• by David Goetzl  @dgoetzl, November 14, 2008

Forget what they say about never undertaking a two-front war. A battle between cable, telco TV and satellite operators is intensifying as they compete for as many customers as possible.

Time Warner Cable touts a service: "Never on satellite. Never on FiOS. Only on cable." Telco TV FiOS slugs back: "For the best picture, period, cut your cable ..." A third entrant is even more blunt: "DirecTV Stomps the Competition." However, even as the three race to pry subscribers away from each other, they are quietly in business together on the ad sales front.

Rep firm National Cable Communications (NCC)--owned by Comcast, Time Warner and Cox--is selling local spots for cable operators, along with Verizon's FiOS, and soon, DirecTV. The three believe that their combination will grow the non-broadcast spot market and each will profit handsomely.

"They have to market and promote against each other and fight for subscribers, and that can be a very competitive business," says Greg Schaefer, president of NCC. "Not that there isn't competition on the sales fronts, but NCC can almost operate as Switzerland."

New York-based NCC, the largest spot cable rep firm, has just begun its second year representing FiOS--and is getting ready to add DirecTV in December, albeit in limited fashion. Schaefer said that when he approached NCC's board about taking on FiOS there was some initial reticence, but it eventually bought in. "I didn't drag them kicking and screaming across the finish line," he says.

"There's nothing wrong with very healthy competition on one end and common-sense business practices on the other," says Bob Riordan, senior vice president of ad sales at DirecTV, who worked with Schaefer to hammer out their deal.

A rep firm working on behalf of competitors and attempting to be neutral is not new; it has been a presence in the local radio and broadcast TV businesses. But companies competing so fiercely in one arena and working together in another gives the NCC cross-pollination a different dimension.

The addition of DirecTV to NCC's portfolio is something of a landmark; the leading satellite provider has never inserted and sold local spots in its 14 years. Ads have only been sold on a national basis, then run across its whole 17.6 million-home footprint.

For both FiOS and DirecTV, linking with NCC avoided the expense, time lag and logistics of hiring their own sales forces for locally based revenues. NCC has offices in 16 markets across the country. The firm works on commission, so the downside for partners is minimized.

"It just made a lot more sense to partner with someone who had the assets already on the ground and is a highly reputable company," Riordan says.

Jason Malamud, general manager and vice president of Verizon FiOS Media, oversees its sales; Verizon declined comment.

In addition to its three owner MSOs, NCC represents all top-10 cable operators and more.

"What's so important is you technically have competitors in one field and in the other they're partners," says Mitch Oscar, executive vice president of televisual applications at MPG. "It's like 'coopetition'."

So far, however, the move has not extended to two other operators: Dish Network and AT&T. Dish, the other satellite operator with DirecTV, continues to only sell on a national level--with ads running across its full 13.8 million-home footprint. Yet its Vice President of Ad Sales, Michael Finn, says local sales is "a very smart thing to do" and "we would explore opportunities." (Dish last week reached a deal to work with technology company Invidi to facilitate addressable advertising and targeting by demographic data.)

AT&T U-verse, the other telco TV provider with FiOS, is not currently selling any spots (nationally or otherwise), but is expected to do so. AT&T declined comment. (U-verse had 780,000 customers as of early November; FiOS had 1.6 million.)

"I'm quite certain that U-verse is in the process of planning their strategy for ad sales," says Jeff Carter, president-CEO of rep firm Viamedia, the managing partner of Verizon's ad sales initiatives, that also has a relationship with FiOS and works with NCC. "There's a business opportunity there and AT&T is a smart company. They're not going to turn the other cheek toward potential revenues."

NCC has long capitalized on interconnects in some 132 markets--where an advertiser can place a buy that runs across multiple cable operators in one motion, rather than piecemeal. As a rule, NCC gets about 25% of the two (sometimes three) minutes an hour that a cable network allows for local use.

NCC now sells FiOS inventory in 14 markets (including six of the top-10 DMAs), melding it into its interconnects. Over the next year, DirecTV inventory will be integrated in nine markets. "Our focus is to aggregate all the local audiences that carry cable programming for agencies that are looking to take advantage," NCC's Schaefer says. "But with so many different systems and entry points, it can be rather cumbersome and complicated." An advertiser will also have the opportunity to place a buy only on cable, FiOS or DirecTV in a market.

The DirecTV addition has buyers particularly intrigued, since they will have the opportunity to reach satellite customers in a single market for the first time, although only via regional sports networks.

Traditionally, if Ford wanted to run a campaign on a cable network in just the Dallas DMA, much of the market would be beyond its reach. Some 38% of TV homes in the Dallas market (946,000) are satellite subscribers, according to Nielsen. In Los Angeles, the amount is a slightly lower 35%, but that's 2 million homes. The figures count both DirecTV and Dish subscribers.

"We've wanted local avails on DirecTV for some time," says a spot buyer who requested anonymity because of client-conflict issues. "That's a chunk of the market you can't even tap into."

Since it can be more upscale with a high proportion of young males, the DirecTV audience is coveted by advertisers. "Availability of DirecTV in the local marketplace is going to be well-received," says Andrea Gallo, vice president and regional spot director at Carat.

But as much as buyers hunger for those local options, DirecTV is only dipping a toe in the water. Its deal calls for NCC to sell spots only on regional sports networks (RSNs) in just nine markets. Examples include New England Sports Network in Boston, as well as outlets operated by Fox and Comcast in other markets. The opportunity for the local insertions is scheduled to launch in Chicago on Dec. 1. In addition to Boston, other markets coming are Atlanta, Dallas, Denver, Detroit, Houston, Los Angeles and San Francisco.

DirecTV and NCC will roll out the program in as many of those markets as possible in time for the baseball season. The aim is to have all DMAs "wired" by early May. Some markets, such as Boston, will have more than one channel as an option.

DirecTV and NCC engineers are working to build and test the functionality that will allow the insertions--which requires multiple feeds, new for DirecTV. But the satellite operator's Riordan says if operations go smoothly over the next year, opportunities for local insertions could expand to 40 markets and 27 channels. Over the longer term, he says the aim is "scalability" that would facilitate selling local spots on dozens of networks outside the sports genre.

"That to me would be the ultimate game-changer," Schaefer says.

Executives at Verizon believe their FiOS customers offer a profile that is attractive to advertisers. When it made the deal last year to hire Viamedia, Verizon's Malamud said in a statement: "FiOS TV customers are savvy, engaged and eager for new viewing experiences." Still, FiOS has offered multiple promotions, signaling that it may be attracting customers with lower prices and not higher-end, pricier services.

As the "coop-etition" continues, all stakeholders on the sell-side--the cable providers, FiOS and DirecTV--hope that NCC will be able to use combined heft to peel more dollars away from local broadcasters, an imperative in a shrinking ad market.