How Will Nielsen Ratings Affect Netflix?

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America’s TV viewing habits are changing, and by most accounts, Netflix has a lot to do with it. Re/Code reported recently that some analysts think that the “big, unexplained drop” in TV ratings that showed up over the summer and has continued into fall has one straightforward explanation: that people are spending less time watching TV and more time watching video streaming services offered by Netflix, Amazon, and Hulu.

The Wall Street Journal reports that television viewing is down 7% year over year for the month ended October 27 among adults 18 to 49 — a demographic that advertisers pay a premium to reach. Viewership dropped a full 8% in the 18-49 demographic in the third quarter, and TV executives have downplayed suspicions that Netflix and other online streaming services are pulling viewers away, noting that Nielsen doesn’t account for viewers who consume their content on networks’ own digital platforms.

But among analysts, the idea is gaining some supporters. Bernstein Research’s Todd Juenger recently made the case for the theory that Netflix is pulling viewers from TV. As traditional TV viewing has declined by 13 minutes a day over the last year, Netflix viewers are spending 12 more minutes per day with the streaming service. If that argument is right — and other theories, such as the explanation that people are still watching the same amount of TV, but their viewing just isn’t being measured correctly — that would mean not only that viewers have disappeared, but that TV executives have actually helped them go.

As Re/Code reported over the summer, Nielsen tracks viewers who watch a show when it first airs, or up to three days afterward on DVRs. If you watch a show four days after it aired, for example, then you aren’t accounted for in the ratings. The same goes for the times that you watch shows via video on demand services. Re/Code explains “the TV guys” have helped create the problem by selling old shows to streaming services, using the high-margin deals to replace declining revenues from syndication and DVD sales. They make sure not to sell their newest, freshest content in order to keep viewers watching TV, but it turns out that between Netflix’s original programming and all of the older shows that are available on the service, viewers are finding plenty to watch, and to keep them from watching.

Juenger says that while networks could, theoretically, cut back on the content that they sell to Netflix and other streaming services, that would be a tough choice to make. They would lose out on millions of dollars in annual revenue, and would have to act in concert — without appearing to do so, for fear of drawing antitrust accusations — and would risk losing both ratings and digital syndication revenue.

But even as Netflix and other streaming services reach toward ubiquity in American homes, they share little data on how many viewers actually watch TV shows on their services. Likewise, there has been little independent data to gauge the true reach of hit original shows like House of Cards and Orange Is the New Black.

But as The Wall Street Journal reported recently, Nielsen, the arbiter of TV ratings, would like to change that. In December, Nielsen will begin measuring viewership of TV on subscription online video services for the first time. Nielsen will be able to measure viewership without the assent of Netflix or Amazon’s Prime Instant Video by analyzing the audio components of the program, to determine which shows are being streamed. Nielsen is still working on devising a method to measure subscription video streaming on mobile devices, where the same technology won’t work.

The measurements are aimed at helping content owners gain better insight into the impact of licensing their content to streaming platforms. Nielsen will seek to answer the question as to whether media companies are exchanging their streaming rights for short-term revenue gains that eventually give way to an erosion of their viewership on traditional, ad-supported TV, where they still make the majority of their revenue.

Brian Fuhrer, a senior vice president at Nielsen, told The Wall Street Journal, “Our clients will be able to look at their programs and understand: Is putting content on Netflix impacting the viewership on linear and traditional VOD?” The Wall Street Journal points out that the data that Nielsen’s measurements generate could change the power dynamic of negotiations between streaming services and TV studios. Streaming sites are regarded as having disproportionate leverage when deals need to be renewed, given that they are currently the only ones who know how much a specific show has been viewed.

Netflix viewership data will not only give content owners an idea of how popular their content is, but, as Time points out, will also provide some insight into how integral their content is to the Netflix experience. Such information could affect negotiations for licensing as more networks launch their own streaming services, and could help networks with particularly popular content leverage their popularity to get Netflix to pay higher prices when contracts come up for renewal. Conversely, if Nielsen ratings show that Netflix’s TV shows really are as wildly popular as some suspect, that could help Netflix convince more big-name directors and actors to create original programming for the platform.

Nielsen reported that subscriptions to streaming video services have jumped to 40% of households in September, up from 34% in January. Nielsen also found that once people sign up for services by Netflix, Amazon, or Hulu, they watch less TV than they used to: 20% less in the 18-34 demographic, and 19% less in the 25-54 age group. In general, consumers who are video subscribers watch less TV than nonsubscribers: 20% less, among 18 to 49-year-olds.

But more data is needed to draw definitive conclusions about streaming service usage — and to find out for sure if Netflix is what’s causing the downturn in TV viewership. With that data, Nielsen hopes to provide some insight into the consequences of a widespread shift from the ad-supported universe of traditional TV to the non-ad-supported world of Netflix.

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