(The following article by Jere Downs was posted on the Philadelphia Inquirer website on April 22.)
PHILADELPHIA — SEPTA is considering selling ad space on buses, rail cars and train platforms without competitive bidding, which will cost the struggling agency $9 million in revenue over the next year.
Today, the SEPTA board is expected to approve a $4.5 million, one-year advertising deal with Viacom Inc., replacing this year’s $12.4 million contract ending April 30. Under the old contract, SEPTA stood to make $13.4 million next year.
How did corporate conglomerate Viacom, which owns CBS, MTV, Simon & Schuster and a score of other media properties, secure a 66 percent cut from SEPTA without any competition?
The answer is painfully simple, SEPTA officials contend. Little competition and an adverse federal ruling have left the agency not much time before its contract ends.
“We have no place else to go,” SEPTA lawyer Nicholas Staffieri said, adding that the agency will rebid the work next year. Viacom “told us what the terms were. That is what monopolies do.”
Jodi Senese, Viacom Outdoor’s chief of marketing nationwide, did not return a phone call seeking comment yesterday at the company’s New York headquarters.
Viacom appears to have the big transit market as tightly wrapped as SEPTA’s big, blue KYW Newsradio bus.
After years of merging with competitors, Viacom Outdoor exclusively sells ad space for trains and buses and stations in New York City, New Jersey, Boston, Los Angeles, Chicago and virtually every other large transit market except Maryland’s MTA, according to a report released last month by the Transportation Research Board in Washington.
That same report also shows how advertising competition has dwindled. Across the transit industry from 1997 to 2000, 63 percent of outdoor advertising contracts attracted at least three bidders. In 2001 and 2002, only 18 percent of contracts drew three or more contenders.
New Jersey Transit and San Francisco’s MUNI, for example, are among transit agencies holding contracts with Viacom who are dreading going out to bid.
“I suspect we will not be getting the kind of revenue we received previously,” San Francisco MUNI spokesman Alan Siegel said.
Hurting for operating revenue amid the economic downturn, transit agencies have increasingly come to depend on the extra dollars from contractors who wrap buses and sell ad placards, the Transportation Research Board report said. At the same time, the recession has prompted consolidation in the outdoor advertising industry, with Viacom emerging on top in big transit markets.
“For advertising, it’s been the worst recession since the Great Depression,” said Brian Tierney, a Philadelphia media consultant.
As many riders who fear a rate hike or service cut already know, SEPTA is hurting.
The transit agency serving Philadelphia and its suburbs projects a $70 million deficit in its $919 million operating budget for fiscal year 2005. That figure includes most of the money lost to Viacom, and counts on Gov. Rendell delivering state help in his fiscal 2005 budget.
The agency’s new Viacom problem highlights the need for state officials to revise transit funding statewide, SEPTA budget manager Richard Burnfield said yesterday.
“Something has to be done on a statewide basis to provide stable funding.”
Until recently, SEPTA assumed it had a lock on earning much more from Viacom. Amid better economic times in 1999, SEPTA signed a generous, five-year outdoor advertising contract, with an option that could have guaranteed annual payments of between $13 million and $17 million until 2009.
At the time, the Federal Transit Administration barred agreements longer than five years. Federal regulators also required SEPTA to seek their approval to exercise the option.
As the economy turned sour, Viacom lost money on the advertising deal. Agency records show Viacom Outdoor paid SEPTA $3.6 million more than it earned this year on the entire account, which includes 1,300 buses and 280 rail stations.
Still, the agency was confident the Federal Transit Administration would recognize that Viacom virtually owns the big transit advertising market and allow SEPTA to go beyond a traditional five-year contract limit, because the transit administration had lifted the ban on long-term contracts in 2002.
In February, the transit administration surprised SEPTA with a one-page letter effectively enforcing the 1998 ban on contracts exceeding five years.
“You don’t have to be a genius to figure out that when this letter came in that Viacom, being the huge company it is, was exerting an awful lot of pressure behind the scenes to get the FTA to take the position they did,” Jim Schwartzman, SEPTA board vice president, said.