Full Text Of CEO Susan Whiting's Letter To Nielsen Clients

February 18, 2005

To our clients:

All of us who work in the television industry are confronted daily by the rapid pace of change and innovation. New technologies and new ways of doing business pose unprecedented challenges to the practice of media research.

I believe that Nielsen today produces more and better ratings information than ever before. Our samples are larger and more representative of the country's diverse population; we deploy more technology; and we have more people working in the field.

Client focus has always been and still remains our highest priority. As part of that focus, we listen closely to what clients are telling us. I want you to know that we've heard our clients loud and clear when they tell us they want more from Nielsen.

To that end, we have put together an action plan that reflects a number of the major concerns that have been collectively raised with us in industry and one-on-one meetings. Our goals are the same as yours - fast, accurate, accessible ratings data - and this action plan demonstrates our commitment to these goals.

Clearly it is not business as usual within the television industry and it's not business as usual at Nielsen either. We will be in touch with you later to discuss our action plan, but in the meantime, I want to describe for you some of its major components:

Research and Development Fund

R&D and the introduction of new technology provide the foundation upon which our entire business is built. Our commitment to research has never been stronger than it is today. We are, for example, spending over $100 million each on Active/Passive Meter and People Meter research and technology installation, as well as tens of millions of dollars each on PPMs, time-shifting and digital research; and a new data center to assure the security and continuity of clients' data.

We do recognize, however, that our clients have had limited direct say in our R&D spending. Therefore, we would like to collaborate with our clients in an R&D effort to make sure their priorities are reflected in our spending.

To that end, we are creating a separate $2.5 million R&D fund that Nielsen will manage in cooperation with the industry. This fund, which is incremental to our normal R&D investments, will be focused on methodological research. We will ask a small group of clients representing different industry segments to serve with us on a steering committee that will direct the spending over the course of a year. Once we and our clients have evaluated the success of this initiative during the first year, we will determine the size of the fund on an ongoing basis.

MRC Commitment

We are fully committed to the MRC process. Our consultations with the MRC - and the hard work put into that process by the MRC members -- have contributed to our success in delivering accurate and reliable ratings. The audit process is highly detailed and makes us very transparent to our clients.

We have read with interest the recent letter from the MRC to Senator Burns and do not disagree with any of its main points. However, the fact that this letter was even sent, and the questions that it raised in the broader television community, indicates that there is a lack of clarity about our commitment to the MRC process.

Therefore, we are restating our continued commitment to the MRC process and will work with the MRC to create guidelines that further clarify our relationship with them within the scope of the legislation that created the MRC.

Video On Demand

Recently clients have expressed a growing sense of urgency regarding measurement of VOD viewing in our syndicated panels. While we are actively engaged in developing this capability, the message we've heard is that we need to accelerate the process.

While clients are still studying the right business model for VOD, we understand that including the viewing in our panels is an important element of helping clients develop optimal VOD business models. Our A/P Meter, along with client encoding, prepares us to measure VOD but there are many additional details that need to be worked out.

We are therefore committing to our clients that we will get back to you with a plan for VOD measurement in 90 days.

Within this action plan there are several other initiatives that may be of particular interest to NBC:

DVR Plan

We have heard very clearly from our National clients that they require the availability of three "streams" of data -- Live ratings (representing true live viewing), Same Day ratings (representing live viewing plus same day playback), and Live Plus ratings (representing live plus seven days of playback) - before DVR households can be included in the National People Meter sample.

In response to these requests, Nielsen will delay the inclusion of homes with DVRs in the National People Meter sample until January 2006, at which time all three streams of data will be available. DVRs have the potential to significantly change television viewing and National clients have told us they need Same Day ratings, in addition to the other two streams, to support the way they do business.

Inclusion of DVR households in LPM markets will also be moved to January 2006. However, A/P Meters will be rolled out as scheduled in Set Meter markets in April for all "technically difficult" households and in the National and Local People Meter samples in July for all non DVR "technically difficult" households.

