Advergames: Too Little, Too Late For Cable TV Stock?

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(By Rebecca Lipman)

Advertisers have been looking for ways to connect their products with popular television shows beyond what traditional advertising has offered. The long anticipated answer is remote interactive, two-way commercial ads.

Business Week writes, “in 2008, six of the largest cable operators began creating technology that could, say, poll viewers’ brand preferences or offer customized discounts during a commercial. This year, Canoe Ventures, the $150 million effort launched by Comcast (CMCSA), Time Warner Cable (TWC), Cox Communications, Charter Communications (CHTR), Cablevision Systems (CVC), and Bright House Networks, finished building a platform that allows advertisers to include interactive elements in commercials—with Canoe collecting a fee for each ad campaign sold.”

Too little too late?

Imagine sitting in front of the television, watching your favorite show. It’s a commercial break and on comes an interactive ad that allows you, the viewer, to participate. At first this may seem entertaining, but you may quickly find it’s an irritating deterrent to an otherwise lazy TV-watching and apathy-inducing experience. Was this considered?

Or more importantly, something industry analysts are currently discussing: Hasn’t this technology already been beaten out by the internet?

The internet has made targeting advertising with interactive features the norm. This new TV technology is, in fact, quite old and limited to cable providers. “Canoe’s cable network reach, while growing, is only about 23 million households, a far cry from Facebook’s 800 million users.”

Furthermore, “although Canoe wants advertisers to pay 20 percent to 25 percent more than they pay for regular spots to use its technology, ‘the value is not there,’ says Scheppach. ‘Canoe is sitting on a gold mine with all of its data, but even with a 25 percent premium, advertising is a small portion of the cable business,’ she says. ‘It doesn’t get cable companies that excited, and Canoe has moved much too slowly.’”

Justification

“If interactive ad campaigns take off, Canoe says networks will be able to charge a premium for the extra information they provide. The big draw: Advertisers will be able to collect targeted data on millions of potential customers while marketing their products,” reports Business Week.

What’s more, trial runs show that targeted TV advertising works. According to researches McPheters, “Fidelity Investments, GlaxoSmithKline, Honda Motor, Kimberly-Clark, and State Farm Insurance are among the companies testing Canoe’s technology. During those trials, brand recall was 126 percent higher following exposure to an interactive offer, regardless of whether the viewer clicked on the promotion, and likelihood to buy was 29 percent higher, according to Canoe. By contrast, most Web ads are still just text, and TV spots are almost six times more effective than banner ads when testing consumer brand recall,”

Canoe’s CEO Kathy Timko has another trick up her sleeve as well: Updated advertising for recorded videos.  When a video is recorded, Canou will embed the streams with “so-called dynamic advertising commercials that can be updated and refreshed over time. It’s untapped territory for advertisers that want to connect their products to popular shows, and Canoe hopes to roll it out soon.”

Investing in the Trend

The bottom line, as summed up by Business Week: Six cable operators have spent $150 million on technology for interactive ads. But the Internet has offered two-way spots for years.

Yet if interactive ads prove as effective as in the trial run we can expect a shift in advertising focus. Will Canoe and the six cable operators reap the benefits?

To help follow the trend we list the cable television providers (four are listed on the American Stock Exchange), along with key financials, below. Do you predict interactive advertising will increase profits for these names?

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1. Charter Communications Inc. (CHTR): Market cap of $5.57B. Provides cable services to residential and commercial customers in the United States. Share price as of 11/04 at $52.9. The stock has gained 41.71% over the last year.

2. Comcast Corporation (CMCSA): Market cap of $64.11B. Provides entertainment, information, and communications products and services in the United States and internationally. Share price as of 11/04 at $22.7. It's been a rough couple of days for the stock, losing 5.16% over the last week.

3. Cablevision Systems Corporation (CVC): Market cap of $4.32B. Operates as a telecommunications, media, and entertainment company. Share price as of 11/04 at $14.8. The stock is currently stuck in a downtrend, trading -11.51% below its SMA20, -12.29% below its SMA50, and -33.1% below its SMA200. It's been a rough couple of days for the stock, losing 13.34% over the last week.

4. Time Warner Cable Inc. (TWC): Market cap of $20.01B. Operates as a cable operator in the United States. Share price as of 11/04 at $61.47. Relatively low correlation to the market (beta = 0.65), which may be appealing to risk averse investors. Might be undervalued at current levels, with a PEG ratio at 0.94, and P/FCF ratio at 8.41. The stock is currently stuck in a downtrend, trading -9.16% below its SMA20, -6.45% below its SMA50, and -12.48% below its SMA200. The stock has gained 3.38% over the last year. 



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , Technology

Referenced Stocks: CHTR , CMCSA , CVC , TWC

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