Needham: Nielsen Still Gold, Stock Could Rise 30%


Nielsen's share price is projected to increase about 30% over the next year, partly because the company "essentially holds a monopoly position" in TV measurement and has "enormous barriers to entry" in its field, according to a Wall Street analyst.

Furthermore, Nielsen is not expected to face robust competition from challengers using set-top-box data as a basis for their measurement products.

Needham's Laura Martin also wrote that Nielsen is well-positioned to lead the field on the push to develop cross-platform measurement systems.

In initiating coverage of the company, Martin offered a 12-month target price at $32, up from the $25.25 in midday trading on Friday. Nielsen went public in late January.

Martin projected Nielsen global revenue -- it operates in 100 countries -- would rise 12% in 2011, while operating net income would be up 41%. In her report, she wrote that Nielsen is the "gold standard" in TV ratings in the U.S., giving it a towering position "as there is no other widely accepted ratings service."



Nielsen also has an advantage in reducing competition through long-term contracts with its largest clients, which expire at different times. The staggering dates mean that it is likely CBS, for example, would re-sign; otherwise, it would make it hard for buyers to make comparisons with other networks. Martin writes that the average renewal rate for TV ratings clients is 90%.

Nielsen is facing new competitors, such as Rentrak and TRA. They use set-top boxes as data generators, which can provide much more granular and extensive information. Martin wrote, however, that using that data might not provide as thorough a tracking as Nielsen's traditional methods.

For one, about 30% of U.S. homes don't have the boxes -- 11% don't have cable, satellite or telco TV service, and another 19% have cable without one of the boxes. Also, the homes with the boxes may have different viewing profiles in terms of commercial skipping and higher household incomes.

Martin said she spoke with Nielsen clients that may be concerned about its long-held methodology vis-à-vis set-top-box data. They indicated that "the quality of sample is as important as the quantity of datapoints."

Nielsen "has grappled with, and solved, these issues over the past 50 years," she said. (On the local level, Nielsen is exploring a product that uses the boxes.)

One hitch Nielsen could face is that the newer competing measurement services may charge much less, giving networks and stations some leverage in negotiations.

Regarding the emphasis on measuring video across multiple screens, Martin said Nielsen is well-positioned to lead the field.

"The TV environment is becoming more complex as it fragments into four platforms (TV, PC, mobile, iPad)," she wrote. "Nielsen is the best-positioned to garner additional revenue from the incumbent TV content creators as they move their content to new platforms."

Nielsen is set to launch a product that measures viewing on the fledgling "TV Everywhere" system, in which a person can watch the same programming on the go as at home with the same commercial load.

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