Nielsen Dumped

Turned off by high fees and faulty service, TV-station owners in small markets are going without ratings

KNWA, the NBC affiliate in Fayetteville, Ark., has a lot to offer advertisers: a booming population, a thriving local economy and hot syndicated fare like Seinfeld and Fear Factor. But when it comes to the most fundamental question in the TV business—how many people are watching?—KNWA salespeople can't answer. The Nexstar Broadcasting-owned station does not subscribe to Nielsen Media Research's ratings. Last fall, KNWA made a radical move: It dumped Nielsen.

“People don't think the world can exist without Nielsen, but it can,” says General Manager Blake Russell. “We live in a world of estimates now. Why should I pay for something that is flawed?”

For stations that cancel their ratings subscriptions, here are a few alternatives to aid in advertising negotiations:
Source: B&C research
Station managers rely on supply and demand, pushing for premium pricing on their most popular shows.
Market surveys follow TV viewing, media usage and buying habits.
Research and consulting firm charts consumer behavior and advises clients on media integration.
Media research giant tracks consumer use of more than 8,000 brands.

Spurning Nielsen seems almost unthinkable in an industry for which the company's ratings are the universal currency. Every company in the TV business relies on Nielsen data to set rates for the $60 billion in advertising revenue the medium generates each year. Ratings determine which shows stay on or get canceled. And local stations stake their reputations on the market positions that Nielsen reports.

An Archaic System?

But as the media world becomes less dependent on traditional advertising, stations feel more emboldened to drop what they feel is an archaic system. Now a small band of stations, including KNWA, has had enough. Upset over the price and quality of the Nielsen ratings, at least three dozen stations in cities from Little Rock, Ark., the No. 59 market, to Wichita Falls, Texas, the No. 143 market, are canceling their Nielsen subscriptions. “Their methodology is fraught with significant problems,” says KVAL Eugene, Ore., General Manager Dave Weinkauf. “The media community is so inextricably tied to a faulted methodology that the only way not to deal with it is to come up with some new tools.”

The stations say new technology—such as the data gleaned from digital cable boxes—promises to one day complement or replace Nielsen ratings. For the moment, though, they are content to resort to cheaper methods they say are just as efficient, from compiling local survey data to polling viewers. In Anchorage, Alaska, a few years ago, CBS affiliate KTVA contracted a local research company to devise a Nielsen alternative that comprised 1,000 Alaskan viewers. “Advertisers bought into it,” says station consultant Scott Tallal. “It seemed to be much more reflective of what was happening in the market.” (KTVA has since been sold and again subscribes to Nielsen.)

The big problem for stations is that Nielsen has no competition. One of the most high-profile attempts to compete was Statistical Research Inc.'s SMART system. Networks and advertising agencies put up $60 million to get the system, which featured advanced measurement technology, off the ground. But when the project needed more investment, both sides walked away. More recently, radio-ratings company Arbitron, which once measured local-TV ratings, has re-entered the scene and, with some support from Nielsen, is testing a portable ratings device in Houston. But its viability remains to be seen. “Everyone wants there to be another player,” says TV-station consultant Seth Geiger, of SmithGeiger, “but no one wants to step up and pay the freight.”

Still, high-profile defections could be costly for Nielsen. Several large stations' dumping the service could undermine confidence in the company and create a public-relations nightmare. The ratings giant has come under increasing fire from TV stations and their corporate parents protesting its methodology and results. Nielsen's new electronic system, the local people meter (LPM), undercounts minorities and younger viewers, say its toughest critics, and the older system of paper logs, or “diaries,” is simply inadequate for a nation of 109 million TV homes. For its part, Nielsen stands by its products and has said it is making improvements by investing in new and better technologies.

So far, the lost customers have hardly affected Nielsen's bottom line. The division of Dutch media company VNU takes in an estimated $274 million selling its local ratings data to more than 1,000 stations in 210 markets. In 2003, Nielsen Media Research logged an estimated $637 million in sales, according to Independent Minds, a European financial-research company. Of that, 43% came from Nielsen's local-ratings measurements. Since small-market stations pay the lowest fees to Nielsen, the defection of three dozen would result in only about $2 million in lost revenue for Nielsen per year.

