Nielsen is gearing up to IPO, and I am on the edge of my seat.
The media-measurement category is red hot. Arbitron (radio ratings) is trading at a three-year high; so is comScore (Internet ratings). The upstart Rentrak (video store and VOD ratings) is at a five-year high, and the creation of the Coalition for Innovative Media Measurement (CIMM) invites forward-looking innovation.
Nielsen is a critically important company in the media world: the bellwether for the industry and as close as you get to a one-stop shop for TV's $70 billion in media planning, buying and validation. And if Facebook is worth $50 billion and Groupon is planning to go public at $15 billion, then Nielsen would appear to be worth the targeted $14.5 billion in enterprise value and then some.
But with the IPO roadshow having just begun and private-equity investors Blackstone, KKR, Carlisle, and TH Lee expecting a 20% IRR since the 2006 LBO (assuming a $21 IPO share price when they go out on January 25), management can expect some tough comments. Let's explore a few of the more predictable ones.
Nielsen is an analog media company in the fast-paced digital world. It has perfected a very imperfect system. Nielsen uses a device called a "peoplemeter" to record television viewership in 20,000 U.S. households, but it has historically had a tough time getting viewers to log in on the peoplemeter. And in 154 of the local markets (out of 210 markets) where panelists fill out diaries (yes, people still really do this), Nielsen recently lost its Media Rating Council (MRC) accreditation.
What's one of these rare Nielsen households worth? A little back-of-the-envelope exercise on Nielsen's projected $14.5 billion enterprise value after the IPO, suggests that each Nielsen panelist in the US "TV Watch" division - estimated to be 25% of revenues -- is worth about $200,000. If the Nielsen homes only knew...
But are small panels and diaries statistically actionable in today's world? Those 20,000 U.S. households (200 to 800 in each local market) are meant to represent an audience of more than 116 million households. Yet today, people watch television in countless ways -- broadcast, cable, syndicated, DVR, online, on demand, and, soon via Smart TV apps. What's more, there are hundreds of channels, tens of thousands of programs, and countless brands that advertise on linear television alone.
The reaction of the advertiser? TV dollars are flat. Internet is on the rise.
Digital media is sexier, because it lets advertisers target and reach the right audience of interested consumers. The Nielsen response? Use the same age/sex demo (e.g., the old "women 18-49") that has been used for the past 50 years.
Of course, Nielsen remains a formidable company. It does a lot, and has been known to gradually innovate when customers demand. Some of these efforts include: the Project Apollo joint venture with Arbitron to match viewership to purchase data (this project was scuttled three years ago); an IMMI joint venture to monitor cross-media (this project was pulled a year ago); its two-year foray into radio ratings (recently shut down); and the Catalina joint venture to try yet again to match viewership and purchase data. (Nielsen's CEO pegged this last model as the future of media-buying for CPG companies.
Clearly, some of Nielsen's efforts have opened the field for a handful of tech-focused and forward-looking young companies to pick up the slack, including:
· TiVo's measurement division, which offers a deep dive into DVR to make sense of time-shifting audiences;
· Rentrak, testing set-top data to shed light on the market for local ratings;
· Simulmedia, breaking new ground using set-top box data for audience promotion;
· My company, TRA, which matches tuning data from set-top boxes with consumer-purchasing data to deliver accountability and ROI to advertisers.
Yes, innovation will sprout elsewhere when a market leader has 50 years of legacy business to protect.
Now the IPO is looming and change is in the air. But if all of the $1.7 billion in IPO proceeds are to be used to retire a portion the company's $8.6 billion in debt, how much can be invested in innovation?
This all begs the question, is today's Nielsen like a railroad colossus of the past? Or is it a fast-moving innovator agile enough to embrace new technologies and business models?
Only time will tell. In the meantime, enjoy the (road)show.