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Tuesday, September, 6 2011

What’s behind DirecTV’s local ad sales strategy

By: Stewart Schley Tuesday, September, 6 2011

In pursuing what it thinks could be a $400 million-plus local advertising business, DirecTV is taking some cues directly from cable’s local-ad sales playbook, including rep agreements and geographic zoning.


But it’s also advancing some unique approaches designed to carve out an early lead in the emerging fields of household-specific ad insertion and interactive advertising at large.


We’ve been studying public documentation around DirecTV’s plans for grabbing a bigger share of the spot TV market. Here’s a summary view of what the largest U.S. satellite TV provider is up to in the ad-sales domain.


The overall goal is growth. DirecTV doesn’t disclose how much money it’s making from selling the same local cable network ad inventory that’s available to local cable/telco video providers, but its ambitions are significant. In its 2010 Annual Report to shareholders, DirecTV floated the target of $400 million in “new” revenue from an emerging zoned advertising initiative (although it didn’t specify when). Based on current subscriber levels, $400 million would equate to roughly $20/year in local ad revenue per subscriber. (As a comparison, that’s about 22% of the $91 Comcast currently generates per year, per subscriber from advertising.) Although we don’t know much about DirecTV’s revenue total from advertising, the growth record so far is solid, with DirecTV reporting it has averaged annual compound growth of 15% in ad sales from 2005-2010.


Zoning is a big part of the picture. DirecTV is carving its national satellite TV footprint into as many as 50 discrete geographies, giving spot advertisers the ability to zero in on relevant territories at the DMA level. A slide tucked into a June 2010 investor presentation noted that “the introduction of local ad insertion capabilities at the DMA level will allow DirecTV to compete for the $24 billion local TV advertising market.”


Household addressability is primed for scale. In addition to chopping its footprint into regional coverage areas, DirecTV is getting ever-more granular with what was promised to be a large-scale introduction of household-specific commercial insertion starting “this summer.” As of today (Sept. 6) there has been little public mention of the addressability offering, however. We have a call into DirecTV to find out more, and will update this post when we know. We do know the addressability offering depends on DVR storage of selected commercials that are triggered to play, based on various household characteristics, into the local avails supplied by cable networks.


Partnerships are welcome. DirecTV is part of the  I+ initiative that amalgamates local cable network commercial inventory among various in-market pay television rivals to create a broad reach of subscribing households. NCC, the spot cable rep firm owned by Comcast, Time Warner Cable and Cox Communications, represents DirecTV as part of the I+ effort.


Online extension is included. In addition to its in-program video ad inventory, DirecTV aligns with most pay-TV providers by selling online banner and display inventory on its subscriber portal, which averages 2.3 million unique households and 19.7 million total visitors per month.


Our take: Of the various DirecTV advertising endeavors, household addressability is the glitziest, but we think DirecTV’s participation in the I+ program is likely to be the biggest immediate revenue contributor because it taps into existing lines of business.


Still, there are limits to its potential impact, as competitors point out. The Television Bureau of Advertising recently published an analysis of DirecTV’s estimated household coverage, market-by-market, which suggests the net contribution of incremental households to NCC-repped buys is relatively small.

(Click here for the .pdf.)


For instance, even in the Denver DMA, where the TVB estimates that DirecTV serves an impressive 25% of all pay-TV households, TVB says commercials placed locally on DirecTV will reach only about 12.5% of total homes. That’s because (again, according to TVB’s estimates) only about half of DirecTV’s homes are outfitted with DVRs needed to play back localized commercials. On the flipside, even if the TVB number is correct, the addition of another 12% market slice to an aggregated spot cable buy will fill in a significant gap that previously limited commercial reach.  

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