Written Testimony of George Ivie

Executive Director and CEO

The Media Rating Council, Inc.

Before the Subcommittee on Communications

Committee on Commerce, Science and Transportation

U.S. Senate

Hearing on Implementation of the Nielsen Local People Meter (LPM)
Television System

July 15, 2004

# Introduction to the MRC

I am George Ivie, Executive Director and CEO of the Media Rating Council
(MRC), and I am grateful for the opportunity to present our views on
Nielsen's implementation of the local people meter (LPM) measurement
methodology in general-market media research. I would like to begin by
thanking Chairman Burns and Ranking Member Hollings for your leadership
in focusing congressional attention on this technical and important
subject.

The MRC is a non-profit organization that reviews and accredits
audience-rating services through the use of rigorous audits. An MRC
audit includes an independent, detailed, and objective examination of
each aspect of the operations of a rating service (including
methodological protocols) through data provided to it by participating
rating services. The central mission of the MRC is to secure for the
media industry, audience measurement services that are valid, reliable,
and effective through an independent evaluation process, without regard
to outcome. The MRC is independent of, and external to, any rating
service and guards its independence zealously.

## History and Mission of the MRC

During 1963 and 1964, regulation of the TV and Radio industries
including the purpose and accuracy of audience research were the
subjects of extensive public hearings. This process culminated with a
progress report issued to the 89^th^ Congress of the United States
(House Report No. 1212)[^1] in January 1966. These hearings were held by
a Special Subcommittee on Investigations of the House of Representatives
Committee on Interstate and Foreign Commerce and are commonly referred
to as the "Harris Committee Hearings on Broadcast Ratings."

After an extensive investigation and three days of testimony, the
Committee determined that Industry self-regulation, including
independent audits of rating services (such as Nielsen Media Research,
Arbitron or MRI) was preferable to government intervention. In its
report, the Committee concluded as follows: "The enactment, at this
time, of legislation providing for government regulation of broadcast
audience measurement activities is not advisable. The administration of
a statute providing for such regulation would place an unnecessary
burden on the Federal Government, and it is doubtful that more would be
accomplished than can be accomplished by effective industry
regulation."[^2]

The Harris Committee hearings resulted in the formation of an
Industry-funded organization to review and accredit audience-rating
services called the Broadcast Rating Council (now referred to as the
MRC). At that time, the Broadcast Rating Council's proposed Industry
self-regulation procedures were reviewed by the U.S. Justice Department
and were found not to be in violation of the antitrust laws.[^3]

Aligned with the actions deemed necessary by the Committee, the
activities of the MRC include, but are not limited to the following:

-   The establishment and administration of Minimum Standards for rating
    operations;

-   The accreditation of rating services on the basis of information
    submitted by such services; and

-   Auditing, through independent CPA firms, of the activities of the
    rating services.

The MRC's mission as stated in its By-laws is: "to secure for the media
industry and related users audience measurement services that are valid,
reliable and effective; to evolve and determine minimum disclosure and
ethical criteria for media audience measurement services; and to provide
and administer an audit system designed to inform users as to whether
such audience measurements are conducted in conformance with the
criteria and procedures developed."[^4] This mission was established
with the support and guidance of the House Committee.

## Standards

Consistent with the By-laws of the BRC and its mission, it developed
minimum standards by which media research is to be measured, which
became effective on March 31, 1964 and have been maintained and updated
by the MRC Board of Directors.[^5] The Standards relate to: (a) ethics
and operations, and (b) disclosures. Ethical and Operational Standards
govern the quality and integrity of the entire process by which ratings
are produced. Disclosure Standards specify the detailed information
about a rating service's methodology and each specific survey, which
must be made available to users, the MRC and its CPA firm, as well as
the form in which the information should be made available.

## MRC Accreditation Process

The MRC accreditation process is completely [voluntary]{.underline} and
there is no legal or compulsory requirement that a rating service submit
to an MRC audit. MRC is often compared to similar private industry
self-regulatory organizations such as the Joint Commission on
Accreditation of Healthcare Organizations (JACHO), which is an
organization that audits and accredits participating hospitals for
institutional fitness and high quality patient services. Similarly, the
MRC lends its "seal of approval" to rating services that demonstrate
compliance with MRC's standards of media rating research and that make
complete methodological and survey-performance disclosures to their
customers after completing an extensive audit. [Over thirty-five rating
service products were submitted to the MRC accreditation process last
year]{.underline}. Of these thirty-five products, many represented
media-types other than television.

