Satellite Companies To Battle For Political Ad Dollars

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 |  Includes: DISH, T
by: Gary Bourgeault

Summary

DirecTV and Dish form a partnership called D2 Media Sales to offer local, targeted ads.

This year alone an estimate $3 billion will be spent on political ads, with satellite companies now getting a share of it.

D2 Media Sales made deals with right-leaning i360 and left-leaning Clarity Campaign Labs to reach both sides of the political aisle.

Limitations in the past didn't allow satellite companies to offer targeted ads in a way that brought a specific message to a specific household, but that has changed now, as DirecTV (DTV) and Dish (NASDAQ:DISH) have partnered to battle it out with competitors for the $3 billion in political ad spend in the short term in the mid-term elections, and of course other significant ad campaigns of a variety of types in the long term.

In the past satellite companies could only offer ads to a national audience, which limited the types of marketing campaigns companies and organizations were looking for.

On the political side this is a big deal because of the obvious benefit of big ad spend every two years. With deals in place with i360 on the right and Clarity Campaign Labs on the left, DirecTV and Dish are positioned to take away political ad spend share from cable, radio, and other competitors.

There is no way of knowing the initial reach the new outlets will have, but since it's starting from no reach on the local level, it can only go up from here. I like the move.

Now the question will be if has created a new market that will generate more spend, or if it's going to siphon off revenue from competitors, resulting in them underperforming against projection without taking into account a new player in the field.

I suspect we'll see a little bit of both in the near term, with the possibility it could help increase the political ad spend market in the long haul, while taking some market share at the same time.


Source: StockCharts.comClick to enlarge


Source: StockCharts.comClick to enlarge

Strategy

How it's working is the two satellite companies are extracting data from the homes of its subscribers and matching it with voter registration. That's why it is working with both the right and the left of the political spectrum, as it now can send messages from both to the targeted demographic.

As for that targeted demo, it's not so much the voters that are loyal to their ideologies or political party that are going to be targeted, but those that are the independent or undecided voters that will be the bulk of the marketing effort.

The reason for working with the right and the left at the same time isn't to target their loyal bases, but to target the same demographic in order to attempt to persuade them to vote their way.

This is where political races in the United States are now won, and why the long-term potential is so great for DirecTV and Dish.

How it Works

As to the practicals of it, the satellite companies will use the digital video recorder of their customers for the direct marketing campaigns.

Every single house with a DVR can have an ad sent directly to them. That is a powerful concept that will without a doubt, over time, draw some big marketing dollars to the satellite industry.

Over time analytics will play a big part, as more data is made available to the companies and marketing campaigns. Most undecided people will have specific issues and interests they will make their voting decision on, and that is a powerful driver when considering these are the ones that decide elections.

Where it's all Going

In 2014 the satellite companies will be limited because of the timing and where they're at with the initiative, as they'll primarily only be able to target state races.

It's highly likely as the project matures that the satellite companies will dig deeper and target congressional districts or even specific counties for marketers. That has a lot of potential because it could heavily focus on tight races spending a lot of money.

On the other side of the coin, it's difficult to tell how this will positively impact content providers, as there has been a propensity to spend political ad dollars outside of typical channels, and focus on smaller, niche channels. That was the strategy of the Obama campaign, and we all know how that will work out for them.

So we're going to see data mining and analytics being increasingly a big part of this trend, with satellite companies improving in that area in the years ahead.

Outside of Political

One area that has a lot of potential but not much visibility is how this will play out in the non-political markets and demographics. It'll take a couple of election cycles to see if a bigger political ad spend market has been created by the satellite partnership, if it's going to grow at the expected pace with satellite taking share it didn't have before. That's just a matter of waiting to see how much that will be over the next year or two.

Where it gets interesting because it would be a more consistent performance, is how this may play out in markets outside of the political season.

Most of the focus, rightly so, has been on political, but there is a huge market for targeted, local advertising, that satellite can now enter into via its DVR technology. This is likely to improve and grow, adding another significant revenue stream for DirecTV and Dish.

Conclusion

This has a lot of potential for the two satellite companies, as they have nowhere to go but up when starting from the ground level. The ability to target customers by specific household is a tremendous advantage, and when it applies it to all sorts of demographics and seasonal campaigns, this is truly a game-changer for both companies.

In the short term we're likely to see a nice boost in revenue and earnings from Dish and DirecTV, assuming they've been already involved in some of the state campaign marketing spend.

With the majority of political spend yet to come, they should still get a nice chunk of revenue they never had access to before.

For the long term, it looks even better. Once a benchmark is found, investors will be able to rely upon this as a means of measuring the performance in the years ahead.

At this time it's more of a waiting game to see how it has an impact on marketing campaigns and how much share the satellite companies take from their competitors.

This is a sure winner, and will be a terrific catalyst at a time when the satellite industry needed one.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.