Numbers, Facts and Trends Shaping Your World

Nielsen Starts Watching the Ad Watchers

Broadcast and cable networks faced what could prove to be a crucial deadline for the future of the television industry on Nov. 1. That was the day they had to decide whether to participate in Nielsen Media Research’s first ever effort to measure the viewing audiences not just for programming, but for the commercial spots that can be easily avoided with a simple click of the remote.

The major broadcast networks and advertising agencies have signed on, but most major cable networks are giving it a pass. And no wonder there’s a controversy. The distinction between how many people watch a TV program and how many actually sit through the commercials has huge economic ramifications for the television and advertising industries.

The U.S. television industry has traditionally used Nielsen Media Research’s ratings as the coin of the realm. These ratings largely determine where the approximately $70 billion dollars spent on TV advertising each year is allocated – and in turn, which programs stay on the air and which are quickly reduced to the answers to trivia questions.

How does the system work? Right now broadcasters and ad agencies negotiate the price of ads using a combination of three streams of ratings data on a specific show: live viewers (who watch the show as it airs), live + same day audiences (people who watch it sometime on the day it aired), and live + seven day audiences (people who watch it within a week of airing). The final rates are negotiated each spring in what they call the “upfront” period.

Advertisers are obviously more concerned with who watches the commercials than with who watches the actual programs. In earlier times, when the primary way to skip commercials was to walk away from the TV, show viewership was an accepted proxy for the number of people likely to view a commercial. Today, with the various ways consumers access television—Tivo, the Internet, mobile devices—the two could be quite different.

When Nielsen first introduced the idea of measuring ad viewership, the broadcast networks were the first to welcome it – mainly to show their advertisers that they would support the idea of better data on who’s watching their commercials.

Broadcasters have been losing dollars at recent upfronts as advertisers succeeded in negotiating ad rates based on the number of live viewers (the lowest number of the three). Broadcast networks hoped Nielsen would not distinguish between live and recorded viewership of commercials, a measure that would work most to their advantage. Advertisers argued, though, that they should not have to pay for viewers who watch commercials after they are broadcast. Therefore, they prefer the live stream as the one to use.

Nielsen’s response has been diplomatic. It announced recently that it will provide all three data streams even for commercial ratings and their clients could choose which one to use.

But for the cable networks, the new system has been a harder sell. So far, ESPN, NBC Universal, Turner Broadcasting, Discovery, Fox Entertainment, Lifetime, A & E and MTV are among those who have refused to take part.

Much of this is likely tied to the expectation that the difference between the audience for a show and the audience for commercials will be larger on cable than on broadcast TV. Cable is probably more susceptible to this audience drop off because it tends to carry many more commercials than broadcasters and viewers tend to switch away in long ad-breaks. Sean Cunningham, CEO of the Cable-television Advertising Bureau (CAB) wrote in a report that the new ratings would create “bad impressions” for cable channels.

Publicly, the cable advocates argue that Nielsen’s methodology for calculating the ratings is flawed. They have called for the new process to be audited and accredited by the Media Ratings Council (MRC), and for it to pass a “practicality and usability” test.

One of the problems they have is that Nielsen’s “commercial minute” cannot distinguish between national spots and local spots – if the commercial minute measured contains a local or regional ad, viewership will be low and this might skew the data. Another issue is that the minute might have overlap between two programs, and this could skew viewership.

Nielsen is trying hard to assuage their concerns. It is working on weeding out local ads from national ads using special codes, and emphasizes that the data it releases this year should not be relied upon for negotiating ad rates. It has also agreed to an audit and is offering the first batch of “evaluation data” free to participating clients.

Nielsen plans to release the data on December 11, and while the debate over methodology will likely continue, analysts believe that the concept of measuring the viewership of commercials is here to stay. And they can foresee the day, not too far off, when there will be more riding on those numbers than the ratings that determine the most popular shows in the country.

Update: On November 3, 2006 Nielsen Media Research announced a “temporoary postponement” of the December 11th deadline. No new release date was announced. According to a press release, it plans to hold a special client meeting within the month.

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