The following management's discussion and analysis of financial condition and results of operations ("MD&A") should be read in conjunction with our unaudited consolidated financial statements and notes thereto contained elsewhere in this Quarterly Report on Form 10-Q ("Report").

Critical Accounting Policies and Estimates

The following discussion and analysis of the financial condition and results of operations are based on the unaudited consolidated financial statements and notes to unaudited consolidated financial statements contained in this Report that have been prepared in accordance with the rules and regulations of the SEC and do not include all the disclosures normally required in annual consolidated financial statements prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We base these estimates on historical results and various other assumptions believed to be reasonable, all of which form the basis for making estimates concerning the carrying values of our assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates.

Our significant accounting policies are described in Note 2 to the consolidated financial statements presented in our Annual Report. Our critical accounting policies are described in MD&A in our Annual Report. Our significant and critical accounting policies have not changed significantly since the filing of our Annual Report. See also Recently Adopted Accounting Guidance in Note 2 to our unaudited consolidated financial statements contained in this Report.

Overview

DG is the world's leading ad management and distribution platform. We help advertisers engage with consumers across television and online media, while delivering timely and impactful ad campaigns. Our technology and high quality service help advertisers overcome the fragmentation in the market and get optimal results for their advertising spending. We operate our business into two distinct reportable segments, television and online.

Our business can be impacted by several factors, including general economic conditions, the overall advertising market, new emerging digital technologies, the increasing trend towards delivering high definition ("HD") data files, the emergence of online advertising, and the continued transition from the traditional dub and ship delivery method to digital broadcast signal transmission.

Television Segment

Our television segment's revenue is principally derived from delivering advertisements, syndicated programs, and video news releases from advertising agencies and other content providers to traditional broadcasters and other media outlets. The television segment includes the operating results of our ADS operation, SourceEcreative, Match Point, MIJO and North Country. The majority of our television segment revenue results from the delivery of television and radio advertisements, or spots, which are typically delivered digitally but sometimes physically. We generally bill our services on a per transaction basis. We also offer a variety of other services for the television advertising industry. These services include creative research, media production and duplication, management and storage of existing advertisements and broadcast verification. This suite of innovative services addresses the needs of our customers at multiple stages along the value chain of advertisement creation and delivery in a cost-effective manner and helps simplify the overall process of content delivery.

Online Segment

Our online segment's revenue is principally derived from services relating to online advertising. We earn fees from our customers to create, execute, monitor and measure advertising campaigns on our platforms. Currently, we operate three separate online advertising platforms, Unicast, which we acquired in 2008, and our 2011 acquisitions of MediaMind and EyeWonder. We are in the process of migrating our Unicast and EyeWonder online advertising related business to the MediaMind platform. As a result of this migration, we expect to incur further costs in integrating these businesses and subsequently realize certain operating synergies. As of September 30, 2012, we were substantially complete with migrating the EyeWonder related business over to the MediaMind platform, and had made significant progress in migrating the Unicast business over to the MediaMind platform. We expect to complete this process in early 2013. The online segment also includes our April 2012 acquisition of Peer 39.

Our MediaMind platform offers an integrated campaign management solution that helps advertisers and agencies simplify the complexities of managing their advertising budgets across multiple digital media channels and formats, including online, mobile, rich media, in-stream video, display and search. The MediaMind platform provides our customers with an easy-to-use, end-to-end solution to enhance planning, creative, delivery, measurement and optimization of digital media campaigns. Our solutions are delivered through a scalable technology infrastructure that allows delivery of digital media advertising campaigns of any size. We manage campaigns for customers in about 75 countries throughout North America, South America, Europe, Asia Pacific, Africa and the Middle East.

