```

[Senate Hearing 109-1127]
[From the U.S. Government Publishing Office]

                                                       S. Hrg. 109-1127
 
                     S. 1372, THE FAIR RATINGS ACT

=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 27, 2005

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation

                  U.S. GOVERNMENT PRINTING OFFICE
65-216                    WASHINGTON : 2011
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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                     TED STEVENS, Alaska, Chairman
JOHN McCAIN, Arizona                 DANIEL K. INOUYE, Hawaii, Co-
CONRAD BURNS, Montana                    Chairman
TRENT LOTT, Mississippi              JOHN D. ROCKEFELLER IV, West 
KAY BAILEY HUTCHISON, Texas              Virginia
OLYMPIA J. SNOWE, Maine              JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon              BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada                  BARBARA BOXER, California
GEORGE ALLEN, Virginia               BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire        MARIA CANTWELL, Washington
JIM DeMINT, South Carolina           FRANK R. LAUTENBERG, New Jersey
DAVID VITTER, Louisiana              E. BENJAMIN NELSON, Nebraska
                                     MARK PRYOR, Arkansas
             Lisa J. Sutherland, Republican Staff Director
        Christine Drager Kurth, Republican Deputy Staff Director
                David Russell, Republican Chief Counsel
   Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
   Samuel E. Whitehorn, Democratic Deputy Staff Director and General 
                                Counsel
             Lila Harper Helms, Democratic Policy Director

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 27, 2005....................................     1
Statement of Senator Burns.......................................     1

                               Witnesses

Crawford, Kathy, President, Local Broadcast, MindShare...........    21
    Prepared statement...........................................    23
Ivie, George, Executive Director/CEO, The Media Rating Council, 
  Inc............................................................     3
    Prepared statement...........................................     5
Metzger, Gale, Former President, Statistical Research Inc........    32
    Prepared statement...........................................    35
Mullen, Patrick J., President, Tribune Broadcasting Company......    27
    Prepared statement...........................................    29
Shagrin, Ceril, Executive Vice President for Research, Univision.    18
    Prepared statement...........................................    20
Whiting, Susan D., President/CEO, Nielsen Media Research.........    13
    Prepared statement...........................................    15

                                Appendix

Inouye, Hon. Daniel K., U.S. Senator from Hawaii, prepared 
  statement......................................................    63
Lautenberg, Hon. Frank R., U.S. Senator from New Jersey, prepared 
  statement......................................................    63
Letter, dated September 29, 2005, from Kathy Crawford, MindShare, 
  to Hon. Ted Stevens............................................    64
Metzger, Gale, supplementary information.........................    68

                     S. 1372, THE FAIR RATINGS ACT

                              ----------                              

                        WEDNESDAY, JULY 27, 2005

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:30 p.m. in room 
SR-253, Russell Senate Office Building, Hon. Conrad Burns, 
presiding.

            OPENING STATEMENT OF HON. CONRAD BURNS, 
                   U.S. SENATOR FROM MONTANA

    Senator Burns. We'll bring the Committee to order.
    Around here, when you get to the last week before the 
August break, it gets a little compressed. We have to do many 
things in one day in order to finish our work before we go home 
on the August break. And so, there will be Members in and 
Members out. I was advised by the Ranking Member to start the 
hearing this morning, and--or this afternoon, and we can do 
that.
    First of all, I want to thank all the witnesses for coming. 
This is a busy time of the year. I look forward to a 
stimulating exchange of views this afternoon. Some of us were 
gathered here a year ago at a hearing that I convened to hear 
about the problems encountered by phasing in of Nielsen's Local 
People Meters in several cities around the country. The 
questions then were whether the deployment caused minority and 
other groups to be undercounted, and whether Nielsen had listed 
enough of its customers before rolling out the technology. The 
answers appeared to be yes and no, respectively. At the end of 
the hearing, Senator Boxer and I told the witnesses that it 
would be best if they could all work out the problems among 
themselves.
    Well, it seems like that process is a work-in-progress. In 
this technical area, that usually does not get a lot of 
attention, we have had continued controversy around this. And 
so, we have a bill. I introduced a bill because I wanted a 
solution to the problem and I didn't see that voluntary 
industry efforts were making any headway at all. I still think 
a voluntary solution would have been best for all concerned.
    And I understand the Media Rating Council has come forth 
with a voluntary code of conduct, but the Nielsen organization 
will not sign on without major changes. I look forward to 
hearing more about that today. But I wonder what happens to 
voluntary cooperation once things get tough, or once Congress 
is not paying attention, as we are today.
    This bill is not about Local People Meters. This Nielsen 
technology may or may not be the state-of-the-art, but, if it 
is, it's better than the diary system. And if Nielsen customers 
want it, then so be it.
    And I also do not believe it's in the public interest to 
worry about whether the given company's ratings go up or down. 
That's something for the market to decide. And I think we can 
all agree about that.
    This bill is about accountability. It's about making sure 
that the system is fair and accurate for all Americans. It 
would compel Nielsen to come to the table with the auditors at 
the Media Rating Council and accept their changes if minimum 
accuracy standards are not met. That is what I care about. That 
is why I got involved in this debate. And I believe I have 
constructed legislation that will make sure this is the case 
today and in the future.
    Nielsen needs some kind of an effective oversight, because 
it is the only game in town. Companies who need TV ratings data 
do not have anywhere else to go today, even if there are 
serious concerns about the numbers that they're seeing as a 
result of Nielsen's samplings. MRC oversight, with meaningful 
enforcement power, would remedy this situation in the best 
possible way, because the MRC is made up of Nielsen's 
customers. The bill would not involve any government agency. 
The MRC would retain its independence and responsiveness to the 
members as a private-sector expert group.
    The industry's self-regulating model has been approved by 
Congress many times and in many different sectors of the 
economy. I think the MRC model has been working well for the 
last 40 years. Maybe it is time for a change. We will find out 
only through hearings and gaining more information.
    Recent events have showed us that the MRC's lack of power 
to enforce its findings, though, is somewhat of a problem. They 
need some teeth. And I would hope that maybe we would find we 
could give them some.
    The bill would also set the stage for a strong MRC role in 
guaranteeing the accuracy of the technologies. We have several 
systems that may soon be deployed by Nielsen and others that 
would capture time-shifting viewing, out-of-home viewing, and 
other methods that may not be developed yet.
    Of special interest to me, though, is the decision that the 
MRC took in March to take another look at the diary system. 
This method, unchanged since the 1950s, is still in use in over 
150 local television stations around the country, including all 
of them, of course, in Montana and many others around the 
country. With this decision, as I understand it, the MRC has 
asked Nielsen to cooperate in review of the accuracy of the 
diary system. I would hate to think that people in rural areas, 
in small towns all over the country, are less important than 
the people in the big cities where Nielsen is spending the 
resources on the people meters. Rural viewers are very 
important to me. When I ran a network in television and radio 
stations, I had to depend totally on Nielsen data for my 
business. So, I hope Nielsen will cooperate with the MRC on 
this.
    If it does not, in my mind, that is another important 
reason that the bill should pass.
    Nielsen ratings determine the value of literally billions 
of dollars in advertising. Because our TV industry is supported 
largely by advertising dollars, Nielsen ratings, in the end, 
determine which television shows get aired and which get 
canceled; and so, ultimately, determine what kind of content is 
distributed on our public airways.
    So, television rating systems have extraordinary cultural, 
social, and economic implications. Even in the era of the 
Internet, television remains our national town hall. It is a 
medium that brings Americans together, and it is shared space 
that shapes our national experience. And in a very real sense, 
the ratings generated by Nielsen determine content that is 
available in that shared space. So, the American public has a 
clear and compelling interest in ensuring that these ratings 
systems are as fair and accurate as possible.
    All viewers must be counted. I hope we can agree on that. 
And I believe that the FAIR Ratings bill is an important step 
in that direction.
    I have no one to hand the football off to, so we will start 
taking testimony this morning. We want to--or this afternoon--
we want to thank everyone in attendance. I know there's a great 
deal of interest in this issue. And I look forward to hearing 
the testimony and the dialogue that we may have before it's all 
over.
    First of all, I'd like to welcome our first panel of 
testimony, Mr. George Ivie, Executive Director and CEO of the 
Media Rating Council.
    Thank you, Mr. Ivie, for coming this morning, and--or this 
afternoon, and--I can't get caught up----
    [Laughter.]
    Senator Burns.--this afternoon, and we look forward to your 
testimony.

  STATEMENT OF GEORGE IVIE, EXECUTIVE DIRECTOR/CEO, THE MEDIA 
                      RATING COUNCIL, INC.

    Mr. Ivie. Senator Burns and distinguished members of the 
Committee, my name is George Ivie, and I serve as Executive 
Director and CEO of the Media Rating Council. I thank you for 
the opportunity, Senator Burns, to testify this morning on 
television ratings accuracy and the FAIR Ratings Act.
    My written testimony outlines the history and mission of 
the MRC and includes descriptions of our administrative and 
accreditation procedures, and we believe we have sound 
operations and stated policies for the following: voting on and 
accrediting research based on standards compliance, limiting 
the influence of any one industry sector or member within our 
organization, maintaining independence from measurement 
services, and, most importantly, ensuring rigorous industry-
driven audit procedures. For example, about independence, our 
membership does not include measurement organizations.
    We appreciate the Committee's interest in the accuracy of 
television ratings and Congress' reaffirmation of the MRC's 
role in the form of this FAIR Ratings Act; however, we have 
important suggestions for your consideration in both of these 
areas.
    As you are all aware, a significant MRC concern has been 
Nielsen's commercialization of the San Francisco, Washington, 
D.C., and Philadelphia LPM markets prior to an MRC audit. As 
you know, Nielsen controls the timing of these audits and the 
rollout dates. We also have concern about Nielsen's failure to 
disclose adequate test data for some of the LPM 
implementations. These situations prevent our illumination of 
the quality and performance of the new services prior to 
commercialization.
    We have sought, and received in June, a commitment from 
Nielsen to the auditing and impact data closures we requested, 
and we hope that Nielsen remains committed to the audits of the 
LPMs and their other significant products after the direct 
focus of Congress lessens.
    Related to the FAIR Ratings Act, our focus is to assure 
audits and committee review and impact data disclosures prior 
to commercialization of new products. This focus is driven by 
the need to illuminate the quality of the rating products to 
users so they can make informed usage judgments. We believe 
it's important to avoid a situation where non-accredited 
products are prohibited from being commercialized through a 
blanket rule, but we just as strongly believe that these 
products should be audited.
    The MRC is not a political organization, and we have not 
sought Congressional actions in the form of a ratings bill. The 
legislation appears to raise complex issues of antitrust and 
liability for the MRC, beyond my particular training and 
expertise, but in which we obviously have a great interest. We 
remain on course, seeking completion of the initiatives 
recommended in our January 27, 2005, letter to the FTC and to 
you, Senator Burns, signed by a strong majority of our board. 
These items include agreement by Nielsen to the government to 
remain in the MRC audit process for the future for its key 
products. It is in Nielsen's power today, in this public 
government forum, to reaffirm their commitment to the MRC 
process for all their significant products, not just LPM and 
not just future products.
    This seemingly small item is important to assure that 
Nielsen continues to respond and dialogue with the industry 
about quality and transparency, which, in turn, should instill 
greater public confidence.
    Most importantly, we intend to gain consensus on, and 
adopt, a voluntary code of conduct that was supplied to rating 
services for comment several weeks ago. The code is important 
because it adds detail and formal structure to how rating 
services are expected to act on audit findings and interact 
with the MRC. Our members, Arbitron, Media Mark Research, and 
other rating services, have expressed support of this approach. 
This week, Nielsen communicated their conceptual agreement, and 
more dialogue is needed.
    We hope you will agree that such a voluntary code of 
conduct will do much to promote the vigorous self-regulation 
that Congress envisioned in 1964, which is still very much 
needed over 40 years later. The final January initiative 
entailed establishing a communication linkage between the MRC 
and appropriate Congressional and Executive Branch 
representatives to call upon when needed. We believe the 
voluntary code of conduct is our key solution to the issues we 
face, and, when adopted by Nielsen and other rating services, 
this code will provide further assurance that measurement 
services are meeting the MRC's mandate of accuracy and 
transparency.
    In closing, the MRC has strived for four decades to be 
faithful to the mission Congress defined for us. As always, we 
stand ready to work with the Congress in any way that would be 
helpful. I very much appreciate the care and thoughtfulness of 
you, Senator Burns, and other Members of the Committee, in 
considering the issues that significantly impact the media 
ratings marketplace.
    Whether legislation is required is fundamentally an issue 
and a decision for Congress, though we will follow this debate 
carefully to ascertain whether such an initiative could affect 
our current work. In any event, we believe our key business 
priorities are to seek Nielsen's firm and long-term commitment 
to the accreditation process and seek adoption of our voluntary 
code of conduct by Nielsen and other measurement services.
    I would be happy to answer any questions you have.
    [The prepared statement of Mr. Ivie follows:]

      Prepared Statement of George Ivie, Executive Director/CEO, 
                     The Media Rating Council, Inc.
I. 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 Senator Burns and Ranking Member Inouye 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.
1. 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 89th 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.''
---------------------------------------------------------------------------
    \1\ House Rpt. No. 1212, 89th Congress (1966).
---------------------------------------------------------------------------
    After an extensive investigation and 3 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\
---------------------------------------------------------------------------
    \2\ Id. at p. 21.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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)
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \4\ MRC By-Laws.--Board of Directors, Media Rating Council, 
Effective March 1964, Updated.
---------------------------------------------------------------------------
2. 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.
---------------------------------------------------------------------------
    \5\ See Minimum Standards for Media Rating Research, Media Rating 
Council, Inc. (last updated = 10/97).
---------------------------------------------------------------------------
3. MRC Accreditation Process
    The MRC Accreditation process is completely voluntary 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. 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. 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 
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 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.
II. MRC Membership, Membership Participation and ``Due Process''
1. 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 95 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.
---------------------------------------------------------------------------
    \6\ Full membership list is attached.
---------------------------------------------------------------------------
2. 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.
    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.
3. ``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 
subcommittee. 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 the 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.
III. Status of LPM Audits--Boston, New York, Los Angeles, Chicago, San 
        Francisco, Philadelphia, and Washington, D.C.
    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.
---------------------------------------------------------------------------
    \7\ Complete List of MRC Accredited Services.
---------------------------------------------------------------------------
1. 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 9 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.
2. New York
    The MRC began its audit process of the New York LPM (NYLPM) during 
the early part of 2004. 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 2004 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, 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. The MRC 
sent a letter to Nielsen that communicated detailed areas of concern 
and deficiencies with the NYLPM as identified by the audit process and 
suggested actions that Nielsen should take to improve the quality of 
the service and gain Accreditation. Nielsen commercialized the NYLPM on 
June 3, 2004.
    On August 26, 2004, the MRC convened a meeting of the audit 
committee to assess the results of a re-audit performed by Ernst & 
Young to assess performance of certain prior audit issues. Nielsen was 
given opportunity to address the Committee during part of the meeting 
to share their perspective on the improvement initiatives and the 
performance status of the NYLPM. After private deliberations the 
committee chose to continue to withhold Accreditation of the NYLPM 
service. On August 31, 2004, a letter was sent to Nielsen informing 
them of the Committee's decision and outlining the steps necessary to 
elevate the Accreditation status of the NYLPM, namely a plan for 
updating race information and fault rate stabilization which would be 
observed through regular monitoring by the committee.
    On October 29, 2004 after review of a credible plan submitted by 
Nielsen to address the race classification issues, and observed 
improvement in fault rate levels the television committee voted to 
grant Conditional Accreditation status to the NYLPM allowing Nielsen to 
apply the MRC's Accreditation logo to the New York LPM rating reports.
    Since Conditional Accreditation was granted in October 2004, the 
television committee has continually monitored the performance of the 
NYLPM, including update meetings with Nielsen management and periodic 
reviews to reassess the Accreditation status of the NYLPM. As of this 
date, the NYLPM service remains Conditionally Accredited.
3. Los Angeles
    On July 1, 2004, an MRC audit committee met to review an Ernst & 
Young audit of the Los Angeles LPM service (LALPM); at that time 
Nielsen had not provided their response to the audit findings, a key 
component of the MRC review process. The MRC decided that it was 
important to at least conduct a preliminary review of the audit 
findings (i.e., absent Nielsen's response) so that it could provide 
some illumination of the performance of the LALPM in advance of its 
planned commercialization on July 8. To maintain the integrity of the 
MRC process, the committee elected not to vote on Accreditation at the 
conclusion of this preliminary review until Nielsen submitted their 
response for review. The Los Angeles market is a difficult market to 
measure due to its ethnic diversity which presents unique challenges in 
compiling accurate and reliable data.
    Despite the open Accreditation status of the LALPM Service, Nielsen 
went ``live'' with the service on July 8, 2004. It was clear through 
our experiences in Boston and New York that Nielsen was not yet 
implementing LPM services in a manner that is fully compliant with the 
MRC's standards.
    The audit committee met on July 30, 2004, to conclude the review of 
the audit results, including Nielsen's response which was presented in-
person by Nielsen management. After careful consideration the Committee 
chose to recommend Conditional Accreditation of the LALPM service 
pending Nielsen's submission of an adequate, accepted action-plan to 
address: (1) two matters of non-compliance with the MRC's Minimum 
Standards for Media Rating Research cited in the audit, and (2) two 
performance areas of the Los Angeles LPM Service considered needing 
improvement. In addition, an on-going monitoring process was required 
by the Television Committee to assure that Nielsen completes the 
improvement initiatives specified in its response to the Los Angeles 
audit, including the pending action-plan.
    On August 19, 2004, upon receipt and acceptance of Nielsen's 
action-plan the Conditional Accreditation period began and Nielsen was 
authorized to apply the MRC's Accreditation logo to the Los Angeles LPM 
rating reports.
    Since Conditional Accreditation was granted in August 2004, the 
television committee has continually monitored the performance of the 
LALPM, including update meetings with Nielsen management and periodic 
reviews to reassess the Accreditation status of the LALPM. As of this 
date, the LALPM service remains Conditionally Accredited.
4. Chicago
    The Chicago LPM (CHLPM) Service was commercialized by Nielsen on 
August 5, 2004, prior to an MRC audit. Timing for MRC audits is 
controlled by Nielsen and fieldwork was not scheduled to begin until 
July 2004, leaving insufficient time for completion of the MRC process 
prior to the LPM service going ``live''. The Chicago market contains a 
high concentration of minority population groups posing a particular 
challenge to measuring accurate and reliable viewing behavior.
    An audit committee of the MRC met on September 22, 2004, to review 
the findings of the Ernst & Young examination of the CHLPM and based on 
the results the audit committee voted to follow the precedence set in 
Los Angeles and move to grant Conditional Accreditation to the CHLPM. 
The Conditional Accreditation status was scheduled to begin following 
receipt and acceptance of an action-plan structured to address specific 
audit issues and would also require ongoing monitoring of key 
performance metrics for this service. On October 1, 2004, after receipt 
of an accepted action-plan, Conditional Accreditation of the CHLPM 
began and Nielsen was permitted to apply the MRC Accreditation logo to 
the service reports.
    Since Conditional Accreditation was granted in October 2004, the 
television committee has continually monitored the performance of the 
CHLPM service, including update meetings with Nielsen management and 
periodic reviews to reassess the Accreditation status of the CHLPM. As 
of this date, the CHLPM service remains Conditionally Accredited.
5. San Francisco
    The San Francisco LPM (SFLPM) was commercialized on September 30, 
2004, prior to an MRC audit and before providing comparative data to 
the existing Meter-diary service that would allow the marketplace to 
understand the impact of this significant methodological change. MRC 
Standards require that measurement services disclose in advance the 
estimated impact of a methodological change. The San Francisco market 
is racially diverse, containing a high concentration of Asians, and 
this diversity presents specific challenges to accurately measure 
television viewing behavior.
    Fieldwork for the MRC audit began in November 2004, 3 months after 
Nielsen commercialized the service. Because of the voluntary nature of 
the MRC process, the timing of the audit is controlled by Nielsen.
    On March 8, 2005, five months after the SFLPM service was 
commercialized by Nielsen, an audit committee of the MRC met to review 
the Ernst & Young examination report of the SFLPM and recommended that 
the service be granted Conditional Accreditation allowing Nielsen to 
apply the MRC Accreditation logo to the SFLPM reports. Nielsen was 
informed of specific actions including ongoing monitoring and 
performance improvements that would be required for the committee to 
consider removal of the conditional aspect of the Accreditation.
    On May 6, 2005, the television committee met with Nielsen 
management to review the status of the LPM improvement initiatives and 
performance metrics and in a private discussion voted to elevate the 
status of the SFLPM to full Accreditation.
6. Philadelphia
    Nielsen commercialized the Philadelphia LPM on June 30, 2005, prior 
to an MRC audit, consequently this service is not Accredited. An MRC 
audit is in process for this market with an expected committee review 
in October 2005. Because of the voluntary nature of the MRC process, 
the timing of the audit is controlled by Nielsen.
7. Washington
    Nielsen commercialized the Washington LPM on June 30, 2005, prior 
to an MRC audit, consequently this service is not Accredited. An MRC 
audit is in process for this market with an expected committee review 
in October 2005. Because of the voluntary nature of the MRC process, 
the timing of the audit is controlled by Nielsen.
IV. Status of Nielsen Hispanic Measurement Services--National Hispanic 
        Station Index--Los Angeles and National Hispanic Television 
        Index
1. Nielsen Hispanic Station Index--Los Angeles (NHSI-LA)
    The NHSI-LA Service was audited by MRC during 2000-2001 and, 
despite ongoing commercial use of the service, Nielsen chose to not 
address the audit issues and terminated the Accreditation process after 
two unsuccessful attempts. Nielsen never submitted other NHSI markets 
to the Accreditation process.
2. Nielsen Hispanic Television Index (NHTI)
    Nielsen's NHTI Service has maintained MRC Accreditation since 2000.
    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, Radio Advertising 
Bureau, and the American Association of Advertising Agencies.\8\
---------------------------------------------------------------------------
    \8\ Press releases and Organizational statements on the LPM.
---------------------------------------------------------------------------
V. Conclusion
    Once again, the MRC would like to thank the Committee for holding 
this important hearing on TV Ratings accuracy and the FAIR Ratings Bill 
and for allowing the MRC to provide testimony. 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 of Television Ratings is of critical importance 
and that the MRC should play a central role in assessing the accuracy 
and quality of the new service. *
---------------------------------------------------------------------------
    * All the information referred to in the footnotes of this prepared 
statement have been retained in Committee files.

    Senator Burns. Thank you very much.
    Those of you making statements, if we could hold them to 
around 5 minutes, that would be great.
    He has to be a master. This is his testimony he has handed 
in to the Committee, and he got it all in 5 minutes, and I 
think that's pretty good. That's probably the standard here. 
Thank you very much.
    Now we'll hear from Susan Whiting, President and CEO of 
Nielsen Media Research.
    Thank you for coming today. We appreciate that very much.

         STATEMENT OF SUSAN D. WHITING, PRESIDENT/CEO, 
                     NIELSEN MEDIA RESEARCH

    Ms. Whiting. Thank you.
    Good afternoon. My name is Susan Whiting, and I'm the 
President and CEO of Nielsen Media Research.
    About a year ago, I first testified before this Committee. 
Since then, Nielsen has worked hard to follow your advice and 
to make a superior measurement system even better.
    Nielsen Media Research is in the truth business, the truth 
of what people are actually watching on television and how they 
are watching it. Today, for example, the average TV household 
has more than----
    The Chairman. Could you pull that mike up a little closer?
    Ms. Whiting. Is that better?
    Today, for example, the average TV household has more than 
100 channels. Nielsen has made more advancements and invested 
more money in TV audience measurement services than at any 
other time in our history. These new investments and 
initiatives have resulted in improvements, innovations, and 
change. In most cases, changes result in different ratings, but 
they also provide a better reflection of viewers' actual 
behavior.
    As you may have experienced with your voters, it is very 
hard to make everyone in your constituency happy. Nielsen is 
committed to working with all of our constituents, our 
thousands of clients, which include broadcasters, cable 
operators, advertising agencies, and advertisers, all with 
competing and often conflicting demands on a rating service.
