Lamar Advertising Co (LAMR), CBS Corporation (CBS): How Market Leadership Enables This Company to Earn Outsized Profits

Size does not matter

The local nature of competition makes size of small importance in the outdoor advertising industry. Economies of scale are an important part of Lamar’s strategy, but more important is its dominance of local markets. CBS Corporation (NYSE:CBS) and Clear Channel do not dominate their markets like Lamar does, which is why the two companies are aggressively pursuing non-billboard channels.

For instance, CBS Corporation (NYSE:CBS) sells advertising on buses, taxis, subways, and other public modes of transportation. Meanwhile, Clear Channel is aggressively expanding into international markets where regulation is not as favorable for advertisers as it is in the United States. Both of these efforts lack an important component: a competitive advantage.

Neither CBS Corporation (NYSE:CBS) nor Clear Channel will earn outsized profits from their ventures because nothing is stopping competitors from engaging in a price war. Neither company dominates its markets like Lamar, so neither will be able to control the market.

CBS Corporation (NYSE:CBS) owns valuable television and radio assets that do offer the company market control, but it has been unable to translate that into outdoor advertising and is unlikely to achieve it with its current strategy.

Clear Channel has shown no intention of becoming anything other than a large outdoor advertising company with no competitive advantages. Therefore, investors should not expect stable operating performance going forward.

However, Lamar’s control over its markets gives investors visibility into its future and an assurance that the company will continue generating profits for years to come.

Bottom line

Lamar Advertising is a better company than Clear Channel and CBS’ outdoor segment because of its market leadership. Investors would do well to invest only in companies that, like Lamar Advertising, exploit market leadership for outsized profits.

The article How Market Leadership Enables This Company to Earn Outsized Profits originally appeared on Fool.com.

Ted Cooper has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Ted is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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