Acquisitions

Part of our business strategy is to acquire similar and/or ancillary businesses that will increase our market penetration and, in most cases, result in operating synergies. During 2012 and 2011, we acquired five separate businesses involved in the distribution of media content. Those acquisitions are summarized as follows:

                                           Net Assets
                                            Acquired
Business Acquired     Date of Closing     (in millions)     Segment
North Country        July 31, 2012       $           3.7   Television
Peer 39              April 30, 2012                 15.7     Online
EyeWonder            September 1, 2011              61.0     Online
MediaMind            July 26, 2011                 499.3     Online
MIJO                 April 1, 2011                  43.8   Television

Each of the acquired businesses has been included in our results of operations since the date of closing. See Note 4 of our consolidated financial statements.

Political Advertising

Our revenues are affected by political advertising, which peaks every other year consistent with the national, state and local election cycles in the United States.

Third Quarter Highlights

† Overall revenues increased $9.2 million, or 11%, from last year's third quarter due to our 2012 and 2011 acquisitions.

† Revenues from our online segment increased $9.7 million, or 40%, from last year's third quarter principally due to the acquisitions of MediaMind and EyeWonder during the third quarter of 2011.

† We incurred $1.4 million of acquisition and integration costs, compared to $10.6 million in the third quarter of 2011. The 2012 costs primarily relate to exploring strategic alternatives, the integration of our 2011 acquisitions and the 2012 acquisitions of Peer 39 and North Country. The 2011 costs relate primarily to the acquisitions of MediaMind and EyeWonder.

† We reduced our long-term forecasts for the online reporting unit and determined that a portion of the online goodwill was impaired. As a result, we recorded a goodwill impairment charge before income taxes of $208.2 million. See Note 5 of our consolidated financial statements.

Results of Operations



Three Months Ended September 30, 2012 vs. Three Months Ended September 30, 2011



The following table sets forth certain historical financial data (dollars in
thousands).



                                                                % Change      As a % of Revenue
                                       Three Months Ended         2012       Three Months Ended
                                          September 30,           vs.           September 30,
                                        2012          2011        2011        2012         2011
Revenues                             $    93,818    $ 84,594          11 %      100.0 %     100.0 %
Costs and expenses:
Cost of revenues (a)                      34,697      28,292          23         37.0        33.4
Sales and marketing (a)                   16,476       9,619          71         17.5        11.4
Research and development (a)               5,501       5,546          (1 )        5.8         6.5
General and administrative (a)            13,959      14,776          (6 )       14.9        17.5
Acquisition and integration                1,379      10,571         (87 )        1.5        12.5
Depreciation and amortization             14,542      11,318          28         15.5        13.4
Goodwill impairment                      208,166           -          NM        221.9           -
Total costs and expenses                 294,720      80,122          NM        314.1        94.7

Income (loss) from operations           (200,902 )     4,472          NM       (214.1 )       5.3

Other expense:
Interest expense                           7,835       6,477          21          8.3         7.7
Other, net                                   346         284          22          0.4         0.3

Loss before income taxes                (209,083 )    (2,289 )        NM       (222.8 )      (2.7 )
Provision for income taxes                10,644         408          NM         11.3         0.5
Loss from continuing operations         (219,727 )    (2,697 )        NM       (234.1 )      (3.2 )
Loss from discontinued operations              -        (134 )      (100 )          -        (0.2 )
Net loss                             $  (219,727 )  $ (2,831 )        NM       (234.1 )      (3.4 )

Reconciliation of Income (Loss) from Operations to Adjusted EBITDA (Non-GAAP financial measure)

Income (loss) from operations   $ (200,902 ) $  4,472    NM   (214.1 )%  5.3 %
Depreciation and amortization       14,542     11,318    28 %   15.5    13.4
Share-based compensation             4,439      4,382     1      4.7     5.1
Acquisition and integration          1,379     10,571   (87 )    1.5    12.5
Goodwill impairment                208,166          -    NM    221.9       -
Adjusted EBITDA (b)             $   27,624   $ 30,743   (10 )   29.5    36.3

NM - Not meaningful

Revenues. For the three months ended September 30, 2012, revenues increased $9.2 million, or 11%, as compared to the same period in the prior year due to the acquisitions of MediaMind and EyeWonder during the 3rd quarter of 2011 and the 2012 acquisitions of Peer 39 and North Country. For further discussion of revenues by reportable segment, see each of the television and online segments.