    Nielsen must remain independent of conflicting interests 
among its diverse client base. For example, on the legislation 
we are discussing today two powerful players, Tribune and 
Comcast, have taken opposite positions on this bill. Often, 
when one party does not agree with our position, they say we 
are not listening, that we are arrogant. In fact, we are 
listening, not just to one, but to many voices. Given the 
progress we have made and the inherent conflicts within the 
industry we serve, we do not believe legislation is either 
necessary nor advisable. I believe this bill, or any similar 
legislation, is both unnecessary and harmful to the long-term 
interests of the entire television community.
    I think these points were clearly recognize by the FTC in 
its March 30, 2005, response to your request that it consider 
oversight of TV ratings, where the FTC said that, in Nielsen's 
case, ``well-constructed industry self-regulatory efforts can 
be more prompt, flexible, and effective than government 
regulation.''
    The Media Rating Council and Nielsen have established a 
strong working relationship that has enabled us to introduce 
increasingly more accurate ratings systems. Recently, the MRC 
has put forward guidelines for all MRC members and measurement 
services, a voluntary code of conduct. We agree, in principle, 
with the proposed code of conduct, and we are working with the 
MRC on it. For example, we have already agreed that no future 
commercial rating service will be launched before it is 
audited.
    That is why this bill is unnecessary. Here is why it is 
harmful. The mandatory accreditation required under this bill 
would slow ratings innovation to a crawl. New digital media are 
emerging with breathtaking speed. Advertisers and broadcasters 
need to know what impact this will have on how audiences watch 
TV. If ratings companies have to operate new services without 
generating revenue, it is unlikely they will develop or 
implement expensive new audience measurement innovations. This 
is also a significant barrier to entry into this market by any 
competitor.
    I think, Senator Burns, that you said it best when you 
remarked that the Internet was able to blossom because Congress 
didn't know how to regulate it. According to the same 
principle, Congress should not regulate television ratings 
business. We do not believe it is good policy to transform the 
MRC into a vehicle that limits competition from new program 
sources, especially from smaller, independent, and minority-
owned stations and networks looking to compete against media 
giants. This is why a number of minority-oriented channels have 
issued voiced opposition to legislation, including both TV One 
and BET.
    I should also note that many other clients representing the 
advertisers, including the American Association of Advertising 
Agencies, the Association of National Advertisers, and the AAF, 
whose money this is all about, community groups, and public-
interest organizations have voiced their opposition to 
mandatory accreditation and the legislation.
    I do want to mention one initiative that came about from 
our work with both our task force and the MRC, the creation of 
a Special Council for Research Excellence. We created this 
council in order to involve the industry in setting the 
direction of basic research and development. Nielsen has 
committed an additional $2.5 million annually for special 
research, as recommended by the council. It is composed of 40 
clients representing the entire television industry and chaired 
by Mark Kaline, Global Media Manager for Ford Motor Company, 
one of the largest buyers of television advertising time in the 
United States.
    In conclusion, instead of legislation, we need to support 
the MRC by agreeing to a new voluntary audit and accreditation 
standard that will enable measurement services to respond more 
quickly to dynamic changes. Self-regulation dictated through 
government mandate has many of the same disadvantages as direct 
government oversight, without the protection of formal 
rulemaking processes or public accountability.
    On behalf of thousands of Nielsen employees in the United 
States, across 49 states, I would like to reiterate Nielsen's 
commitment to producing the most accurate TV ratings possible, 
that we continue to serve a broad and sometimes contentious 
client base, and that we are committed to working with the MRC, 
our clients, and community leaders to assure transparency and 
accuracy in the ratings.
    Thank you.
    [The prepared statement of Ms. Whiting follows:]

        Prepared Statement of Susan D. Whiting, President/CEO, 
                         Nielsen Media Research
    Good morning. My name is Susan Whiting and I am President and Chief 
Executive Officer of Nielsen Media Research.
    It was about a year ago that I first testified before this 
committee. Since then my team and I at Nielsen have worked very hard to 
follow your advice and to make a superior measurement system even 
better. I have met with many Members of the Committee to hear their 
concerns and share Nielsen's story, including our vision for the future 
of audience measurement technology, and our commitment to working with 
all of our clients.
    Nielsen Media Research is in the truth business: the truth of what 
people are actually watching on television, and how they are watching 
it. We all watch television differently today than we did 5 years ago. 
Today, for example, the average TV household has more than 100 channels 
from which to choose. Consumers are also choosing digital technologies 
such as TiVo, Video on Demand and video gaming.
    With this diversity of entertainment choices, Nielsen is committed 
to providing the entire marketplace with the most accurate TV ratings 
possible.
    To anyone who has been involved in this industry for the past 5 
years, it is clearly apparent that Nielsen has made more advancements 
and invested more money in TV audience measurement services that at any 
other time in our history.
    During the last year, we made significant investments in all 
aspects of TV audience measurement--sampling, data collection, data 
processing, and data delivery--which we believe will further improve 
the accuracy of our ratings. We continue to invest in the leading edge 
of measurement technologies and look forward to new systems that will 
measure a broad spectrum of digital technologies.
    These new investments and initiatives produce change, and different 
clients react differently to these changes.
    As you may have experienced with your voters, it is very hard to 
make everyone in your constituency happy. Nielsen is committed to 
working with all of our constituents, our clients, which include 
broadcasters, cable operators, advertising agencies and advertisers--
all with competing and often conflicting demands on a ratings service. 
A truly independent ratings service, offering the highest quality and 
most accurate ratings, is vital for the marketplace to operate 
effectively.
    Nielsen must remain independent of these conflicting interests. For 
example, on the legislation we are discussing today, two powerful 
players, the National Association of Broadcasters and Comcast have 
taken opposite positions on this legislation.
Unwarranted and Unwise Legislation
    Given the progress we have made and the inherent conflicts within 
the industry we serve we do not believe legislation is either necessary 
or advisable, in fact we feel it is unwarranted and harmful.
    I think these points were ably recognized by the Federal Trade 
Commission in its March 30, 2005 response to your request that it 
consider oversight of TV ratings. As you recall from its response, the 
FTC said, that, in Nielsen's case, ``well constructed industry self-
regulatory efforts can be more prompt, flexible and effective than 
government regulation.''
    I believe S. 1372 is both unnecessary and harmful to the long-term 
interests of the entire television community.
    First, it is unnecessary. The Media Rating Council and Nielsen 
have, over the past 40 years, established a strong working relationship 
that has enabled us to introduce increasingly more accurate ratings 
systems. Over the past few weeks, for example, the MRC has put forward 
guidelines for all MRC members and measurement services--called A 
Voluntary Code of Conduct--that would both clarify and strengthen the 
MRC's relationship with all measurement services as well as with its 
own membership. The MRC recently provided to its members and all 
measurement services--television, radio, newspaper and Internet--a 
proposed voluntary code of conduct to deal with the rollout of new 
measurement technologies in the marketplace. Among the first things we 
have already agreed to, for example, is that no future commercial 
ratings service will be launched without the transparency of a full 
audit having taken place.
    Other elements of the Code are under discussion at this time, and 
we are confident that, after appropriate give and take, that the 
industry will reach agreement with all ratings services on the Code and 
we can submit it to the Justice Department and the FTC for a business 
review. We believe in principle that the proposed Voluntary Code of 
Conduct represents a valid approach to enhancing the MRC process, and 
that if it is approved by MRC members and all measurement services, we 
intend to adopt it.
    In other words, since the free-market, private enterprise system is 
working, we do not need a legislative solution to a problem that does 
not exist.
    That is why S. 1372 is unnecessary. Here is why it is harmful.
    The mandatory accreditation required under S. 1372 would slow 
ratings innovation to a crawl. Vital new systems for measuring all 
forms of digital television could remain idle while MRC members 
debated. In an environment that is becoming increasingly governed by 
political and economic self-interest, that process could literally take 
years. Technology, however, won't wait. Nor will clients. The 
transition from analogue to digital television technologies would be 
frustrated at the lack of timely measurement.
    As you know when you watch television, and from your experience on 
the Committee, new digital media are emerging with breathtaking speed, 
and audiences are increasingly willing to use devices like DVRs and 
Video on Demand to take control of their viewing experiences. The sale 
of DVRs is expected to nearly double within 2 years, and advertisers 
and broadcasters need to know, as soon as possible, what impact this 
will have on how audiences watch TV.
    If ratings companies are required to operate new services without 
generating revenue for a significant period of time, it is unlikely 
they will develop or implement expensive new audience measurement 
innovations. Such a prospect also is a significant barrier to entry 
into this market by any competitor. Indeed, if technology and 
telecommunication firms faced these restrictions, computers, cell 
phones and the Internet would still be on the drawing boards.
    We do not believe it is good public policy to transform the MRC 
into a vehicle that limits competition from new program sources, 
especially from smaller, independent, and minority-owned stations and 
networks looking to compete against media giants. More precise ratings 
technology enhances the voice of minorities by making possible niche 
programming on new cable networks and television stations aimed at the 
African American, Hispanic, Asian, and Arab-American communities. These 
advancements could grind to a halt with mandatory ratings 
accreditation. This is why a number of minority competitors had issued 
statements in opposition to legislation, including both TV One and BET.
Working With the Task Force
    As you know, Nielsen continues to work closely with the Independent 
Task Force on Television Measurement. This Task Force was created last 
year at the suggestion of Congressman Charles Rangel, for the very 
purpose of offsetting the need for Congressional involvement. The Task 
Force worked for more than 8 months--and continues to work--and 
released a major report to Nielsen, which we shared with the industry, 
that included recommendations in the areas of sampling, field 
operations, fault rates, diversity and communications.
    With your permission, Senator, I would like to submit for the 
record a copy of the Task Force's report, Nielsen's response, and the 
follow-up report released just last month. Considering the importance 
of this Task Force Report and the enormous commitment in time and 
effort from people representing a diverse spectrum of Americans, 
especially former Representative Mrs. Cardiss Collins who chaired the 
Task Force. I should also note that the Task Force has issued a 
statement in opposition to S. 1372, and I would also like to submit 
those comments for the record.
    The Task Force has, indeed, been the focus for many of the very 
constructive initiatives that we have been sharing for some time now 
with our clients, others in the industry and with Congress. Yet the 
full breadth of audience measurement--including sample design, sample 
recruiting and maintenance, data collection systems, metering, data 
processing and data reporting (all involving hundreds of millions of 
dollars in spending by Nielsen)--have improved over the years because 
of the painstaking work we have done with our clients through the Media 
Rating Council's accreditation process.
    I do want to mention just one initiative, and this came about from 
our work through the Task Force as well as with the MRC, and that is 
the creation of a special Council for Research Excellence, created 
earlier this year. We created this Council in order to involve the 
industry in setting the direction of basis R&D in the area of 
methodological research.
    In addition to the tens of millions of dollars we spend each year 
on methodological and statistical research, Nielsen has committed an 
additional $2.5 million for special research as recommended by the 
Council. The Council is composed of 40 clients, including the MRC, 
representing the entire television industry. The Council is chaired by 
Mark Kaline, global media manager for Ford Motor Company, one of the 
largest buyers of television advertising time in the United States.
Responding to a Changing Market
    Why would anyone agree to create a Council or serve on a Council 
when the MRC, under the bill, would be the final authority over 
everything pertaining to the ratings services?
    Instead of a new bill we, as an industry, need to support the MRC 
by agreeing to a new, voluntary audit and accreditation standards that 
will enable measurement services to respond more quickly to dynamic 
changes in the television landscape so that digital technologies 
including Digital Video Recorders, DVD Recorders, Video on Demand, and 
Time Shifting can be included in the measurement of audiences.
    Congress has mandated the shift in broadcast television from 
analogue to digital. Over the past 12 years, we have supported that 
mandate by completely revamping our metering and reporting technology 
with investments of over a hundred million dollars. I can only assume 
that the underlying assumption behind this mandate is that there would 
be no government-imposed barrier to measuring audiences to digital 
television. But S. 1372 imposes formidable barriers by mandating that 
no ratings service could measure anything without the approval of the 
MRC.
    Since the last time we were here, we have significantly enhanced 
our ability to more accurately measure all television audiences. For 
example:

   On March 3, 2005, after more than 12 years of R&D, and 
        hundreds of millions of dollars in spending, Nielsen introduced 
        a new digital metering system, called the Active/Passive Meter 
        System, or A/P Meter for short. The A/P Meter is fundamentally 
        a set meter, but it is also a platform for in-home measurement 
        of many new digital television devices. In July 2005, Nielsen 
        began rolling out the new A/P Meter system into the national 
        and local People Meter samples. Without this system, we would 
        not be able to measure digital signals and there would be no 
        viable business model for digital television.

   In May we began to implement a program of personal coaching, 
        performance-based incentives and reminder mailings designed to 
        reduce overall and differential faulting in Local People Meter 
        markets. This represents another ongoing multimillion 
        investment.

   In June we delivered a plan for enabling measurement of 
        Video on Demand programming in our syndicated ratings panels.

   DVR measurement has been successfully implemented in our 
        set-meter and diary markets. We remain on-schedule for 
        installation of DVR households in the national and local People 
        Meter samples beginning in January 2006. So far, we have 
        installed more than 200 DVR households across 47 local markets.

   In June 2005, Nielsen completed the translation of all of 
        its recruitment materials for sample households into Spanish, 
        developed key recruitment materials in Mandarin, Japanese, 
        Korean, Vietnamese, and Tagalog. We are also tailoring our 
        ``introductory video'' that is provided to new sample 
        households for Asian audiences. We also recently added several 
        training procedures on cultural sensitivity to our 10-week 
        Field Training program.

Conclusion
    To conclude my remarks today, self-regulation dictated through 
government mandate has many of the same disadvantages as direct 
government oversight, without the protection of formal rulemaking 
processes or public accountability.
    What is more, it lacks the agility, flexibility and resourcefulness 
that come from free market forces. Those qualities have served the 
Media Rating Council and its members well for more than four decades, 
and they are worth preserving.
    I would like to reiterate Nielsen's commitment to producing the 
most accurate TV ratings possible; that we serve a broad and sometimes 
contentious client base; and that we are committed to working with the 
MRC, our clients, and community leaders to assure transparency and 
accuracy in the ratings.
    Finally we believe in the voluntary MRC accreditation process, and 
legislatively mandating this process would be harmful not just to 
Nielsen but to everyone.
    Thank you.

    Senator Burns. Thank you.
    Now we'll hear from Ceril Shagrin.

                  STATEMENT OF CERIL SHAGRIN, 
        EXECUTIVE VICE PRESIDENT FOR RESEARCH, UNIVISION

    Ms. Shagrin. Good morning, Mr. Chairman and members of the 
Committee. Actually, I'm as bad as you are, it is afternoon, 
isn't it?
    [Laughter.]
    Senator Burns. It is afternoon.
    Ms. Shagrin. My name is Ceril Shagrin. I spent 27 years at 
Nielsen Media Research, during which time I interacted with the 
Media Ratings Council----
    Senator Burns. Pull your microphone--you've got a nice 
little soft voice, and we'd like to hear it.
    Ms. Shagrin. OK. Is that better?
    Senator Burns. You bet.
    Ms. Shagrin. I was Nielsen's first quality-assurance 
director and the primary contact for the review of the MRC 
audit scope and the audit report. While at Nielsen Media, I was 
the primary participant in the development and rollout of the 
National People Meter Service. I was responsible for the 
development and management of Nielsen Hispanic Services, and 
involved in the development, testing, and rollout of all new 
services.
    For the past 6 years, I've been employed by Univision 
Communications, where I oversee research needs for all 
Univision divisions. Currently, I am the Chairman of the MRC 
Television Committee and I am proud to be this year's recipient 
of the Malcolm Beville Award for my commitment to the highest 
standards in broadcast measurement research.
    For the past 33 years, I've had a close relationship with 
the MRC, both as a representative of the provider of television 
ratings and as a user of those ratings for programming 
decisions and for setting value and audience delivery. I have 
worked with 6 different MRC Executive Directors. For the past 
33 years, I've been driven by the need for quality research and 
reliable audience estimates. I believe the MRC has been a major 
contributor to achieving that goal.
    The television landscape has changed dramatically from a 
three-network environment to one of multiple broadcast and 
cable choices. At the same time, the United States population 
has grown and changed to a multicultural population. In order 
to meet the quality standards of television audience 
measurement, the samples used to develop audience estimates 
must accurately represent the current and changing populations 
of Whites, Blacks, Hispanics, and Asians, not just in total 
number, but demographically within each of these populations.
    While the data-collection instrument must be designed to 
accurately collect viewing, no data-collection device can 
eliminate the bias of reporting sample that does not accurately 
represent the universe being measured. Television rating 
services must make decisions on the data-collection tool and 
the methodology which best captures viewing within the cost 
parameters the individual markets can support.
    Installing and maintaining a representative sample is 
difficult. It takes properly trained personnel, adherence to 
procedures, and continuous testing to search for improvements. 
It requires a commitment to standards. The minimum standards of 
1975 no longer meet the challenges of audience measurement in 
2005. Quality measurement requires constant third-party 
monitoring to ensure proper procedures are identified and 
followed. The MRC provides that function through continuing 
audit and review.
    The MRC Television Committee is made up of users of the 
audience estimates--broadcast networks, cable networks, 
stations, agencies, and advertisers. For the past 6 years, I 
think I've attended every one of the MRC meetings related to 
television audience measurement. I strongly believe the MRC 
audit process has contributed to the continuous improvement of 
the quality of TV audience measurement.
    Attendees of these meetings invest a significant amount of 
time reading and analyzing audit reports. Meetings are long and 
detailed. They are well attended. No one is allowed to vote 
without the investment of time in the understanding of the 
audit issues.
    Nielsen received a copy of the audit report prior to 
distribution to the Committee, and their comments are included 
in the report sent to the Committee and in the discussion and 
review of the audit.
    New technologies must be audited before being put into 
production. New editing rules, processing rules, sample design 
and maintenance procedures should be evaluated, and their 
impact on audience estimates dimensioned, prior to 
implementation to ensure continuation of quality standards.
    While my written testimony states that prior to 2004 I can 
remember no instance when Nielsen implemented any material 
changes in methodology, processing rules, or data-collection 
device without prior review and acceptance by the MRC, there 
was one exception. That was the Boston LPM market.
    Nielsen has said, in recent public statements, that 
mandatory accreditation would result in termination of the 
Nielsen Hispanic Station Index, the local Hispanic measurement 
service. While different sampling procedures are used in some 
NHSI markets, there's reason to believe they could not, either 
as currently designed or with modifications, meet MRC standards 
or that increasing the Hispanic samples in the NSI service 
could not provide reliable Hispanic audience estimates. I have 
confidence that Nielsen can do that.
    For approximately 40 years, Nielsen's local and national 
television measurement services have been audited and 
accredited. Nielsen has met the MRC quality standards and 
continuously strive for improvement. It has made them a better 
company, and it has allowed the television industry to grow.
    Univision has taken a neutral position on the FAIR Ratings 
bill. We take a very strong position on the need for quality 
samples and procedures for eliminating bias. We take a positive 
position on the need for MRC audits.
    I'd like to thank the Committee for the opportunity to 
appear here today, and I look forward to answering any 
questions.
    [The prepared statement of Ms. Shagrin follows:]

                 Prepared Statement of Ceril Shagrin, 
            Executive Vice President for Research, Univision
    Good morning, Mr. Chairman and members of the Committee.
    My name is Ceril Shagrin. I spent 27 years at Nielsen Media 
Research during which time I interacted with the Media Rating Council 
(MRC) and the Ernst & Young auditors. I was Nielsen's first Quality 
Assurance Director and the primary contact for the review of the audit 
scope and the audit report. While at Nielsen Media I was a primary 
participant in the development and roll out of the National People 
Meter Service, responsible for the development and management of 
Nielsen Hispanic Services and involved in the development, testing and 
rollout of all new services.
    For the past 6 years I have been employed by Univision 
Communications where I oversee the research needs for all the Univision 
divisions.
    Currently I am the Chairman of the MRC Television Committee. I am 
proud to be this year's recipient of the Malcolm Beville Award for my 
commitment to the highest standards in broadcast measurement research.
    For the past 33 years I have had a close relationship with the MRC 
both as a representative of the provider of television ratings and as a 
user of those ratings for programming decisions and for setting value 
on audience delivery. I have worked with 6 different MRC Executive 
Directors. For the past 33 years I have been driven by the need for 
quality research and reliable audience estimates. I believe the MRC has 
been a major contributor to achieving that goal.
    The television landscape has changed dramatically from a three 
network environment to one of multiple broadcast and cable choices. At 
the same time the United States population has grown and changed to a 
multicultural population. In order to meet the quality standards of 
television audience measurement, the samples used to develop audience 
estimates must accurately represent the current and changing 
populations of Whites, Blacks, Hispanics and Asians not just in total 
number but demographically within each of those populations.
    While the data collection instrument must be designed to accurately 
collect viewing, no data collection device can eliminate the bias of a 
reporting sample that does not accurately represent the universe being 
measured. Television ratings services must make decisions on the data 
collection tool and methodology which best captures viewing within the 
cost parameters the individual market can support.
    Installing and maintaining a representative sample is difficult. It 
takes properly trained personnel, adherence to procedures and 
continuous testing to search for improvements. It requires a commitment 
to standards. The minimum standards of l975 no longer meet the 
challenges of audience measurement in 2005. Quality measurement 
requires constant third party monitoring to ensure proper procedures 
are identified and followed. The MRC provides that function through 
continuing audit and review.
    The MRC Television Committee is made up of users of the audience 
estimates: broadcast networks, cable networks, stations, agencies and 
advertisers. For the past 6 years I have attended all MRC meetings 
related to television audience measurement. I strongly believe the MRC 
audit process has contributed to the continuous improvement of the 
quality of TV audience measurement. Attendees of these meetings invest 
a significant amount of time reading and analyzing audit reports. 
Meetings are long and detailed. They are well attended. No one is 
allowed to vote without the investment of time in the understanding of 
the audit issues. Nielsen receives a copy of the audit report prior to 
distribution to the committee and their comments are included in the 
report sent to the committee and in the discussion and review of the 
audit.
    New technologies must be audited before being put into production. 
New editing rules, processing rules, sample design and maintenance 
procedures should be evaluated and their impact on audience estimates 
dimensioned prior to implementation to ensure continuation of quality 
standards. Prior to 2004, I can remember no instance when Nielsen 
implemented any material changes in methodology, processing rules or 
data collection device without prior review and acceptance by the MRC.
    Nielsen has said in recent public statements that mandatory 
accreditation would result in termination of the Nielsen Hispanic 
Station Index (NHSI), the local Hispanic measurement service. While 
different sampling procedures are used in some NHSI markets, there is 
no reason to believe they could not either as currently designed or 
with modifications meet MRC standards or that increasing the Hispanic 
samples in the NSI service could not provide reliable Hispanic audience 
estimates.
    For approximately 40 years Nielsen's local and national television 
measurement services have been audited and accredited. Nielsen has met 
the MRC quality standards and continuously strived for improvement. It 
has made them a better company and allowed the television industry to 
grow.
    Univision has taken a neutral position on the FAIR Ratings Bill. We 
take a very strong position on the need for quality samples and 
procedures for eliminating bias. We take a positive position on the 
need for MRC audits.
    I would like to thank the Committee for the opportunity to appear 
here today, and I look forward to answering any questions.

    Senator Burns. Thank you very much.
    Now we'll hear from Ms. Kathy Crawford, President, Local 
Broadcast, MindShare Worldwide.
    And thank you for coming, Ms. Crawford.

            STATEMENT OF KATHY CRAWFORD, PRESIDENT, 
                   LOCAL BROADCAST, MindShare

    Ms. Crawford. Good afternoon, Senator Burns.
    My name is Kathy Crawford, and I am President of Local 
Broadcast at MindShare. In this position, I help our clients 
decide what television station to advertise on in 210 local TV 
markets.
    In the last few years, we have spent billions of dollars in 
local TV. Advertising makes local television possible. Almost 
all local television revenues come from major companies 
employing millions of people trying to reach customers. But the 
bill we are discussing today was not written with them in mind. 
