NEW YORK (TheStreet) -- Nielsen Holdings (NLSN) will be just fine.
The longtime arbiter of television success, Nielsen is spending aggressively to create and augment new ways to measure mobile viewing in order to provide its television clients more accurate data about its programming. Through acquisitions and new products, Nielsen should be able to adapt to the changing demands of mobile measurement and over the next 12 months lift the company's heavily undervalued stock out of the doldrums.
One of the latest threats to emerge is the move by giant media networks, which are some of Nielsen's biggest customers, away from traditional measurement methods towards newer and more dynamic methods that yield better customer insights. To wit, Viacom (VIA), Time Warner (TWX) and Turner (which is owned by Time Warner) are on record as saying they are trying to move away from traditional Nielsen revenue models which have been hurting them due to the continued decline in structural television ratings. Viacom recently made this abundantly clear during the company's latest earnings call, where it pointed out that it's well on track to achieve the goal to have 50% of its revenue coming from non-Nielsen sources over the next three years, up from 30% currently.
The three media companies are already heavily engaged in talks with advertisers to allow sponsors to pay for video ads based on non-Nielsen ratings. If advertisers give their consent, the new metrics will involve measuring how people respond to ads and how often they interact with pitches as opposed to the traditional method that involves measuring how many people view commercials. Time Warner and Turner have gone a step further and sweetened the deal for marketers who agree take them up on their offer by establishing guarantees such as a tangible increase in purchase intent, lifts in brand recognition or awareness of specific marketing efforts. The two will become the first media networks to actually offer performance guarantees with alternative measurement methods with possible remediation coming in the form of allowing extra ad inventory by the marketers in the event that they fail to meet certain minimums.
If the deals gain traction, they can place a lot of pressure on Nielsen whose business revolves around using GRP, or Gross Rating Points (a product of percentage of target audience multiplied by frequency of exposure to ads) as well as ''C3'' that includes views of ad breaks that happen in the 3-day period after commercials are aired, and ''C7'' that extends measurements to seven days. Most marketers typically pay the highest rates for audiences aged between 18 to 49.
Enter Nielsen AIG
The moves by the media networks are perfectly understandable. According to estimates by industry publication Variety, marketers spent $8.17 billion to $8.94 billion on prime-time broadcast ad spots, or about 4% less than they spent in the prior year (overall television ad spend recorded positive growth, however). Cable television was even harder hit after it saw advance advertising commitments fall for cable fall 6% from to $9.6 billion in 2014 from $10.2 billion in 2013. Viacom saw its revenue fall 3% during the last quarter with U.S. ad revenue plunging 5% overall.
It's important to note, however, that this will not be the first time that media companies will be attempting to use alternate measurement methods. NBC signed an agreement with Toyota Motors (TM) in 2006 that called for the media company to prove that viewers could remember specific pieces of television shows so that Toyota could identify which NBC programs had the highest user engagement. To accomplish this goal, NBC relied heavily on the expertise of IAG Research.
Nielsen later acquired IAG Research in 2008 for $225 million and re-branded the company Nielsen AIG. Nielsen AIG conducts interviews with advertisers to measure the effectiveness of television and Internet ads. The segment has clients such as telecom services providers, television and cable network providers as well as other content providers.