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Nielsen’s Perfect Storm 16 May 05
''It's almost as if
[Nielsen’s] business model is evaporating overnight.'' Richard Fielding, head of research at Starcom Media Worldwide, one of the big media buying agencies, in The New York Times
Nielsen Media Research has been providing its Nielsen ratings since the beginning of the television industry in the 1940s. From its inception, the industry has looked to Nielsen ratings to set prices for $60 billion worth of advertising. Nielsen itself generates about $700 million in revenues by providing this service.
Back in the 1940s, Nielsen pioneered a system of data collection based on detailed statistical sampling, and the company has maintained the core features of that system from its inception. Along with companies like Dun & Bradstreet, Nielsen was one of the first companies to generate revenue from selling data. Nielsen’s operational approach dates back to the days when data processing was like chemical processing, only with a different feedstock.
Originally, Nielsen households wrote down their viewing habits in paper diaries, from which Nielsen derived its ratings and other reports. Since the late 1980s, most of the 8,000 Nielsen sample households have been fitted with “people meters,” which are attached to TV sets and electronically record the set’s viewing habits.
Nielsen is facing two problems simultaneously.
Very few households gather around a common TV set anymore. Instead, individuals watch TV in many different kinds of environments – at a restaurant, in a waiting room, while exercising, or privately, perhaps on their laptop computer. For teenagers, about 20 percent of TV watching takes place outside the home. Nielsen’s people meter is set-based rather than person-based, and so doesn’t capture this aspect of TV usage.
To address this issue, Nielsen has joined in a joint venture with its sometime rival Arbitron to test a “portable people meter” (PPP). This pager-size device is worn by a member of Nielsen’s sample audience. The device picks up ultrasound signals that will be embedded in every broadcast. If a person is in a waiting room, and there’s a television on, the portable people meter will register the content, using the ultrasound signal transmitted with the broadcast.
The PPP is in the final stages of a product development project that has run 13 years and cost $80 million, so far. It is currently undergoing an extensive trial in Houston, Texas. Based on the results of that trial, Arbitron and Nielsen will decide whether to roll the system out nationally.
2. Direct Measurement Technology
''Every age group, every cultural group and every demographic group is in the process of getting media packaged expressly for its members.” Steve Morris, Arbitron C.E.O., in The New York Times
Back when Nielsen’s sampling technology was developed, the television audience watched one of four channels. Thanks to cable and satellite services, the average household in the U.S. now receives over 100 channels of programming. As the number of viewing choices expands, and advertisers’ needs for slicing viewership by age, sex, and culture increase, it will become increasingly difficult for the Nielsen sample of 8000 households to accurately capture the overall size of a particular audience. This worries advertisers, who fault Nielsen for moving too slowly in adopting new technologies.
The competing approach to sampling is direct measurement of viewing behavior. It is rapidly becoming a feasible alternative. TiVo, for example, launched a service in 2003 that allows advertisers and programmers to directly measure the behavior of TiVo viewers. TiVo’s service can tell advertisers whether their viewers are skipping the commercials, which might result in a discount in ad rates. The problem with direct measurement is coverage. Currently, less than a million households own a TiVo. Back in 2003, however, analysts predicted that digital video recorders would be in more than 20% of US households by the end of 2005.
Could Nielsen’s sampling technology be on its last gasp?
Technologies enter their “last gasp” stage when they are faced with alternative approaches that appear to deliver better results at lower cost. In response, the older technologies often demonstrate remarkable “last gasp” improvements that keep them competitive with the new approach.
In the mid 1800s, for example, sailboat technology advanced rapidly when confronted by steamships. In the 1980s, automotive carburetors demonstrated significant performance improvements in an eventually futile competition with electronic fuel injection. In the 1990s, Kodak introduced an improved film system, APS, in an attempt to compete with digital photography. APS died a quiet death in early 2004.
Nielsen’s basic methodology, based on sampling, is facing a fundamental challenge from direct measurement. Right now, sampling still has an edge, as it can represent the whole population, while direct measurement currently can only capture a small proportion of viewers.
But at a certain point, when a large proportion of the population has “smart”cable boxes, direct measurement will become a compelling alternative to sampling. Direct measurement can provide real-time data on viewing preferences at a much smaller per set cost than current approaches.
Nielsen is making its sailboats faster, but, if history is any guide, we can expect that the steamships of direct measurement will eventually prevail.
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