Accreditation is granted by the MRC Board of Directors if a rating
service complies with the MRC's Minimum Standards for Media Rating
Research and makes materially complete methodological and
survey-performance disclosures to their customers.

The MRC has used several nationally known CPA firms throughout the years
to perform these audits. At present, the audits are conducted by Ernst &
Young, under contract to the MRC. Each rating service agrees to pay MRC
assessments to cover their audit cost; the MRC collects no funds from
rating services other than the direct cost of the Ernst & Young audits.
[To be clear, the MRC derives no benefit, financially or otherwise, from
the rating service. MRC's revenue is solely derived from the dues paid
to it by its members]{.underline}. In addition, unlike most CPA firms,
Ernst & Young maintains a specialized group of personnel who have
responsibility for auditing rating service operations and assessing
compliance with the MRC's unique Standards. This Ernst & Young team only
works on media rating service audits.

The central element in the monitoring activity of the MRC is its system
of annual external audits of rating service operations. MRC audits serve
these important functions:

-   They determine whether a rating service merits accreditation (or
    continued accreditation); the audit report and related insight
    provided by the CPA firm is the primary input into the accreditation
    decision,

-   They provide the MRC with the results of detailed examinations by
    CPA auditors which become the basis for quality improvements in the
    service, either by voluntary action or mandated by MRC as a
    condition for accreditation, and

-   They provide a highly beneficial psychological effect on rating
    service performance. Knowledge that CPA auditors may review their
    work is a powerful spur for quality work by all field and
    home-office personnel of the rating service.

The specific methodological approach of the rating service and the MRC
Minimum Standards for Media Rating Research are the primary drivers of
the audit scope for each participating rating service to be executed by
the CPA firm, on behalf of the MRC. Audits are required to be conducted
at least annually. The MRC establishes an audit committee made up of
member organizations that use research of that media-type to evaluate
audit results and recommend a position on "accreditation" to the
Executive Director of the MRC, who then submits such recommendation to
the MRC Board of Directors. Provision is also made for the suspension or
withdrawal of accreditation and a documented, formal hearing procedure
applies in such instances.

The MRC's audit includes an [independent, detailed and
objective]{.underline} examination of each significant aspect of the
operations of a rating service. In the event that a rating service uses
outside professional vendors (for example, for sampling procedures or
for editing and tabulation of data) these sources are also audited and
reported upon.

Resulting audit reports are very detailed (typically 150-300 pages);
containing many methodological and proprietary details of the rating
service and illumination of the primary strengths and weaknesses of its
operations. The reports are confidential among the MRC members, who all
sign non-disclosure agreements, Ernst & Young and the rating
service**.** Audit reports include detailed testing and findings for:

-   Sample design, selection, and recruitment

-   Sample composition by demographic group

-   Data collection and fieldwork

-   Metering, diary or interviewing accuracy

-   Editing and tabulation procedures

-   Data processing

-   Ratings calculations

-   Assessment of rating service disclosures of methodology and survey
    performance

Pursuant to the last bullet above, the MRC mandates that rating services
disclose many methodology and performance measures, which would be
otherwise unknown, for example:

-   Source of sample frame

-   Selection method

-   Respondents by demographic group versus population

-   Response rates

-   Existence of special survey treatments for difficult to recruit
    respondent groups such as young or ethnic persons

-   Editing procedures

-   Minimum reporting requirements for media

-   Ascription and data adjustment procedures employed

-   Errors noted in published reports

-   Data reissue standards and reissue instances

As a result of the disclosures that a rating service must make in
complying with the MRC accreditation process, specific audit findings
are [not]{.underline} disseminated to the public or the press unless
waived by the service, the MRC, and the CPA firm that conducts the
audit. Public disclosure of proprietary techniques can be detrimental to
a rating service's core business, for example endangering patented
information, and the MRC takes very seriously its obligation to keep
proprietary information confidential as well as the audit reports.
Recently a controversy erupted between the MRC and Nielsen Media
Research regarding the apparent leak of information related to the audit
of Nielsen's Los Angeles LPM service to the Los Angeles Times. MRC in no
way endorsed or condones that behavior as it goes directly against its
code of confidentiality. As a result of this incident, the MRC, in
conjunction with its members, have implemented new rules for the viewing
and discussion of draft and final audit reports among its membership.

What should be made clear, however, is that the MRC can only publicly
comment on its decision to grant, deny, suspend or withdraw
accreditation without the consent of the rating service and the
independent CPA auditing firm.

Rating services that are awarded MRC Accreditation are given permission
to display the MRC's logo on the audited research product indicating
compliance with our Standards. MRC Standards are publicly available;
more importantly, the extensive methodological and survey performance
disclosures mandated by the MRC are required to be available to all
rating service customers.

