the filing. Clear Channel’s first-quarter expenses rose $2 million primarily because of legal costs related to the Los Angeles dispute, according to its filing.
Clear Channel turned off 82 digital billboards in Los Angeles and CBS deactivated 13 in April after Los Angeles Superior Court Judge Terry Green ruled that permits issued to the companies under the 2006 agreement were invalid, according to a prospectus filed by Clear Channel in June.
Summit, which brought the case in 2008, has petitioned Green to order the billboard structures torn down, Alger said.
“It’s not like Times Square where you have big, colorful displays,” Alger said in an interview. “These billboards are basically sprinkled throughout Los Angeles.”
In 2002, the City Council passed a moratorium on new billboards, which was challenged in court by Clear Channel and CBS. The city settled the case in 2006 by keeping the cap in place while allowing the companies to convert as many as 840 standard billboards to digital. About 100 of the signs had been switched by the time Summit won its case.
Lamar Advertising Co.’s Lamar Central Outdoor LLC, which has permits for 3,000 non-digital billboards in Los Angeles, petitioned the Los Angeles Superior Court in March to allow it to convert 17 billboards to digital. Lamar said that exempting Clear Channel and CBS from the ban on digital billboards “seriously undermines” Los Angeles’s rationale for the ban.
Like many cities, Los Angeles collects franchise fees from certain businesses for the right to operate within municipal boundaries. Los Angeles estimates it will collect $42.6 million in such revenue for 2013-14 from natural gas, cable television and taxi companies, among others.
The city charges $186 per billboard every three years to offset the costs of permitting and inspecting the structures, Zamperini said. It makes no money from the billboards, he said.
CBS Outdoors backed three of the eight Los Angeles City Council members elected this year. It erected billboards worth $9,000 for Joe Buscaino, $4,500 for Curren Price Jr. and $8,518 for Gilbert Cedillo, according to city Ethics Commission documents.
“I am generally supportive of digital billboards, depending on the impact on a particular community and the willingness of the billboard company using the space to provide benefits back to the community, like advertising and community services,” Price said in a written statement in response to questions from Bloomberg News.
A spokesman for Cedillo, Fredy Ceja, said the councilman still is studying the issue and wouldn’t comment. A Buscaino spokesman, Dennis Gleason, didn’t respond to e-mail and voicemail messages.
About 4,000 of the approximately 400,000 billboards in the U.S. are digital, according of the Washington-based Outdoor Advertising Association of America.
Advertisers are drawn to the “speed and flexibility” of the changing digital signs, a particular attribute for drivers in traffic-choked cities, Ken Klein, executive vice president of the industry group, said in a statement.
“The overall trend line for digital billboards is regulatory acceptance,” Klein said. “Keeping pace with technology, most states have taken steps to regulate digital billboards.”
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