Have you ever wondered how Nielsen Media Research can determine how much TV the entire country watches by monitoring the viewing habits of just a tiny fraction of households nationwide?
For decades, that is how the audience measurement company has calculated the ratings for the 200 million-plus viewers in the U.S. And Nielsen's approach to ratings measurement has been, and continues to be, the subject of criticism. But now, one critic—and potential competitor—charges that Nielsen's entire methodology (so-called "random sampling") is completely ineffective for measuring channels in the fragmented digital era.
For big broadcast and cable networks like CBS, NBC, ESPN and Lifetime, which attract audiences in the millions or at least hundreds of thousands, Nielsen's sampling methodology is statistically valid, according to TV network and ad agency researchers. But the audiences that watch niche networks like The Golf Channel often don't register in the national ratings because the channels aren't appointment viewing for the handful of Nielsen households with access to the networks.
Nielsen (owned by Adweek parent VNU) has tried to address the issue by doubling its sample size in the last couple of years to almost 10,000 homes.
Debate continues about how effective that solution is. But one company—erinMedia, owned by Florida entrepreneur Frank Maggio—now says that Nielsen's way of measuring audiences has outlived its usefulness. "Why take a small sample when you can take a census?" Maggio asked.
What Maggio is referring to is the fact that the set-top boxes currently in the homes of 56 million digital cable and satellite subscribers provide a detailed record of every channel tuned to by those homes, down to the second. And all that data is sitting in the computer servers of cable operators like Comcast and Time Warner and satellite providers like DirecTV.
What Maggio has been trying to do for the last two years is build a research company that would provide program and commercial audience measurement based on the data streaming from those set-top boxes.
The obstacles are big, but network and agency executives say that Maggio is on to something. Kate Sirkin, evp, global research director at Publicis Groupe's Starcom MediaVest Group, said having access to set-top data is critical. "It provides smaller channels a way of cost-effectively measuring their audiences," she said.
And being able to track viewers second by second through commercials will provide new insights about how viewers interact with ads, Sirkin said. That will help planners and buyers place spots more effectively.
Currently, she said, Nielsen is testing minute-by-minute commercial tracking, but the problem is that surfers can "click through 50 channels in a minute."
Maggio and erinMedia have conducted several trials over the past two years with cable companies including Comcast, Time Warner and Adelphia in markets including Philadelphia, Aurora, Colo., and Hawaii. So far, however, the cable systems have not been willing to sign definitive licensing deals granting erinMedia access to the data for its proposed rating service.
Maggio believes that Nielsen's monopoly status in the ratings marketplace is responsible for his inability to get traction with his own company. Last month, he filed an antitrust lawsuit against Nielsen in the U.S. District Court in Tampa, Fla., alleging that Nielsen is trying to kill his company through unfair business practices before it gets off the ground.
But others, who say they'd like to see Maggio and erinMedia succeed, suggest the cable companies aren't willing to sign deals yet because they don't know how much to charge for access to the data. "The cable operators realize it's valuable and are keeping a close rein on it," said Tim Brooks, evp, research, Lifetime Television Network.
Jonathan Sims, vp, research, Comcast, acknowledged that "there must be a third-party processor in place" if cable uses the data to sell ads. That's clearly an important application, he said, but one that is "a long way off."
But there are drawbacks to the set-top data that make it unlikely to ever supplant Nielsen as the currency for buying and selling TV spots. "The biggest negative is that it only tells you what the set is tuned to," said Bruce Goerlich, svp, director of research, Publicis-owned Zenith Media. The set-top data does not provide any demographic information "in an environment where we care more about people and who's watching than households."
Maggio counters that erinMedia has developed mathematical formulas that can link population census and other information to the set-top data to come up with demographic estimates.
Goerlich said that's a "leap of faith" that he has a hard time accepting, but added that the set-top data has lots of "value-added" information, such as tracking consumer usage of video-on-demand programs, that could help ad planners and buyers. Indeed, erinMedia's strong suit may be "good analytical software, which has always been a Nielsen weakness," he said.
David Ernst, evp, director of futures and technologies at IPG's Initiative, agrees. "Applying advanced analytics to the data might give us a better understanding of who's watching what at a very granular level," he said.
And erinMedia isn't the only third party talking to cable about licensing set-top data. Among the others are TNS Media Intelligence, Rentrak, based in Portland, Ore., and Nielsen itself.
Nielsen officials last week wouldn't discuss the erinMedia lawsuit beyond issuing a statement saying it was "frivolous." But the company recognizes the value of set-top data and is also in discussions with cable operators about ways to integrate it into its existing ratings system, said Scott Brown, Nielsen's svp, strategic relationships, marketing and technology. In fact, the company is close to finalizing an agreement with Time Warner Cable that would allow it to incorporate some set-top data in its national sample.
Meanwhile, some agencies are acquiring set-top data directly from cable operators, usually as part of interactive advertising buys. SMG's Sirkin said she's done several such deals, but hopes that cable will ultimately license the data to third-party processors. She said, "Maybe one day we'll have competition in this market."