Cost of Revenues. For the three months ended September 30, 2012, cost of revenues increased $6.4 million, or 23%, as compared to the same period in the prior year. As a percentage of revenues, cost of revenues increased to 37.0% in 2012, as compared to 33.4% in 2011. Cost of revenues increased due to (i) the 2011 acquisitions of MediaMind and EyeWonder being included in costs for three months in the current period versus only two months and one month, respectively, in the prior year period, (ii) including the 2012 acquisitions of Peer 39 and North Country in the current year period ($0.7 million) and (iii) higher personnel costs. The increase in our cost of revenues percentage is principally due to lower pricing in each of the television and online segments.

Sales and Marketing. For the three months ended September 30, 2012, sales and marketing expense increased $6.9 million, or 71%, as compared to the same period in the prior year. The increase was due to (i) the 2011 acquisitions of MediaMind and EyeWonder being included in expense for three months in the current period versus only two months and one month, respectively, in the prior year period, (ii) higher commissions and marketing costs, and (iii) including the 2012 acquisitions of Peer 39 and North Country in the current year period ($0.5 million). As a percentage of revenues, sales and marketing expense increased to 17.5% in the current year period, as compared to 11.4% in the same period of the prior year. The percentage increase is attributable to the online segment comprising a larger percentage of total costs in the current year period as compared to the prior year period. The online segment historically has higher sales and marketing expenses than the television segment.

Research and Development. For the three months ended September 30, 2012, research and development costs decreased slightly (less than $0.1 million) as compared to the same period in the prior year. As a percentage of revenues, research and development costs decreased to 5.8% in the current year period as compared to 6.5% in the prior year period. The percentage decrease is attributable to eliminating certain duplicative expenses (e.g. personnel, facilities, platform maintenance) as we transition the online segment into a single operation with one online platform as compared to three separate operations each with their own online platform in the prior year period.

General and Administrative. For the three months ended September 30, 2012, general and administrative expense decreased $0.8 million, or 6%, as compared to the same period in the prior year. The decrease was due to reduced compensation costs ($2.6 million) offset by an increase in professional fees ($1.2 million). As a percentage of revenues, general and administrative expense decreased to 14.9% in the current year period as compared to 17.5% in the prior year period. The percentage decrease is attributable to eliminating certain duplicative expenses as we transition the online segment into a single operation as compared to three separate operations in the prior year period.

Acquisition and Integration. For the three months ended September 30, 2012, acquisition and integration expense decreased $9.2 million as compared to the same period in the prior year. In the current year period, acquisition and integration expenses relate primarily to evaluating strategic alternatives, severance payments and integrating EyeWonder and Unicast into the MediaMind operation. In the prior year period, acquisition and integration expense related primarily to investment banking fees and legal and accounting costs in connection with the MediaMind and EyeWonder acquisitions.

Depreciation and Amortization. For the three months ended September 30, 2012, depreciation and amortization expense increased $3.2 million, or 28%, as compared to the same period in the prior year. The increase was primarily due to (i) depreciation and amortization on the tangible and intangible assets of the 2011 acquisitions of MediaMind and EyeWonder for three months in the current year period as compared to only two months and one month, respectively, in the prior year period, (ii) including the 2012 acquisitions of Peer 39 and North Country in the current year period and (iii) greater depreciation associated with the increase in property and equipment.

Goodwill Impairment. For the three months ended September 30, 2012, we recognized a goodwill impairment charge of $208.2 million related to our online reporting unit. See Note 5 of our consolidated financial statements.

Interest Expense. For the three months ended September 30, 2012, interest expense increased $1.4 million as compared to the same period in the prior year. The increase was due to the Term Loans being outstanding for three months in the current year period as compared to slightly more than two months in the prior year period, partially offset by a reduction in the average outstanding balance of the Term Loans during the periods.

Other, net. For the three months ended September 30, 2012, other, net was consistent with the same period in the prior year.

