Key points from Kaufman Bros. analyst Todd Mitchell's recent note to clients (for a full-length .pdf version of this report, click here):
Google (NASDAQ:GOOG) is reportedly negotiating an advertising deal with DirecTV (DTV). This follows news last week of an agreement between Google and EchoStar (NASDAQ:DISH). Deal with DirecTV is reportedly taking longer to consummate due to change of control at DirecTV.
DirecTV/Google ad deal highlights importance of STB middleware. Again, we think this news is very significant. It raises a new paradigm for television advertising (sell the viewer, not the content in hopes that it delivers the viewer) which could upend that business as we know it. It also points to the flexibility of the DBS platform vis-à-vis their cable competitors, which is due to their standardized set-top box base.
Standardized on what? Standardized on set-top box middleware. In this case, NDS' Media Highway. As we said when EchoStar announced its deal with Google, this highlights the increasing importance of the two set top box middleware companies we cover: OpenTV and NDS. We think both of these companies are sitting at the nexus of changes in the multichannel television business and believe they will become an increasingly important part of the value chain of suppliers to this industry. We aggressively reiterate our BUY rating on both.