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U.S. Cable TV Local Advertising Hits Target

After a decade of building systems, U.S. cable operators have grown their local advertising sales into a $4.3 billion business last year, according to Kagan Research. That's up $1 billion since 2002.

Local ads inserted in available slots in national basic cable networks -- such as ESPN and Lifetime -- are just part of the story. Cable operators are also placing commercials in video-on-demand (VOD) content offered free to their subscribers.

"2007 is expected to be the year VOD advertising really takes off," says Derek Baine, senior analyst at Kagan Research. "Comcast and other major MSOs invest heavily in ad-insertion technology, which will enable them to deliver more targeted ads and relevant information to ad buyers."

Going forward, Kagan sees growth in the high-single-digit rate. While not explosive, the rate can be viewed as substantial given the local ad sector is already a multi-billion-dollar segment. Among the big cable system operators, Comcast has made the biggest push into VOD by rebuilding its infrastructure backbone to facilitate interactive and on-demand services.

Kagan newsletter "VOD & ITV" Investor notes that 95 percent of Comcast's cable VOD views are of free programs -- which often contain ads. The newsletter adds: "Comcast reported traffic for newly released prime-time shows on-demand increased 10X to 20X for CBS programs after the 99-cent fee was dropped."

Comcast averaged the most revenue per subscriber in terms of local ad revenue in 2006. "Cable MSO ad revenues should grow at a healthy clip through 2011, as clustering and rising cable ratings make operators increasingly attractive to national and regional advertisers," notes Kagan.

Kagan doesn't mention the telco IPTV deployments, but I would expect that local advertising will eventually represent a significant source of ongoing revenue. In fact, this is a major opportunity for IPTV to provide value-added promotional capabilities to local advertisers. For those telcos who chose not to sell-off their Yellow Pages business, they now have a substantive advantage.

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