• by February 22, 2005

THE P&L BEHIND NIELSEN’S R&D –If Nielsen needed to make a strong statement to demonstrate its commitment to its clients, and to the future of audience measurement, it certainly seems to have made one in the eight-page letter sent to clients Friday by CEO Susan Whiting. The letter appears to address most of the significant concerns surrounding recent criticisms of Nielsen, including access to ratings data, the cost of contracts to access that data, and, perhaps most importantly, how Nielsen derives the data itself. On the surface, Whiting says all the right things, “we’ve heard our clients loud and clear when they tell us they want more from Nielsen.”

How much more, isn’t exactly clear. With the exception of the $2.5 million budget Nielsen says it has allocated for new, independent research and development on TV audience measurement, it’s hard to pin the specifics down. Even that fund is somewhat subject to interpretation. Is it an annual budget? Is it a budget to be allocated over an unspecified duration of R&D initiatives? Does it include the salaries and overhead of Nielsen employees Nielsen intends to allocate to the initiative? It’s unclear, and seems to be up to the “small group of clients” Nielsen will name to steer the initiative and “direct the spending over the course of a year.” Adds Whiting, “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.”

Without knowing the specifics of the R&D plan and its budget, let’s use some assumptions to do some math.

Let’s assume that ABC, CBS, NBC and FOX are each paying an average of $15 million dollars a year to Nielsen for their network ratings contracts. That adds up to $60 million annually.

Now let’s assume that Nielsen continues to charge the networks additional annual surcharges of at least 4 percent based on CPI (cost of living index). In essence, Nielsen is offering to return to the industry as a whole, last years' CPI increase for the Big 4 broadcast networks combined: .04 x $60 million = $2.4 million.

Okay, so $2.5 million is nothing to sneeze at, but given Nielsen’s already high profit margins – about 23 percent – it is a reasonable gesture, and some overdue payback to the industry that creates its bottom line. It’s also a necessary reinvestment on Nielsen’s part to protect its bottom line and the future of audience measurement.