Startup Sues Nielsen

A tiny Florida-based ratings provider is charging in federal court that industry Goliath Nielsen Media Research crushes would-be rivals and that its “antiquated” system negatively affects viewers and advertisers.

ErinMedia, a startup audience-measurement firm, and its sister company ReacTV filed suit last week in United States District Court in Tampa, Fla., alleging that Nielsen maintains an illegal monopoly over the TV-ratings industry “through various predatory practices designed to impede or prevent competitive entry by companies like ErinMedia.”

The allegations of antitrust violations create yet another headache for Nielsen, which increasingly finds itself defending its methodology and products. Even if ErinMedia’s case does not make it to trial—which legal experts say is distinctly possible—the legal action brings unwanted attention and publicity to Nielsen, a division of Dutch media conglomerate VNU, at a time when it is trying to work out delicate issues with its clients. Its new local-people-meter (LPM) ratings system, already under fire for undercounting minorities and younger viewers, is about to roll out in Washington and Philadelphia June 30. Nielsen’s older system of set-top meters and paper diaries is criticized by some clients as archaic.

Difficult to Prove

For its part, Nielsen calls the action “frivolous” and “completely unfounded” and says it is “very confident that this meritless lawsuit will fail.” Legal analysts say antitrust cases are usually difficult to prove, particularly when the plaintiff is a competitor.

In the suit, ErinMedia claims Nielsen dominates the market in part by staggering long-term deals with the Big Four networks—CBS, NBC, ABC and Fox—leaving no opening for the networks to entertain a new service. It also asserts that Nielsen gobbles up smaller competitors, thwarting competition. ErinMedia says Nielsen even tried to acquire it, although Nielsen refutes that claim. (Just last week, Nielsen announced acquisition of Audio Audit, which develops audience-verification systems.)

ErinMedia has sought to launch an alternate ratings service using different data-collection methods but says Nielsen stands in its way. Where Nielsen’s current system relies on samples of viewers to report what they’ve watched, ErinMedia seeks to capture data from digital cable boxes, currently in about 25 million homes.

Using patent-pending technology, ErinMedia takes data from set-top boxes, which have the ability to report second by second what is being watched and for how long, including commercial breaks. Combining that data with census data and program information, ErinMedia calculates demographic ratings information.

“We’ll only charge advertisers based on what viewers actually saw the commercial,” ErinMedia Chairman Frank Maggio says. “And that’s why Nielsen can’t help me.” He adds that the ability to “measure 25 million households in a privacy-compliant way” is superior to Nielsen’s current system, which samples about 8,000 homes.

ErinMedia has spent months pitching potential clients, including ad firms and cable operators, but it needs access to cable operators’ trove of data to launch. Maggio says several operators are interested but are hesitant to sign on because Nielsen is the de facto ratings currency in the industry. Unable to do business, Maggio says, his company opted to file suit.

ErinMedia is hardly the first would-be rival to Nielsen. Over the years, a number of high-profile competing services have tried—and ultimately failed—to take on the ratings giant. In the 1990s, networks and advertising firms invested $60 million in Statistical Research Inc.’s SMART ratings system, but it ran out of money before getting off the ground. Until 1992, radio-ratings provider Arbitron also measured TV ratings in local markets. More recently, that company has been developing a portable people meter, a pager-like gadget that monitors viewing and will soon be tested in Houston. (Nielsen has provided limited financial and research support to the project.)

Battle of the Web Sites

One of the most public campaigns against Nielsen has been “Don’t Count Us Out,” a Fox-backed group that is unhappy with Nielsen’s LPM system and is pushing for government oversight. The group posts information on its Web site, In response, Nielsen launched an information Web site, Not to be outdone, Maggio last week launched his own site,

While it works to improve these systems, Nielsen is also developing ways to measure advanced technologies, such as video-on-demand (VOD) and digital video recorders (DVRs), that are catching fire with consumers. Those technologies concern advertisers worried that their spots won’t be seen and measured. Some clients carp that Nielsen isn’t doing enough to stay ahead and innovate. “In many respects, Nielsen can’t keep up with the today of television, let alone the tomorrow,” says Tim Hanlon, VP/director, emerging contacts, for Starcom MediaVest Group.

Though complaining about Nielsen, TV networks and advertisers have balked at paying steep rates for competitive services. “Research is expensive, and the costs get passed along,” says Horizon Media research chief Brad Adgate. “Will the industry be willing to support two ratings services? For 50 years, the answer has been no.”

Mining Set-Top Data

ErinMedia is one of several companies mining data from set-top boxes. The largest cable operators, including Comcast and Time Warner, are participating in trials to measure VOD usage and glean ratings from digital boxes. Nielsen itself has agreements to work with Comcast and Time Warner. And, as digital cable penetration grows, the prospect of utilizing the boxes for audience measurement will only get more attractive.

Maggio’s $14 million acquisition of ErinMedia in 2004 was driven not by a desire to beat Nielsen but rather to help ReacTV, an interactive gaming channel that he is looking to get on digital cable systems, develop a business model. On ReacTV, viewers would compete for prizes by playing skills-based games through the television. Viewers submit answers to a Web site, and a prize winner is pulled at random from the correct entries (Maggio says prizes could include anything from gift certificates to automobiles). Niche networks like ReacTV usually attract such a small audience that they fail to register even a 0.1 household rating in local markets.

Nielsen has 20 days to respond, although legal experts say the company may likely file for an extension. If ErinMedia’s lawsuit is successful, Maggio says, cable operators will have the confidence to move ahead aggressively. “The industry needs to feel like there is momentum. They want to see proof that the monopoly can be broken.”

Additional reporting by Ken Kerschbaumer