Nielsen says that, while some stations have severed relations, there has been no mass desertion. “It is the normal course of business,” says a company spokesperson. “Sometimes they decide to cancel their contract, and, down the line, they may decide to sign back up.”

The latest wave of protest is led by Nexstar Broadcasting, which owns and operates 46 stations in 27 small and midsize markets. Over the past several years, the company has been whittling down its Nielsen accounts. Only three Nexstar markets—Springfield, Mo., Lubbock, Texas, and Hagerstown, Md.—still buy Nielsen data, and, when their deals expire, they will not renew, says Senior VP Brian Jones. That will make Nexstar the only major station group to spurn Nielsen altogether. Jones cites Nielsen's high prices and rate increases as the reasons for the defections: “They placed a value on the product that we are not willing to pay.”

To get their hands on Nielsen data, stations pay handsomely—and unevenly. A small-market station might plunk down $50,000 a year, while broadcasters in the largest cities pay upwards of $1 million per year. To attract new clients, such as local cable systems and advertising agencies, Nielsen often offers discounted rates. Even within a market, stations pay different fees. For years, UHF stations received a discount because their reach was less than that of VHF stations. With cable and satellite penetration now at 80%, most stations have blanket coverage throughout their market despite signal strength, but the price differences remain. Large broadcast groups negotiate discounted fees.

Small-market outlets are hardly alone in their Nielsen gripes. In the top markets, such as New York and Los Angeles, stations are coping with the debut of the LPM. Under the new system, ratings for younger viewers, minorities and large families have dropped, and overall viewing of broadcast stations is down. Earlier this month, 17 groups banded together to pressure Nielsen to delay rolling it out to new markets until the results are approved by the Media Ratings Council, an independent overseer that audits Nielsen's ratings. The ratings giant announced a 30-day stay in launching LPMs in Philadelphia and Washington, originally slated for June 2. Nielsen plans to expand LPMs to Detroit, Dallas-Fort Worth and Atlanta by the end of next year.

Getting Nielsen's Attention

By canceling their subscriptions, stations get Nielsen's attention—and changes often get made. Univision's largest stations—New York, Chicago, Los Angeles and San Francisco—went without ratings for at least six months before the Spanish-language broadcaster finally signed a new deal with Nielsen last week that includes LPM measurement in top markets and improvements in the sample (see related story on page 10).

In the remaining 200 markets, Nielsen's diary system will continue, and stations must wait for demographic data until “sweeps” months—February, May, July and November—when Nielsen mails out diaries for its participants to record their individual viewing.

With diaries, many station executives complain, the samples are too small to glean accurate measurements. A midsize market might rely on 500 diaries. Denver, the 18th-largest market with 1.4 million TV homes, uses about 1,100. Another problem, industry executives say, is that response rates are often low, skewing the data. In a small market, a handful of diaries are used to determine ratings for an entire demographic. To increase the sample, though, stations would have to pay even more to Nielsen.

John Tupper, owner of KXND Minot-Bismarck, N.D., canceled his Nielsen service mid-contract five years ago. He says youth-oriented networks like Fox are hindered because younger viewers are less likely to fill out their logs. Ratings in metered and LPM markets, he notes, are better. If Nielsen improved the sample, Tupper says, he would consider subscribing again. “Now it works against me and devalues the product I have to sell.”

The latest assault on the diary system came after the February sweeps. Some Nielsen participants in Anchorage, Alaska, Palm Springs, Calif., and Tucson, Ariz., did not receive their weekly diaries in the mail—the usual procedure—and others got them late. The confusion resulted in lower-than-normal responses. In Tucson, for example, top-rated CBS affiliate KOLD's average prime time mark dropped 25%, to a 5.4 rating in adults 25-54, compared with the year-ago period. NBC affiliate KVOA and ABC outlet KGUN saw similar declines. Irate, some stations demanded Nielsen retract the ratings book or send letters to advertisers. In a letter to clients, Nielsen said the problems did not affect the overall month and should not be thrown out. The company blamed a postal subcontractor for the missing diaries and said it would switch carriers and send out more diaries for the May sweeps.

