ACTV, INC. (IATV - NASDAQ - $27) ACTV's 51%-owned subsidiary, Digital ADCO
(owned 49% by Motorola Broadband ("MOT", NYSE, formerly General Instrument)),
announced this morning that it will unveil its new "SpotOn" interactive and
highly targeted advertising service during this week's National Association of
Broadcasters annual convention, April 10th through the 13th , in Las Vegas.
SpotOn is a comprehensive, end-to-end solution for the delivery and accounting
of targeted, addressable, interactive advertising via digital cable, digital
satellite and digital broadcast television. In our opinion, SpotOn advertising
will have a profound effect on the traditional television advertising model, as
it will change advertising into an active experience versus a passive
experience. Advertising will be targeted towards those households who are most
interested in specific products, based on active real-time viewer choices or
stored past responses and demographic information. SpotOn advertisements will
enable consumers to select their own advertisements, request additional product
information, receive coupons or eventually even purchase products, all through
their television. For example, Toyota's national ad campaign consists of
advertisements for the Toyota Camry, 4Runner, Land Cruiser and Tundra, among
others. When an advertisement is about to air, the viewer will be given four
choices of advertisements to view- all of which are for a Toyota product. The
viewer selects an advertisement with his/her remote control arrows and the
SpotOn system pulls the selected Toyota advertisement from those already stored
for use by the network (the viewer is actually seamlessly switching among
multiple different digital feeds). If no choice is selected, the system will
push the appropriate advertisement to the household based on past responses and
stored demographic information. As a result, we expect consumer and
advertiser satisfaction will increase, leading to higher CPMs- a benefit to the
networks and the MSOs.
We believe SpotOn represents ACTV's largest Individualized Television ("ITV")
opportunity going forward. Digital ADCO plans to perform SpotOn trials with
MSOs in 2000 and we expect revenue contribution will be less than $1 million.
However, we believe SpotOn revenue will quickly grow to become the largest
component of ITV revenue and cash flow. Our models currently estimate that
SpotOn advertising revenue will account for 67% of ITV Revenue (excluding
Liberty IATV contribution) and 63% of ITV cash flow in 2005. This excludes any
potential future revenue that may arise as a result of technology licensing
fees to third parties who wish to produce their own interactive advertising.
Digital ADCO will initially target MSOs, who are aggressively approaching
digital roll out, to digitize their local advertising, typically 2-3 minutes
per hour (Local cable television advertising is currently a $6.7 billion
business in the U.S.). Logically, ADCO and the MSOs will target those networks
with the highest current CPM's (a la ESPN, CNN) first.
Due to its differentiated interactive technologies that can be easily utilized
by the mass market, its strong patents and solid partnerships, we believe ACTV
is well positioned to benefit from digital media proliferation and the growth
of the Internet's role in the media marketplace. In our opinion, demand for
interactive technologies from both the MSO, in an effort to drive digital
penetration, and the consumer, in an effort to gain some control over the
content they receive, will begin to increase in the not too distant future.
Through the timely distribution of its patented individualized television and
HyperTV technologies, we believe ACTV can take advantage of this demand and
become a significant player in the emerging world of interactive television. At
current levels we believe ACTV shares represent a very attractive risk/reward
scenario and we reiterate our BUY recommendation on ACTV shares with a
12-to-18-month price target of $47.14 (a 75% premium to current levels).
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