# MRC Membership, Membership Participation and "Due Process"

## Membership

Membership in the MRC is completely voluntary and members pay annual
dues of \$10,500 (for reference, MRC dues were \$7,500 per year in
1964). The dues are universal in the sense that each member pays the
same amount regardless of the overall size of its organization and are
set at a level that allows participation by organizations of all sizes.
The Board of Directors of the MRC is comprised of one appointed
representative, generally a top media research executive, for each
member organization. Currently there are approximately 80 Board members
in total representing television and radio broadcasting, cable, print,
Internet and advertising agency organizations as well as advertisers and
other trade associations.[^6] As indicated by our membership list, MRC
represents a very broad and diverse amalgamation of the media industry
as well as the largest clients of rating services. Additionally, we have
a provision for formal liaison relationships with the American
Association of Advertising Agencies, the Advertising Research Foundation
and the Association of National Advertisers. Membership is open to any
media organization that relies on, or uses media research and presently
includes both general-market media (e.g., the ABC, CBS, FOX, NBC
networks) and ethnic media organizations (e.g., Black Entertainment and
Television and Univision). Conversely, organizations such as Nielsen or
Arbitron that produce media ratings data are not allowed to be members
of the MRC.

## Membership Participation

MRC members play a critical role in the accreditation process and
provide valuable insight. MRC's "Television Audit Committee" comprised
of individual representatives from various member organizations that
have an interest in the accuracy and quality of the rating service's
research. The individuals that sit on this committee are often the top
media researchers of their organizations and generally do not include
television executives or representatives of an organizations' marketing
division. [It is in this committee, along with the oversight of the MRC
Staff, that true industry oversight of the quality and accuracy of
television audience measurement services is performed]{.underline}.

As discussed earlier, it is through the MRC accreditation process and
the use of rigorous and independent audits, that a rating service gains
MRC accreditation. However, before accreditation can be achieved, the
Audit Committee has the task of reviewing a draft of the rating service
audit and discussing the results in detail with the auditor (Ernst &
Young) and the staff of the MRC. Additionally, the rating service has
the opportunity to provide its comments, verbatim, in the audit report
or in a separate letter supplied to the audit committee. This is a
confidential process and strict guidelines and procedures are followed
during this review because of the transparency requirement that a rating
service must meet in order to gain MRC accreditation.

Once a full review of the audit has been completed, the MRC presents a
"staff recommendation" to the full committee on whether in its opinion
taking all the available data in front of it; the rating service should
be accredited. This recommendation is prepared to help guide the
committee as it weighs its decision on accreditation. The audit
committee will then vote on accreditation, which in turn serves as a
recommendation for the MRC Executive Director to take to the full MRC
board of directors for final approval. At this point the Executive
Director will present the recommendation of the audit committee to the
full Board of Directors along with his assessment. The full Board then
has the responsibility and [ultimate authority to vote to grant or deny
accreditation]{.underline}.

## "Due Process"

One very important aspect of the voting and approval process is the
controls and safe guards that are in place to assure that a vote of the
audit committee is fair and impartial. The MRC has a formal policy for
membership voting on MRC accreditation issues that provides stringent
controls and eliminates the potential for outside influence, during and
subsequent to the voting procedure. The policy is not intended to stifle
in any way the thoughtful discussion that takes place in preparation of
the proposals. The policy is designed to insure a more proper accounting
of ballots and to further maintain the confidentiality of meeting
proceedings. Specifically, it:

-   Verifies that all votes are accounted for

-   Reduces the likelihood of miscounting votes

-   Limits the influence of any one member organization, or collective
    segments of the Industry

-   Minimizes the information that can potentially be divulged to
    Non-Members, in violation of the signed confidentiality agreement.

-   Maintains a physical record of the vote

-   Provides a means for verification

Voting within the MRC can occur at various levels and follows a
pre-established hierarchy. Below is an outline of the levels at which
voting may take place including a summary of the MRC members that are
entitled to participate, and the responsibility of each group.

-   *Sub-committee(s)* --

Subcommittees are comprised of a sub-set of individuals from the MRC
Committee(s) responsible for oversight of the measurement service. Any
committee member claiming to have a business or professional interest in
the matter at hand can elect to participate in a sub-committee. The MRC
Staff will work to ensure that the various segments of the industry are
represented in the sub-committee. The sub-committee is responsible for
undertaking a detailed review of the issue. Multiple sub-committee
meetings may be held depending on the complexity of the issue. The
sub-committee vote is designed to make a recommendation to the
Committee(s). A tie vote will necessitate a detailed review by a larger
sub-committee group or the committee.