In fact, I am very concerned that this bill will make it harder 
for clients to buy advertising with any confidence that they 
are spending their money wisely. As I see it, the bill has 
negative implications, not only for the Local People Meter 
markets, but also for all local markets. I believe it will make 
my clients far less willing to advertise with local television 
stations, because we won't have the information we need to 
negotiate fair rates with the stations.
    Over the past 40 years, the MRC has been a crucial partner 
in improving the quality of television ratings, but I am 
concerned that, given the MRC member--giving the MRC members 
the power to block new technologies and new services will turn 
back the clock.
    Clearly, the business of television advertising is 
changing. When the MRC was created, broadcast was synonymous 
with television. But today there are scores of cable networks, 
like Oxygen, Spike, Black Entertainment Television, Galavision, 
as well as local cable channels appealing to many more 
ethnically-diverse portions of the community. We clearly need 
new ratings technology to keep up with these changes, but, as 
we've seen with LPMs, there's always some resistance to change, 
as different methodologies yield different rankings and change 
pricing.
    The same thing happened when the national broadcast 
networks and national advertisers went through the same process 
in the 1980s. Back then, no one tried to roll back this process 
through legislation.
    With the Local People Meter, we've heard a great deal about 
fault rates. I believe this has been a red herring, an excuse 
to delay accreditation. Indeed, many of the MRC members who now 
complain about fault rates in LPMs regularly voted to accredit 
meter diary systems in which, quote/unquote, ``fault rates were 
even higher.'' If MRC members are so concerned about fault 
rates, how did those meter diary markets get accredited? Did 
the fact that broadcasters' ratings are higher under the diary 
than under LPMs have anything to do with this?
    We need an accreditation process that is fast, fair, and 
efficient. We need the MRC to serve its traditional role as a 
forum for the industry to improve the overall performance of 
the measurement services.
    To that end, I believe the MRC's voting procedures need to 
be seriously overhauled. Currently, a handful of the broadcast 
companies can control the MRC, because they have four to five 
votes each, through their ownership of cable networks, local 
television stations, syndication networks, and national 
networks. I don't think that is right. But if you do try to 
change the MRC from a voluntary industry group into a 
government-mandated regulatory body, I don't think anyone with 
a direct stake in the outcome of the vote should be in the MRC 
at all, given their incentive to vote their own self-interest. 
And if the MRC has different membership structure, who would 
choose the members, and who would they report to?
    Finally, what would an overhaul like this cost, and who 
would pay for it? As we've seen in the past, the television 
industry has not wanted to pay for more than one service. 
That's too bad, because I, for one, would like to see more 
competition in the ratings business. I think it would be good 
for all of us, including Nielsen, because it would drive 
innovation faster and further. But legislation won't achieve 
that goal. To the contrary, this will effectively ensure that 
Nielsen never again faces any competition. No company would 
invest the vast amount of time, resources, and dollars needed 
to start a measurement service if they knew it could remain 
idle for a year or more, generating no revenue, as MRC members 
debated its fate. What potential Nielsen competitor could 
afford that?
    This legislation stems from disagreement among private 
companies on the accuracy of ratings in certain markets and 
among certain audience segments. What we have here is a 
complicated technological research dispute over some aspects of 
Nielsen's methodology that has been blown out of proportion 
into a would-be public-policy issue.
    In this regard, are current television ratings adequate? 
No. Is there room for improvement? Always. But innovation 
cannot be mandated by the government. In fact, we've seen many 
times in the past when the government tries to interfere in the 
private sector, no matter what its good intentions, it usually 
makes the situation worse.
    The MRC has played an important role, over the past 40 
years, in making television the best-measured medium. Like any 
other institution, it can operate better. But I believe the 
members of the MRC, as private businesses operating in the 
free-enterprise system, can certainly work out for themselves 
how to make the organization more effective.
    Thank you.
    [The prepared statement of Ms. Crawford follows:]

           Prepared Statement of Kathy Crawford, President, 
                       Local Broadcast, MindShare
    Good afternoon. My name is Kathy Crawford and I am President of 
Local Broadcast at MindShare.
A Global Leader in Advertising
    MindShare advises some of the world's largest advertisers on what 
advertising programs to pursue. We manage all aspects of media 
investment, from strategy--including targeting and spending--through 
negotiation and placement of advertising.
    We advise our clients on the best mix of media to enable them to 
reach their target audiences, whether via television, print, digital or 
on-line, out-of-home, radio, locally and nationally. Moreover, we 
negotiate rates and schedules for our clients, such as the most 
effective programming on specific stations or networks; the right 
magazines; or the most appropriate websites; so that they reach their 
targets at the best price.
    In addition, we need to know that our clients are getting what they 
pay for. It's not enough to simply place an ad. We also have to be 
assured that it has run and that the right audience is being reached.
    As President of Local Broadcast at MindShare, I help decide what 
television stations our clients advertise on in the 210 local markets. 
In the last few years we have spent billions in local broadcasting. 
Nothing is more important to them than making sure their money is well-
spent on reaching the right targets.
    Advertising makes local television possible. Almost all local 
television revenues come from advertisers--the biggest companies in the 
world--trying to reach viewers, but the bill we are discussing today 
was not written with them in mind.
    In fact, I am very concerned that this bill will make it harder for 
clients to buy advertising with any confidence that they are spending 
their money wisely. As I see it, the bill has negative implications not 
only for the Local People Meter markets, but also for all local 
markets. I believe it will make my clients far less willing to 
advertise with local television stations because we won't have the 
information we need to negotiate fair rates with the stations. Let me 
explain why.
Nielsen and Television Ratings
    Today, Nielsen is the only research service in the U.S. that 
measures television audiences, both nationally and locally. There used 
to be two systems but the industry decided it only wanted to pay for 
one. With just one ratings service now, all of us in the industry are 
well aware of Nielsen's shortcomings and its strengths. That is why we 
work closely with Nielsen, and with our suppliers, to ensure that the 
methodology is sound. We also must be certain that its systems deliver 
the most accurate information as quickly as possible, so we can 
appropriately recommend to our clients how best to spend their ad 
dollars and can negotiate with the stations based upon those ratings.
    Because our industry is pro-active in seeking and demanding 
improvements in ratings systems, we are constantly working on how to 
better understand the changing media landscape.
    The Local People Meter is a product of this industry-wide effort. 
Nielsen did not decide to offer LPMs in a vacuum. This was a collective 
decision reached by the entire television industry because advertisers 
were no longer willing to spend billions of dollars on advertising 
based on ratings from outmoded systems.
    When measurement systems change, there always is some resistance as 
different methodologies yield different rankings and possibly change 
pricing structures. The national broadcast networks and national 
advertisers went through the same process in the 1980s when Nielsen 
introduced its National People Meter in response to industry pressures 
and the threat of competition from AGB. The difference then was that no 
one tried to roll back this progress through legislation.
A Changing Television Landscape
    Clearly, the business of television advertising has changed 
considerably since the Media Rating Council was established in 1964.
    Back then, the only networks on TV were known by their initials--
ABC, CBS and NBC--and local channels were all identified by call 
letters. Cable was still a young medium, heavily regulated to keep it 
out of the top 100 markets. And the first communication satellite--
Telstar--had just been launched 2 years before.
    Moreover, no one in the industry at that time could even have 
imagined the concept of time-shifting, when people can watch a 
particular show when they want to, not when the networks program it for 
them.
    In short, when the MRC was created, broadcast was synonymous with 
television.
    Obviously, that's no longer the case. Today, there are scores of 
cable networks with more expressive names like Oxygen, Spike, Black 
Entertainment Television, Galavision, as well as local cable channels 
appealing to many more ethnically diverse portions of the community. 
Each caters to very different audiences, and myriad advertisers and 
their agencies work very hard to reach them.
    The skies are filled with satellites beaming programming around the 
world. And everyone in the industry is familiar with Video on Demand 
and Digital Video Recorders such as TiVo.
    With the proliferation of cable and satellite, television viewers 
have more choices than ever before, and this certainly has affected 
ratings. Viewing has not declined but it is now spread among more 
program sources, resulting in lower ratings for some broadcaster 
networks, and many more cable networks getting some ratings were none 
had previously existed. Advances in technology also have given people 
many more options beyond television, including the Internet, mobile 
phones and video gaming.
The Role of the Media Rating Council
    As the television universe expands, my clients--the major 
advertisers--demand the most accurate and reliable ratings system 
possible.
    American television today is the best measured advertising medium 
in the world. It is the only U.S. medium that uses electronic meters, 
which are far more accurate than the diaries that measure radio or the 
surveys that measure newspapers and magazines.
    But I am concerned, Senator Burns, that your bill, by giving the 
MRC membership the power to block new technologies and new services, 
will turn back the clock on the progress we have made in developing an 
effective television ratings system.
    The MRC staff is composed of business professionals whose job 
include making sure that the ratings that are used in the industry meet 
the highest standards for accuracy. They do this by insisting on 
transparency to all the participants in the market, reviewing 
independent audits and working with measurement services to adopt 
better technologies and more rigorous procedures.
    However, there is no question that when MRC members vote on whether 
to approve new technologies, they always, to some degree, consider the 
impact on their own bottom line. Ironically, this resistance to change 
makes local broadcasting a less attractive option for my clients.
    As it's currently constituted, the MRC is still dominated by 
broadcasters. In some cases, large broadcasting companies--through 
their co-ownership of broadcast networks, cable networks, broadcast 
stations, studios and syndicators--have as many as four or five votes 
each, while cable operators, advertising agencies and advertisers each 
have just one.
    This means that just five or six major media companies could work 
as a bloc to delay ratings systems that would hurt their bottom line.
    This is not speculation. If your bill were in effect today, Nielsen 
would have been prevented from introducing Local People Meters in the 
country's largest media markets even though the information they are 
producing there is much more accurate than the meter/diary systems they 
replaced.
    There is no question that LPMs are a superior ratings service. They 
have larger samples, including more African American and Hispanic 
households; they better represent the communities they measure; and 
they provide the immediate demographic data that my clients need to 
make advertising decisions. Yet in New York, for example, the MRC still 
has not accredited the LPM service, even though it was ready to be 
introduced almost 15 months ago. How can this be?
Fault Rates Are a Red Herring
    Over the past year, we've heard a great deal about LPM fault rates. 
I believe this has been a red herring--an excuse to delay 
accreditation.
    First, fault rates are only one measure of sample quality--and not 
the most important one. The composition of the sample and the 
acceptance rate are all equally if not more important. However, all 
pale in comparison to the sample size and the superior data collection 
technology that LPMs use.
    But the real reason I believe fault rates are a red herring is that 
many of the MRC members who now complain about fault rates in LPMs 
regularly voted to accredit meter diary systems in which ``fault'' 
rates were even higher--not only for the overall market, but for people 
of color too.
    Indeed, on a comparative set-to-set basis, fault rates have 
consistently been higher in metered/diary markets than Local People 
Meter markets. What's more, while there are no exact comparisons for 
diaries, as many as 14 percent of diaries returned to Nielsen cannot be 
used--the equivalent of faulting in diaries. And then of course there 
are those diaries that are never returned at all.
    If MRC members are so concerned about fault rates, how did those 
meter/diary markets get accredited? Did the fact that broadcasters' 
ratings are higher under the diary than under LPMs have anything to do 
with this?
    Like the broadcasters, I too am concerned about fault rates in 
Chicago and New York, but I am also concerned about fault rates in 
Glendive, Terra Haute, and Tallahassee. If the MRC sets impossibly high 
standards for LPM markets, how can they justifying setting lower 
standards for non-LPM markets?
An Unworkable Bill
    In short, I believe the bill is unworkable.
    As I noted earlier, the MRC was created to deal with a television 
industry that, essentially, no longer exists. TV audiences today are 
becoming more diverse, subdividing into ever-smaller segments. In 
response, newer networks and channels are emerging to better serve 
these niche markets. Instead of 4-6 channels, the average U.S. 
household now receives in excess of 130 channels.
    At the same time, the viewer is becoming the boss. Growing numbers 
of people are using digital technologies to choose what, when and how 
they watch.
    In other words, we need an accreditation process that is fast, fair 
and efficient. None of which is attainable under the pending 
legislation, because the MRC was not created to be an objective 
standard-setting organization.
    The MRC should however serve its traditional role as a forum for 
the industry to improve the overall performance of the measurement 
services. To that end I believe the MRC's voting procedures need to be 
seriously overhauled. Senator, I know you support the concept of one-
person/one vote and I assume you do not believe it is fair for one 
company to have five votes and another to have only one.
    If you try to change the MRC from an industry group working to 
improve the services offered, and try to make it a more regulatory 
body, we would have to consider whether anyone with a stake in the 
outcome of the votes should be in the MRC at all, given their incentive 
to vote their own self-interest. And if the MRC has a different 
membership structure, who would choose the members and who would they 
report to?
    Finally, what would an overhaul like this cost and who would pay 
for it?
    In a free market, broadcasters, cable operators, advertisers and 
their agencies, among others, should be willing to foot the bill if 
they believe such changes are feasible and beneficial. Just as they 
should be willing to pay for more than one rating service if they think 
that's a practical solution.
    Still, as we've seen in the past, the broadcast industry has been 
unwilling to help finance more than one service. That's too bad, 
because I, for one, would like to see more competition in the ratings 
business. I think it would be good for all of us, including Nielsen, 
because it would drive innovation faster and further.
    But legislation won't achieve that goal. To the contrary, this will 
effectively ensure that Nielsen never again ever faces any competition.
    No company would invest the vast amount of time, resources and 
dollars needed to start a measurement service if they knew it could 
remain idle for a year or more--generating no revenue--as MRC members 
debated its fate. What potential Nielsen competitor could afford that?
Trying to Legislate a Business-to-Business Issue
    I believe this legislation stems from a disagreement on the 
accuracy of ratings reporting in certain markets and among certain 
audience segments. It proposes external, mandatory regulation of a 
system that is in many ways self-regulating, where participants 
themselves--buyers, sellers, stations--engage in ongoing dialogue about 
the system.
    Underlying our dialogue is the agency's responsibility to its 
clients, and ultimately the clients' responsibility to its customers 
(the same customers the television station is trying to reach with its 
programming). Also important is the broadcasters' responsibility toward 
dual constituencies: the viewers as well as the advertisers. 
Consequently, it is in everyone's best interest that the public is 
served.
    What we have then is an industry research dispute over whether 
Nielsen's methodology accurately reports the size of the audience and 
how these procedures might be improved to more accurately report viewer 
behavior.
    It is not a question of whether a broadcaster is serving the public 
interest. Rather, it is a matter of whether the yardstick by which 
audiences are measured does so accurately. Not acknowledging the 
relationship among advertisers, audiences, and broadcasters would 
dampen the dialogue that seeks to improve the system.
The Free Market as the Solution
    The founders of the Media Rating Council couldn't have predicted 
what television would be like in the 21st century. But they did have 
the foresight to explicitly reject government oversight because they 
recognized the negative impact on innovation and competition.
    That, at least, has not changed in over 40 years.
    Attempts to roll back the clock by eliminating systems like Local 
People Meters, or by slowing down the development of new technologies 
that measure time-shifting and on-demand services, will not stop 
change.
    Is this regard, are current television ratings fully adequate? No. 
Is there room for improvement? Always. But innovation cannot be 
mandated by the government. In fact we've seen many times in the past 
that when the government tries to interfere in the private sector--no 
matter what its good intentions--it usually makes the situation worse.
    The MRC has played an important role over the past 40 years in 
making television the best measured medium. Like any other institution, 
it can operate better. But I believe the members of the MRC--as private 
businesses operating in the free enterprise system--can certainly work 
out for themselves how to make the organization more effective.
    Thank you.

    Senator Burns. Thank you.
    And we'll hear now from Gale Metzger, former CEO, SMART 
Media.
    And thank you for coming today. Oops, did I miss somebody? 
I did.
    Let's call on Mr. Pat Mullen, who is President, Tribune 
Broadcasting.
    Pull your microphone up, if you would, Mr. Mullen, please.
    Mr. Mullen. Certainly.

          STATEMENT OF PATRICK J. MULLEN, PRESIDENT, 
                  TRIBUNE BROADCASTING COMPANY

    Mr. Mullen. Mr. Chairman, thank you for the opportunity to 
appear before you to testify in support of S. 1372, which will 
go a long way toward assuring that there is a strong, 
independent body to ensure the reliability of television-
audience measurement.
    My name is Pat Mullen. Our company, Tribune Broadcasting, 
operates 26 major-market television stations located in 15 
states from coast to coast, including stations in 8 of the 10 
largest markets. Our station's success has depended, in every 
case, on accurate count of our audiences. Our stations get a 
report card every morning from Nielsen. These ratings determine 
which programs remain on the air. We're eager to compete with 
our fellow broadcasters and with cable and satellite, but to do 
this we must have an honest report card.
    Mr. Chairman, I regret to say that the measurement system 
that we have today in the largest television markets is not 
worthy of the public trust. Congress has repeatedly 
acknowledged the importance of a free and robust broadcast 
service, which is particularly important in times of crisis. It 
deserves a guaranteed minimum standard of accuracy because of 
the importance of television news, public affairs, sports, and 
entertainment programming to this country's culture and to our 
democracy.
    We are not here today in an attempt to secure a competitive 
advantage over our competitors. Our company welcomes 
competition. The problem, Mr. Chairman, is that the keys to our 
success, our ratings, are held by a monopoly. When Nielsen had 
a competitor, its service and its response to client concerns 
were substantially better than they are today. In absence of 
competition, we are left to plead for fair treatment and 
reliable results. Time and again, Nielsen has turned us away.
    We have no choice but to do business with Nielsen. And 
despite recent ratings challenges, our company has always had a 
good relationship with Nielsen. So, we are here today 
reluctantly, but with a sense of urgency.
    In 1964, the Media Ratings Council was established, at the 
urging of Congress. The MRC's mission is to maintain confidence 
in audience research and to secure measurement services that 
are valid, reliable and effective. Historically, participation 
in the MRC process has been voluntary. The MRC cannot force 
anyone to comply with its procedures. The Local People Meter 
Service that Nielsen has implemented in New York and Chicago 
and other markets has yet to be accredited by the MRC. And 
without quoting a myriad of numbers, it is worth nothing that 
in New York, on the average day for the week ending July 10, 
the viewing choices of nearly one-third of Black and Hispanic 
men ages 18-34 in the LPM sample were not reflected in the 
ratings. Despite this, Nielsen has just launched the LPM 
service in Washington, D.C., and Philadelphia, without MRC 
accreditation. It is clear to me that Nielsen submits to the 
MRC processes only when it suits its aggressive business 
strategies.
    In numerous meetings, e-mails, and letters over the past 
year, Tribune has pointed out defects in the Nielsen's LPM 
sample. Nielsen has acknowledged the difficulties and has 
promised to fix these problems. But, despite Nielsen's effort, 
it has failed to fix these problems.
    For these reasons, in a letter dated May 25, 2005, Tribune 
and 17 other broadcast companies urged Nielsen to postpone the 
scheduled deployment of the LPM service in Philadelphia and 
Washington, D.C., Nielsen refused. In response, the MRC, under 
the guidance of Executive Director and CEO George Ivie, 
recommended a meeting between Nielsen and either the MRC's 
Television Committee or the full board, or that Nielsen 
participate in the MRC mediation process. Broadcasters 
accepted, with a preference for mediation. Nielsen refused 
both.
    Finally, on June 28, the MRC Board of Directors approved a 
resolution recommending that Nielsen offer LPM service in 
additional markets only after completing an MRC audit. 
Nielsen--or, excuse me, Tribune then asked Nielsen to accept 
the MRC Board's resolution and delay the scheduled launch in 
Philadelphia and Washington, D.C. Nielsen's response again was 
an immediate no.
    Had Nielsen been more responsive to these concerns of 
broadcasters and of the MRC, I doubt that we would be here 
today.
    A promising new measurement service, Arbitron's Portable 
People Meters System, is being tested in the Houston market. 
This new passive technology measures both television and radio 
audiences. Arbitron has licensed this technology in Singapore, 
Norway, and Canada. Unfortunately, Nielsen has the contractual 
option to form a joint venture with Arbitron to market the PPM 
television service in the United States. Because PPMs are an 
alternative to Nielsen's proprietary LPM service, it appears 
highly unlikely Nielsen will allow the PPM technology to 
compete with its LPM service.
    Throughout Tribune's long history, we very rarely have 
petitioned for Federal intervention in the marketplace; 
however, in this case, despite our efforts, we simply do not 
have the ability to persuade Nielsen to submit to voluntary MRC 
processes. And because Nielsen is a monopoly, we have nowhere 
else to turn to get accurate and reliable ratings.
    S. 1372, the FAIR Ratings Act, would correct this market 
failure. The bill would not impose any undue burden on parties 
to the process and would enable the MRC to fulfill its mission.
    In my written testimony, I provided examples and written 
communications \17\ showing that we are not dealing with a 
trivial dispute or sour grapes because our ratings are down. 
And after more than a year's experience in New York and 
Chicago, the LPM system continues to be embarrassingly 
defective.
---------------------------------------------------------------------------
    \17\ Information referred to has been retained in Committee files.
---------------------------------------------------------------------------
    Clearly, the free market cannot solve this problem, which 
is a serious one. Free over-the-air broadcasters, unlike our 
cable and satellite competitors, depend on a single revenue 
stream, which is derived from advertising. We do not charge a 
subscriber fee, and we make our service available free to all. 
Accurate and reliable ratings are keys to the health of our 
business.
    Mr. Chairman, we appreciate your allowing us to take the 
time today to express our views and urge the Committee to 
favorably report S. 1372.
    Thank you.
    [The prepared statement of Mr. Mullen follows:]

          Prepared Statement of Patrick J. Mullen, President, 
                      Tribune Broadcasting Company
    Mr. Chairman and members of the Committee, thank you for the 
opportunity to appear before you today to testify in support of S. 
1372, which will go a long way toward assuring that there is a strong 
independent body to oversee the reliability of television audience 
measurement.
    My name is Pat Mullen. Our company, Tribune Broadcasting, operates 
26 major market television stations located in 15 states from coast to 
coast, including stations in 8 of the 10 largest markets.
    All of these TV stations are what used to be called ``independent'' 
stations--local stations that did not have the legacy of a network 
identification to hold loyal viewers year after year. Through 
innovative local, sports and syndicated programming, Tribune's stations 
have provided viewers with an alternative to the ``traditional'' 
networks, attracting viewers to programs they could not find elsewhere. 
Their success has depended in every case on an accurate count of our 
audience. New stations, small stations, UHF stations, as well as 
broadcast pioneer stations like WGN-TV in Chicago, KTLA in Los Angeles 
and WPIX in New York, have found they can compete and succeed if they 
provide new and better programming options for viewers.
    Our stations get a report card every morning from Nielsen. Those 
ratings determine the viability of our business.

   They determine the value of our advertising.

   This in turn determines how much money can be invested in 
        new and better programming, and in new digital technology.

   And ratings also determine which programs remain on the air, 
        and which ones will be taken off for apparent lack of viewer 
        interest.

    Today, all but one of Tribune's television stations have affiliated 
with the newer networks, The WB and Fox. We are eager to compete with 
our fellow broadcasters, and with the ever-increasing number of 
networks vying for viewers' attention over cable and satellite. But to 
do this we must have an honest report card. A trustworthy measurement 
of the size and composition of each competitor's audience.
    Mr. Chairman, I regret to say that the measurement system we have 
today in the largest television markets is not worthy of public trust. 
It does not have the trust of our company or that of more than a dozen 
other responsible broadcasters.
    Congress has repeatedly acknowledged the importance of a free and 
robust broadcast service, which is particularly important in times of 
crisis. We believe the system of over-the-air television in America 
demands statistically valid and reliable measurement of its audience. 
It deserves a guaranteed minimum standard of accuracy because of the 
importance of television news, public affairs, sports and entertainment 
programming to this country's culture and to our democracy.
    In times of crisis, from hurricanes in Florida to fires in 
California, when the cable is out and satellite service is interrupted, 
broadcasters serve as the first responder on the scene, transmitting 
potentially life saving information to our fellow citizens. We are 
proud of that record of service. It may prove even more vital if, as in 
London and Madrid, terrorist attacks continue to spread beyond the war 
zone in the Middle East.
