In the summer of 1941, the Bulova watch company opened an important chapter in advertising history with a short commercial aired on television during a Brooklyn Dodgers game. The world's first-ever television advertisement cost the company the princely sum of $9.

Of course, TV advertising has grown immensely in popularity since then. In fact, since the 1960's, the average length of a U.S. TV show has decreased by 15% -- time that has been used to accommodate more commercial programming. And when it comes to cost, Bulova got a bargain -- nowadays TV advertisements during important events such as the Superbowl can cost millions of dollars for a message that lasts just a few seconds. From that first $9 ad bill, TV advertising has become a multi-billion dollar business.

But while it will never disappear, the TV ad business faces a few major challenges. First, the introduction of digital recording devices such as DVRs (digital video recorders, the most popular of which is TiVo) have enabled consumers to record programming and actually skip over commercials. Moreover, some research has shown that consumers simply ignore advertisements, rarely remembering the commercials they see during a particular show by the time that program has finished airing. Given just how expensive TV advertising can be, companies are often hesitant to shell out the big bucks, especially if they're not even getting the attention of their target customer base.

Even more important is the challenge presented by the Internet. Advertising on the Internet and via e-mail can be more carefully targeted to a particular demographic than with TV advertising. For example, consumers visiting a stock market information web site might very well be interested in discount brokerage services. Therefore, most brokers are happy to pay to have their ads placed directly on such targeted sites.

This type of carefully targeted advertising typically leads to higher response rates. As such, it should come as little surprise that most major advertisers have expanded their Internet advertising campaigns in recent years, often at the expense of TV, radio, and print ads.

But the Internet isn't the only advertising channel that is growing rapidly. In fact, one of the oldest forms of advertising is still popular. Better still, while TV advertising is being challenged by new technologies such as DVRs and the Internet, this unglamorous advertising stalwart is actually growing faster than ever before by leveraging modern technologies.

Of course, I'm speaking of the so-called "outdoor advertising" industry -- more familiar to most consumers as billboard advertising. Billboards are ubiquitous in the U.S., located adjacent to highways, on bus stops or attached to the sides of buildings in major cities. In fact, in 2005 alone, advertisers spent more than $6.3 billion on outdoor advertising. And as my chart clearly shows, outdoor ad spending has been growing steadily over the past 35 years.

Although that $6.3 billion is barely one-tenth the amount spent annually on TV advertising, the outdoor ad business is growing at a much faster clip. Why on earth is outdoor advertising growing so much faster than other traditional media? Several important factors are underpinning this exceptional growth . . .

First, outdoor advertising is tough to ignore. Although you can skip a TV commercial by simply walking to the kitchen to grab a beverage or by using a DVR, drivers must look at signs posted on the side of the road. As such, advertisers can be sure that their billboards will be seen by a large group of awake, alert drivers each and every day.

Secondly, there's cost. TV advertising is expensive, even in non-prime-time slots. In addition, advertisers often purchase large blocks of TV slots as a package. This makes such advertising affordable only to the nation's largest businesses.

While not exactly cheap, billboard advertising costs only a tiny fraction of your average TV commercial. As a result, even smaller companies can afford to buy billboard space. And even at the pricey end of the spectrum, a month's worth of advertising on a Times Square billboard runs only $300,000 to $500,000, which compares favorably to a cost of $2.5 million for a 30-second Super Bowl ad.

Thirdly, there's a supply issue. Thanks to a complex web of government regulations, the number of billboards that can be erected in the U.S. in a given area is limited. This keeps new entrants out of the market and benefits the established players. The controlled supply of advertising space also makes existing billboards even more valuable.

But far and away the most important factor supporting growth in the outdoor advertising industry is the digital electronic billboard.

Traditional billboards are made from a vinyl sheet material that's actually glued to the billboard. When an advertiser wants to change the billboard's message, this sets in motion a labor-intensive process that requires workers to actually climb onto the billboard and glue multiple new panels to the board. For this reason, traditional billboard advertisements are rarely changed more than once or twice per month; in most cases, advertisements are changed even less frequently than that. And when advertisements aren't changed frequently, they typically fail to attract as much attention from consumers.

But the electronic billboard has changed all that. Digital billboards can offer more sophisticated graphics and moving pictures -- features that can attract consumers' attention more effectively than traditional static boards. In addition, electronic billboards can be connected to the Internet, enabling advertising companies to instantaneously change a particular billboard's message with the click of a button. There is no longer a need to hire workers to climb the board and spend hours changing vinyl panels.

Moreover, the ability to change a billboard quickly and with no cost means that a particular advertiser can choose to rent a billboard in the morning, yet a different advertiser might pay for ad space on that very same billboard in the afternoon. What's more, individual advertisers can change their message frequently to help capture readers' interest.

Although electronic billboards are costlier to install than traditional boards, over the long run those costs are more than outweighed by a variety of benefits. First, advertising companies are able to reduce their labor costs because they no longer need to manually change boards. And even more importantly, advertisers usually pay higher rates to rent out electronic billboards as compared to traditional vinyl boards.

The trend toward electronic billboards is still in its infancy, and a number of ad companies are just beginning to shift their focus to this new electronic format. As a result, outdoor advertising stocks should continue to handily outperform the S&P.

Additional Industry Profiles . . .

Alcoholic Beverages Alternative Energy Bulk Shipping Casinos Coffee Retailers Consumer Staples Credit Cards Credit Ratings Debt Collection Deep Discounters Ethanol For-Profit Education Gold and Silver Grocery Retailers Healthcare Supplies & Services Natural Gas Online Travel Outdoor Advertising Railroads Satellite Radio Slot Machines Title Insurance Wineries

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