Will Nielsen Be Sold?
Brad Adgate Contributor
Brad Adgate is an Independent Media Consultant
Kelly Abcarian, SVP of watch product architecture for Nielsen, and Brian Fuhrer, SVP, of national and cross-platform product leader, at the 2017 Summer Television Critics Association Press Tour. (Photo by Frederick M. Brown/Getty Images)
It's been reported that Elliott Management Corp., an investment firm, has acquired 8.8% of Nielsen Holdings, at an estimated value of $660 million. The hedge fund has plans to make the research company sell to someone else. This comes in the aftermath of Nielsen's poor second-quarter earnings report, in which it badly missed Wall Street's revenue estimates. As a result, Nielsen CEO Mitch Barnes announced his retirement effective at the end of 2018. In addition, Nielsen's stock price plunged by 24% in one day. Thus far in 2018, Nielsen has been the third-worst performer in the S&P 500.
Nielsen is divided into two divisions: watch and buy. The watch division is more familiar with consumers since it measures ratings for TV (and more recently radio and digital media). The buy division measures consumer behavior, brand sales and market share by product categories. It was the buy division that underperformed. Nielsen announced an "in-depth" review of the buy division to be conducted by management and board members. This could lead to the eventual sale of the buy division. In 2017, the buy division accounted for $3.2 billion, 49% of Nielsen's revenue.
The buy division provides clients with sales data primarily of CPG products from retail stores. The in-store sales information is then integrated with purchasing data from household panels. Nielsen's panel consists of 250,000 households across 25 nations measuring billions of transactions each month. According to Nielsen, panelists take inventory of their product purchases using a handheld or mobile wand that identifies and transmits the UPC codes. Among the buy clients are CPG companies Procter & Gamble, Coca-Cola and Nestle as well as retailers Walgreens and Walmart to name a few.
Recently, Nielsen has expressed some difficulties with their buy division as consumer preferences change. For example, consumers today are buying more and more products online, the emergence of e-commerce has come at the expense of traditional brick & mortar outlets. Consumers are also looking to shop at smaller and more local specialty stores as opposed to bigger retail outlets. Furthermore, some Nielsen buy clients are facing financial pressures and, as a result, cutting back on costs including Nielsen.
The Nielsen buy division also faces competition from IRI. IRI having an increasingly similar offering (the two panels are now combined by a 2009 joint venture to save each company duplicative costs), has reduced Nielsen's pricing leverage in the buy division whereas, the lack of a true competitor on the watch side, has kept Nielsen's price leverage stronger.
The Nielsen watch division, although stronger financially, also faces challenges in audience measurement. Consumer viewing continues to migrate to screens and platforms, some of which remain unmeasured. Some advertisers, are now looking at audience base "naturally occurring" data, in addition to (or as a replacement) of the demographic program ratings historically provided by Nielsen. Nowadays, MVPD's and vMVPD's can target viewers using their own return path data instead of relying on Nielsen. Google, Facebook and others have been providing advertisers with their own internal audience data instead of using Nielsen.
There is, however, also competition from comScore. Despite reporting a net loss in revenue of $56 million in second quarter 2018, comScore has forced Nielsen to improve its ratings methodology. For example, Nielsen is eliminating TV diaries, has begun using return path data from MVPD's and added out-of-home TV ratings in major markets. For the most part, the Nielsen watch division has retained its market dominance.
Nonetheless, Elliott Management believes that Nielsen shares are undervalued and represent an attractive investment. The hedge fund encourages Nielsen to look into selling the entire company or certain assets. This would not be the first time Nielsen ownership has changed hands. In 1984 Dun & Bradstreet acquired the company and eventually split it into two, Nielsen Media Research responsible for TV ratings and AC Nielsen responsible for consumer shopping, etc. VNU, a Dutch company, eventually acquired both divisions. Nielsen then went private in 2006 before going public in 2011.
Consumer buying behavior and their media habits are constantly evolving. This places financial pressures on measurement companies to keep up. Adding further complications are the financial constraints facing many of Nielsen's clients. In today's data driven world, having an independent third-party to measure consumer behavior, media habits and ROI are needed now more than ever. Perhaps that is why Elliott Management believes Nielsen is undervalued.
Some analysts however, believe it would be a mistake to sell off the buy division. The work of the two divisions go hand in hand more today than ever before. If Nielsen did not own its buy division, their ability to hold onto its watch clientele would be increasingly impaired over time, as pointed out by industry consultant Bill McKenna. In another scenario from industry consultant Bill Harvey, Nielsen could sell its buy division with the right to use its products within its retained watch division, with a long-term agreement on how the revenues would be shared with the new parent company of the buy division.
Given Nielsen's market power, government regulators will likely be needed to give their approval to whatever path Nielsen decides. This is especially true if it involves a consolidated activity with another prominent research company. After all, the government had turned down the proposed Nielsen acquisition of IRI in 1987 for $572 million.