Provision for Income Taxes. For the three months ended September 30, 2012 and 2011, the provision for income taxes was 5.1% and 17.8%, respectively, of loss before income taxes. The provision for each period differs from the expected federal statutory rate of 35.0%, as a result of certain non-deductible expenses, state income taxes and, for the 2012 period, the recording of a valuation allowance against our federal net operating loss carryforwards ("NOLs"). For 2012, the vast majority of the goodwill impairment charge is not deductible for income tax purposes. Further, as a result of the goodwill impairment charge, we recorded a valuation allowance on all of our deferred tax assets. In 2011, a large portion of the costs associated with the MediaMind and EyeWonder acquisitions were not deductible for income tax purposes.

Nine Months Ended September 30, 2012 vs. Nine Months Ended September 30, 2011



The following table sets forth certain historical financial data (dollars in
thousands).



                                                           % Change     As a % of Revenue
                                   Nine Months Ended         2012       Nine Months Ended
                                     September 30,           vs.          September 30,
                                   2012         2011         2011        2012        2011
Revenues                        $  283,003    $ 215,956          31 %     100.0 %     100.0 %
Costs and expenses:
Cost of revenues (a)               103,058       72,741          42        36.4        33.7
Sales and marketing (a)             46,727       15,844         195        16.5         7.3
Research and development (a)        18,599       10,891          71         6.6         5.0
General and administrative
(a)                                 40,824       32,595          25        14.4        15.1
Acquisition and integration          5,556       13,776         (60 )       2.0         6.4
Depreciation and
amortization                        41,403       25,702          61        14.6        11.9
Goodwill impairment                208,166            -          NM        73.6           -
Total costs and expenses           464,333      171,549         171       164.1        79.4

Income (loss) from
operations                        (181,330 )     44,407        (508 )     (64.1 )      20.6

Other expense:
Interest expense                    23,766        6,709         254         8.4         3.1
Other, net                             700          162         332         0.2         0.1

Income (loss) before income
taxes                             (205,796 )     37,536        (648 )     (72.7 )      17.4
Provision for income taxes          12,134       16,847         (28 )       4.3         7.8
Income (loss) from
continuing operations             (217,930 )     20,689          NM       (77.0 )       9.6
Loss from discontinued
operations                          (1,080 )       (628 )        NM        (0.4 )      (0.3 )
Net income (loss)               $ (219,010 )  $  20,061          NM       (77.4 )       9.3

Reconciliation of Income (loss) from Operations to Adjusted EBITDA (Non-GAAP financial measure)

Income (loss) from operations   $ (181,330 ) $ 44,407   (508 )% (64.1 )% 20.6 %
Depreciation and amortization       41,403     25,702     61     14.6    11.9
Share-based compensation            13,816      7,592     82      4.9     3.5
Acquisition and integration          5,556     13,776    (60 )    2.0     6.4
Goodwill impairment                208,166          -     NM     73.6       -
Adjusted EBITDA (b)             $   87,611   $ 91,477     (4 )   31.0    42.4

NM - Not meaningful

Revenues. For the nine months ended September 30, 2012, revenues increased $67.0 million, or 31%, as compared to the same period in the prior year due to the 2011 acquisitions of MediaMind, EyeWonder and MIJO and the 2012 acquisitions of Peer 39 and North Country. For further discussion of revenues by reportable segment, see each of the television and online segments.

Cost of Revenues. For the nine months ended September 30, 2012, cost of revenues increased $30.3 million, or 42%, as compared to the same period in the prior year. As a percentage of revenues, cost of revenues increased to 36.4% in 2012, as compared to 33.7% in 2011. The increase was principally due to
(i) including nine months of MIJO's, MediaMind's and EyeWonder's operating results in the 2012 period versus only six months, two months and one month, respectively, in the 2011 period and (ii) increases in our television segment costs (excluding MIJO) ($2.2 million). The increase in our cost of revenues percentage was primarily due to lower pricing in each of the television and online segments.

