• by David Goetzl  @dgoetzl, May 31, 2013

By any standard, Rentrak has done an extraordinary job over the past few years building and rolling out its local TV measurement service. Since Nielsen rarely faces notable competition, Rentrak has authored a compelling narrative about whether it would manifest as a significant challenger.

For its part, Rentrak says there’s room for both and it has plenty to offer as a complementary service. Wall Street seems to agree. Rentrak’s stock has been a solid performer. 

But if Rentrak has thrived in a phase one -- gaining a toehold, if not foothold, in the local measurement business – now it must navigate a second phase that could be very telling about its fate. Nielsen is on the offensive, looking to upgrade its service.

The standard bearer has been installing a new “hybrid” system that will massively increase the sample size in all 210 markets, while adding set-top-box (STB) data and a new “code reader” to complement its traditional panel. There hasn’t been much in the way of updates since last fall when St. Louis and Charlotte began to get the “code reader,” though Nielsen said Friday initial “preview data” should be available for review this summer.

“We announced ‘hybrid,’ that’s when most of the noise started going away,” Nielsen CEO David Calhoun said, referring to the frisson about a Rentrak challenge.

Not sure about that. Nonetheless, speaking at an investor event Friday, Calhoun referenced much of the reasoning why Nielsen feels a product relying heavily on STB data, Rentrak’s core, is inferior. It doesn’t account for periods when a box may still be on, but no one is watching. It doesn’t account for homes receiving only service with an antenna. Homes with STBs don’t offer an adequate reflection of consumer behavior at large.

On Rentrak, Calhoun said: “They don’t really measure all the audiences in any given location -- some locations are better than others because they do have a penetration in a particular zip code -- so they might have some little advantage on that front. But, they’re not going to get the guys who still get their signal by way of broadcast, much less the crowd that’s going to do IPTV. And set-top boxes aren’t very reliable. We’ve always known that. We have access to exactly the same data.”

Rentrak would offer all kinds of retorts, including how its built algorithms and other methods to account for alleged coverage issues. It would also assert its system that gathers data from loads more homes than Nielsen offers far more ratings stability, preventing wide swings where, for example, “Jeopardy’s” ratings could vary widely night by night.

Calhoun seemed to acknowledge how the Nielsen sample has brought some inconsistency when panel members (maybe just one) move in and out, but suggested the new system -- where the sample will be effectively quadrupled in local people meter (LPM) markets – should reduce some of the swings.

“Month to month, if we change out a household something really significant happens in this world, so it basically leads to an unstable metric in the local channels,” he said. “We have been unwilling over time to invest in (adding) lots of more households there because there was no return on it. The local (stations) aren’t going to pay you more … we’ve had two camps frustrated for a long period of time.”

Calhoun downplayed any Rentrak threat multiple times by saying local measurement represents a very minor portion of Nielsen’s overall business. Nonetheless, the company is now making an investment that likely started with considerable R&D and now is including feet on the street installing code readers and recruiting panelists.

Some stations have dropped Nielsen for Rentrak. Others have suggested they might. Rentrak has done well exploiting frustration with Nielsen.

Certainly, over time, Nielsen will look to recoup its investment by charging clients more for the new system. Presumably, if they are satisfied with the would-be improvements, they’ll pay up -- at least a little less grudgingly.

How satisfied they are could have a weighty impact on Rentrak’s fortunes. It might decided to mount a renewed offensive.