National Respondent Level Data

We recognize the importance of Respondent Level Data as a key research tool for our National clients and we recognize that Respondent Level Data needs to be readily available, delivered in ways that clients find easy to access and easy to use. There are two components to our Respondent Level Data strategy: NPOWER and the upcoming All Minute Respondent Level Data File. Here's what we're doing regarding both:

NPOWER:

We are aware that clients have been very frustrated with the performance of NPOWER. Addressing these performance problems has been a top priority for us. Towards that end we have both an immediate solution and a near term one.

A few weeks ago we installed a new server. During the first two weeks after the installation we continued to experience performance problems while we were fine tuning this new server. However, we have finished that process and the results look very good. Performance is significantly better already. NPOWER users should immediately see the effect of this new server.

Looking ahead, we had already recognized the need to rewrite the NPOWER system in order to provide clients with: 1) even better performance; 2) a much improved user interface and 3) new reports and applications that clients need. The first of several planned releases of the new NPOWER takes place this July. We will follow up with a lot more detail about what you will see in July and in future releases.

In the meantime, in recognition of the frustrations you experienced, we will not implement any price increase for NPOWER next year. Your 2005 rate will also be your 2006 rate, even as we roll out the new product with all its new features. We want you to see, use, and draw your own conclusions about what we expect to be a very strong software product.

All Minute Respondent Level Data File:

The other component of providing clients with access to National Respondent Level Data is via an electronic output file that can be used by all 3rd party processors or clients with their own internal systems. This electronic file is currently in development and will be available this October.

We have received feedback from clients that our pricing structure is in some cases too complicated and doesn't accommodate clients who wish to access the All Minute Respondent Level Data File in addition to using Nielsen systems. Therefore we are going to go back and work on a pricing structure that reflects the different ways that clients plan to use our data that gives them maximum flexibility. We will do so within 90 days.

Local Market Quality

We have listened closely to the concerns expressed by our clients and are taking a number of steps to strengthen the quality of our local services.

Local People Meter (LPM) Markets:

Nielsen has committed to spending more than $100 million in capital, people, methodology and new technology to make our LPM markets state-of-the-art. As a result of this investment, we believe that our LPM markets yield the highest quality local market ratings in the world.

In recent months we have undertaken a number of new initiatives to further enhance quality and improve in-tab rates:

* Investing millions of dollars in increasing the field staff and their training in each of the LPM markets. This has resulted in a better ratio of sample household-to-field/membership representatives and allows for improved management of samples in large urban markets.

* Testing new personal coaching techniques for demographic groups that have a history of high fault rates. Nielsen is testing whether having field representatives provide personal coaching to high-faulting individuals within those demographics can reduce overall household fault rates.

* Mailing newsletters and reminders to support the proper use of people meters.

* Modifying the current method of prioritizing faulting conditions in all LPM markets so that we respond to households in high-faulting demographics more quickly than others.

* Delivering incentives to individual household members instead of providing incentives at the household level.

Set Meter Panels:

Set Metered market sample representation has been a major focus for all clients. We have several major initiatives in 2005 that will provide better tools to provide the best performance.

* Membership: membership representatives are our recruitment specialists and the face of Nielsen to the sample home. We have heard from our clients that they want us to broaden our coverage of membership representatives, which we have been doing.

As part of our new initiative, we will accelerate the process of adding new membership representatives. This year, we will add this position in five telephone frame markets that currently recruit homes via telephone, rather than in person. As a result, 31 out of 36 of these markets will have membership recruitment personnel in 2005. The remaining 5 telephone frame markets will add a membership recruiter in 2006.

Additionally, this year we will add 5 membership recruiters to the metered markets where the need is greatest. These will be announced shortly.

* The Active/Passive Meter which will begin implementation in April will allow us to meter many technically difficult and DVR households that we needed to bypass previously. This will improve representation, installed levels, in-tab levels and cooperation rates.

