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Nielsen ratings for Netflix opens the door for the next Aereo

Aaron Pressman
Nielsen ratings for Netflix opens the door for the next Aereo

The TV ratings gurus at Nielsen (NLSN) have found a sneaky way to start measuring how many people are watching online streaming video services like Netflix (NFLX). Eventually, the move could pave the way for new online video business models, benefitting cord cutters.

At a Fortune magazine conference this summer, I asked some of the media moguls in attendance why they showed so much hatred for Aereo, the upstart online TV service beloved by cord cutters. After all, Aereo carried local television shows complete with all the advertising. Weren’t its viewers just as valuable as those who watched free over-the-air broadcasts, if not more so?

The answer surprised me, but it shouldn’t have. Nielsen, the kingmaker-slash-soulcrusher of TV land, tracks how many people watch free broadcasts, but not online services like Aereo. Advertisers pay based on Nielsen ratings. Aereo’s audience was unmeasured, so it may as well not have existed, at least if you’re, say, the chief executive of CBS (CBS).

But now Nielsen has found a clever way to start measuring at least some of the online streaming audience, according to a report in the Wall Street Journal. It’s a logical next move for Nielsen, as 42% of adults reported subscribing to at least one online streaming service in a Comscore survey last month. But the move comes much too late for Aereo, which shut down its service after the Supreme Court ruled in June that the company was violating copyright laws.

The conventional wisdom, which has some truth, is that big television networks may benefit from knowing more precisely how many people are catching their shows via Netflix or Amazon’s (AMZN) streaming services. And, maybe, that information will give them some small bit of added leverage when they next sit across the bargaining table from Netflix to negotiate a rights deal.

That seemed to be the reaction in the stock market, as shares of Netflix, which keeps all its viewership data secret, dropped almost 5% and shares of CBS rose almost 2%. Nielsen shares were almost unchanged.

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But the more significant, long-term benefit is one that should help cord cutters and cord nevers, folks who don’t pay a hefty monthly cable bill. Because, until now, the only way a streaming online video service can get paid is by charging subscriber fees.

Netflix just raised its price for new subscribers by $1 to $8.99 a month. And Amazon raised the cost of its Prime service that includes video and free shipping by $20 to $99 a year. CBS's new "All Access" digital service is a bit of a hybrid, charging $5.99 a month but also includes streams of its local broadcast stations, with the ads included as they appear over the air. Hulu, the broadcaster-owned streaming service, combines advertising and a premium service for $7.99 a month, though it is reportedly considering cutting back its ad load.

Ads instead of subscription fees

The new technique Nielsen is going to use, however, could potentially allow a streaming service, a future incarnation of Aereo even, to show ads instead of collecting subscription fees. Revenue would come from charging advertisers using the same kinds of ratings reports that the big networks use.

Netflix and Amazon agree to pay billions of dollars upfront for the rights to network shows, making it tough for an upstart without billions of dollars to crack the business. But with an ad-driven model, a new streaming service might be able to negotiate a simpler deal, agreeing to pay a percentage of its ad revenue, much like music streaming services, instead of a big upfront payment.

Nielsen isn’t getting permission from Netflix — the streaming company wants to keep its ratings secret. “Our ratings success would spin as a negative story to our suppliers, that we have shows that are being watched in greater numbers than are being watched on television,” Ted Sarandos, Netflix head of programming, said at a conference in February.

To capture the streaming audience size without permission, Nielsen is using a sound analyzing feature on the thousands of meters it deploys in the homes of viewers who participate in the company’s ratings tracking program. Only shows of Nielsen clients — a.k.a the big networks and Hollywood studios — will be tracked, so don’t expected leaked ratings of “House of Cards,” or other popular Netflix originals.

And there will be another major gap in the new streaming ratings from Nielsen, as the company’s meters only track what is watched on television sets, not mobile devices. Netflix viewers preferred to use the service on a laptop or desktop computer 27% of the time and a mobile device 7% of the time, according to the recent Comscore survey.

Nielsen says it's looking for a way to capture the rest of the online audience, as well. For cord cutters, the sooner, the better.

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