• by David Goetzl  @dgoetzl, Joe Mandese  @mp_joemandese, May 12, 2008

As buyers and sellers head into a final round of upfront sales presentations by the major TV networks in New York this week the main talk will be about the fall TV schedules that typically trigger the start of billions of dollars in annual TV advertising sales. But if you listen closely, you may hear them discussing a dirty little secret: That for the second year in a row, those billions of dollars in upfront advertising buys will be negotiated, bought and sold on the basis of somewhat shaky, and still unaccredited Nielsen TV ratings.

In the weeks leading up to this prelude to the upfront advertising marketplace, the Media Rating Council quietly met, reviewed a crucial audit of Nielsen's so-called C3 ratings system, and opted to withhold accreditation for what will be the currency for billions of dollars in TV advertising buys.

Details of the audit, the review, and the reasons for withholding accreditation have not been disclosed. What is known is that the audit covered the TV commercial data used by Nielsen to compute the average minute ratings that have become the trading currency of the national TV advertising marketplace, and that Nielsen plans to come back to the MRC in the next several weeks with a plan for addressing the problems raised by the audit.

Even if Nielsen manages to assuage the MRC committee's concerns about the validity of the TV commercial data, the Nielsen ratings face a second hurdle: a separate audit of the process Nielsen uses to process the TV commercial data with its TV audience estimates into C3 ratings.

The bottom line, say executives familiar with the process, is that it is unlikely that the new TV ratings system will be accredited by the start of upfront negotiations, and possibly not even by the start of the new TV season next fall.

"It's a fairly rigorous analysis," acknowledged Lyle Schwartz, the research chief at Mediaedge:cia, who along with his boss, GroupM Chief Investment Officer Rino Scanzoni, championed the C3 ratings a year ago, as a compromise solution that broke a stalemate between buyers and sellers leading up to the 2007-08 upfront advertising marketplace.

C3 ratings stand for average commercial minute ratings for the live broadcast of a TV program, plus three days of play back via digital video recorders. They became the industry's de facto currency - even without MRC accreditation - a year ago, offering both buyers and sellers some upside over the previous standard of program average ratings only for the live broadcast of a show. Advertisers and media buyers gained ratings that were closer to the commercial audiences they wanted to measure. Networks gained some of the non-live, playback audience from DVRs.

It was supposed to be a stopgap measure as the TV advertising business moved on to something else. It was also supposed to be accredited, as all of the so-called "currency" ratings used by advertisers to purchase media time and space are supposed to be. But a year later, they still are not.

Despite that, media buyers contacted by MediaDailyNews are maintaining an air of pragmatism, noting that it is not MRC accreditation that makes ratings an advertising currency, but a consensus between buyers and sellers to utilize them as the basis of their deals.

"Business doesn't stop while the MRC deliberates," noted one such stakeholder.

"The harsh reality of it is it's in the market and it's done," added another. "Does it matter that the MRC hasn't accredited it? No. There are lots of tools people use that are not accredited by the MRC. The MRC is just there to kind of bring pressure to bear on Nielsen to get it right, to get it better, to have it be the best research it can be."

Others, including some big TV advertisers, however, are concerned about the impact on their TV advertising decisions. "I think that would hold a lot of weight in the media community, both on the buying and selling side," said Ed Gold, advertising director at State Farm Insurance.

In fact, some advertisers have corporate procurement policies based on Six Sigma type quality controls that theoretically would demand their TV advertising buys are based on accredited ratings.

For others, it is simply like a 'Good Housekeeping Seal of Approval," notes Brad Adgate, senior vice president-director of research at Horizon Media. "You can feel comfortable with the data and that the numbers pass muster."

While the MRC declined to comment on the details of the audits, or the status of the accreditation process, the council's Senior Vice President-Associate Director Anthony Torrieri acknowledged, "Billions of dollars trade on some of these products and it's important to give (industry members) the necessary assurance that they meet certain minimum standards and performance metrics ... so that they can feel confident the decisions they're making are being made on reliable data."

A Nielsen spokesperson said the ratings firm is "currently engaged in an ongoing, iterative process as is typical with first-time audits." The executive added that Nielsen is working with the MRC because, "we respect the value that our clients place in the MRC's review, and we value the input we receive from the process itself."

Ultimately, some industry executives believe accreditation of C3 ratings is a temporary measure at best, as the industry moves toward an even more rigorous and refined measure of TV commercial audiences based on "exact" commercial minute, or even second-by-second commercial ratings data.

A number of research companies ranging from TNS Research, Google, TiVo and TRA Inc., have already begun providing second-by-second TV audience estimates on a commercialized basis, and at least one major media shop, Publicis' Starcom unit, has announced intentions to utilize digital set-top data ratings via TNS as the currency for buying advertising time on networks too small to be rated by Nielsen.

Magna Global researcher Steve Sternberg, meanwhile, has called for Nielsen to offer pod ratings by the 2009-10 broadcast season, writing that the data "will be closer to the actual commercial rating" than the average used in C3.