Are Nielsen Ratings Still Relevant?

Jacob Harper |

As football season hits its stride and the World Series premieres, media analysts continue to cite one metric when judging the success (or failure) of these media events: the Nielsen Ratings. Developed in the 1950 to measure viewership of television, Nielsen ratings rely on information provided by the several thousand “Nielsen families” that fill out “paper diaries” about their viewing habits. The operators of the Nielsen ratings system extrapolate from the information supplied by the Nielsen families to estimate the number of nationwide viewers of any given program.

If the system seems imprecise or outdated, it is. But it’s unlikely to change anytime soon.

How Imprecise are Nielsen Ratings?

Think of it this way. There are 25,000 Nielsen families out of 114.5 million television-owning households, or .02183 percent. Nielsen also fails to account people watching in a group setting, which has normally skewed the Nielsen ratings of “television events” like the Super Bowl.

Contrast the Nielsen ratings with the internal numbers the widly popular streaming service Netflix Inc. (NFLX) logs about its customer’s viewing habits.  Netflix knows exactly how many people are watching, to the person. To be sure, a little chicanery concerning people sharing Netflix accounts skews the numbers slightly. But the sample size is exponentially more accurate than, say, .02183 percent.

Nielsen has been attempting to rectify this streaming shortfall, and in February announced they’d begin incorporating streaming viewership into their counters in September. It still doesn’t account for everything, however.

The DVR Issue

Cultural events like Breaking Bad or sporting events, most viewers aren’t terribly concerned with watching a show the exact moment it was released. This has further affected Nielsen’s ability to accurately gauge viewership of particular shows, as many viewers choose to DVR shows and watch them at their own leisure – maybe even the next week, after the numbers are already logged (Nielsen only counts up to seven days after an initial airing.) Watching shows long after the fact is becoming increasingly popular, especially among viewers 18-49.

That age range, known colloquially as “the demo,” is the area most coveted by ad buyers. A show that logs a high percentage of viewers in the demo can charge ad buyers substantially more. And ad buyers have a vested interest in paying less. Hence, Nielsen stays outdated.

It’s All About the Demo

The reason Nielsen remains entrenched in its archaic model is pretty simple: a more accurate model would show how many young people are still watching shows. It’s not hard to see which shows are getting plenty of attention. Look at total show mentions on Twitter, for instance. That number, while not pegging exactly how many people watched a show on airing, does provide an exact, specific number of how many people are discussing a show.

Twitter mentions are chock full with shows popular with young people that have conspicuously low Nielsen ratings.  Take the Twitter mentions of the week of Oct 7-13:

1. The Walking Dead (AMC, Sun.)
Tweets: 1,172,000
Audience: 7,491,200

2. Glee (Fox, Thurs.)
Tweets: 822,100
Audience: 5,167,500

3. American Horror Story: Coven (FX, Wed.)
Tweets: 435,600
Audience: 4,623,800

4. Catfish: TV Show (MTV, Tue.)
Tweets: 743,600
Audience: 3,544,300

5. The X-Factor (Fox, Wed.)
Tweets: 422,900
Audience: 2,393,300

Of those five shows, only one, the Walking Dead, cracked the Top 20 in Nielsen ratings that week.

According to Pew Research Center, as of May 2013 over two-thirds of US Twitter users are in the demo. While the number of mentions and subsequent audience reach don’t peg exactly the number of views, they give us a pretty good idea of the shows the demo cares about. And it’s markedly different than Nielsen.

Why Ignore the Demo?

Failing to account for streaming, Netflix, and other non-traditional viewing habits does one thing: under-represent the shows young people actually watch and care about. Certain shows that are popular with the demo but don’t score good Nielsen numbers – Community, Mad Men, Parks and Recreation to name a few – can still be advertised on cheaply. Ad buyers can simply tout low Nielsen numbers, even when they know the viewership is higher.

Of course, as the sea change towards online continues unabated, it might just be a moot point. But while traditional media still has control, Nielsen with all its flaws will probably continue to reign. Just don’t think it means what young people are really watching is being accurately counted.

 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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Symbol Name Price Change % Volume
NFLX Netflix Inc. 122.97 -2.42 -1.93 7,705,337
ORMTQ Ormet Corp 0.01 0.00 0.00 0

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