-   *Committees* --

MRC Committees are comprised of MRC members who have a business or
professional interest in the medium for which the committee has
oversight. These committees may be asked to undertake a detailed review
based on the complexity of the issue. The committee votes whether to
accept the recommendation of the sub-committee and the committee vote is
structured to make a recommendation and provide guidance to the
Executive Director. A quorum is required on all voting matters and a tie
vote will necessitate a detailed review by the Board of Directors.

-   *Board of Directors*

The Board of Directors represents all active members of the MRC and vote
on the recommendation submitted by the Executive Director. In addition,
the Board is responsible for the final vote on all accreditation issues
and a quorum is required on all voting matters.

-   *Executive Director*

The Executive Director is responsible for making a recommendation to the
Board of Directors and considers the recommendation of the committee(s),
though he is not required to recommend the committee(s) position to the
Board. However, the Executive Director must convene a board meeting to
discuss in detail any recommendation whereby the executive director\'s
position differs from that submitted by the Committee. The Executive
Director may take any issue directly to the Board of Directors for a
vote.

-   *Voting Guidelines*

All active Board Members are entitled to a vote in the accreditation
process. A member company designates the representative(s) to attend
meetings and vote. The MRC recommends the voting representative be a
senior ranking individual with knowledge of the subject matter. When a
detailed review of the subject matter is called for, the voting
representative must be in attendance for the majority of the review
meeting. Anyone not in attendance for the full meeting will be allowed
to vote at the discretion of MRC Executive Director. A member company
representative may participate in-person, via phone or video-conference
and is allowed to represent a maximum of two votes, for multi-vote
organizations. In addition, this representative is required to submit
vote(s) in writing with the exception of those participating via phone
or conference call. Individuals participating via electronic means (e.g.
phone, etc.) have the option to cast votes via personal call to MRC
Staff, fax, or e-mail. Verbal votes require follow-up written (e.g. fax,
e-mail, etc) confirmation.

-   *Special Circumstances*

Special circumstances occur when an MRC member whose company has a
vested interest in the matter being considered. When this occurs, that
member may participate in the review meeting but will not be allowed to
vote. Situations of this nature will be disclosed prior to the start of
the meeting. Any un-anticipated voting conflicts are to be resolved by
the MRC Executive Director

-   *Voting Results*

When a vote takes place the rating service will be advised of the final
outcome as soon as possible and summary-voting results may be divulged
to the Rating Service when deemed appropriate by the Executive Director.
Individual Member votes will not be divulged by the MRC and members are
free to state their voting intention prior to the official vote.
However, members may divulge their individual vote outside of the
meeting subject to the policy of the signed Non-Disclosure Agreement on
record at the MRC.

# Status of LPM Audits -- Boston, New York, and Los Angeles

Nielsen's primary products cover national programs, local programs,
syndication, cable, satellite, as well as dedicated research for
Hispanics and by implication the advertisements for all of these
vehicles. Nielsen also provides several electronic tools and
applications used to deliver ratings to their customers. The MRC
accredits several, but not all, of Nielsen's products.[^7]

Nielsen's National Service based on a people-meter methodology has been
MRC-accredited since the late 1980s; Nielsen's meter-diary based Local
Service was originally accredited in the 1960s; Nielsen's National
Hispanic Service (NHTI) has been accredited since 2000. We believe these
services materially comply with our Standards, although the MRC does
maintain a separate ongoing dialogue with Nielsen regarding quality
issues noted in the audit process in an effort to improve the quality of
research. Other Services such as Nielsen's Hispanic Station Index
(NHSI), and certain other Black and Hispanic Audience Reports are not
currently Accredited or audited.

## Boston

Nielsen Media Research first "rolled out" its local people meter (LPM)
in Boston in 2001. This was Nielsen's first experience with the LPM in a
general-media local market environment. It is our understanding that
Boston was chosen as the first market by Nielsen because of several
factors, including its more homogenous population and smaller size.
While one can argue about this characterization of the Boston media
market, it became clear that Nielsen's assumptions about easily
measuring the market proved to be inaccurate. During calendar years 2001
and 2002, the MRC audited Nielsen's LPM rollout in Boston. The audit of
the service was extensive and subsequently the MRC denied its
accreditation to the Boston LPM based on strong concerns with Nielsen's
implementation of the service. However, despite the concerns raised by
the MRC audit and denial of accreditation, Nielsen continued a
commercial implementation of the Boston LPM. At the same time, most
local broadcasters in Boston did not utilize Nielsen's LPM services.
However, during the ensuing year, Nielsen took extensive actions to cure
the issues raised by MRC's audit. Upon Nielsen making the recommended
changes, MRC gave its accreditation to the Boston LPM in the Fall of
2002 approximately nine months after its initial audit.