    But we are not here today in an attempt to secure an advantage over 
our multi-channel competitors or to slow the erosion of our audiences 
caused by the growing choices available to viewers. Our company 
welcomes competition.
    The problem, Mr. Chairman, is that the keys to our success--our 
ratings-- are held by a monopoly. When Nielsen had a competitor, its 
service and its response to client concerns were substantially better 
than they are today. In the absence of competition, we are left to 
plead for fair treatment and reliable results. Time and time again, 
Nielsen has turned us away.
    We have no choice but to do business with Nielsen. Ratings are the 
currency on which the advertising business operates. And despite recent 
challenges, our company has always had a good relationship with 
Nielsen. So we are here today reluctantly, but with a sense of urgency.
    In 1964, the Media Rating Council was established at the urging of 
Congress. It is a nonprofit organization whose membership includes 
representatives of broadcast TV and radio, cable television, print, 
advertisers, ad agencies, and now Internet constituencies. The MRC's 
mission is to maintain confidence in audience research and secure 
measurement services that are valid, reliable and effective. MRC does 
this through audits to test the methodology and credibility of research 
services, and accreditation to certify services that meet the MRC's 
minimum standards. Research services must disclose their data to the 
MRC to enable it to validate their measurements.
    The Media Rating Council is a classic example of industry self-
regulation. It consumes no tax dollars nor requires government 
oversight. It does its job quietly, professionally and efficiently, 
with participation by all segments of the industry. In our experience 
the MRC has never been used for private gain by one member over 
another, or to delay or stop innovation. The very existence of the 
MRC's auditing and accreditation processes, and its diverse make-up, 
tend to keep participants honest.
    Historically, participation in the MRC's processes has been 
voluntary. The MRC cannot force anyone to comply with its procedures, 
and it cannot require a ratings service to submit to an audit or to 
offer only accredited measurement services. Unfortunately, Nielsen has 
chosen to ignore the MRC's guidance in deploying Local People Meter 
(LPM) service.
    The LPM service that Nielsen has implemented in New York and 
Chicago has yet to be accredited by the MRC. It is worth noting here 
that in New York, on the average day for the week ending July 10, the 
viewing choices for nearly one-third of the Black and Hispanic men ages 
18-34 in the Nielsen LPM sample were not reflected in the ratings. 
(Additional detail is available in the attachments to this 
testimony.)**
---------------------------------------------------------------------------
    ** Attachments retained in Committee files.
---------------------------------------------------------------------------
    Despite these kinds of obvious flaws, Nielsen has just launched its 
LPM service in Washington, D.C. and Philadelphia--also without MRC 
accreditation. It is clear to me that Nielsen submits to MRC processes 
only when it suits its aggressive business strategies.
    Tribune has tried to work constructively with Nielsen and to 
suggest ways to improve audience measurement. In numerous meetings, e-
mails and letters over the past year, Tribune has pointed out defects 
in Nielsen's LPM sample and faulting rates. The problems being 
presented have led to significant under-reporting of important audience 
segments. Nielsen has acknowledged difficulties and has promised to fix 
the problems. But despite Nielsen's efforts, it has failed to fix these 
problems.
    For these reasons, in a letter dated May 25, 2005, Tribune and 17 
other broadcast companies embraced the new technology but urged Nielsen 
to postpone the scheduled deployment of LPM service in Philadelphia and 
Washington until the MRC deemed the system reliable in markets where it 
was already being used.
    Nielsen responded the following day. It said ``the broadcast group 
request for some sort of mandatory, prior MRC accreditation raises 
considerable antitrust concerns.'' Nielsen rejected the industry's 
proposal and the legitimate concerns detailed in our letter.
    In response, the MRC, under the guidance of Executive Director/CEO 
George Ivie, recommended a meeting between Nielsen and either the MRC's 
Television Committee or the full MRC Board, or that Nielsen participate 
in the MRC mediation process. Broadcasters said we would accept either 
approach, with a preference for mediation. Nielsen refused both, saying 
mediation would be ``unnecessarily cumbersome and time consuming.''
    Finally, on June 28, the MRC's Board of Directors approved a 
resolution recommending that Nielsen offer LPM service in additional 
markets only after completing an MRC audit. Tribune then asked Nielsen 
to accept the MRC Board's resolution, delaying the scheduled LPM launch 
in Philadelphia and Washington. Nielsen's response was an immediate, 
``No.''
    So the company continues to ignore the legitimate concerns of its 
customers and the MRC.* Its actions are those of the classic 
unregulated monopoly, accountable to no one. Had Nielsen been more 
responsive to broadcasters' or the MRC's concerns, I doubt we would be 
here today.
---------------------------------------------------------------------------
    * Correspondence submitted with this testimony documents this 
frustrating process. The submitted material has been retained in 
Committee files.
---------------------------------------------------------------------------
    A promising new measurement service, Arbitron's portable people 
meter (PPM), is being tested in the Houston market. This new technology 
measures both television and radio signals, and I believe Arbitron 
plans to use this system for radio ratings starting in 2006. Arbitron 
has licensed this technology in Singapore, Norway and Canada. Although 
Arbitron is managing this test, Nielsen has the contractual option to 
form a joint venture with Arbitron to market PPM television service 
commercially in the United States. Thus, it is our understanding that 
Nielsen could effectively control how and when PPM technology will be 
deployed for television measurement. Because PPMs are an alternative to 
Nielsen's proprietary LPM service, it appears highly unlikely Nielsen 
will allow the PPM technology to compete with its LPM service.
    We hope this testimony makes clear the need for government 
intervention in this critical segment of the U.S. economy. Throughout 
Tribune's long history in both print and broadcast journalism, we very 
rarely have petitioned for Federal intervention in the marketplace. 
Like many of my fellow broadcasters, I personally have spent many days 
trying to reach a private solution to this problem with Nielsen. We 
simply do not have the ability to persuade Nielsen to submit to MRC 
processes and roll out its new measurement systems only after they have 
proved reliable to an independent and expert body, the Media Rating 
Council.
    And because Nielsen is a monopoly, we have nowhere else to turn to 
get accurate and reliable ratings.
    S. 1372, the FAIR Ratings Act, would correct this market failure by 
requiring MRC accreditation before the commercial introduction of any 
commercial ratings measurement system. The dispute resolution system 
established by the bill would provide ready means to test the 
reliability of new measurement systems, and would encourage companies 
that design them to vet them thoroughly, ensuring their credibility and 
integrity before they are launched commercially. The bill would not 
impose any undue burden on parties to the process, and would enable the 
Media Ratings Council to fulfill its mission of encouraging the 
development of reliable and improved ratings measurement systems, which 
we fully support.
    The examples included in this report demonstrate that we are not 
dealing with a trivial dispute or sour grapes because our ratings are 
down. After more than a year's experience in New York and Chicago, the 
LPM system continues to be embarrassingly defective.
    Sampling issues abound, including problems with response rates, in-
tab representation and fault rates. For example:

   New York's LPM response rate averaged 25.3 percent for the 
        week ending July 3, 2005. This means that 3 out of every 4 
        households initially designated as sample households refused 
        installation of a people meter in their home or accepted a 
        meter but did not contribute any viewing data.

   Young men ages 18-34 have been persistently under-
        represented in Boston, Chicago, Los Angeles, New York, 
        Philadelphia and San Francisco. Fault rates for men 18-34 
        generally are twice as high as those for men ages 55+ in LPM 
        samples.

   Fault rates remain unacceptably high for important audience 
        segments such as African Americans and Hispanics despite new 
        coaching initiatives. On the average day in New York for the 
        week ending July 10, the viewing choices of nearly one-third of 
        the Black and Hispanic men ages 18-34 in the LPM sample were 
        not reflected in the ratings.

   Chicago sample data for the week ending July 10th show that 
        almost one-third of the 443 African Americans installed in the 
        sample were not in tab--meaning their television viewing was 
        not counted in the ratings.

   Households of 5 persons or more have been persistently 
        under-represented in the total samples in New York, Los 
        Angeles, Chicago and Boston. In New York, for the week ending 
        July 10, the viewing choices of more than 1 in 4 of the Black 
        and Hispanic households of 5 or more persons in the LPM sample 
        were not reflected in the ratings.

   Fault rates for households of 5 or more are generally 2 to 3 
        times as high as in one-person households.

    Clearly, the free market cannot solve this problem, which is a 
serious one. Free over-the-air broadcasters, unlike our cable and 
satellite competitors, depend on a single revenue stream, which is 
derived from advertising. We do not charge a subscriber fee, and we 
make our service available free to all. Accurate and reliable ratings 
are key to the health of our business. Mr. Chairman, we appreciate your 
allowing us the time to make our views known, and urge the Committee to 
favorably report S. 1372.
    Thank you.

    Senator Burns. Thank you very much.
    Now we'll have Mr. Gale Metzger, Former President, 
Statistical Research Inc.
    Thank you for coming today.

   STATEMENT OF GALE METZGER, FORMER PRESIDENT, STATISTICAL 
                         RESEARCH INC.

    Mr. Metzger. Thank you, Senator Burns. And thank you for 
the invitation.
    I am Gale Metzger. My entire career has been spent in the 
audience-measurement arena. I began at the A.C. Nielsen 
Company, and then for 32 years I was President of Statistical 
Research, Inc., a company that I founded with Dr. Gerald 
Glasser, of New York University. In 1963, I participated in the 
Congressional hearings as a Nielsen employee. SRI, our firm, 
conducted methodological research for the industry for over 30 
years. In the 1990s, we created and operated a ratings 
laboratory under the name of SMART. Currently, I am a senior 
consultant with Knowledge Networks, Inc.
    I appear today representing myself, my own views and 
interpretations. There are no lawyers, no public-relations 
people or anyone else behind me telling me what to say. I speak 
from a lifetime's experience and a deep commitment to the 
understanding that research quality makes a difference. Good 
information helps markets work better. Bad information 
undercuts business performance.
    I will briefly address three points:
    First, the Media Rating Council. I was present when the 
Broadcast Rating Council, now the Media Rating Council, was 
formed. I participated in the debates around the operating 
protocols. I was the Nielsen person who was responsible for 
structuring the first audit of its services. SRI's Syndicated 
Audience Measurement Service to the radio industry, RADAR, was 
audited by the MRC for over 30 years.
    The MRC serves a vital role in our industry. An important 
byproduct of its work is to encourage innovations and 
improvements in methods. Whether I was working at, or owned, a 
service that was being audited, the MRC helped me do a better 
job. If audit reports were open and available to all clients, 
they would be even more valuable.
    Media ratings systems are frail, sometimes more so than we 
practitioners like to admit. To use information from these 
systems intelligently and effectively, users need to know what 
is going on, and they need to know before the data hit the 
marketplace, not after. Hence, I agree with the intent of the 
proposed legislation, which is that all services providing 
marketplace currency be accredited by the MRC.
    I understand that Nielsen has expressed objections to the 
proposals and stated they would lead to less innovation and 
less competition. The opposite would be true. It would be 
difficult to have less competition or less innovation than we 
have now. And I must insert that I have a totally different 
view than was expressed by Ms. Whiting and Ms. Crawford on the 
effects on competition and innovation.
    It is in Nielsen's and the industry's best interests to 
embrace the intent of this legislation. I, further, believe 
that complete coverage of all services is what the industry 
committed to achieve in testimony before the Congress in 1963.
    Changes in the industry structure have made the MRC even 
more important today. The networks once dominated national 
television. They were permitted to work together on issues 
related to methodology. Then, there was a balance of power 
between Nielsen and the networks. With a fragmented medium, no 
single client or group of clients wield that much influence. In 
effect, if Nielsen does not answer to the MRC, it answers to no 
one. I believe this explains, in part, Nielsen's new, more 
aggressive posture with the MRC.
    Nielsen and others may have particular points about the 
legislation that warrant discussion. I'm confident details can 
be worked out if we have sufficient desire on the part of all 
concerned parties to do so. That has apparently not been the 
case for the past year, so I think I understand the reasons why 
you, Senator Burns, introduced this bill.
    Second, why are we here? I submit that we are here because 
Nielsen clients feel they are hostages to a company that 
controls their basic well-being. Further, Nielsen operations 
are deficient, and those deficiencies jeopardize those clients' 
businesses. This is not a manufactured controversy. There is a 
real problem. When emotions run as high as they currently do 
among a large share of clients, something is not right.
    Evidence of the industry's effort to bring improvement 
include the network support of SRI's methodological research, 
the support of CBS and others for the AGB initiative, and, more 
recently, the support of 30 networks, advertisers, and agencies 
of our SMART Ratings Laboratory.
    Nielsen deficiencies are several and significant. Perhaps 
the broadest complaint is that Nielsen is not responsive on 
data-quality issues and to client concerns unless the threat of 
competition is raised.
    The people meter was introduced by Nielsen in 1987 only 
after a British company, AGB, tried to enter the U.S. market 
with a similar meter. Nielsen's new AP meter was announced in 
1995, only after the SMART Laboratory was underway with a new 
meter in development. When SMART went away, the introduction of 
the AP meter was delayed. Ten years after the fact, the AP 
meters have just begun to roll out.
    In sum, clients will tell you that when the threat of 
competition is present, Nielsen is a different company than 
when, as now, there is no threat.
    A more specific deficiency is Nielsen's metering 
technology. It has not kept pace with modern media. We are 
moving rapidly into the 21st century with an aged 20th-century 
meter platform. The high fault rates in the Nielsen sample is 
evidence of their out-of-date technology. Fault rates are high 
because the meters are not state-of-the-art. The fault is with 
the meters and how they operate. The fault is not with the 
homes or the people in them.
    Are Nielsen's new systems better than the old? Are the 
audience estimates more accurate? The truth is, no one knows. 
And that is disconcerting. We do not know the effect of skipped 
homes or faulting homes. What is known is that Nielsen is 
producing more data and generating more revenue than ever 
before.
    Data access is a core deficiency of Nielsen. Clients cannot 
get to information they need for decisions. Data access is an 
important component of quality.
    Nielsen weighting procedures are still another point of 
contention.
    The real problem with each of these and other deficiencies 
is that they all affect audience levels. Some reported audience 
ratings are higher, and some lower, than is the reality. Some 
organizations' bottom lines are improved, and some are made 
worse. This observation leads to the last deficiency that I 
cite today: Nielsen is almost cavalier about making changes in 
procedures. If measurement techniques change, some audiences 
will be greater, and some lesser, than before. The real 
audience has not changed, but the reported audience change. 
Some win, some lose. The only way to prepare for such events is 
to communicate planned changes with evidence to the benefits to 
the industry and to supply an abundance of data. To force-feed 
a change invites disaster. That is what Nielsen effectively 
did, and they reaped what they sowed.
    Nielsen publicly proclaimed their shock, their dismay and 
surprise at the industry's reaction to the LPM. Such reactions, 
to me, speak of posturing or a lack of understanding of their 
clients' legitimate concerns.
    Third, and last, the need for action. At the 1963 hearings 
on ratings, Chairman Harris, of the House Committee on 
Interstate and Foreign Commerce, referred to the ratings 
industry as being in an intolerable situation. Today, many also 
feel that situation is intolerable.
    I see confusion in the marketplace about the nature of the 
problem. More data does not equal better data. Also, it is 
unfortunate that a large part of the discussion about the LPM 
has focused mainly on minority measurement issues. I do not 
believe the problem is associated only with minorities, and not 
only with the LPM. The LPM controversy is the tip of the 
iceberg.
    I know about minority measurements. For over 25 years, SRI 
served the National Black Network and Sheridan Broadcasting as 
part of our RADAR service. Measurements for minorities should 
be judged by the same quality standards, and subject to the 
same audit review, as are all other media audience 
measurements.
    Audience measurements should be inspected for all important 
population subgroups, but I do not believe race or ethnicity is 
the primary issue with the LPM. I believe the issue is how a 
monopolist relates to its clients. The issue is whether these 
Nielsen ratings data, when used as currency, are really ``funny 
money.'' We just do not know enough about Nielsen research 
quality.
    Susan looks at Nielsen Media Research and sees a glass 
full. I see a gallon jug with a few drops of water in the 
bottom, sloshing around.
    Whether this proposed legislation goes too far, or not far 
enough, I shall leave for others to judge. The MRC is 
essential, but it may not be sufficient. Many feel the need for 
a joint industry effort to set specifications and award an 
industry contract, as occurs in other parts of the world. In 
that direction, the Advertising Research Foundation has 
structured an audience measurement initiative which is 
currently being discussed.
    Like most others here, I favor free market solutions for 
free markets. Where there are multiple buyers and sellers, 
there is seldom cause for the government to become involved. 
However, here we have a monopoly. Legislation may be the only 
way to get Nielsen to the table, and I think this bill is the 
right way to go. And further action may be needed to deal with 
the possible industry initiative to further improve the 
situation.
    Thank you very much.
    [The prepared statement of Mr. Metzger follows:]

         Prepared Statement of Gale Metzger, Former President, 
                       Statistical Research Inc.
    I am Gale Metzger. My first professional job was with the A. C. 
Nielsen Company. For 32 years, I was President of Statistical Research, 
Inc. a media and marketing research company that I founded with Dr. 
Gerald Glasser of New York University. I have been active in the 
industry and served as Chairman of the Board of the Advertising 
Research Foundation and President of the Radio and Television Research 
Council and the Market Research Council.
    In 2001, SRI was sold in two parts. Our network radio measurement 
service went to ARBITRON and the other operations were sold to 
Knowledge Networks, Inc.--a firm I continue to work with as a senior 
consultant.
    For 48 years, I have been engaged in media research. Over 40 years 
ago, I participated in the 1963 Congressional Hearings as a Nielsen 
behind-the-scenes overnight supplier of answers to questions posed by 
congressional staffers. Fifteen years ago, at the request of key 
industry stakeholders, our firm (SRI) conducted an in-depth review of 
Nielsen's newly introduced people meter system which resulted in a 
seven volume 600-page report. Nielsen called that work ``an outstanding 
effort'' and the industry characterized it as a blueprint for progress.
    SRI conducted methodological research for the industry for over 30 
years. In the 1990s we created and operated a ratings laboratory under 
the name of SMART. SMART was an acronym for Systems for Measuring And 
Reporting Television. All of that work was dedicated to understanding 
and improving measurement methods. The SMART laboratory was successful 
in developing new, user-friendly TV meters and in providing audience 
data to client desktops along with analytic software to enable use of 
ratings information for business decisions on a timely basis. In 1999, 
SMART was proposed as a competitive system to Nielsen. The necessary 
capital to launch the service, however, was not forthcoming.
    In January of this year, I was asked by the Advertising Research 
Foundation to provide a historic overview of TV audience measurement in 
the United States at a special meeting it convened on the topic of 
Accountability of Audience Measurement. I am submitting the paper 
provided there as an addendum to my testimony today.
    I appear today representing my own views and interpretations of 
current events in the television audience measurement business. I have 
no lawyers, no public relations people or anyone else behind me telling 
me what to say. I speak from a lifetime's experience and a deep 
commitment to the understanding that research quality makes a 
difference. Good information helps markets work better; bad information 
undercuts business performance.
    I will briefly address three general points.

   First, the role and value of the MRC to the audience 
        research business.

   Second, why we are here? Why is legislation being 
        considered?

   Third, the need for action to enable the television ratings 
        process to facilitate rather than frustrate the marketplace.

Media Rating Council
    I was present when the Broadcast Rating Council, now the Media 
Rating Council was formed. I participated in the debates around the 
operating rules and helped with drafting the disclosure standards that 
are part of the MRC protocol today. I was the person at Nielsen who was 
responsible for structuring the first audit of Nielsen. In later years, 
SRI provided a syndicated audience measurement service to the radio 
industry, RADAR, which service was audited by the MRC for 30 years. I 
have deliberated and consulted with MRC executive directors for over 40 
years.
    The MRC serves a vital role in our industry. By assuring disclosure 
of research company methods and by auditing the accuracy and 
completeness of disclosure, the MRC enables an informed market. An 
important byproduct of is work is to encourage innovations and 
improvements in methods. MRC reporting and tracking of key quality 
indicators, appropriately and constructively pressures research 
companies to rectify weaknesses.
    When I was working at or owned a service that was being audited, 
the MRC helped me do a better job. Totally independent, it gave 
research company management an objective quality control report. When I 
was at Nielsen or in my own business, I was paying an audit firm and I 
wanted maximum value from that expenditure, just as any other expense. 
Hence, there were occasional discussions between the researcher and the 
auditor around the audit plans and the most effective use of audit 
resources. There was a healthy dialogue, and as a result audit 
operations were improved.
    I have always believed that audit reports should be open and 
available to all clients whether or not the clients were members of the 
MRC. I was happy to show my audit reports to my clients. All media 
rating systems are frail, sometime more so than we practitioners like 
to admit. We manufacture numbers (statistical estimates) that have 
broad business and social implications. We use methods that are 
subjective and often less than ideal. To use information from these 
systems intelligently and effectively, users need to know all. And they 
need to know before the data hit the marketplace, not after.
    Hence, I agree with the intent of the proposed legislation which is 
that all services providing marketplace currency be accredited by the 
MRC. I understand that Nielsen has expressed objections to the 
proposals and stated that the proposed plan would lead to less 
innovation and less competition. First, it would be difficult to have 
less competition or less innovation than we have now. Second, it is my 
impression that Nielsen has become a reluctant participant and not 
permitted select components of their services--new and old--to be 
examined by the MRC process.
    During the Congressional Hearings in 1963, Nielsen clients were 
incensed because they were unaware of some Nielsen procedures disclosed 
at the hearings. There is a principle that characterizes all successful 
service businesses--keep your clients involved and informed. Never 
surprise a client. I believe it is in Nielsen's and the industry's best 
interest to embrace the intent of this legislation. I further believe 
that complete coverage of all services was what the industry committed 
to achieve in testimony before the Congress in 1963.
    An important change in the industry structure over the past 20 
years has made the MRC industry role even more important today. When 
the networks effectively dominated the national television arena and 
were permitted to work together on issues related to research 
methodology, there was a balance of power between Nielsen and the 
networks. With a fragmented medium, no single client or group of 
clients wields that much influence. In effect, if Nielsen does not 
answer to the MRC, it answers to no one. I believe this explains, in 
part, their new, more aggressive posture with the MRC.
    Nielsen and others may have particular points about the legislation 
that warrant discussion. I am confident that details can be worked out 
to the benefit of all, if we have sufficient desire on the part of all 
concerned parties to do so. That has apparently not been the case for 
the past year, so I think I understand the reasons why Senator Burns 
introduced his bill.
Why We Are Here
    I submit that we are here because Nielsen clients feel they are 
hostages to a company that controls their basic well-being; further, 
that Nielsen operations are deficient in important regards and those 
deficiencies jeopardize the clients' businesses. This is not a 
manufactured controversy; there is a real problem. We are not here 
because of normal, expected competitive posturing. I do not defend the 
actions of some media companies, but I recognize their actions as a 
response to dealing with a monopolist who is unresponsive to the 
fundamental issues. When emotions run as high as they currently do 
among a large share of the client community, you know something here is 
not right.
    The industry's natural response should be to work quietly with 
Nielsen to improve. Nielsen is the industry's nest and a bird does not 
foul its own nest! Agencies do not want to say to advertisers that I am 
spending your hundreds of millions of dollars on meaningless numbers; 
nor do the media want to say to advertisers that I am taking your 
hundreds of millions of dollars on meaningless numbers. So while the 
industry has often striven for a constructive response, Nielsen simply 
does not react. I believe that Nielsen has been its own worst enemy in 
thwarting a constructive dialogue.
    Evidence of the industry's efforts to bring improvement include the 
networks support of SRI's methodological research, the support of CBS 
and others of the AGB initiative and more recently, the support of 
thirty networks, advertisers and agencies for the SMART ratings 
laboratory.
    Nielsen deficiencies are several and significant. Perhaps the 
broadest complaint is that Nielsen is not responsive on data quality 
issues and to client concerns--unless the threat of competition is 
raised. The people meter was introduced by Nielsen in 1987 only after a 
British company AGB tried to enter the U.S. market with a similar 
meter. Nielsen's new A/P meter was announced in 1995 when the SMART 
laboratory was in process. It was noticed by all that when SMART went 
away, the introduction of the A/P meter was delayed. Ten years after 
the fact, the A/P meters have just begun to roll-out.