Sales and Marketing. For the nine months ended September 30, 2012, sales and marketing expense increased $30.9 million, or 195%, as compared to the same period in the prior year. The increase was principally due to including nine months of MIJO's, MediaMind's and EyeWonder's operating results and five months of Peer 39's operating results in the 2012 period versus only six months, two months, one month and zero months, respectively, in the 2011 period. The percentage increase was principally due to the inclusion of MediaMind, EyeWonder and Peer 39 in our operating results as our online business has higher sales and marketing expenses than the balance of the Company.

Research and Development. For the nine months ended September 30, 2012, research and development costs increased $7.7 million, or 71%, as compared to the same period in the prior year. The increase was principally due to
(i) including nine months of MIJO's, MediaMind's and EyeWonder's operating results and five months of Peer 39's operating results in the 2012 period versus only six months, two months, one month and zero months, respectively, in the 2011 period and (ii) higher compensation and consulting costs ($1.8 million) in the television segment. The percentage increase was largely attributable to the inclusion of MediaMind, EyeWonder and Peer 39 in our operating results, as they have higher research and development expenses than the balance of the Company.

General and Administrative. For the nine months ended September 30, 2012, general and administrative expense increased $8.2 million, or 25%, as compared to the same period in the prior year. The increase was principally due to
(i) including nine months of MIJO's, MediaMind's and EyeWonder's operating results and five months of Peer 39's operating results in the 2012 period versus only six months, two months, one month and zero months, respectively, in the 2011 period and (ii) higher professional fees ($3.3 million) in the television segment related to increased audit, tax and legal fees.

Acquisition and Integration. For the nine months ended September 30, 2012, acquisition and integration expense decreased $8.2 million as compared to the same period in the prior year. In the 2012 period, acquisition and integration expense relates primarily to severance payments, acquisition costs, evaluating strategic alternatives and integrating EyeWonder and Unicast into the MediaMind operation. In the 2011 period, acquisition and integration expense related primarily to investment banking, legal and accounting fees in connection with the MediaMind, EyeWonder and MIJO acquisitions.

Depreciation and Amortization. For the nine months ended September 30, 2012, depreciation and amortization expense increased $15.7 million, or 61%, as compared to the same period in the prior year. The increase was primarily due to (i) nine months of depreciation and amortization on the tangible and intangible assets of the 2011 acquisitions of MIJO, MediaMind and EyeWonder in the 2012 period as compared to only six months, two months and one month, respectively, in the 2011 period, (ii) including the 2012 acquisitions of Peer 39 and North Country in the 2012 period and (iii) greater depreciation associated with the increase in property and equipment.

Goodwill Impairment. For the nine months ended September 30, 2012, we recognized a goodwill impairment charge of $208.2 million related to our online reporting unit. See Note 5 of our consolidated financial statements.

Interest Expense. For the nine months ended September 30, 2012, interest expense increased $17.1 million as compared to the same period in the prior year. The increase was due to the Term Loans being outstanding for nine months in the 2012 period as compared to slightly more than two months in the 2011 period, partially offset by a reduction in the average outstanding balance of the Term Loans during the periods.

Other, net. For the nine months ended September 30, 2012, other, net increased $0.5 million as compared to the same period in the prior year. The increase was primarily due to realized foreign currency exchange losses.

Provision for Income Taxes. For the nine months ended September 30, 2012 and 2011, the provision for income taxes was 5.9% and 44.9%, respectively, of income
(loss) before income taxes. The provision for each period differs from the expected federal statutory rate of 35.0% as a result of certain non-deductible expenses, state income taxes and, for the 2012 period, the recording of a valuation allowance against our federal NOLs. For 2012, the vast majority of the goodwill impairment charge is not deductible for income tax purposes. Further, as a result of the goodwill impairment charge, we recorded a valuation allowance on all of our deferred tax assets. In 2011, a large portion of the costs associated with the MediaMind and EyeWonder acquisitions were not deductible for income tax purposes.

Three Months Ended September 30, 2012 vs. Three Months Ended September 30, 2011



                               Television Segment



. . .