After its Boston experience, the MRC Television Committee took the
unusual step of recommending to Nielsen that future LPM implementations
only be commercialized after Accreditation is achieved and that new LPM
sample households not be integrated into Nielsen's National panel prior
to achieving Accreditation.

## New York

Earlier this year the MRC began its audit process of the New York LPM
(NYLPM). The New York market is arguably the most difficult market to
measure particularly in obtaining the cooperation of households. The
market is highly diverse and represents unique challenges in compiling
accurate and reliable data. Fieldwork began in this market in April of
this year and the MRC utilized its full audit scope and procedures for
assessing the service. Ernst & Young conducted the audit using its
standard Nielsen auditing team, which included bi-lingual personnel.
There were many problems identified in the audit, including race and
origin classification errors, excessive and excessively disproportionate
faulting and metering issues. The market's performance was further
complicated by an on-going media campaign in the New York market, which
could have potentially influenced household participation. Concurrent
with the introduction of the LPM, the MRC closely monitored the existing
meter/diary service in New York and found that this service had
degraded.

Subsequently on May 27^th^, the MRC audit committee met to discuss the
audit and the MRC staff recommendation. The audit committee voted to
withhold accreditation of the NYLPM at that time based on a number of
problems identified in the Ernst and Young audit as well as issues
identified by the MRC staff and the audit committee members. On June 4,
2004 the MRC sent a letter to Nielsen that communicated detail areas of
concern and deficiencies with the NYLPM as identified by the audit
process and suggested actions that Nielsen should take to improve the
service and gain accreditation. Nielsen was given an opportunity to
address the audit/TV committee once the outstanding issues surrounding
the NYLPM audit are addressed. At that time the committee will then
re-consider accreditation of the service in New York. To date Nielsen
has begun the process of addressing the concerns with NYLPM and the MRC
looks forward to reassessing the service.

## Los Angeles

The Los Angeles LPM Service is currently under review. The MRC is in the
process of evaluating the data from the Los Angeles audit though the
final audit committee meeting has not yet been scheduled pending
Nielsen's response to the original audit report. Despite the current
open status of the LALPM Service, Nielsen has gone "live" with the
service. It has become clear through our experiences in Boston and New
York that Nielsen is not yet implementing LPM services in a manner that
is fully compliant with the MRC's standards.

The broadcast television industry members of the MRC, as well as cable
operators and the advertising industry have all voiced their support for
the MRC process in this matter. Central among the organizations
expressing this support are the National Association of Broadcasters,
the Cabletelevision Advertising Bureau and the American Association of
Advertising Agencies.[^8]

# Conclusion

Once again, the MRC would like to thank the Committee for holding this
important hearing on Nielsen Media Research's Local People Meter
implementation and for allowing the MRC to provide testimony. As the
Committee continues to consider the complex issues surrounding the
continued roll-out of Nielsen's LPM rating services, we urge that the
independence of the MRC be preserved so as to avoid unnecessary
politicization of the auditing process. I continue to believe that
Congress was right in finding that industry self-regulation is
preferable to direct governmental intervention \-- provided that the
independence and integrity of such an auditing process can be preserved.

I believe that all of the stakeholders involved in this issue would
agree that the accuracy and quality of the research as it relates to the
LPM methodology is of critical importance and that the MRC should play a
central role in assessing the accuracy and quality of the new service.

[^1]: House Rpt. No. 1212, 89^th^ Congress (1966). (Exhibit A)

[^2]: *Id.* at p. 21.

[^3]: Letter from William Orrick, Jr. Assistant Attorney General,
    Antitrust Division, U.S. Department of Justice to Douglas A. Anello,
    General Counsel, National Association of Broadcasters (July 16,
    1964) (Exhibit B).

[^4]: MRC By-Laws. -- Board of Directors, Media Rating Council,
    Effective March 1964, Updated (Exhibit C)

[^5]: See Minimum Standards for Media Rating Research, Media Rating
    Council, Inc. (last updated = 10/97)(Exhibit D)

[^6]: Full membership list is attached (Exhibit F).

[^7]: See Exhibit G (Complete List of MRC Accredited Services)

[^8]: See Exhibit H (Press releases and Organizational statements on the
    LPM)