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Why Bringing TV Ratings To Netflix Doesn't Matter

Nielsen will use its in-home People Meter system to track viewing of streaming TV services like Netflix and Amazon Prime. But insiders say the planned service has many holes.

Posted on November 19, 2014, at 6:16 p.m. ET

Lucy Nicholson / Reuters

Money and data are the twin engines driving television industry economics, so the news today that Nielsen will start measuring viewing on Netflix and Amazon Prime for the first time ever seems like a big deal. But it isn't really.

It is, as one television industry source who spoke with BuzzFeed News said, a step in the right direction, but not a silver bullet.

After all, just last week during third quarter earnings, executives from every major network owner publicly stated their dissatisfaction with how Nielsen, the industry's leading ratings agency, tracks ratings, particularly for streaming, mobile, and on-demand services.

So the fact that Nielsen will be rolling out a new service next month that will use its in-home "people meters" to detect audio components of shows to identify which ones are being streamed and how often is more an appeasement than a revolution.

Neither Netflix nor Amazon Prime releases actual viewer figures on specific shows, even originals of their own. Netflix, for instance, opts for an opaque figure of overall streaming hours for its entire service globally. Both services keep specific streaming data to themselves and use it to determine what licensing deals to renew, which to get rid of, and what new ones to go after.

"It is always better as a buyer to know exactly what something is worth, while the seller has no real idea what the value of that content to the buyer is, which puts Netflix in a unique position," said BTIG analyst Richard Greenfield.

The idea behind Nielsen's new service, which according to the Wall Street Journal doesn't need consent from Netflix or Amazon, is to bring that dynamic into better balance. Its true aim is to arm network owners with more data to better determine the value of their programming in licensing deals and whether or not selling its shows to these services is hurting traditional TV viewing.

"The data could ripple through Hollywood, changing the power dynamics in the negotiations between streaming sites and TV studios that license them content," the Journal said in its report.

Well, not quite.

There are several major holes is Nielsen's new service, not the least of which is that it won't measure viewing on smartphones, tablets and other mobile devices, which is where most streaming from these services occur. Further, these services are global in nature, while Nielsen's service only measures domestically.

Secondly, no one in the television industry actually trusts Nielsen's data. It was only last month that Nielsen had a glitch in its traditional television measurement that resulted in faulty ratings for the major broadcast networks.

That mistrust of Nielsen dovetails with another indisputable fact: Netflix and Amazon cut huge checks to license shows from the TV networks. Netflix alone, according to its most recently quarterly earning filing, will pay out roughly $9 billion to media companies under its current licensing deals. That's revenue that didn't exist until a few years ago.

Even if Nielsen's data unequivocally shows that licensing shows to streaming services is indeed eating into traditional television viewership — as all the trend lines currently suggest — it will still be hard for network owners to turn down that sweet Netflix cash. If they did, they would need to find a way to refill that money hole, and holding back shows to get higher retransmission and carriage fees from traditional pay-TV distributors is unlikely to be sufficient given how much those companies already pay out to network owners.

"I think Netflix will say 'Do you want our money or not,' and I doubt the networks will believe the Nielsen stats," Greenfield said.

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