    The A/P meter involves changes in Nielsen operations. Research 
should have been conducted to know how best to proceed. When SMART was 
in operation, Nielsen published a copyrighted research plan that was 
well framed. After SMART went away, the plan was forgotten and the 
industry is now faced with core operating procedures that are 
effectively untested and unproven.
    In sum, clients will tell you that when competition or the threat 
of competition is present, Nielsen is a different company than when, as 
now, there is no competition.
    A more specific deficiency is Nielsen's metering technology. It has 
not kept pace with modern media. That means Nielsen has been unable to 
measure many new forms of TV receivers. As a result, homes that are 
selected to be in their samples are passed over and other homes with 
only old technology replace them. For example, in the Nielsen People 
Meter system today, you are not counted if you have a TiVo--or any 
other Digital Video Recorder (DVR). Your neighbor who does not have a 
TiVo takes your place in representing America's viewing. TiVos have 
been around for 6 years. Nielsen says they will meter and report usage 
in DVR homes tomorrow. Tomorrow remains elusive. We are moving rapidly 
into the 21st century with aging 20th century technology.
    The high fault rates in the Nielsen sample is further evidence of 
their out-of-date technology. A fault is what the name implies. It 
means that some homes that do have meters are not processed, are not 
counted, because something is wrong with the data from that home. 
Faults have been around forever. Current fault rates in Nielsen Local 
People meter samples are high because the meters are not state-of-the-
art. The fault is with the meters and how they operate; the fault is 
not with the home or the people in it. Our goal in the SMART laboratory 
was to reduce fault rates to 5 percent or less. Though the target level 
was not achieved before the lab was dismantled, we were gaining on it. 
In fact, we were under 10 percent--and my engineers assured me that we 
would get there.
    Are Nielsen's new systems better than the old? Are the audience 
estimates with the samples omitting bypassed and faulted households 
more accurate? The truth is that no one knows and that is 
disconcerting. What is known is that Nielsen is producing more data and 
generating more revenue than ever before. Perversely, Nielsen reports 
they are beginning to measure TiVo households under the old local 
meter/diary measurements.
    Data access is another core deficiency of Nielsen. Data access is 
an important component of quality. The best information is of no value 
if you cannot get to it. Clients cannot access the information they 
need to make business decisions on a timely basis. Nielsen analysis has 
always been slow and expensive. They place a tourniquet on information 
flow by their ineptness and cost. SMART showed the way as to how to do 
it better. Nielsen has not seen fit to open up the process to allow 
effective use of their information.
    Nielsen weighting procedures are another point of contention. With 
an unweighted sample, all people count the same. Weighting a sample 
means that some people count more than others in the statistical 
process. There are several good reasons for considering weighting. The 
issue here is that Nielsen has changed its attitude toward weighting 
which they had touted for 50 years. The old position was that the 
sample should not be weighted for demographic characteristics because a 
pure probability sampling approach was superior. The new position is a 
180 degree shift. Nielsen virtually recommends weighting on every 
variable. The problem is that when a statistician advocates weighting, 
there is an implication that the resulting data quality are improved. 
Nielsen's arguments for weighting are novel, unproven by independent 
research and to my knowledge not supported by theory.
    My conviction is that they should have introduced some kind of 
weighting years ago. Statisticians agree with judicious weighting while 
being concerned about the abuse of weighting. It is like putting a new 
coat of paint over old wood. The resulting weighted sample may look 
better but the non-responding households are still missing.
    The real problem with each of these and other deficiencies is that 
they all affect audience levels. That means that some audiences' 
ratings are higher, and some lower, than is the reality. Some 
organization's bottom lines are improved and some made worse.
    That observation leads to the last deficiency that I cite today. 
Nielsen is almost cavalier about making changes in procedures. I know 
from experience that two actions can turn a marketplace on its ear. If 
a pricing formula is changed such that some pay more and others pay 
less than previously, turmoil will be assured. Similarly, if 
measurement techniques are changed, some audiences will be greater and 
some lesser than before. The real audience will not have changed but 
the reported audience changes. Some win; some lose.
    The only way to prepare for such events is to communicate planned 
changes with evidence on the benefits to the industry and to supply an 
abundance of data (including parallel measurements, if necessary). This 
would enable the industry to prepare for an orderly transition from one 
operating frame to another. To force feed a change invites disaster. 
That is what Nielsen effectively did, and they reaped what they sowed. 
Nielsen publicly proclaimed their shock, their dismay and surprise at 
the industry reaction to the way in which the LPM was introduced. Such 
reactions to me speak of posturing or a lack of understanding of their 
clients' legitimate concerns.
Need for Action
    In connection with the 1963 hearings on ratings, Chairman Harris of 
the House Committee on Interstate and Foreign Commerce referred to the 
ratings industry as being in an ``intolerable situation.'' Many today 
also feel that the situation is intolerable. Something must be done to 
bring balance to the relationship between Nielsen and the industry it 
is supposed to serve. As with economic trends, I do not believe this 
can go on forever. If an economy is constantly in deficit, that economy 
eventually collapses. Some believe that because it is so difficult to 
bring improvements into this system that it too will eventually 
collapse. The wheels will come off the bus.
    I see confusion in the marketplace about the nature of the problem. 
More data does not equal better data. Also, it is unfortunate that a 
large part of the discussion about the LPM has focused mainly on 
minority-measurement issues. I do not believe the problem is associated 
only with minorities. The key independent variable with respect to 
meter performance is the number of TV sets in the home. More sets 
equals more problems and more faults. That is due to an out-of-date 
meter platform.
    In the late 1960s and early 1970s, SRI did several comparisons of 
Nielsen and ARBITRON data. Clients complained that one service favored 
their competitor or visa versa. Often, the differences were random and 
a function of small sample sizes. Yet people thought they saw patterns. 
I believe there is more speculation and political positioning going on 
than solid data analyses.
    I know about minority measurements. For over 25 years, we served 
the National Black Network and Sheridan Broadcasting as part of our 
RADAR service. In the early 1970s, we produced special measurements of 
Spanish audiences in the New York area which P&G (uncharacteristically) 
urged their agencies to use in buying NY Spanish television. 
Measurements for minorities should be judged by the same quality 
guidelines and subject to the same audit review as are all other media 
audience measurements. While I believe audience measurements should be 
inspected for all important population subgroups, I do not believe race 
or ethnicity is the primary issue with the LPM.
    I believe the issue is how a monopolist relates to its clients. The 
issue is whether these Nielsen ratings data, when used as the currency, 
is really funny money. We just do not know enough today about the 
Nielsen research quality.
    Nielsen has a difficult task. But syndicated services exist here 
and around the world without the acrimony and anger that characterizes 
the U.S. television marketplace. I believe Nielsen has the ability--and 
needs to find the will--to serve its market proactively. At the end of 
the People Meter review in 1988 we recommended that Nielsen concentrate 
on three initiatives:

   Defined procedures and quality control

   Methodological research

   Client Involvement

    Nielsen seemed to endorse those proposals and I hope they may 
reinspect their position today and truly strive to work with the 
industry openly and forthrightly.
    Whether this proposed legislation goes too far or not far enough I 
shall leave for others to judge. Like most others here, I believe a 
voluntary industry solution is the best one. But failing that, 
legislation may be the only way to get Nielsen to the table, and I 
think this bill is the right way to go. I am absolutely convinced that 
something must be done.

        A disclaimer: some of the points articulated herein (e.g., the 
        discussion of weighting) are simplified for purpose of clarity. 
        The author trusts that the thrust of the discussion is clear.

       Attachment--History of TV Audience Measurement in the USA 
                          (by Gale D. Metzger)
Introduction
    Simon Schama's, Dead Certainties, is a good read. Professor Schama 
affirms that the dead, really are dead; everything else--why they died, 
how they died--is a matter of interpretation. History is in the eye of 
the beholder. For some, his book marked the death of any certainty 
about history.
    I have few absolutes to offer in my 30-minute history of television 
audience research in the USA. You will hear my interpretation of events 
and my view of how today contrasts with the past.
    For a more complete history of radio and TV measurement prior to 
the mid-1980s, you should read Mal Beville's excellent book: Audience 
Ratings, published in 1988. Another document that I commend to your 
reading is Thirty Years of CONTAM, published in 1995.
    I speak from my own personal knowledge of 47 years in the business. 
I shall recall the Congressional hearings of 1963 and the associated 
fear of government regulation. What was done by Nielsen and the 
industry to deal with this threat?
    Then I will look at the 1980s and 1990s and how the industry and 
Nielsen acted in response to many of the same problems we face today--
albeit on a lesser scale. Last, a review of today's situation and the 
lack of resources dedicated to improving ratings quality.
A. C. Nielsen
    Sadly, I assure you with dead certainty that the central figure in 
the history of TV audience measurement, Arthur Charles Nielsen, is 
deceased. Born in 1897, he died in 1980. He left a substantial legacy.
    A. C. Nielsen was the son of a Danish immigrant. His father worked 
for 40 years in Quaker Oats accounting division. His son inherited his 
bean-counter mentality. Witness the label ``audit pioneer'' in the 
ARF's 1977 tribute to ``The Founding Fathers of Advertising Research.'' 
Mr. Nielsen--as he was addressed by most--was a trained engineer and a 
scientist. He graduated from the University of Wisconsin's engineering 
school with an extraordinary academic record. In 1923, he started the 
A. C. Nielsen Company with money borrowed from friends. He was an 
excellent businessman, a man of strong character and conviction. I knew 
him as a kind and intellectually generous person. For me, he was the 
proverbial man with a steel fist in a velvet glove.
    The Nielsen Company was a research company that produced good 
services and reasonable profits. It reflected Art the scientist/
auditor. He chose a micrometer as a company symbol and a favorite 
authority he loved to quote was the scientist, Lord Kelvin, who said:

        ``If you can measure that of which you speak, and can express 
        it by a number, you know something of your subject.''

    That A. C. Nielsen Company was one I was proud to work for from 
1958 to 1969.
    The Nielsen business progressed from performance surveys of 
industrial machinery in 1923 to retail sales measures in 1933 and to 
radio audience measurement in 1942. In 1950, television audiences were 
added to the package. He invested 17 years and $15,000,000 before 
achieving a break-even financial position in the media business. That 
is focusing on the long term. That is a person who did not have to 
answer to Wall Street.
    His primary objective was to provide accurate and thorough research 
to support marketing efficiencies. He knew that good information 
lubricated economic gears. He wanted to provide the tools to assess 
advertising and promotion options in the marketing process. He wanted 
to ``further the science of marketing research.'' So that, while his 
name is primarily associated with television research, his personal 
goals were broader.
Congressional Hearings of 1963
    I shall skip the stories of the early competition in audience 
research, well told in Mal's book. I begin in 1963. Hearings were held 
before the Committee on Interstate and Foreign Commerce of the House of 
Representatives. The subject was ``The Methodology, Accuracy and use of 
Ratings in Broadcasting.'' There are several thoughts on how the 
hearings came to be. The role of ratings as highlighted in the quiz 
show scandals of the late 1950s was one stimulant.
    The hearings were to consider the production and use of ratings in 
the broadcasters' fulfillment of their statutory obligation to serve 
the public interest. If ratings were unreliable, then they were 
worthless as a means to that end. Chairman Harris felt there was an 
``intolerable situation.'' The question was: is the service of the 
public and is television commerce being conducted on funny money?
    A year earlier, the prospect of hearings loomed. Congressional 
investigators appeared on Nielsen's doorstep and that of many other 
companies. The actual hearings commenced on February 9, 1963 and ended 
19 months later. The proceedings are memorialized in a 1,932-page 
transcript.
    The hearings changed audience measurement forever. While Nielsen as 
the largest audience research entity had some difficult days during the 
hearings, in the end Nielsen was a great benefactor from the process. 
Evidence of that is in their market position in the ensuing 40 years. 
The Nielsen Company responded well by working with the industry.
    Congress tried to determine whether the rating companies were doing 
what they said they did. They investigated how rating reports were used 
and the effects on both programming and on the sale and purchase of 
broadcast time. In brief, they discovered some research companies were 
apparently making up the numbers from imaginary surveys. Nielsen and 
others were accused of misleading clients as to their procedures and of 
not accurately describing the samples on which ratings were based. 
Congress was exploring Federal regulation and considering legislation. 
The Bureau of Census was asked if it could undertake to provide certain 
broadcast data.
    The Federal Trade Commission became involved. Several ratings 
companies, including Nielsen, Pulse and the parent company of Arbitron, 
were ordered ``to cease and desist from misrepresenting the accuracy 
and reliability of their measurements, data and reports.'' The FTC 
issued guidelines to the media for use of ratings and stated that 
audience claims must be ``truthful and not deceptive'' and that the 
media must avoid activities intended to ``distort or inflate'' audience 
data solely during survey periods.
    Those activities led to a hyperactive industry response led 
primarily by the NAB and featured broad participation. One NAB 
committee included 24 corporate representatives, including delegates 
from the AAAA's and the ANA. The three networks formed a Committee on 
Nationwide Television Audience Measurement, which became known by the 
acronym, CONTAM. The purpose was to improve the quality and 
understanding of audience ratings. That purpose would be fulfilled by 
three actions:

   Require rating services to describe what they do;

   Audit rating services to determine if they do what they say; 
        and

   Conduct continuing and effective research to improve rating 
        methodology.

    Work began immediately.
    The hearings changed the way the industry operated. They were a 
force that improved the audience ratings systems. Arthur Nielsen, Jr. 
pledged to the Congressional Committee the Nielsen Company's full 
cooperation in achieving the ``broad and worthy'' objectives that were 
targeted. Some clients publicly defended Nielsen throughout this 
period. In private, all clients were adamant in their conviction that 
they would not be blind-sided--not be surprised again by a ratings 
service. Full disclosure and auditing of procedures would proceed 
forthwith.
    Not everyone liked the congressional hearings process. The 
investigators were zealous--and at times over the top. During the 
hearings, it had been asked of Nielsen if the use of a permanent panel 
of sample respondents meant that members might be ferreted out and 
influenced to distort the ratings. After the hearings concluded, there 
was an incident that raised eyebrows. One of the investigators used 
information obtained during the hearings to aid a well-known 
entertainer. Some Nielsen homes were contacted to encourage their 
viewing of an upcoming special featuring the entertainer. The efforts 
were discovered by Nielsen and the culprits were called to account. The 
episode was kept under wraps but those who needed to know were informed 
and the whole event served to take some of the pressure off of Nielsen 
with the client community.
Media Rating Council
    As a result of the governmental threat, in less than 1 year, an 
entity to audit research procedures was created. It was originally 
called the Broadcast Rating Council, which is today's Media Rating 
Council. It was to assure ratings companies said what they did and did 
what they said. Was any of this anti-competitive in restricting 
innovations or options? The Justice Department okayed the actions. The 
audits were firmly grounded. The industry had spoken.
    To assure consistency in the mechanics, the industry cooperated in 
creating standard definitions, standards for reports and disclosures 
and standards for presenting sampling error estimates.
    The research companies had differing reactions. Nielsen worked with 
Ernst and Ernst's Operations Research group to create an effective and 
efficient working model. The E&E staff was highly professional and the 
early workings were relatively smooth. Over the years the attitude 
toward the Audit functions ranged from those who saw it as an asset--an 
effective, independent quality control check--to those who sought to 
avoid such crosschecks or to treat it as an unnecessary nuisance to be 
challenged.
    The audit operations have benefited from top quality leadership of 
Executive Directors Ken Baker, Mal Beville, John Dimling, Mel Goldberg, 
Dick Weinstein and today, George Ivie--who you will hear from later 
this afternoon. All of these individuals with their respective Boards 
of Directors worked effectively to sort the wheat from chaff and 
generally served to be an influence for full and accurate disclosure 
and for improvement.
    The MRC today is an important and vital resource. I believe the MRC 
would be even more valuable if its reports were open to the industry. 
The audits are closed to all but MRC directors. The industry only knows 
pass or fail. That is insufficient. I believe that open information is 
a force for understanding and improvement.
    Research companies should have no pretenses. The founder of 
Arbitron, Jim Seiler, had a favorite saying. ``The three things you do 
not want to see made are sausage, legislation and ratings.'' There is 
also the analogy between growing mushrooms and clients. Both should be 
kept in the dark and covered with manure. The humor is too close to 
reality to be funny. Knowledge is power. Knowing strengths and 
weaknesses is key to using data intelligently.
CONTAM
    Back to the story--by 1964 the industry was working with standards 
and definitions, disclosure and audits. What about the third 
commitment, to improve the state-of-the-art? A good share of the early 
work was dedicated to defining where we were. How good or bad were the 
ratings? What could be said on that subject?
    On January 15, 1964, three network executives testified before the 
Congressional Committee on the newly formed CONTAM and its early work. 
Through extended studies CONTAM demonstrated that sampling theory does 
apply to measurement of television viewing behavior. As they said it, 
``relatively small samples give good estimates of TV audience size.'' 
They also committed to tackling other problem areas. CONTAM was joined 
in this work by a parallel local committee, COLTAM.
    That was the beginning of 35 years of methodological review and 
research on the quality of the Nielsen ratings. Until 1999, a 
continuous expenditure of funds by a limited number of industry leaders 
provided data independent of Nielsen or other syndicated services to 
cross-check, evaluate and highlight strengths and weaknesses of the 
audience estimates used in the marketplace.
    In 1969, a Professor of Business Statistics from New York 
University, Gerald Glasser, and I started a research company, 
Statistical Research, better known as SRI. Gerry had been a consultant 
to the networks and the media industry during the prior tumultuous 
years.
    Among our first projects was a series of telephone coincidental 
studies to measure national audiences. The results were presented at 
the 1970 ARF Annual Conference and subsequently published in two 
booklets titled ``How Good Are Television Ratings (continued).'' The 
work examined the effects of methods on results. The best method 
yielded results remarkably similar to Nielsen on TV set usage. In this 
and subsequent research we found consistent differences on persons 
ratings, where we found more young viewers and fewer older viewers than 
Nielsen.
    In the 1970s and 1980s, many independent studies were completed. 
There was a continuous flow of work. Research on the effects of 
weighting and editing rules and of data gathered along with audience 
estimates was done. When a new measurement technique was introduced in 
Chicago, the resulting disputes were addressed through an independent 
study. In 1981, industry sponsored estimates of evolving technologies 
were begun. It was a top quality effort to track TV sets and related 
hardware in the home. Later that work was extended to cover computer 
and telephone devices.
    The efficacy of product ratings was explored in 1972. Arbitron had 
begun to measure the purchase of packaged goods in their TV diaries. 
They produced ratings within product user categories. A widely 
sponsored industry study that was reviewed by an ARF Technical 
Committee demonstrated that program buying decisions based on the 
product data produced inferior results to those based solely on 
standard demographic ratings. It was a classic study. It demonstrated 
that, in this case, more was less. The added data were not reliable and 
were harmful to media buying decisions. Arbitron ceased gathering and 
producing the data.
    In the 1990s, projects around how people use media were added. They 
were designed to look at the media through the eyes of the consumer. 
Over a dozen such studies were conducted following an agenda directed 
by an industry committee.
    There are two ways to assess any data stream. One is independent 
research such as the work I just described. The second method is to 
track the internal consistency of Nielsen information. For over two 
decades, SRI compiled and tracked Nielsen national audiences and sample 
statistics for CONTAM. Television usage over 3 dayparts was analyzed on 
five bases. The purpose was to detect unexpected variations in HUT 
levels based on statistical principles. The data were deseasonalized 
and compared to a long-term trend. If something jumped out of line, it 
was clear to all. Rather than relying on anecdotal evidence, we had the 
full story. Discussions about unexplained variations were cast in a 
broad light.
    Sample statistics were tracked in the same way. Statistics on 
implementation of the Nielsen sample and on tabulation were inspected 
on 12 different parameters. For example, ``normal levels'' were defined 
for unidentified tuning, meter overflow, and set disconnects. The 
abnormal was held up for possible action and resolution.
    Over the years, this standard quality control warning system 
identified extreme changes in usage levels. After investigating, 
sometimes a cause was identified and corrective action taken. On other 
occasions, the tracking was used to correct a laxity in operations that 
contributed to extra variation.
    Another major industry effort, the people meter review, began in 
1987. The proposed introduction of people meters by AGB and Nielsen was 
a landmark change in the measurement of TV audiences. There were many 
questions. Both AGB and Nielsen agreed to participate in a detailed 
analysis. However, before the actual work began, AGB withdrew its 
proposed service from the U.S. market.
    The purpose of the review was to understand and describe the issues 
and to identify possible improvements in the system. The product was 
seven reports including a data review, exit interviews with former 
panelists, sampling and field implementation, household contacts, 
processing and editing, an engineering review of the hardware and a 
final report.
    It asked that Nielsen act on three recommendations:

   Defined procedures and quality control,

   Ongoing methodological research; and

   Client involvement.

    Reactions to the effort were enthusiastic. It was called 
exhaustive, a new standard of excellence and a blueprint for change. 
Nielsen called the work ``an outstanding effort.'' It was a unique 
chance for all of the industry to be on the same page.
    In 1990, CONTAM published its Principles of Nationwide Television 
Audience Measurement, which was in part a derivative of the earlier 
People Meter Review.
    To this point CONTAM and the industry had focused on checking and 
assessing methods and alternatives. It was a reactive role and the 
industry was frustrated that promised actions from the people meter 
review had not been implemented. Therefore, beginning in the early 
1990s, the posture became proactive with S-M-A-R-T. S-M-A-R-T was an 
acronym for Systems for Measuring and Reporting Television.
    The S-M-A-R-T story is long and involved. By mid-1999, when the 
operation ceased, S-M-A-R-T had created a complete laboratory for 
future measurement in the digital age. New measurement hardware was 
designed and built. The Philadelphia market was the test bed. Clients 
were delivered 9 months of Philadelphia audience data to their desktops 
on a weekly basis. Software enabled instant analyses at no marginal 
cost. In the end there were 30 telecaster, advertiser and agency 
sponsors.
    Since 1999, independent initiatives to understand and improve the 
Nielsen systems have effectively disappeared. The measurement 
challenges are greater than ever, but client managements are unwilling 
to fund such work. The willingness to attend to the problems, 
reactively or proactively, has disappeared. That brings me to 
accountability.
Accountability
    The 1963 Hearings and the associated fear of regulation was a 
powerful attention getting event. The industry and Nielsen became 
riveted on taking responsibility for what they did and what they sold. 
Consider the industry:
    Industry. In the 1950s and 1960s television was dominated by three 
players. Each recognized a public responsibility for use of the public 
airwaves. Stations were licensed and obligated to ascertain and serve 
public interests. The networks studied the medium and its relation to 
society.
    Two examples. First, Frank Stanton--another of those Founding 
Fathers in the ARF compendium--as CEO of CBS, gave money to Paul 
Lazerfeld and the Bureau of Applied Research at Columbia to study 
television audiences. In 1955, Stanton said ``we owe it to our audience 
as well as to ourselves to establish some systematic method of inviting 
the public to participate in shaping what we do.'' From that 1955 
comment came successive studies published in 1963 under the title of, 
The People Look at Television, by Gary Steiner and a later update by 
Robert Bower published in 1973.
    Second, NBC funded a huge longitudinal study over several years on 
the effects of violence on television for children. The resulting book, 
Television and Aggression by Stipp, Rubens, Milovsky and Kessler was 
published in 1982.
    In the 1960s, the three network television research departments 
numbered about 100 people each. Then, the research departments had a 
budget to do research on the ratings. From the 1960s through the 1990s, 
some media entities spent heavily to understand and improve ratings 
quality. The S-M-A-R-T initiative was supported largely by selected 
networks to the tune of $45,000,000.
    The CEO's who approved the S-M-A-R-T expenditures knew that they 
were in for the long haul. Payout would be years away. It was okay if 
S-M-A-R-T diluted current earnings. But CEO's change and CEO's also 
change their minds. The year 1999 was financially crazed and some of 
the then-current CEO's saw a greater bottom line by cutting costs and 
learning to live with ratings as they were.
