• by June 21, 2005

MAKE SURE YOU CHECK YOUR LISTINGS TO SEE WHAT'S COMING SOON TO THIS DISCOVERY CHANNEL - Guess what word is sending shivers up and down the spines of the management team at Nielsen Media Research these days. No, it's not "Faults." It's not "Antitrust." Heck, it's not even "Congress." The word that's really got the Nielsen folks working up a sweat today - one of the nicest recent days in the Big Apple - is "Discovery." No, not The Discovery Channel, but the legal process of discovery that lawyers and litigants go through while preparing for a major civil suit trial. Specifically, they're sweating out what might be discovered, and ultimately made public, as a result of a suit erinMedia and ReacTV filed against Nielsen last week.

On its face, the suit is about the anticompetitive barriers Nielsen has created, which allegedly prevent new players like digital set-top ratings developer erinMedia from entering the market. No doubt the Nielsen legal team is confident they can fend off those antitrust claims. Why not? They've managed to do so for half a century - a half century which saw the coming and going of a number of reputable players (AGB, Arbitron, Statistical Research Inc., R.D. Percy, Television Audience Assessment), which all tried and failed to crack the U.S. TV ratings marketplace. In fact, Arbitron originally was in, but was driven out of the local TV ratings business as a result of Nielsen's market strategies. And though the two companies have an agreement that might lead to a joint TV and radio ratings venture based on Arbitron's portable people meter, that JV is looking increasingly unlikely, as Arbitron prepares to go its own way with a radio-only ratings service.

Of course, Arbitron and Nielsen parent VNU is also trying to develop a joint venture utilizing the PPM as part of their ambitious Project Apollo, a single-source measurement system, but that's also probably not going very far due to lack of market support.

Nielsen execs, in fact, have grown incredibly confident - do we detect a hint of cockiness? - in their unique monopolistic market position in the U.S. TV ratings business. So much so, that when parent VNU hosted a recent "Investor Day," the company told Wall Street analysts there are virtually no serious competitive threats to its market dominance.

"Technology barriers to entry are falling, but risk of competition is overstated, in management's view," concluded Merrill Lynch Analyst Paul Sullivan in his wrap-up analysis of the event. Interestingly, Sullivan made no reference to erinMedia's suit, and gave the company's stock a volatility risk of only "medium," and maintained its "buy" rating, setting a 12-months price objective of $33.29 per VNU share, which has recently been trading at about $29.

In fact, there don't appear to be many, if any imminent competitive threats to Nielsen, in part because the company seems to be buying out any competitors that it cannot simply muscle out. Just the other week, Nielsen acquired Audio Audit, an electronic media verification firm that was beginning to make serious inroads on Madison Avenue, with major marketers and some big media companies.

Nielsen, allegedly, also made overtures to erinMedia, a company that has been making a lot of noise and showing a lot of promise in digital TV set-top circles, but which so far has failed to develop anything resembling a nationally projectable TV ratings database. A Nielsen spokeswoman denied that Nielsen made an offer to acquire erinMedia, but we've been told it was one of the reasons the company filed suit. In fact, that charge is part of erinMedia's suit, which states: "Prior to filing this lawsuit, NMR [Nielsen Media Research] made transactional overtures to erinMedia. erinMedia declined to engage in serious discussions with NMR about a transaction and concluded that the only way to enable erinMedia to compete was to file this action challenging the NMR monopoly."

The suit seeks "injunctive relief," which is a fancy legal way of saying that it wants the court to step in and rule that Nielsen has to change its market practices sufficiently enough to allow a competitor like erinMedia to gain a foothold. That presumably would mean nullifying the king of long-term contracts Nielsen is fond of touting to Wall Street - the kind which gets analysts like Merrill Lynch's Sullivan to goose expectations of VNU's stock price. You see, the primary argument in erinMedia's suit is that Nielsen has established a monopoly by securing "multi-year, staggered contracts" with major media companies that terminate in such a way as to make it "essentially impossible for erinMedia, or any other competitor, to challenge [Nielsen] as the currency for national TV ratings."

Maybe it was just an incredible coincidence, or maybe erinMedia's legal team knew that Nielsen was poised to announce another milestone in its long-term contract negotiations today: a three-year extension of its original "landmark" seven-year contract with Time Warner. If not, it would seem that Nielsen executives are so cocksure of their position that they timed the announcement of the Time Warner deal to flaunt it in the face of erinMedia.

Nielsen execs tell us they feel there is no merit to the suit, and we would imagine that even as you read this, VNU's high-powered legal team is filing various "motions to dismiss" before the suit ever sees the light of day, or before much if any discovery can be made.

For our part - and just because we're kind of curious about what really goes on behind the Nielsen curtain - we'd like to see the court rule in favor of the suit, and more importantly to keep it a matter of public record. And we know even as we write this that Nielsen's legal team inevitably will cite this article as a reason why any pre-trial discovery should be sealed from the public record on the grounds that coverage of the case might unduly influence a prospective jury.

That'd be too bad, because we can't wait to read the depositions made by people like CBS' Dave Poltrack, or NBC's Alan Wurtzel, or even Jack Wakshlag, the Turner Broadcasting chief research officer, who just extended the Time Warner contract originally negotiated by Scott McDonald, now head of research at Conde Nast, not to mention a member of the independent task force that investigated Nielsen's local people meters. It would be interesting to see how such researchers speak about Nielsen while under oath and subject to perjury.

But the most interesting part of their testimony likely would have less to do with how Nielsen negotiates its contracts than it would with how they feel about the actual methods and procedures Nielsen uses to make sure everyone's TV viewing counts. Needless to say, it would also be interesting to see how Nielsen executives answer those very same questions, especially when erinMedia's suit alleges: Nielsen's "conduct allowed its faulty and vastly under-inclusive audience sampling methodology to influence the misspending of billions of dollars in advertising and other commercial activities in the television industry each year."