Key points from Kaufman Bros. analyst Todd Mitchell's recent note to clients (for a full-length .pdf version of this report, click here):
EchoStar (DISH) and Google (GOOG) announced last night that they have partnered to create an automated system for buying, selling, delivering and measuring the impact of TV ads running on EchoStar's Dish Network.
This is the beginning of the end of television advertising as we know it, in our opinion. EchoStar and Google are shifting the fundamental paradigm for television advertising. Heretofore, all television advertising was based on selling advertising inventory embedded on content based on the reach and demographics that programming could deliver. Going forward advertisers will increasingly buy the specific audience they are driving to reach with their marketing message regardless of what content that audience is watching. The U.S. television advertising market is $70 billion versus $16 billion for internet advertising.
This could be a big blow to the traditional advertising model and players. In general we would view this as positive for the cable, satellite and telco operators that own the customer relationships and networks/set-top boxes that deliver these specific viewers to the customer. We also view it as positive for some of the disaggregators such as TiVo, Apple and Microsof's Xbox Live which have alternative means for delivering a specific and measurable audience. Conversely we would view this as negative for broadcasters and programmers whose business is based on the traditional broadcast model.
This reaffirms that OpenTV is at the nexus of changes in television technology. We would also view this shift as positive for the companies that enable this new technology for delivering a specific audience. In particular, we think that OpenTV is very well positioned to take advantage of this shift in the landscape.
OpenTV is the leading provider of set-top box middleware. Middleware is the basic OS for set-top boxes, OpenTV's core product is necessary to create the platform to enable set-top box applications such are targeted advertising. OpenTV is a leader in interactive advertising technology. OpenTV is a leading provider of set-top box applications for interactive advertising, including patented applications that can be used to give legacy set-top boxes the ability to recognize and target specific viewers. OpenTV is the largest technology provider to EchoStar. OpenTV's middleware is in all DISH set-top boxes and DISH uses OpenTV's technology on its interactive advertising platform. OpenTV is actively pitching an interactive advertising platform to other cable, satellite and telco operators. OpenTV has important relationships with Google. OpenTV's founder and former CTO, Vincent Dureau left OpenTV last year to become the head of television technology at Google. We view OpenTV's technology as highly complimentary to Google's television advertising efforts.