At this week's National Cable Television Association (NCTA) convention in Chicago, ACTV and General Instrument Corporation ("GI") announced that they will be introducing a comprehensive, end-to-end solution for delivering addressable, targeted advertising via digital cable, satellite and broadcast television. This announcement was featured on the front page of Extra Extra Daily last Monday, and perceived as the groundbreaking news event at the convention. While the details of the joint venture have not been finalized, we believe that this announcement is significant from two perspectives: the opening of a very large new market of addressable, targeted advertising, and the ability for ACTV's technology to solve the technological hurdle of allowing local ad insertion into digital cable signals. We believe ACTV's "Individualized Advertising" program has the potential to be even larger than its Individualized Television sports programming product, as it cuts across all programming genres. We reiterate our BUY rating, and recommend investors buy on current weakness in the share price.
"Individualized Advertising"
ACTV's proprietary "Individualized Advertising" software and programming capabilities, together will GI's digital interactive system and set-top boxes, will enable one of the most promising aspects of digital television — the ability to deliver highly targeted advertising, providing improved results and accountability for every advertising dollar, while enhancing the viewer experience by eliminating non-relevant advertising clutter. The joint solution also offers the ability to do e-commerce ("in the moment" impulse purchasing) and interactive advertising such as electronic couponing. As commented upon by leading ad-agency executives at the convention, this type of targeted audience delivery system is precisely what advertisers and marketers are looking for to enhance advertising efficiency and impact. The benefits to the industry include:
Benefits to the Advertiser:
Highly targeted ad delivery and reach accountability (ability to validate effectiveness of message)
Interactive ads enhance retention and recall
Ability to collect viewer data, response data and to generate sales leads
Lower overall cost per targeted thousand (CPM)
Benefits to the Cable Operators:
Incremental revenue opportunity with same inventory of availability ad space
Additional revenue per interactive spot
Revenue potential from sales lead generation
Digital ad insertion on the regional and local basis (see below)
Benefits to the Programming Companies:
Enhanced viewer statistics: who's watching what and when
Ability to quantify effectiveness to advertisers on their network
Increase penetration of traditionally broadcast-only advertisers
Again, we believe this announcement is very significant in that it opens up a potentially large new market for ACTV, both at the parent level and within the new ACTV/GI joint venture. Cable television advertising is roughly a $10 billion business, with over 80 networks offering advertising to viewers, and Individualized Advertising will uniquely position ACTV to participate in the large local advertising portion of this market as well.
How will the ACTV/GI joint venture make money with Individualized Advertising? While the structure of the joint venture with GI is not finalized, ACTV intends to generate at least three distinct revenue streams from the Individualized Advertising program. Firstly, ACTV will sell a site license to its Individualized Advertising software and programming tools (and continuing license and maintenance fees) for every set-top box. Secondly, ACTV will have to specially encode ads, charging a flat processing fee, to have the run on the combined GI/ACTV solution. And lastly, ACTV could sub-license its software for other broadcast systems.
Local Advertising Insertion into Digital TV Stream — ACTV/GI Solves A Significant Technological Problem
One outstanding problem with the rollout of fully digital cable TV systems is the present inability for the local cable system to insert local ads into digital programs. Given that local advertising represents approximately 23% of the total $9 billion cable advertising market, this represents a significant (i.e. $2 billion) problem.
ACTV's and GI's targeted advertising technology, and specifically ACTV's patented technology enabling seamless switching, enables digital-into-digital local ad insertion.
Risk Considerations
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