* Modified Structured Prioritization is an enhancement of our field maintenance program. It structures field work on separate paths for installs and out of tab homes, giving greater priority to demographic groups with historically high fault rates. This is being rolled out in four markets initially, with the other metered markets to follow suit at a later date.

Diary Markets:

Diaries are the primary demographic measurement tool in the great majority of local markets. While we continue to research electronic options, we also continue to invest in improvements and maintenance for the diary as well.

We have heard your concerns about low cooperation rates of younger and ethnic households and are responding accordingly. In order to address these concerns, we are undertaking an incentive test in February '05 that provides up to $15 incentives to homes with a head of household under 35.

Further, we will be introducing increases to our over-sampling procedures, in conjunction with research dedicated to improving cooperation from these groups.

* Effective with the May 2005 survey, the over-sampling index for African-American and Hispanic households in ethnic treatment markets will be increased from 70% to 90%.

* Also effective with the May 2005 survey, the over-sampling index for Age-Under-35 households will be increased from 70% to 75%.

* Effective with the November 2005 survey, the over-sampling index for Age-Under-35 households will be increased to 80%.

While this is a critical step, increasing cooperation to gain better representation and reduce the need to over-sample remains our primary goal. More detail on this will be provided in the forthcoming research plan.

Navigator

Because the number of LPM reports generated on Navigator greatly exceeded what we anticipated, there has been considerable frustration among clients, which peaked with the November '04, survey, over slow Navigator performance.

Since then we have made significant improvements in Navigator, even as we are in the process of premiering a new product with AGB called Arianna. Specifically, we have:

* Improved Navigator queue times and run times with software refinements that have significantly improved performance.

* We have purchased a more powerful server that will be implemented in time for the introduction of timeshifted data in Set Meter markets in April.

Advertiser Advisory Council

We believe there should be more structured give-and-take between Nielsen and the advertisers so that we better understand their needs and have an opportunity to obtain direct feedback from them on our priorities.

Therefore, we are creating an Advertiser Advisory Council, which will be composed of representatives from the top advertisers in the major service categories. In order to facilitate productive discussion, the council will be composed of a small number of members, who would be from the top marketing office of each firm. Our goal is to meet twice a year. The Council would be a forum that advertisers could use to communicate their strategic initiatives and discuss with Nielsen how our business can support them.

Agency Contracts

We understand that the agency business is experiencing change and that the business model is evolving. In response to these changes, we will discuss with you the agency business environment and explore the possibility of offering new contracts that better fit the way you do business.

Average Minute and Sub-Minute Ratings Analysis

Minute by minute ratings are currently available through the NPOWER system to help clients evaluate the performance of a commercial. In October of this year the National All-Minute Respondent Level Data File will be available to clients and Third PartyProcessors.

Based on changes in the television business, it is important to understand the possibilities of a finer granularity. Therefore, we are committing the research resources to quantify and analyze differences in audience estimates based on the level of granularity. As part of that research, we will put a plan in place to compare the minute level data to 30 second data, then 15 second data, etc.

Currently the Mark II meter produces 30-second level data, even though it collects information about 11 times in any 30 second period. We will investigate the potential of the A/P Meter to produce second by second data. We will also leverage the work in progress to evaluate data at the 30 second level from the Mark II meter, as a springboard to deliver custom analyses that will link viewing data with Monitor Plus occurrences.

We will be consulting clients to further define their needs and present them with a research plan within 90 days.

We believe this action plan shows that we are responsive to the ongoing changes in the television industry. We are committed not only to the best and most advanced technology, but also to delivering high quality services that give you value for your money.

I remain very proud of the work that everyone at Nielsen Media Research does for our clients. Nevertheless, with this action plan, there is a new way of doing business at Nielsen. We are launching an ongoing program of innovation and improvement. These initial steps are only the beginning of a stronger relationship between Nielsen and its clients. In the months ahead, you will continue to hear from us on how these initiatives are proceeding and what other steps we are taking to make sure we continue to deliver on our shared goals.