    Today, with a fragmented industry and each network run as a profit 
center, the corporate research department is likely to be ten people 
with no independent budget. There is little focus on the long term. In 
the 1990s, some of the most successful players sat on the financial 
sidelines and reaped the benefits of independent research without 
paying the price. Today, all seem to have adopted the sidelines 
posture. Evidence of action to test or fulfill a public responsibility 
is thin; the Wall Street accountability is clear. Research on research 
does not add to today's sales; it dilutes earnings. That is the pox on 
our times.
    Nielsen. In the 1960s, 1970s and 1980s, Nielsen supported the 
industry initiatives to improve the research product. They rightly saw 
this work as buttressing the industry's stock of knowledge and 
therefore helping their cause. A network research director used early 
CONTAM work to tell the ANA that Nielsen data were accurate and 
reliable and should be used with confidence in the television 
marketplace. Nielsen cooperated with independent studies by supplying 
corresponding data for comparisons and participated in analyses. When 
disputes arose about methods or measurement changes, those disputes 
were sometimes settled by a jointly sponsored study where Nielsen paid 
half or by a summit meeting where data were presented and a resolution 
planned.
    Because of the scope and nature of the People Meter Review, 
Statistical Research sought and received legal protection from Nielsen 
against any claim arising from the conduct or reporting of the study. 
After that review was completed, Nielsen refused to extend that 
protection for proposed future work. That refusal and Nielsen's 
resistance to the industries more in-depth involvement was one reason 
S-M-A-R-T was initiated.
    Another episode of inexplicable changes in television usage in 1990 
and Nielsen's resistance to investigating and correcting the cause was 
also a motivation behind S-M-A-R-T's launch.
    The network people will tell you that while S-M-A-R-T was there, 
Nielsen was its most responsive self. When S-M-A-R-T happened, a whiff 
of competition stirred a reaction. Innovations were talked about and 
some things actually changed. Response rates on the national panel 
improved. Questions were answered promptly. And corporate contracts 
across media entities that Nielsen had refused to consider suddenly 
came to be. Nielsen reacted.
    Today's Wall Street-thinking also influences Nielsen. Anything 
Nielsen does over and above producing rating reports reduces their 
earnings. That fact is a powerful deterrent to investing in 
improvements.
Current Status
    To conclude, I offer my perspective on where we are today. I grant 
that the Nielsen task of measuring television audiences is incredibly 
difficult. It is far tougher than what was done with S-M-A-R-T. S-M-A-
R-T had the advantage of working in a laboratory, of a fresh start and 
of ``off-line'' innovation. Nielsen needs to innovate and introduce new 
systems into a service that is valuing the assets of others 365 days 
per year.
    The scary realities are these. Everything Nielsen does affects the 
ratings. Every change in procedures, every change in operations affects 
the ratings. The perceived changes as seen through Nielsen data are 
additive to any real change in behavior that may occur.
    For example, when Nielsen passes over a high tech home, ratings are 
changed. When Nielsen alters weighting, or persons prompting sequences, 
or the meter itself, or methodology in any way, the ratings are 
changed. Some clients are helped and some are hurt.
    The methods changes may be planned or unplanned. When meter fault 
levels increase, the ratings are changed. When Nielsen decides to 
install LPM markets and changes field assignments so that home 
maintenance calls are delayed, the ratings are changed. Does anyone 
doubt that the male teen and young adult audiences that were lost and 
reappeared a year later were due, not to real change in real viewing, 
but to changes in Nielsen operations? When methods are changing and 
when there are layers of changes, can the media guarantee audience 
delivery to their clients? On what set of numbers should the guarantees 
be based?
    The first and most important recommendation from the 1987 People 
Meter Review was that Nielsen institute a more careful approach to its 
methodology. It called for defined procedures and quality control. That 
recommendation was framed because changing methods change results and 
create aberrant data patterns.
    Nielsen appears to have been almost cavalier about making changes. 
There has been too little attention and too few analyses to support 
changes that have occurred. That fact explains, in part, the extended 
controversies. Another contributor to the controversies is that Nielsen 
has never picked up the quality control monitoring of its own data--or 
if Nielsen has, it has not been shared with clients. With today's 
technology, Nielsen should have quality control charts available 
simultaneous with the release of rating reports. They should cover the 
levels and trends by daypart and age groups. They should cover all 
aspects of the sample. Without that type of data tracking, sellers or 
buyers cannot know how to interpret today's ratings. They act on faith 
and hope that the emperor is clothed.
    The state of Nielsen metering technology is troubling. One problem 
is that there is a potpourri of meters and meter installations. It is a 
collage or patchwork quilt of methods. Nielsen bragged some years ago 
that it had several hundred different ways of metering a home. That 
says there are too many moving parts for the system to work 
effectively. What the industry needs is one simple and effective 
metering method; one meter that supports reporting of what is tuned to 
the 10-second level rather than the average minute. An average minute 
rating masks channel changes. The AP meter was around the corner in 
1995; it has taken 10 years to get here. It seems the distance between 
TV technology today and meter design is ever growing. The hole gets 
deeper.
    We know that many predesignated sample homes have been omitted 
because the meters do not work in complex homes. Reports of high fault 
rates means others are also omitted from the tabulated sample. Faults 
occur because the meters are not sufficiently robust to deal with the 
real world environment. Those homes that fault are a biased subset. 
Faulting homes are not randomly selected.
    I am omitting discussion of Nielsen reporting systems. A key value 
element with data is accessibility in a friendly and affordable manner. 
Nielsen clients complain bitterly that they do not have such access. 
The ratings cannot be analyzed in a timely and effective way.
    So with the methods changes, with the meter frailties and with the 
reporting ineptitude, how much confidence should clients or society 
place in today's ratings? That question is left hanging. We don't know.
    Another recommendation from the People Meter review was that there 
should be continuous methodological research. Independent crosschecks 
are needed. Nielsen has supplied independent checks in the past. For 40 
years, Nielsen had two separate systems. The sum of NSI local ratings 
were compared to independently derived NTI national ratings. There was 
a distinct and consistent pattern to the differences. That reassured 
clients of both services. With the merging of local measurement into 
the national, that crosscheck disappears.
    In the early 1960s, Nielsen did a noncooperation bias study to 
check independently the effects of nonresponse on NSI measurements.
    The fact of Nielsen taking responsibility to check its own systems 
needs to be reestablished. Some basis for assessing the degree of 
confidence associated with Nielsen ratings must exist.
Conclusion
    Life is filled with uncertainties. We learn to live with 
uncertainty--we can curse the darkness--or we can become proactive. The 
1963 hearings gave a jolt to the media audience measurement world, and 
the industry was energized for decades. That energy has been 
dissipated.
    Television audience measurements today are shaky. There seems 
little point to ranting or raving at Nielsen or engaging in public 
warfare. Such actions only seem to become a distraction. The first step 
to solving any problem is to face reality. My view is that the Nielsen 
ship has lost its anchor and is adrift, no land in sight.
    The industry posture is distressing. The work done pre 2000 was not 
for charity. It was work done to protect the media business base. It 
was work to provide meaning and context to the audiences being sold. 
Can you imagine a network executive going to the ANA today and telling 
them to use the Nielsen data with confidence? Those who funded studies 
before, now say the industry should do it. What industry? There is no 
media industry organization that brings together broadcast and cable to 
do this fundamental work. The ARF is a possibility, but finding the 
right commitment will be harder than finding the right organization.
    Regaining confidence is beyond the client or Nielsen research 
community. We have the talent to do better. Art Nielsen's 17 years and 
$15,000,000 investment reflects thinking from a different planet. We 
lack management leadership. We lack management commitment to invest, to 
build and to maintain a modern state-of-the-art system. The clients and 
Nielsen both must be willing to dilute current earnings to assure 
future earnings.
    The last recommendation from the people meter review was for 
Nielsen to commit to client involvement. That meant involving clients 
in setting priorities. Not everything can be done at once. Clients need 
information to permit realistic assessments of the existing data. Legal 
clearance is not needed to involve clients in a proactive process. We 
simply need a competent and confident Nielsen management that is 
willing to engage clients meaningfully and to be candid, warts and all.
    The advertisers, the government, someone needs to bring Nielsen and 
the clients to a new awakening. Keep in mind the goals of the hearings 
and of the People Meter Review. Let's all get on the same page. We work 
better when we work together.
    There is one thing I feel I can say today with dead certainty. The 
current direction of audience measurement cannot go on forever. The TV 
currency will become weaker and weaker. It will be funny money. At some 
point the wheels come off the bus.

    Senator Burns. Thank you, Mr. Metzger.
    And I've noticed the attendance today of Representative 
Maxine Waters, from California.
    And we welcome you. And if you have a statement, why, I'd 
be happy to welcome you to the dais. I know you called earlier, 
and you're sure welcome here today as we go on with the 
questioning.
    From the testimony we gathered at the table--there was a 
series of questions that came up as we put this hearing 
together. There has been controversy with the MRC. What role 
does it play? How does it play that role? And do you give it 
more power, or teeth, or do you take away some of its powers? 
To us, who have to look at problems in the industry, we have to 
have someplace to go in which to base decisions, policy 
decisions. MRC is the only one we have on this particular 
issue. So, I would ask the question that everyone, I guess, 
would ask today, If we have nowhere to go for our information 
but to the MRC, then where do we go for accurate information 
and the information that we need in order to bring some 
accountability to the industry that depends on advertising 
dollars to survive?
    Mr. Mullen, would you like to start with that? And then 
I'll ask Ms. Whiting if she'd like to respond to that.
    Mr. Mullen. Well, I think the question hits the issue dead 
on. The MRC is an organization, historically, that we've been 
able to rely upon for independent verification of the processes 
that Nielsen uses to gather ratings data. The MRC's charge is 
to make sure that the measurement services are valid, reliable, 
and effective. If Nielsen had, in fact, followed these 
processes voluntarily, we wouldn't be here today with the 
problem that we have. The testimony--written testimony that I 
have submitted shows a pattern and practice of activities on 
Nielsen's part, largely ignoring the concerns and requests of 
clients and the actions of the MRC, and rolling out new 
technology without accreditation, despite the concerns that we 
have clearly pointed out and they have yet to provide any 
answers to.
    Senator Burns. Ms. Whiting, would you like to respond?
    Ms. Whiting. Yes, Senator Burns, I would.
    [Laughter.]
    Senator Burns. I thought you might.
    Ms. Whiting. I'm sure you're not surprised.
    First of all, we are committed--let's just go back to 
something that we were asked publicly to commit to--we are 
committed to the MRC process. I've made that statement hundreds 
of times. We are also committed to adopting the voluntary code 
of conduct, as long as other research companies, as well, have 
reviewed the issues. So, start there.
    Second, we've taken every major service we have and 
voluntarily applied for accreditation. The issue here, I think, 
is about the timing of the accreditation process. And we have, 
in fact, applied for accreditation in each of the people meter 
markets. You know that some of them are accredited, that the 
rest is an ongoing process. But since it is a voluntary 
process, and since the process that we participate in does 
require an audit, which we are doing, and have done, in each 
market, I feel we have, in fact, been cooperating with that 
process.
    And as to the point of plowing ahead without time, I just 
would remind you, we have many clients. We have thousands of 
clients. In any given market, we have buyers and sellers. This 
all started because advertisers asked us to take the same 
technology that we had looked at nationally, in the National 
People Meter Service, and bring daily reporting of audience 
demographics to the top markets. And that process then began a 
conversation with many clients.
    This didn't happen overnight. It wasn't pushed down 
anyone's throat. There are, as you've seen from a number of the 
letters that you've received, supporters on other sides of this 
issue. And I think, ultimately, what we were trying to do is 
balance buyers' and sellers' requests for improved information, 
and the timing sometimes isn't to everyone's liking. But, in 
fact, we delayed every major rollout of every people meter 
market based on conversations with clients.
    Senator Burns. Mr. Ivie, would you like to respond to that, 
please?
    Mr. Ivie. Yes, sir, I would. Yes, Senator Burns.
    I want to try to----
    Senator Burns. Pull up the microphone.
    Mr. Ivie. Sorry.
    Senator Burns. Thank you.
    Mr. Ivie. I want to try to give you maybe a little bit more 
background. And I know this hearing isn't about LPM, 
specifically, but that has been a topic of why we're here, kind 
of, what led us here. So, there are a couple of truths on both 
sides of this equation that I think you need to know about.
    The first truth is that the LPM system, we believe, and 
also across a broad spectrum of the industry it's believed, 
that the LPM system is, indeed, more accurate than the system 
it is replacing. And it has been audited and verified pretty 
strongly that it works pretty well. So, when we audited these 
LPM systems, at first, we saw that there was a mix of 
performance in these new markets. We saw that Nielsen did 
certain things very well, and they did certain things not so 
well when they implemented this market. But yet our Television 
Committee, made up of some 65 organizations from across the 
industry, decided that we needed to really do something special 
here. We needed to recognize to the marketplace that this was a 
superior type of measurement, but we also needed to tell the 
marketplace that there were problems with the LPM system that 
still needed to be addressed. So, we have this status, and 
several of the markets continue in this status, called 
``conditional accreditation,'' where we said, ``Nielsen, you 
can roll this product out, we believe it's responsible for you 
to roll this product out, but we want to recognize that this 
product isn't done yet, that there needed to be some very 
intense efforts to correct certain things,'' and, for instance, 
Mr. Mullen's testimony referenced the faulting, which is one 
area that we've been concentrating on with Nielsen. But there 
are others.
    Now, the other truth on the side of this LPM is that 
Nielsen has, in fact, rolled these markets out before audits 
have taken place. That is a problem. That's a problem that, 
sitting in my seat, I would never like to see happen again. I 
don't write bills, I don't do legislation. I wouldn't want to 
substitute my experience for your experience in that regard, 
but what I can tell you is, we've said that several things need 
to be addressed. One is that we don't want it to happen again 
that the marketplace is uninformed about the quality of a 
product when it's rolled out. Nielsen should commit to that, 
and we want that commitment to hold in the future.
    We also think that our voluntary code of conduct will help 
more clearly define how we interact, make sure Nielsen and 
other rating services--because this isn't just about Nielsen--
react to audit findings promptly. And I think the communication 
linkage that we're requesting will make sure that if there are 
issues like this in the future, if this process has a problem 2 
years from now, when your attention is elsewhere, for example, 
we can come back to the Executive Branch or Congress and say, 
``Hey, we have a problem. We have a rating service that's not 
listening to what we're saying.''
    So, that's why these two truths need to be considered, that 
not everyone here--they're all telling you the truth, probably, 
but the idea is that there are multi-sides to this equation.
    Senator Burns. Would you like to respond to that, Ms. 
Whiting? This is the way I learn things--you put all the 
stakeholders at the table, and then we start this dialogue. And 
this is very good for me, to be real honest with you. OK?
    Ms. Whiting. Thank you, Senator Burns.
    I think I said earlier prior to--in fact, I believe it's 
true that prior to the introduction of people meters in 
individual markets, the process for audits and accreditation 
had been that a service would be up and operating--for 
instance, we have many metered markets. We have meters and 
diaries. The service would be launched, an audit would then be 
performed on a live market. That was our procedure for those 
kind of markets. When we went to the people meter market, as 
Mr. Ivie has described, I think there was a much heightened 
sense of review by our clients, in spite of the fact that we 
had operated a people meter service for many, many years, about 
that service. And we did have people ask us to do audits before 
the service, and we replied that the process would have to be 
an audit upon a live service. In spite of that, what I've just 
indicated earlier, the voluntary code of conduct would propose 
that we would do audits before a service was offered. And we've 
already committed to doing that to the MRC regardless of 
whether the voluntary code of conduct proceeds. So, I think 
this issue should be one that we can say we agree upon.
    And the other point really is important, which is, we have 
many clients. I keep saying this, but the other side of the 
house, the advertisers, who want information more quickly, have 
been talking about this for years. And their urgency is not 
reflected in some of these comments.
    Senator Burns. Ms. Crawford?
    Ms. Crawford. Thank you, Senator.
    I would like to say that, as an advertiser, or an agency 
representing advertisers, we almost screamed our way to getting 
LPMs in a--faster and faster and faster, because the service 
had been available nationally, since 1987, I believe. I believe 
that's the date.
    All that being said, I think that it bears reminding of 
everybody that the LPM, from a fault-rate standpoint--and if 
you can use the term ``fault rate'' as it relates to the meter 
diary, which is not quite the right terminology, but it's 
close--the fault rates in the LPM are better, if there is such 
a way to say that, than they are in the meter diary. And yet, 
we never came in front of your Committee when the meter/diary 
markets were out there. And I would have to ask if that's 
because the ratings are higher in the meter diary; and so, they 
were acceptable. Now we're here, and the ratings are lower, and 
we're now really talking about the diversity of viewership in 
all of these 130 channels that the American public is viewing 
every single day that is now measurable by an LPM technology 
that was not measurable in the meter diary technology, never 
mind the diary-only, both of which, by the way, are accredited 
by the MRC.
    Senator Burns. Tell me about fault rates. Define ``fault 
rates'' for those of us who do not understand the term.
    Ms. Crawford. Fault rates, in the world of the LPM--I don't 
know why I'm the one who's doing that, but----
    [Laughter.]
    Ms. Crawford. George can do that. I actually--I do know 
what they mean, but I'd be a lot happier if George did that.
    Senator Burns. OK. Mr. Ivie?
    Mr. Ivie. Yes, I'll try to--I want to do two things, if 
it's OK. I want to----
    Senator Burns. OK.
    Mr. Ivie. I'll talk about ``fault rates,'' and define 
those, but I also--Ms. Crawford raised the question about the 
consistency of our treatment between diary markets and LPM, so 
I wanted to spend a minute on that. But let's talk about fault 
rates first.
    Fault rate is really the situation where the household 
that's participating in Nielsen's panel is not interacting 
properly, or as designed, with the Nielsen meter somehow. So, 
it could be a hardware thing. The household could have 
unplugged the meter or moved the meter or it's an electric 
problem in the household, or they could--in the case of a 
people-meter household, they could be not interacting properly 
with the mechanism by which they record their presence in the 
room when the television is on. So, if the television is on, 
and nobody has entered themselves as a viewer, and they've 
changed a channel on the set or something like that, that meter 
is smart enough to recognize, ``Hey, there's got to be somebody 
there. No one has told me that they're there.'' So, that data 
is of suspect quality.
    And Nielsen has controls that say, ``If we have enough of 
these conditions, where there's suspect quality, we should 
remove that house from the ratings for the day.'' And for most 
of these faults, it's just removed for a day. It has the 
ability to be in the sample the next day, and that condition 
would have to reoccur the next day for the household to be 
removed. So, when Mr. Mullen said--and I don't have those 
statistics in my head, but he said in his testimony that a 
third of the African American--or almost a third of the African 
American and Hispanic households were not reporting on the 
average day, that means that they faulted or didn't interact 
properly. Actually, our more recent experience is less than 
that, because these fault rates have been getting better as 
initiatives have been taking place. But that faulting is a 
difficult problem, because you have to coach the households on 
how to interact with the meter and not unplug it. But that's 
what ``faulting'' is, when they're not interacting properly.
    One thing that I want to say, to talk about equality of 
treatment, is, when people fault, they're almost certainly 
interacting with the television set. It could be that they're 
just moving the set, but a lot of times, most times, it's that 
they're watching television and they're doing something to the 
television that creates the fault. So, we know that people that 
fault a lot tend to be watching during that time period. So 
the--and you can tell. If you look at households that fault a 
lot, they use television more than households that don't fault 
a lot. And I don't think anybody would dispute that. We've seen 
that hundreds, thousands of times.
    That's why there's a difference in treatment from the MRC. 
We know that in an LPM household, and in these people meter 
households, faulting is directly correlated with when people 
are using the television. In the diary service, which I'm not 
going to sit in front of you and say is perfect--we have 
initiatives to try to work with Nielsen to correct that--we 
know that that is not directly linked to viewing, necessarily. 
It's linked to other things. ``I'm too busy to complete a 
diary. Maybe I can't read or write.'' It's linked to a lot of 
other things--literacy, maybe I'm used to working on the 
Internet, I'm not used to writing a diary, et cetera.
    So, there are a lot of things that come into play, but not 
necessarily as direct of a tie to television viewing, as we see 
in this LPM. And this stuff needs to be studied. But there is a 
difference in treatment, because there is a difference in the 
problem. Every problem needs a custom solution, and that's why 
we're focusing in two different ways on these services.
    Senator Burns. I'm going to go to--I'm going to go to Mr. 
Metzger, then Mr. Mullen, and----
    Mr. Metzger. Let me describe ``faults'' for you in a 
simpler way. It's going to--some households, it's not 
processed, something's wrong. That's a fault. Nielsen 
designates a sample, that should be measured, to count 
everyone. Some of those homes cannot be installed because the 
meters will not accommodate modern digital delivery systems and 
recording systems. So, you miss those homes. Then you have 
homes that fault, so you miss those homes. Now, both of those 
homes are not randomly selected, they're particular kinds of 
homes. In the case of the faults, we know those occur much more 
where there are more sets or more people. Interestingly, in 
White households, 11 percent of White households have 5 or more 
people. Twenty percent of Black households have 5 or more 
people. And almost 30 percent of Hispanic households have 5 or 
more people. So, that's the reason minorities should be very 
concerned about these systems, whether it's the meter diary or 
the A/P meter. They both have the same problem. And part of the 
reason those faults are so high and why we're skipping homes is 
that the metering technology is still based in the past, it is 
not up to snuff with modern technology. You can't expect 
people--up to a certain limit--you can put a certain task on 
people--you have to make it easy for them. And the task for 
them now is too difficult. That's the problem.
    Senator Burns. Let me offer an opinion here, because I 
don't want to get too far astray on people meters and this type 
thing. That's a technology that we can take up in the MRC, and 
to say why we can't make accreditation here, or recommend 
accreditation, or whatever, I think that's for the industry and 
the MRC to work out. And if they find some problems with it, 
then I think it's incumbent, or should be incumbent, on the 
sampling company, such as Nielsen, to try to work on those 
fault rates and to make them whole. That's the real purpose of 
this hearing, to be right honest with you. I can't judge, here, 
which is best. That's not what this is about. This is about 
getting a fairness with the--and doing business with the only 
game in town, and how we get these people together.
    Mr. Mullen, you want to respond?
    Mr. Mullen. Yes, thank you, Mr. Chairman.
    The point of fault rates, in bringing that up, is not--we 
could debate that all day long. As I say, you can do anything 
with numbers, and that's not our purpose. In fact, that's why 
the MRC exists, so that we can all share and analyze that data 
to determine if Nielsen is, in fact, delivering the product 
that they have sold to us in the marketplace.
    The point that Mr. Metzger makes is absolutely right. It's 
the key audiences of homes with five or more people which tend 
to over-index--and in African-American homes and in Hispanic 
homes--that are also our key audiences, skew into the younger 
demographics, and young homes, that tend to fault on a more 
regular basis. When I referenced one-third of African-American 
men and Hispanic men in New York in a given week, that is a 
year after they've rolled out the service. They've shown no 
ability, on a consistent basis, to improve that. That's what 
the MRC is looking at. That's why the MRC has not given full 
accreditation to the service in New York. And that's our only 
concern, is, don't commercialize this product in additional 
markets like Washington, D.C., and Philadelphia, until you've 
demonstrated to us that you have the ability to measure these 
audiences properly in the Nation's largest markets.
    Senator Burns. Ms. Whiting?
    Ms. Whiting. Yes, please.
    I think, because we are talking about broad quality here, 
one of the measures of quality is fault rates. But it's not the 
only one. It's the sample size. It's the population that you're 
measuring. It's the characteristics and the quality. It's the--
it is the technology, which allows you to look at the breadth 
of channels, 24 hours a day, 365 days a year. It's the 
cooperation rate. And we are lucky, actually, with people 
meters, to be able to have the technology that allows us to 
know when someone's not doing what we would like them to be 
doing, or when a TV set is moved or unplugged. And that has to 
be looked at in a relative way. On every broad measure, our 
people meter service is better than the service it has 
replaced. And there are always going to be issues with 
individual days and individual segments. And that's true of 
polls, and that's true of any measure and any statistical 
sample you take.