In Anchorage, KIMO General Manager Sean Bradley was so frustrated that he now plans to drop Nielsen when the station's contract expires next year. He says Nielsen has fallen short of its contracted sample in Anchorage several times before. “If we grossly underperform, our clients seek restitution,” he says. “But if Nielsen grossly underperforms, they blame it on a postal vendor.”

Bradley is accustomed to life without Nielsen. His company also owns stations in Fairbanks and Juneau, Alaska, that no longer receive ratings. The Fox affiliate in Anchorage, where he previously worked, was also Nielsen-free for a time. Alaska stations can survive without Nielsen, he says, because their advertiser base is mostly local businesses, as much as 85%, whereas most stations in the lower 48 have a more even split between local and national advertising. With so many advertisers nearby, he says, KIMO salespeople can spend time presenting alternate data.

But most media buyers still want to use ratings to negotiate price and hold stations to delivery estimates. In lieu of Nielsen, stations try to base price on supply and demand. For example, if they have the marquee programs or a market's favorite anchor team, they should be rewarded with higher rates. If a Fox station has one spot to sell on American Idol, it wants to set the price and let competition for the ad time determine the cost. The rating point is not factored into the discussion. “These are more effective ways to sell,” Nexstar's Jones says. “I can help an advertiser make a business decision, as opposed to saying my news has more viewers than their news.”

Local clients, who have relationships with their broadcasters, may take time to learn and adjust to a new system. National ad agencies may not have the time or the inclination, buyers say. “It creates more work for a buyer,” says Donna Lee Peters, a local-media buyer with Pivec Advertising who buys time in Mid-Atlantic markets. “If a station is a market leader, then people will still want to be on that station. But, for a third- or fourth-placed station, someone might not want to take the extra time.”

Tribune Broadcasting President Patrick Mullen has been an outspoken critic of Nielsen's LPM system, but he still can't imagine doing business without the data. “Their ratings are the only currency,” he says. “To not have access to that information would put a station in a difficult position to negotiate with clients.”

Still, several local-broadcast executives say they're monitoring the experience of Nexstar and other Nielsen-free stations, looking to the impact on their business. So far, Jones says, Nexstar's ad sales are strong as ever.

Life Without Nielsen

In place of Nielsen, stations have assembled qualitative data sources they consider viable alternatives. Some buy reports on their markets from Simmons Research, Media Audit and The Media Center. These surveys cover a range of topics, including buying habits, technology use and TV viewing. Unlike Nielsen, which asks its participants to record as they watch TV, these services ask viewers in phone interviews to recall what they have watched.

Although stations may not pay for Nielsen, they are hardly in the dark on their ratings. Advertising agencies that buy ratings see the data, as do the stations' competitors. Local newspapers and trade magazines often report selected results. Under copyright laws, however, the Nielsen-free stations are not permitted to use ratings in their sales proposals or materials. In interviews, most station execs declined to even discuss their market positions, although they surely know them.

It takes time to wean station staffers off ratings. KNWA's sister station in Rochester, N.Y., WROC, split with Nielsen after last November sweeps, but VP/General Manager Marc Jaromin still keeps an eye on Nielsen numbers. He says the CBS affiliate always used to notch above-average ratings for network programming, so national ratings provide a barometer. For major sports events, such as the NCAA Tournament and Buffalo Bills games, he checks ratings in nearby Buffalo, N.Y., and Pittsburgh to gauge the audience's appetite.

But not having the ratings hasn't hurt sales, Jaromin says. “We're above where we were last year, and our share of market revenue is up. In a year the market is down, that's not bad.”