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Cable Technology Feature Article

February 21, 2013

Nielsen Ratings System Change Shows Business Model Evolution

By Gary Kim, Contributing Editor

When an industry starts arguing that traditional metrics are losing their value, and starts using new measurements of business success, it is a sure sign that the business model for that industry is changing. It is happening in the mobile and fixed networks business, and it is happening in the TV business.

By September 2013, when the next TV season begins, Nielsen expects to have in place new hardware and software tools to capture viewership not just from the 75 percent of homes that rely on cable, satellite and over the air broadcasts, but also viewing via devices that deliver video from streaming services such as Netflix, Amazon, X-Box (News - Alert) and PlayStation.

In part, that change is due to pressure from networks that believe their audiences are undervalued by the current ratings system. At some point, observers believe, Nielsen will try and move in the direction of the ability to measure video viewing from any source, and any device. 

Image via Shutterstock

Consider the similar changes in the telecom business. Around the turn of the century, when telcos routinely were measured by access lines, new alternate access businesses were selling high capacity data circuits, not voice lines. So in an effort to highlight the value of such businesses, firms began reporting access line equivalents.

Few bother to do so, anymore, as financial markets seem to grasp the concept of an IP bandwidth provider quite well. But, for a time, firms report such bandwidth equivalents of voice lines as a metric of growth. Of course, to be sure, the measurement also was faulty.

It was used by some executives to demonstrate business value growth pegged to an older and higher multiple method, rather than a new method that might not value the revenue streams so highly.

But the problem is real enough. As service providers in the fixed networks business started to sell large quantities of new products, the older metrics began to make less sense. That is why the concept of “revenue generating units” has displaced the use of “lines” or “basic cable subscribers” as meaningful measuring tools.

These days, what matters is the sale of new units of something, whether voice, messaging, video, data access or something else is less significant. The other more prosaic issue is that since executives cannot demonstrate organic growth of their legacy product lines, they’d rather create new metrics that highlight growth in the new lines of business.

The bottom line is that when the measurements start to change, it is a clear sign that the business already has started to change.

Edited by Brooke Neuman

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