    But I think, to Ms. Crawford's point, we do need to look at 
the fact that we have diary services in some markets, meter 
diary service in others, and then people meter service. And 
this is an improvement over the current system, and one of many 
things we have to continue to improve, and we do that in every 
one of our services. They have to have a commitment to 
improvement. So, I think it's one of many measures, and it's 
really somewhat disingenuous to point out one aspect of what is 
a greatly improved system that allows us to report many, many 
channels every day with more people of color, with higher 
cooperation rates, and with better technology.
    And I'd like to add that we do not, anymore, with our A/P 
meter, and with the recent addition of our ability to measure 
digital video recorders, bypass homes for technology reasons, 
which is something Mr. Metzger said.
    Senator Burns. Well, I want to--I'm going to throw out 
another question here. When you go out and you have to locate 
your, whatever it is, a diary or the people meter, you knock on 
the door, and you said, ``Would you like to be, or could we ask 
you to be, a person that would do this sampling for us?'' how 
many times are you turned down? I mean, do you have a turn-down 
factor that people--I mean, I'd like to know, when you knock on 
the door, who says yes and who says no and--because I know it 
has to be a voluntary program, and there has to be consent. I'd 
like to know, have you got any kind of a rate on that?
    Ms. Whiting. Of course we do. One of the things we have to 
report in our different reports, whether they be a diary report 
or a meter diary or the people meter, are cooperation rates. 
And that's what I think you're asking.
    Senator Burns. Yes, I think that's what I'm getting at.
    Ms. Whiting. And they're different for different markets, 
and they're different for different services, and they're 
reported, if it's a daily service, every day, if it's weekly, 
every week. In that local people meter service, the average 
cooperation rate is about 40 percent, which means 60 percent of 
the people turn you down. But if you think about polling and 
marketing research, that's actually very high.
    Ms. Shagrin. And one of the problems is that the people 
that it's hardest to get to say, ``Yes, I'll be in your 
sample,'' are the same people that it's hardest to keep giving 
you reliable data. So, the point is, 40 percent is good. Ninety 
percent giving you usable data is good. But if you're totally 
excluding, or almost excluding, certain types of households, 
then the resulting audience information is flawed. And I think 
the focus on the MRC--at the MRC has been, is the audience--are 
the audience estimates biased? Is there a flaw there? And is it 
fixable? And I think the pressure has been to say, we think 
it's fixable. We think it impacts the quality of the data and 
the reliability of the data and causes some differences from 
day to day. Because if 20 young men in New York are providing 
usable data on Monday, and 20 fewer on Tuesday, your ratings 
for adults 18 to 24, or males 18 to 34, change those 2 days, it 
has nothing to do with real change. So, we've been focusing, at 
the MRC level, on, what are the things that we see in these new 
markets that may be causing a bias? What are we pointing out to 
Nielsen? And this is why I believe the MRC drives consistent 
improvement. What needs to be fixed? And then constantly 
reviewing that to say, ``OK, now it is a level that we are very 
comfortable with.'' And, as George said earlier, the 
conditional accreditation was a very new thing for the MRC, but 
the MRC membership agreed to it, because they wanted to send a 
clear message that there were a lot of things that were better, 
but there were also a lot of things that weren't better and 
needed to be addressed.
    Senator Burns. OK. Mr. Mullen, you've shown some interest 
in this statement? Do you want to respond to that?
    Mr. Mullen. No, I certainly agree that the process of 
accreditation has been slowed for the LPM, but I think it's 
largely because MRC is not yet comfortable that Nielsen is 
delivering on the product that it has designed.
    Senator Burns. Mr. Ivie?
    Mr. Ivie. Yes, I just want to add two points of 
clarification. Ms. Whiting quoted a response-rate average of 40 
percent. That varies widely sometimes between markets. It could 
be higher than 40 percent, or it could be lower. For example, 
one of the markets in play that tends to be lower is New York. 
That rate is in, sort of, the mid-1920s, is my recollection, in 
terms of response rate. So, those response rates vary a lot. If 
you go to smaller markets or more rural markets, for example, 
those response rates tend to be higher. More urban markets, 
where it might be harder to get mail delivered, et cetera, 
those response rates can be much more difficult and lower.
    I just want to spend a second on--the focus of the MRC is 
not--is--when we conduct audits, we look at literally hundreds 
of performance areas and standards areas when we look at a 
product. Faulting has been discussed here today, but we look at 
response rates, sample distribution, you know, the procedures 
in the field to install households. And, a lot of times, when 
we don't comment on things, it's because they're working good. 
And we saw, when we audited these LPMs, that there was a lot 
working good. And faulting is one thorn that remains. And 
faulting has improved somewhat in some of the markets, but 
it's--I mean, those markets remain conditional, because we 
still don't believe that faulting performance area meets our 
expectations.
    Senator Burns. OK. I've got a new question. Let's talk 
about the legislation just for a second. Some have said that 
this bill would raise barriers to entry. And I know it can cost 
a lot of money, $100 million or more in development costs, and 
several years to roll out new measurement services. But MRC 
audits can cost $100,000 and take a few months. That's 1 or 2 
percent, in money terms, and not much more in the terms of 
time. I don't see that as a barrier. Tell me if I'm wrong.
    Ms. Whiting. Senator Burns, may----
    Senator Burns. Yes.
    Ms. Whiting.--I reply?
    I think the cost is not so much the issue; it's the time. 
And it's that there is no clear knowledge, the way the bill is 
drafted, of the amount of time that it would take to accredit a 
service. And so, as I understand the bill to be written, if you 
have to have every change to an accredit service accredited--
and I think that is the way it's written today--before you can 
actually offer it, then I do believe, if you are creating a 
rating service or putting together innovation or testing a new 
technology you want to deploy, you do not know when that 
service will be accredited. You have clients who are asking for 
it, you have contracts, you have a process, but you could 
easily spend a year. And we have had cases where the 
accreditation process has taken a year, or more. And if that's 
the case, this would not allow any business that I know of to 
put that process in place, and I think it would also give pause 
to anyone entering the business, if you did not know when you 
could actually commercialize your service.
    Senator Burns. Mr. Ivie?
    Mr. Ivie. I just----
    Senator Burns. Everybody should have opinion on this one.
    Mr. Ivie. Yes, I----
    Senator Burns. But I might----
    Mr. Ivie. Just one point of clarification. The audit 
process, itself, never--I mean, in my history with the MRC, the 
audit process has never taken a year. What takes a year is if 
you conduct an audit and you find some issues within the audit, 
and ultimately those have to be corrected by the measurement 
service. They have to install new initiatives, make changes, 
change their sampling, whatever it may be. Those procedures can 
take a long time. Then you have to verify that they've been 
done. And then, ultimately, you get the decision that it 
completely meets the standards, and it becomes accredited. So, 
it is valid that we've done audits that have extended long 
periods of time, but it's not because of the MRC executing an 
audit for a year. Audits don't take a year. Audits take a 
month, or they might take something like that. But correcting 
issues that are found in audits--and this is the real critical 
component--MRC's about process improvement. Improving those 
processes can take a long period of time. We have a rating 
service that we audit that has been in the audit process, 
without full accreditation, for almost a decade, because 
they're trying--and this isn't Nielsen; I should clarify that--
because they have certain aspects of their product that do not 
meet our standards, and they're figuring out, as they go along, 
you know, how to correct that product. And that has taken a 
decade, because these things aren't easy. The cooperation rates 
and things, trying to get people to cooperate with data-
intensive research--you're trying to gather all sorts of 
information about what soap they use or it could be anything. 
This stuff is hard to gather, and these process improvements 
are very difficult to make. But that is how the industry is 
benefited. That product doesn't have accreditation. And what 
happens is, they don't bear our logo, the users know that there 
are issues. And that----
    Senator Burns. Ms. Shagrin?
    Ms. Shagrin. If the MRC and the audit process finds a 
significant problem, and they go back to the ratings company, 
whichever ratings company it is, and says, ``We cannot take a 
vote, we cannot give you accreditation because we found this 
problem,'' that's how it's protecting the industry. That's how 
it's constantly improving the ratings, themselves--and I'm not 
limiting it just to television--and getting the best-possible 
estimates for this industry to continue to make good decisions 
and to grow.
    Senator Burns. Now let's hear from Mr. Mullen first, and 
then, Ms. Whiting, we'll have all of this accumulated, and you 
can take your shot. Yes? And then I'll go to Mr. Metzger.
    Mr. Mullen. Yes, Mr. Chairman.
    We, first, as a company--and I cannot speak for the entire 
broadcast industry, though I think many would feel exactly the 
same way--accept accreditation. If a market is accredited, we 
accept the ratings, without question, and we compete with those 
ratings. The New York market, as an example, has been audited. 
There have been problems that have been shown there, 
significant problems pointed out to Nielsen by the MRC. Nielsen 
has--I give them credit--tried to fix those existing problems. 
But, month after month, they have not shown significant 
improvement, and, with that, the MRC board, upon evaluating 
what they've been doing, has not accredited the market. They've 
shown the same problem in other markets. Our largest objection 
was, with that type of a track history, they are still rolling 
out additional markets without audit and without accreditation. 
We have no confidence in the quality of the service and the 
ratings that they're providing us. And that does influence the 
type of programming that we run and the type of programming 
that we will run in the future.
    Senator Burns. Ms. Whiting?
    Ms. Whiting. Well, I think this discussion actually is a 
very good example of the different points of view on why 
accreditation should be mandatory or voluntary, and when it 
should occur, because we have many clients--and I keep going 
back to this--who would say that they're disadvantaged unless 
they have the better system that a people meter offers, or a 
meter/diary system, or something else. And their point of view 
would be that they want this in the commercial world faster. 
And that's one reason I believe that we have to look at the 
voluntary code of conduct, we have to look at the ability to 
have a faster way to market for big changes, and we have to use 
the MRC process and not make it mandatory, because if 
accreditation--not an audit--can take a year or two, or who 
knows how long, what happens to all of the clients who are 
disadvantaged in that system?
    Senator Burns. Well, let me say, I agree with you in some 
parts of your statement, but if voluntary doesn't work----
    Ms. Whiting. Well, I think we may disagree over whether it 
doesn't work.
    Senator Burns. Well, but I'm saying--in some areas, I think 
it does, and that's my--I come out of the industry. I like the 
idea of--that we put up some sort of a situation where we can 
solve our own problems between the broadcaster and the 
samplers. But if the voluntary system breaks down, then where 
do we go when there's only one company out there? I guess 
that's what we look at. We really weren't elected by a 
constituency to oversee a monopoly, an unregulated monopoly. 
That's what, kind of, causes us concern, because that red flag 
goes up, and sometimes we do things that have unintended 
consequences, and we don't want to do that in this case, 
because I love this industry. And so, once there's a breakdown 
or somebody gets up on the wrong side of the breakfast table 
one morning and decides not to cooperate----
    I want to hear from Mr. Metzger, please. And then I'll come 
back to you. You'll get your say. I'll not leave you out.
    Mr. Metzger. I said in my testimony that I thought the MRC 
aided innovation and competition. The reason I say that is from 
my own experience. First, in the context of our RADAR service, 
for example, I mean, the MRC helps all of us track where the 
fault lines are--not just faults, but any issues we have--and, 
because of that industry inspection, it brings a pressure to do 
things better. And with our RADAR service--I think it was in 
1999, we were looking--our response rates were dropping, also, 
but other services--we had experimented on how to get a better 
response, and we structured an experiment and went to the MRC 
to discuss that experiment before we did it, and got their--to 
buy into the process and the sample sizes and so forth. Matter 
of fact, at that time, there was a minority network that was 
not a part of the MRC, and I insisted they be invited to those 
meetings to discuss that. We did the experiment, got it fully 
accepted and implemented in a very fast time--in part, because 
we had the industry exposure through the MRC to help the 
communications process.
    And with regard to competition, Michael Porter, of Harvard, 
is famous for saying, ``The way to get a good product is to 
create value and signal value.'' With our SMART Laboratory, we 
created, I think, a better product, clearly. Now, how do you 
signal that? Had we got funding, I would have been breaking the 
door down of the MRC to get in there and have them work with 
us, just like we did with that experiment on improving response 
rates, as we rolled out the service. Rolling out the service 
was going to take 1 to 2 years. And then, parallel with that, 
you can bring the MRC in--I mean, how can I compete with--
Nielsen has 200 salespeople, I've got three or four people out 
there. I can go to that one place that the industry is looking 
at, work with them in a positive way, and it would help me 
break into the market faster, rather than impede me.
    Ms. Crawford. So----
    Senator Burns. Ms. Crawford?
    Ms. Crawford.--what we have here is the fact that the 
industry, itself, made the decision not to support a second 
rating service. It was the industry that did this. It was not 
Nielsen or anybody else that made that decision. It was the 
broadcasters, the advertisers, the agencies, and so forth. So, 
the bottom line is, is that it's the industry that made that 
decision. That's number one.
    Number two, I would like to remind everybody that we have 
the advertiser, who is paying the ultimate price here. It is 
paying for Nielsen's service, or anybody else's, no matter what 
the medium is, in the cost-per-spot, as you very well know. As 
a result, these advertisers have been waiting 15 years in the 
local marketplaces to have a service that told them the next 
day how well their spot that ran performed the night before. 
This has been a long time in coming. The fault rates are better 
in the LPM than they are in the meter/diary markets. And yet, 
we're sitting at this table over the LPM. And I'm very 
concerned that we are talking about this when we have 
accreditation on the meter/diary side and we don't have 
accreditation on the LPM side.
    Senator Burns. Mr. Mullen?
    Mr. Mullen. Mr. Chairman, I would say that when you talk 
about paying the ultimate price, ultimately, I think that is 
the weight borne by the stations. Not only do we pay the vast 
majority of the fees for Nielsen's local services--and Susan 
could tell, maybe, better than I, what that percent is, but 
certainly a vast majority of it--how our ratings are reported, 
based upon that ratings system, ultimately determines our 
rates. And if it's not an accurate system, we pay the ultimate 
price.
    And to the point of accreditation, I know right now that 
Arbitron is working with the MRC for accreditation. They are 
submitting to the audits and seeking accreditation for a new 
service in the Houston market. So, I do not believe that the 
ability to go through MRC for accreditation would be a 
hindrance for entry into this business at all.
    Senator Burns. Ms. Whiting?
    Ms. Whiting. Yes, Senator Burns.
    Senator Burns. Then I'll turn to Mr. Ivie.
    Ms. Whiting. I think stepping back a bit--you asked, what 
do we do when we're here at this place, and what could you 
expect us to do? And over the last year and a half, starting 
with every piece of recommendation that our independent task 
force made in a wonderful group of people who worked 9 months 
voluntarily, to put together a review of our procedures, made a 
set of recommendations that we actually have implemented, are 
in the process of doing. In the written testimony I submitted, 
there are pages of quality improvements that we've made in the 
Local People Meter service voluntarily. And they range--
everything from staffing additions, like 50 people in 
significant markets, to incentives, to different coaching 
procedures. There have been many, many focused voluntary 
improvements in the last year and a half. And you might say, 
well, that's because there has been so much attention on this 
issue. Of course that's part of it. But it's not all of it. And 
I think if you look back at the last 5 years, particularly, of 
investment, we have independently, voluntarily invested a lot 
of money to improve our service. And I think that speaks to why 
we believe that a voluntary code of conduct would allow us the 
flexibility to move improvements in the service forward as long 
as the rating services--and we are--commit to that fact, that 
there have to be audits before the service is commercial.
    And I agree with Mr. Mullen that Arbitron is, in fact, 
working with the MRC. So are we on many of the things we do 
before we do them. But that does not guarantee accreditation. 
You can have a review of the process, and if the accreditation 
is mandatory, it's a different issue.
    Senator Burns. Mr. Ivie?
    Mr. Ivie. I just want to address two things. Ms. Whiting 
mentioned our voluntary code of conduct again. Something I 
didn't communicate to you is, we are working on that with some 
urgency. We expect to have sign-off on that voluntary code by 
October 15. That's a goal that we've set for ourselves to work 
with rating services and our members to have that code 
completed and prepared for adoption by the rating services.
    The other thing I would say is, all this testimony sounds 
nice. I come back to one fact. There were at least three LPM 
markets implemented, commercialized, without having an audit. 
And Ms. Whiting has agreed to that in front of you, that that 
won't happen again. The voluntary code of conduct requires--you 
know, states a clear preference, as a voluntary code does, that 
that shouldn't happen. Nielsen has a number of products that 
are not audited that we believe should be audited, and there 
needs to be dialogue about that. But that is really where our 
focus is, because that's where we provide value and provide our 
service to the marketplace--doing these audits, making sure 
Nielsen, with all of the marketplace power that has been 
discussed here today, complies with the MRC audit process. 
That's where my focus is.
    Senator Burns. Mr. Ivie, I've got a question, and I think 
this is key to what this hearing is about today, too, also. 
There's little or no competition in the field with Nielsen. I 
want to start an organization, a research organization. I come 
to you, and I present to you a methodology on how we're going 
to do it, my technology that I'm using. You look at it, you'd 
say, ``I'd like to see a pilot program.'' I facilitate that. 
Can I get accreditation from the MRC with a vote after they've 
all looked at it, and can I compete in a market with the 
Nielsen folks?
    Mr. Ivie. Well, you just described a very interactive 
scenario. You come to the MRC when you are, sort of, ``baking'' 
the product. You're designing your product, you come to us, and 
you bounce it off of us.
    Senator Burns. No, I've got----
    Mr. Ivie. We do that.
    Senator Burns. Yes.
    Mr. Ivie. You then develop a prototype of your meter, you 
bring it to us, we can test that in a laboratory. We can go 
very far in an audit to conduct that audit and get a lot of 
assurance for our members prior to implementation of the first 
respondent. But, ultimately, it is a fact that we don't 
accredit any research--this is one hallmark of the MRC--until 
we see that in operation. So----
    Senator Burns. Well, I say I will pay the bill, I'll give 
you--you tell me what kind of a pilot program you want me to 
run----
    Mr. Ivie. Right.
    Senator Burns.--and I do that, and I submit it to you.
    Mr. Ivie. We have no barriers that would stop you from 
coming to us to accredit. We audit all comers. We've never 
turned down an audit. If somebody came to us--I mean, one of 
the things--I have a stack of legal opinions about two things. 
One is, the MRC never discusses anything financial in any of 
our meetings; otherwise, we're colluding against the rating 
service, financially. That's strictly prohibited. The other 
thing I have a stack of legal opinions about historically is, 
we cannot turn down audits. We're an equal-access organization. 
We don't turn down an audit. You could come to us, we would 
execute that audit. And, guess what? The audit timing has 
nothing to do with the membership. So, no member can delay an 
audit. That's done by the staff, the independent staff of the 
MRC, who doesn't work for any broadcaster, cable-caster, or 
advertising agency. We work with the rating service. We 
establish the audit schedule and timing and when the audit will 
be conducted. So, that--the audit process really--there is no 
issue of whether that could be delayed, because the audit 
process, itself, is controlled by the staff. Now, ultimately, 
when that audit is done, we do convene our members to review 
that audit, read the audit, go through the pain of meeting with 
the independent CPAs that conduct the audit in getting all the 
findings. That's when the accreditation decision comes into 
play. It either makes it or it doesn't. And if it doesn't, 
there's a reason, and that has to be improved. But that's how 
the process works. We don't turn any organizations----
    Senator Burns. Mr. Metzger?
    Mr. Metzger. I think it should be understood that the 
accreditation process is not any kind of mystery. Again, I was 
audited for 30 years and accredited for 30 years. And if you do 
things up to snuff, there's no ambiguity about this, it's 
accredited.
    Ms. Shagrin. Could I add that the--your scenario, if you 
had the pilot audited, your data-collection system and tool 
could be accredited, your methodology could be accredited. But 
until you rolled it out into a real sample, your sample could 
not be accredited, and, therefore, the service would not be 
accredited. But going into rollout, you would know that, 
assuming you've got a representative sample, that you would be 
accredited, because pieces of it would have already passed the 
test. But without the sample, without being able to audit and 
accredit the sample, the service could not be accredited.
    Senator Burns. OK. Mr. Mullen?
    Mr. Mullen. Senator, in Ms. Whiting's written testimony and 
in her statements today, she talked about Nielsen's willingness 
to talk further about the voluntary code of conduct, but in her 
written testimony she stated it was applicable to future 
commercial ratings, said nothing about existing, and also said 
that that would be done with some give-and-take, which we read 
to say there are things Nielsen needs to see changed in the 
MRC's proposed voluntary code of conduct. That certainly 
concerns me.
    And then, to take it a step further, again, this is not a 
discussion about lower ratings. We have tried for years to work 
with Nielsen behind the scenes, professionally, in meetings 
face-to-face. Susan and I have been meeting face to face on the 
LPM issue now for probably more than 3 years. But we are 
dealing with a monopoly that, in my opinion, is acting as one. 
Either we allow Nielsen that monopoly to determine the 
specifications for their own service, or we depend upon the MRC 
for those specifications and oversight. And I think the bill 
that you have introduced, S. 1372, helps us accomplish that.
    Senator Burns. Well, I'm just going to make a comment now. 
I'm going to have to get some more information from the MRC. 
We're going to have to sit down and visit about it. Because if 
I go out of here and I invest in the technology, and then--and 
give them a pilot program any place in the country they want to 
take it and test it before I go into the field, before I make 
the big investment--because I'd hate to go out here and say, 
``OK, now I'm going to sample one area, one ADI,'' and all at 
once--and not get accreditation on it. That's a big chance that 
I've taken. In other words, there has to be some way that I 
know that I'm on solid ground, that I've crossed all the 
``t's'' and dotted all the ``i's'' and done everything in 
methodology and technology that would merit your accreditation.
    Mr. Ivie. One thing that I just should mention. There is 
something called a ``pre-audit.'' A pre-audit is--first of all, 
it's kind of a misnomer, it's not an audit, but what it is, is 
a brief review of a rating service, where we engage--we and a 
measurement service that approaches us engages the CPA firm to 
go out and walk through the methodology. They don't conduct an 
audit, but how does the sampling work, how does the equipment 
work, how does the reporting work, all the different aspects 
that we generally study. This is very, very cost effective. It 
takes about 2 weeks to actually execute a pre-audit. But that 
is a service that we offer. And the end product of that service 
is a letter that the CPAs produce. Now, these are the same CPAs 
that conduct the audit, eventually, in the future.
    Senator Burns. OK.
    Mr. Ivie. That letter is sent to me, the Director of the 
MRC, and the rating service. And that letter says something 
like, ``We didn't conduct an audit. All we did was do a walk-
through, but had we been auditing you, these are the things 
that we noticed in your process, in your technology, that are 
accreditation problems.'' And they communicate that in advance 
to the rating service. So, if--you've not spent a penny on a 
regular audit yet, you've just had this walk-through, and you 
have a list, and I have a list, of the significant deficiencies 
that you have. This process is designed just for the exact 
thing you were asking a question about. That pre-audit exists, 
and it's there.
    Senator Burns. OK. Yes, ma'am?
    Ms. Whiting. I'd just like to reply to Mr. Mullen. We have 
committed publicly to an audit before commercialization of the 
next three people-meter markets, and that is outside of the 
voluntary code of conduct, for Dallas, Detroit, and Atlanta. 
And so, I do think I understand that it's important, and we 
have committed to doing that. But, back to the point we were 
just discussing, this conversation is why I am concerned about 
a mandatory accreditation versus a very strong voluntary code 
of conduct, because I think you--here, you could do all the 
right steps, and I hope everybody would, in a new service being 
offered ahead of time, but you actually, until the final 
service or a real sample is up and operating, cannot get full 
accreditation. And I think that is an issue for people starting 
new services or improving services.
    Senator Burns. Mr. Metzger, please. I'll come back to Mr. 
Mullen.
    Mr. Metzger. Let me first comment, I think it's clear to me 
today that your introduction of this legislation has aided the 
process of the voluntary code of conduct a great deal.
    [Laughter.]
    Mr. Metzger. I doubt we'd be this far along at this point. 
But, to your specific question about investing and creating a 
new meter and taking the jeopardy of doing that, again, the MRC 
is not some arbitrary thing sitting out on some other planet.
    Senator Burns. Yes.
