By Selin Dursun & the STEBA Executive Board
In the world of television, one day you’re in and the next day you’re out. While Heidi Klum wasn’t necessarily addressing the entertainment industry on Project Runway, it is no secret that the wave of Subscription Video on Demand (SVOD) services have disrupted the TV landscape. These streaming services allow consumers to access wide libraries of content at a monthly rate. Nielsen reported that streaming surpassed linear TV viewership for the first time in July 2022. Yet 113 million people still watched the Super Bowl on Fox this past Sunday and linear TV’s reach amongst the 50+ target audience or "demo" as the industry calls it – is still steady. Although there has been a decline in viewership of entertainment shows that are categorized separately, sports and news still drive significant viewership to cable.
Let’s start with the basics – what are Nielsen ratings? In broad terms, a Nielsen rating is a percentage of a certain demo tuned to a program or network during the average minute. The method behind the genius (or madness?) is that Nielsen randomly selects household units amongst the U.S. population and recruits them into a sample by having their trained field representatives install Nielsen’s panels to measure their TV screen viewing. During the COVID-19 pandemic, since the field reps could not visit the households, there was a loss of critical mass resulting in inaccurate ratings.
By generating minute-level ratings that also provide demographic and household characteristics information, Nielsen has sustained its market leader position for many years. However, in recent years Nielsen has faced severe criticism from TV networks regarding its lack of ability to keep up with the trends. For instance, networks have called out Nielsen for not being able to account for the massive shift of viewership from linear TV to streaming. In the era of highly fragmented audiences where an average viewer consumes content from multiple screens, Nielsen’s traditional C3, C7 ratings that track commercial viewership over three or seven days only scratch the surface into the shifting consumer behavior. Hence Nielsen announced their new venture – Nielsen One – creating a unified measurement across linear & digital TV. If successful, this launch could be revolutionary in terms of setting a new cross-media currency. This also brings great news for marketers and ad buyers. Yet this has been a work in progress since 2021 and is only expected to be launched Spring 2024. Evidently, Nielsen’s response to industry trends is severely delayed.
But what does it mean to have inaccurate ratings and how would they negatively impact business operations? The economics of television – in a nutshell – for the broadcast business model is to attract a huge audience nationwide and sell the ad spots to advertisers. Advertisers pay a premium for especially large and live audiences which is why Super Bowl 2023 commercials were up to $7 million for every 30 seconds of airtime. In the world of cable, there are two revenue streams: ad revenue and subscriber/carriage fees. Subscriber fees are paid by cable operators monthly to the networks and they guarantee them revenue before airing a program. Thus, networks are able to attract niche audiences which are what the advertisers want to market to.
Intuitively, the higher the Nielsen ratings of shows are, the higher the networks can charge the advertisers. Nielsen ratings are essentially tied to the bottom-line of the television business. Thus, Nielsen’s setbacks cost network giants billions in lost advertising revenue. Realizing the problem of Nielsen’s ability to adapt to the shifting demands of the industry, network executives are strategizing alternate ways to optimize their ad revenues and shake Nielsen’s monopoly.
For instance, Fox, NBCUniversal, Paramount, and Warner Bros. Discovery established a joint venture – the Joint Industry Committee (JIC) – to collaborate and accelerate the development of new measurement methods that are “transparent, independent, inclusive, and accurately reflect the way all people consume premium video content today”.
Lesson: Since ad revenue is one of the most crucial revenue streams for the television business model, network executives are seeking new audience measurement metrics to accurately display their ratings. It will take a lot of time and resources for Nielsen's reign to come to an end – if it even ever does. In either case, exciting changes await the world of measurement as the bottom-line operations evolve to secure the networks' profits.
If you’re interested in learning more about the world of measurement, here are some additional resources to check out:
Five Media Giants Launch Joint Venture
TV Networks’ Scramble to Launch Nielsen Rivals Create Measurement Mess
TV Ratings Guide (if you’re interested about the nitty gritty of ratings)
Cynopsis, free newsletter on the business side of the entertainment industry