SR-1000-001-09
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Council Meeting: May 14, 2002 Santa Monica, California
TO: Mayor and City Council
FROM: City Staff
SUBJECT: Recommendation to Authorize the City Manager to Terminate Agreement
7484 (CCS) with Gateway Outdoor Advertising and to Negotiate and
Execute a Contract with Viacom Outdoor Group, Inc. for Transit Bus
Advertising Concession
INTRODUCTION
This report requests that City Council authorize the City Manager to terminate Contract
#7484 (CCS) with Gateway Outdoor Advertising and negotiate and execute a contract
with Viacom Outdoor Group, Inc. for a five-year advertising concession on Santa
Monica’s Big Blue Buses.
BACKGROUND
On April 27, 1999, the City Council awarded a bid for a five-year advertising concession,
with three one-year renewal options, to Gateway Outdoor Advertising. In early 2001,
Gateway Outdoor Advertising failed to make payments on five outstanding invoices. An
amortization schedule was developed to allow Gateway to repay this debt, plus late
fees, while continuing to make the guaranteed minimum monthly payments. Although
Gateway initially made their payments, a late payment problem again developed. In
response to growing arrearage in FY 02, the City executed the letter of credit provision
of the agreement and received $1.2 million. Gateway Outdoor Advertising has not
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made any payments since January 2002. Staff will work with the City Attorney's Office
to recover the unpaid funds.
Discussion
On February 28, 2002, Santa Monica’s Big Blue Bus issued a Request for Proposals for
advertising concession. The selected firm will sell, place, administer and manage
commercial advertisements on the interiors and exteriors of the Santa Monica Big Blue
Bus vehicle fleet.
The Big Blue Bus mailed the advertising concession RFP to a total of 14 firms. Four
firms submitted proposals as follows for the five-year period:
Year Direct Media Viacom Outdoor Minority Business Gateway Outdoor
Enterprises, Inc. Advertising
Year 1 $1,210,000 $1,100,000 $1,025,500 $1,000,000
Year 2 1,270,000 1,200,000 1,110,500 1,100,000
Year 3 1,320,000 1,300,000 1,195,500 1,200,000
Year 4 1,400,000 1,400,000 1,285,500 1,300,000
Year 5 1,480,000 1,500,000 1,385,500 1,400,000
Total $6,680,000 $6,500,000 $6,002,500 $6,000,000
In addition to evaluating the total revenue value of the responses, due diligence was
conducted on the top two firms: Direct Media and Viacom Outdoor. The results of these
contacts indicated that each firm has performed their work responsibly and
professionally. Both were highly recommended by current and previous clients. Both
firms are also well qualified financially, with Viacom Outdoor having an advantage since
it is part of a Fortune 100 company.
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Big Blue Bus staff also interviewed the top two proposers and found both qualified to
perform the duties of the agreement. Both firms would position the Big Blue Bus and
our service area as a premium market for advertisers, which enhances the possibility
that the City will realize revenues over and above the minimum annual guarantee. One
of the advantages of being treated as a premium market for advertisers is that the Big
Blue Bus in unlikely to be ignored in favor of larger clients, such as the Los Angeles
County Metropolitan Transportation Authority, or the Orange County Transportation
Authority. Both of these agencies are Viacom Outdoor clients. Viacom Outdoor also
has a built in market of advertisers since all other Viacom affiliates must use Viacom
Outdoor for any "out of home" advertising.
Although both firms are headquartered on the east coast, Viacom Outdoor has an
established Los Angeles office and 21 clients in Southern California. Direct Media does
not have a local office or any local clients in this region. In addition, Direct Media is
currently in discussions with a firm to serve as the local representative and could not
reveal who the local contact would be at this time.
The Direct Media proposal guarantees a total of $180,000 more over the five year term
of the agreement than the Viacom Outdoor proposal, however, Viacom Outdoor will pay
the total annual minimum guarantee in full at the beginning of each contract year rather
than in monthly installments. This would enable the City to invest these funds and
generate up to $180,000 in interest earnings over the term of the agreement.
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For these reasons, staff recommends that the contract be awarded to Viacom Outdoor
Group, Inc.
Budget/Financial Impacts
Appropriate revenue amount will be included in the FY 02/03 budget.
Recommendation
City staff recommends that the City Council:
1) Terminate the current agreement 7484 (CCS) with Gateway Outdoor Advertising;
2) Authorize the City Manager to negotiate and execute a contract with Viacom
Outdoor Group, Inc. for the transit bus advertising concession.
Prepared by: Stephanie Negriff, Interim Director of Transit Services
Joe Stitcher, Customer Relations Manager
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