    Mr. Metzger. It is an industry organization. The industry 
wants competition. And, in 1997--late 1997, early 1998--we had 
our meter up and operating, and Nielsen announced the A/P 
meter. And, at that time, the ARF put forth an initiative to do 
a parallel audit of those two meters, hiring an independent 
engineering laboratory such as--our firm had done that by 
auditing Arbitron and Nielsen meters, and hired the Illinois 
Institute of Technology to go through those meters and see how 
robust they were, where the fault lines were, and so forth.
    So, where there's a real option for competition that has 
credibility, the industry will respond. I mean, if you handle 
this thing right, I think you can get through--I don't think 
the issue of mandatory--or voluntary MRC accreditation has any 
influence on--frankly, I think--and I said I think it expedites 
it, because it brings the power together in one place. You can 
go and get a reading and keep people informed.
    Senator Burns. Mr. Mullen?
    Mr. Mullen. Yes, I agree with Mr. Metzger, in that this 
whole process has helped the voluntary code of conduct move 
along, but I would want to point out that that voluntary code 
of conduct was out and proposed by the MRC well in advance of 
Nielsen's decision to roll out both Philadelphia and 
Washington, D.C. And the response from Nielsen to audit all 
future markets was announced, I believe, the day after they 
commercialized the service in those two markets.
    Senator Burns. Well, this has been very helpful today.
    Mr. Ivie?
    Mr. Ivie. I just wanted--can I----
    Senator Burns. Yes, sir.
    Mr. Ivie.--just address one point? It's different, though.
    Senator Burns. I've got to shift gears and go talk about 
BSE here in----
    Mr. Ivie. All right.
    Senator Burns.--a little bit.
    Mr. Ivie. Can I just----
    Senator Burns. This is a bad venue to bring that up.
    Mr. Ivie. All right. I just wanted to make one quick point. 
The idea of the membership of the MRC--who is a member and is 
that a forum dominated by broadcasters--has been discussed 
here, and I didn't get an opportunity to really respond to 
that. And I wanted to just put something in the record on that.
    The MRC has 95 members today. In 1964, when we were formed, 
we had 15. This was at the full knowledge of the Congress when 
we were formed. At that time, there were 11 broadcast members, 
out of 15. There were two--these are television broadcast 
members--there were two radio broadcasters, and there were two 
seats held by the American Association of Advertising Agencies. 
Today, we have 95 members, there are 27 broadcast seats. So, 
that's--if you look at that in terms of diluting the influence 
of broadcasters within the MRC, the MRC is a much more diverse 
organization today than we ever were in 1964, and that's 
reflective of, just as people have said here, the diversity of 
the business.
    Interestingly enough, we had five seats to one organization 
in 1964. That was the NAB. They held 5 of those 11 broadcaster 
votes. We've maintained that rule. In other words, no 
organization in the MRC can hold more than 5 seats, and they 
can only have a seat for a different media identity. So, if you 
think about Viacom, they have a radio seat for Infinity, they 
have a broadcasting seat, they also have cable----
    Senator Burns. Sounds like Rotary.
    Mr. Ivie. So, we have a very diverse organization. No one 
sector controls it. But it is true that we have issues that 
come up that certain sectors are very, very interested in. So, 
you'll see sometimes very contentious, hotly-debated issues 
among, you know, certain of the things we review. People do 
this with passion. So----
    Senator Burns. Well, it's like I said, I've got another 
commitment here, but I want to thank this panel, the 
information and how you've been candid with me and this 
Committee--and this will be reviewed by other Senators; we're 
just scattered all over the Hill today--and the way you 
presented your information. And I appreciate that very much, 
being very honest with the Committee. And we'll have to make 
some decisions as we go along. Maybe this legislation might 
have to be like my idea of going into the sampling business, 
maybe.
    [Laughter.]
    Senator Burns. We might have to change--but we're amenable 
to change. I think Congress can sometimes get into areas where 
there are unintended consequences, and I don't want to do that. 
And the only way we have, bringing this out--I appreciate Mr. 
Metzger today a lot because of his experience and what he has 
said here today. There's a lot of wisdom there. And I 
appreciate it. And I know all of us have different interests. 
And I appreciate that.
    So, I look forward to working with all of you to solve this 
problem. This is an industry that--the broadcast industry--that 
I love. I came out of it. I sort of backed into it in the first 
place. But it is dear to my heart. And I don't want to do 
anything that would damage it, because I think we have a great 
responsibility to the American people, to our advertisers, and 
to each other to make sure that the industry continues to grow, 
and grow in all segments of our society.
    I appreciate that. And if you want to extend some--and 
you'll get some questions from other Senators. I would ask you 
to respond to those Senators and to the Committee. Your full 
statement today will be made part of the record. And if you 
have more that you would like to add, we would more than 
welcome those comments.
    Thank you for coming today. This Committee is closed.
    [Whereupon, at 4:20 p.m., the hearing was adjourned.]
                            A P P E N D I X

 Prepared Statement of Hon. Daniel K. Inouye, U.S. Senator from Hawaii
    Today, the Committee returns to the subject of television ratings. 
Previously, in the 108th Congress, we heard from parties concerned 
about the decision of Nielsen Media Research to roll out new television 
ratings technology in local markets. This technology--often referred to 
as ``Local People Meters''--is designed to replace the old, and 
admittedly flawed system, which relied on viewers to write down their 
viewing choices in paper diaries.
    The need to ensure appropriate levels of accuracy and transparency 
have long been of interest to members of this committee and date back 
to inquires pursued in the early 1960s. Given that the market for 
television ratings data currently supports only one television ratings 
service--Nielsen--that interest is particularly acute. Moreover, our 
interest in this issue is shared by a number of parties who rely on 
ratings information. Buyers of television advertising have a clear 
interest in knowing the audience make up of the particular shows to bid 
on. Similarly, programming distributors--and particularly, free, over-
the-air broadcasters that rely solely on ad-supported revenues--have an 
interest in ensuring that ratings data accurately reflects the number 
of people watching their programs.
    Given these interests, our review of current practices is entirely 
appropriate. If there are problems with the current system, we are well 
within our right to explore possible improvements. Some of these 
improvements may be pursued in the marketplace; others may require 
government action. I look forward to reviewing these issues, but hope 
that as we go forward, we will be wary of solutions that would give 
parties with an economic interest in the outcome, the right to prevent 
the roll out of new ratings technologies. In the end, our interests 
should focus on promoting accuracy, and should not get sidetracked with 
the mediation of commercial disputes.
    Accordingly, Mr. Chairman, thank you again for calling for today's 
hearing and I look forward to hearing from the witnesses assembled hear 
today.
                                 ______
                                 
            Prepared Statement of Hon. Frank R. Lautenberg, 
                      U.S. Senator from New Jersey
    Mr. Chairman:
    Thank you for calling this hearing to give us an opportunity to 
learn more about this issue.
    Over the last few decades, television has grown from a couple of 
broadcast network affiliate stations in each market to cable systems 
with hundreds of channels from which to choose. Keeping track of who is 
watching what is obviously extremely complicated.
    The Nielsen Corporation has been tracking viewership for decades.
    Although it is a private company, its work has enormous 
implications for the American people--because viewer-ship not only 
determines advertising rates, it ultimately decides what program 
choices are available to the American people.
    So there is a clear public interest in ensuring that the ratings of 
television shows are accurate.
    We know that Nielsen has begun using a new system to measure 
ratings. It acknowledges that the system isn't perfect, but claims that 
the technology is superior and that problems are being corrected.
    Some broadcasters have said that the new system isn't getting a 
true measure of some viewers--especially minorities. This is a serious 
concern to me, and I am disappointed that a year after a Senate hearing 
on this same issue, we are learning that the problem has not been 
fixed.
    Mr. Chairman, as I see it, there are two questions we must explore 
today:
    First, is Nielsen taking immediate steps to correct any problems 
with their system?
    And second, is the FAIR Act, which is before us today, the 
appropriate Federal legislation to deal with the issue? I believe we 
should think long and hard before mandating that a group made up of 
Nielsen's clients should have power to decide what technologies Nielsen 
can and cannot utilize.
    I look forward to hearing from our witnesses. I'm sure they'll do a 
good job of explaining both sides of this issue.
                                 ______
                                 
                                                  MindShare
                                   New York, NY, September 29, 2005
Hon. Ted Stevens,
Chairman,
Senate Committee on Commerce, Science, and Transportation,
Washington, DC.

Dear Senator Stevens:

    I would like to thank the Senate Committee on Commerce, Science, 
and Transportation, particularly Senator Conrad Burns, for inviting me 
to testify at the hearing on the FAIR Ratings Act. I appreciated 
Senator Burns' courtesy during the hearing, as well as the chance to 
express the views held by many of my colleagues in the advertising 
community. As you know, advertisers, advertising agencies and 
advertising buying companies have all demonstrated concern about any 
legislation affecting television ratings and I believe it was important 
that their voice be heard.
    I would like to take this opportunity to comment for the record on 
some of the remarks made by other witnesses.
George Ivie
    My observations below are not meant to criticize the Media Rating 
Council for what it is today--a voluntary industry organization 
operating within the private sector. Instead, I am concerned that the 
MRC as currently constituted cannot take on the responsibility for 
regulating television audience measurement on the government's behalf. 
If the MRC is to be given the authority envisaged by the Fair Rating 
Bill, I believe the organization must be completely overhauled so that 
research decisions are not determined by special interest voting.
    In its new governing role, the MRC must be independent of the 
business surrounding the data being regulated. We, in the industry, can 
accept a certain level of potential bias today under the MRC's current 
advisory role.

    Statement: Mr. Ivie said that one of the MRC's stated policies is 
to ``limit the influence of any one Industry sector within our 
organization.''
    Response: If this is an MRC policy, it is a policy that has not 
been implemented. The broadcast industry continues to dominate the MRC 
today, as it has from the time of its formation. By Mr. Ivie's own 
count, 27 of the 65 votes--or almost half of the votes--on the 
Television Committee are controlled by broadcasters.

    But this does not tell the full story. Large media organizations 
can have up to five votes for each of their business segments, so NBC 
Universal, for example, has five separate votes: for the NBC Network, 
the NBC TV station group, MSNBC, Telemundo and Universal Television. I 
also note that Infinity Broadcasting, Viacom's radio network, is one of 
five Viacom votes on the Television Committee despite not even being a 
consumer of Nielsen ratings.
    By contrast, my company, Mindshare, has only one vote. This gives a 
handful of companies disproportionate power within the organization--
power that they have used to block accreditation of LPMs in many 
markets over the opposition of voters from the advertising and cable 
industries. If the broadcast, advertiser and cable companies all had 
one vote each, it is possible that the outcome of the accreditation 
votes would have been much different.

    Statement: Mr. Ivie said that ``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.''
    Response: The accreditation process is not as simple as this 
sentence implies. This process has become a lengthy and cumbersome 
struggle. The MRC's ``Minimum Standards'' are vague and open to wide 
interpretation. Fault rates remain a case in point, demonstrating that 
these Minimum Standards are a moving target. A fault rate that was 
historically acceptable in a Meter/Diary sample has suddenly become 
unacceptable in an LPM sample.

    Because of this, delay in accreditation has occurred even though 
the collection technique is far superior to the diary, and the sample 
is larger and more representative of the market. If the FAIR Ratings 
Act were in effect, advertisers and programmers would have been denied 
the use of this more accurate information for more than a year.

    Statement: Mr. Ivie says, ``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.''
    Response: I believe that all MRC members have a vested interest in 
the issues before the MRC. Every member stands to profit or lose 
through the implementation of new ratings systems. Again, if the FAIR 
Ratings bill becomes law, I strongly believe that the MRC membership 
would have to be changed so that members would not be in a position to 
vote their self-interest and use their power to deny more accurate 
ratings systems.

Pat Mullen
    Statement: Mr. Mullen says that Nielsen ``does not have the trust 
of our company or that of more than a dozen responsible broadcasters.''
    Response: Mr. Mullen provides no names to back up this statement; 
and although everyone has had their issues with Nielsen over the years, 
it is unlikely that he could provide a list of a dozen companies who 
would support that statement. Indeed, only a handful of companies have 
voiced their public support for the FAIR Ratings bill, compared to 
dozens who are opposed, including the Association of National 
Advertisers, the American Association of Advertising Agencies, Asian 
American Advertising Federation, BET, Azteca American Affiliate Group, 
the Latin Business Association, the Urban League and the Rainbow/PUSH 
Coalition.

    Statement: Mr. Mullen complains several times that Nielsen is a 
monopoly, including his statement that ``the keys to our success--our 
ratings--are held by a monopoly.''
    Response: Nielsen is the only company offering ratings data because 
the TV industry itself, led primarily by the broadcasters, decided it 
didn't want to pay for more than one service. Indeed, when Gale Metzger 
tried to launch SMART as a competitor to Nielsen in the late 1990s the 
major broadcast networks made a conscious decision not to fund it. 
Nielsen may currently be the only company offering television ratings, 
but that does not mean there cannot or will not be competitors in the 
future, especially with recent innovations in set top boxes and other 
television technology. Moreover, it is worth noting that the Federal 
Trade Commission recently wrote that Nielsen has not engaged in 
``exclusionary monopoly practices, collusion [or] anticompetitive 
mergers.''
    Additionally, the FAIR Ratings Act will preclude potential 
competitors to Nielsen. What company could afford, what venture 
capitalist would fund, and who in the industry would support, a service 
that could take years to complete the MRC accreditation process with a 
high potential for failure due to previously stated conflict of 
interest issues?

    Statement: In an apparent reference to fault rates, Mr. Mullen 
says, ``It is worth noting that in New York, on the average day for the 
week ending July 10, the viewing choices for nearly one-third of the 
black and Hispanic men ages 18-34 in the Nielsen LPM sample were not 
reflected in the ratings.''
    Response: Obviously it is always possible to find one demographic 
in one week in one market that appears to show high fault rates, but 
looking at the broader picture, it is very clear that fault rates are 
lower for all groups in the LPM samples than in the Meter Diary sample. 
Mr. Mullen's credibility on this issue would be stronger if he had also 
objected to fault rates in Meter/Diary markets.

    More to the point, though, it is not true that faulting causes 
undercounting. All demographic groups are weighted to make sure they 
are represented in ratings to the same extent they are represented in 
the overall population.

    Statement: Mr. Mullen said that broadcasters ``pay the vast 
majority of the fees for Nielsen's local services,'' seeming to imply 
that broadcasters should have a greater say in ratings decisions.
    Response: I strongly object to Mr. Mullen's assertion that local 
broadcasters pay most of the freight for local TV ratings. The money to 
support free over-the-air programming at the local level comes almost 
exclusively from advertising, so all of a station's operating 
expenses--including ratings fees--are ultimately borne by the 
advertiser. I might also add that television stations, which operate 
under a license granted by the Federal Government, are some of the most 
profitable businesses in our economy. Since those high profit margins 
are also borne by the advertiser, I think the advertising community has 
a right to know that the rates it pays local stations accurately 
reflect the number of people watching their programming.
    Again, Senator Stevens, it was a great privilege for me to testify 
before the Commerce Committee on this important issue, and I truly 
appreciate the equitable manner in which Senator Burns' handled 
proceedings. I hope Committee Members will keep in mind that the 
American Association of Advertising Agencies (AAAA), the American 
Advertising Federation (AAF), the Association of National Advertisers 
(ANA), the Asian American Advertising Federation (3AF) and the 
Association of Hispanic Advertising Agencies (AHAA), in addition to 
more than a dozen leading advertising agencies and buying companies, 
have all registered their objection to the FAIR Ratings bill. In light 
of these concerns, I hope that Senator Burns and the co-sponsors of the 
bill will reconsider their support for this legislation.
        Sincerely,
                                            Kathy Crawford.

                       Fault Rate Trends--Chicago
                          Set Meter vs. LPM Set
------------------------------------------------------------------------
                Fault Rate  (Set                             Fault Rate
 Week-ending         Meter)              Week-ending          (LPM Set)
------------------------------------------------------------------------
                         Total Fault Rate Trend
------------------------------------------------------------------------
    3/28/                   13.8                3/27/2005           8.8
     2004
    4/4/2004                12.6                 4/3/2005           9.4
    4/11/                   12.7                4/10/2005           9.9
     2004
    4/18/                   11.8                4/17/2005           8.0
     2004
    4/25/                   12.9                4/24/2005           6.8
     2004
    5/2/2004                11.5                 5/1/2005           7.2
    5/9/2004                11.5                 5/8/2005           6.4
    5/16/                   11.9                5/15/2005           8.2
     2004
    5/23/                   11.8                5/22/2005           8.5
     2004
    5/30/                   11.5                5/29/2005           7.9
     2004
    6/6/2004                11.5                 6/5/2005           9.5
    6/13/                   12.7                6/12/2005          10.5
     2004
    6/20/                   12.7                6/19/2005          11.0
     2004
    6/27/                   11.7                6/26/2005           9.9
     2004
    7/4/2004                10.6                 7/3/2005          10.3
    7/11/                   11.3                7/10/2005          11.9
     2004
    7/18/                   11.1                7/17/2005          10.9
     2004
------------------------------------------------------------------------
                    African-American Fault Rate Trend
------------------------------------------------------------------------
    3/28/                   19.8                3/27/2005          13.0
     2004
    4/4/2004                18.3                 4/3/2005          15.0
    4/11/                   15.1                4/10/2005          15.2
     2004
    4/18/                   14.9                4/17/2005          12.3
     2004
    4/25/                   18.9                4/24/2005           7.7
     2004
    5/2/2004                15.2                 5/1/2005          12.2
    5/9/2004                12.1                 5/8/2005          10.3
    5/16/                   14.1                5/15/2005          12.6
     2004
    5/23/                   17.6                5/22/2005          15.7
     2004
    5/30/                   18.9                5/29/2005          15.7
     2004
    6/6/2004                20.2                 6/5/2005          14.6
    6/13/                   23.3                6/12/2005          15.7
     2004
    6/20/                   20.9                6/19/2005          17.0
     2004
    6/27/                   19.1                6/26/2005          17.3
     2004
    7/4/2004                19.3                 7/3/2005          17.1
    7/11/                   20.5                7/10/2005          17.8
     2004
    7/18/                   18.2                7/17/2005          16.0
     2004
------------------------------------------------------------------------
                        Hispanic Fault Rate Trend
------------------------------------------------------------------------
    3/28/                   21.2                3/27/2005          12.1
     2004
    4/4/2004                15.6                 4/3/2005          12.7
    4/11/                   23.1                4/10/2005          14.2
     2004
    4/18/                   18.8                4/17/2005          10.6
     2004
    4/25/                   15.9                4/24/2005          11.6
     2004
    5/2/2004                17.2                 5/1/2005           9.1
    5/9/2004                15.2                 5/8/2005           9.2
    5/16/                   15.4                5/15/2005          11.8
     2004
    5/23/                   15.4                5/22/2005           9.9
     2004
    5/30/                   16.9                5/29/2005           8.8
     2004
    6/6/2004                16.7                 6/5/2005          11.7
    6/13/                   18.2                6/12/2005          12.7
     2004
    6/20/                   18.5                6/19/2005          15.5
     2004
    6/27/                   17.2                6/26/2005          10.9
     2004
    7/4/2004                18.5                 7/3/2005           9.8
    7/11/                   18.8                7/10/2005          13.4
     2004
    7/18/                   20.6                7/17/2005          13.9
     2004
------------------------------------------------------------------------

                       Fault Rate Trends--New York
                          Set Meter vs. LPM Set
------------------------------------------------------------------------
                Fault Rate  (Set                             Fault Rate
 Week-ending         Meter)              Week-ending          (LPM Set)
------------------------------------------------------------------------
                         Total Fault Rate Trend
------------------------------------------------------------------------
    3/28/                   11.3                3/27/2005           9.7
     2004
    4/4/2004                 9.8                 4/3/2005          10.3
    4/11/                   10.5                4/10/2005           9.9
     2004
    4/18/                   11.1                4/17/2005           9.7
     2004
    4/25/                   10.9                4/24/2005           9.5
     2004
    5/2/2004                12.1                 5/1/2005          10.9
    5/9/2004                12.7                 5/8/2005           9.4
    5/16/                   13.2                5/15/2005           7.9
     2004
    5/23/                   12.7                5/22/2005           7.9
     2004
    5/30/                   14.2                5/29/2005           7.5
     2004
    6/6/2004                13.4                 6/5/2005           9.5
    6/13/                   11.3                6/12/2005           9.8
     2004
    6/20/                   11.2                6/19/2005           9.4
     2004
    6/27/                   11.2                6/26/2005           8.4
     2004
    7/4/2004                 9.7                 7/3/2005           8.9
    7/11/                    8.7                7/10/2005           9.8
     2004
    7/18/                    8.3                7/17/2005           9.0
     2004
------------------------------------------------------------------------
                    African-American Fault Rate Trend
------------------------------------------------------------------------
    3/28/                   20.2                3/27/2005          15.3
     2004
    4/4/2004                19.8                 4/3/2005          17.2
    4/11/                   18.0                4/10/2005          15.0
     2004
    4/18/                   17.2                4/17/2005          14.5
     2004
    4/25/                   21.2                4/24/2005          14.1
     2004
    5/2/2004                23.2                 5/1/2005          17.4
    5/9/2004                21.6                 5/8/2005          14.8
    5/16/                   22.1                5/15/2005          11.6
     2004
    5/23/                   23.7                5/22/2005          10.8
     2004
    5/30/                   22.8                5/29/2005           8.2
     2004
    6/6/2004                21.1                 6/5/2005          11.5
    6/13/                   19.1                6/12/2005          14.7
     2004
    6/20/                   18.2                6/19/2005          13.4
     2004
    6/27/                   18.2                6/26/2005          12.3
     2004
    7/4/2004                16.9                 7/3/2005          11.5
    7/11/                   16.9                7/10/2005          13.8
     2004
    7/18/                   16.1                7/17/2005          10.6
     2004
------------------------------------------------------------------------
                        Hispanic Fault Rate Trend
------------------------------------------------------------------------
    3/28/                   17.4                3/27/2005          12.3
     2004
    4/4/2004                12.2                 4/3/2005          14.2
    4/11/                   14.6                4/10/2005          11.6
     2004
    4/18/                   18.3                4/17/2005          14.2
     2004
    4/25/                   17.1                4/24/2005          12.9
     2004
    5/2/2004                19.3                 5/1/2005          16.4
    5/9/2004                19.8                 5/8/2005          13.2
    5/16/                   18.8                5/15/2005          10.1
     2004
    5/23/                   17.9                5/22/2005          10.8
     2004
    5/30/                   27.5                5/29/2005          11.0
     2004
    6/6/2004                26.6                 6/5/2005          13.1
    6/13/                   22.1                6/12/2005          10.6
     2004
    6/20/                   20.8                6/19/2005           9.3
     2004
    6/27/                   20.8                6/26/2005          11.8
     2004
    7/4/2004                10.3                 7/3/2005          13.7
    7/11/                   12.8                7/10/2005          14.9
     2004
    7/18/                   14.3                7/17/2005          14.4
     2004
------------------------------------------------------------------------

                                 ______
                                 
          Supplementary Information Submitted by Gale Metzger
    I appreciated the opportunity to testify before the Senate 
Committee on Commerce, Science, and Transportation regarding the FAIR 
Ratings Act on July 27. Thank you for allowing me to do so and for 
inviting these additional remarks.
    As I said at the time, the introduction of legislation has itself 
had an apparently positive effect. It seemed to have expedited the 
acceptance of the proposed voluntary code of conduct. However, that 
prospect does not diminish the need for a mandatory process to assure 
that audience measurement services are always committed to the vetting 
of their services through the Media Rating Council (MRC).
    As explained in my testimony, I comment as one who (A) has no stake 
in the outcome, (B) is concerned about core weaknesses in Nielsen 
services and (C) believes that the quality of Nielsen research is 
important to society and to the industry it serves. We now read that 
Nielsen has spent ``more than $4,000,000'' for lobbyists and PR people 
to shape the debate on this bill. \1\ They have cast the issues as 
government regulation and minority representation. Both 
characterizations are misleading.
---------------------------------------------------------------------------
    \1\ Nielsen, Long a Gauge of Popularity, Fights to Preserve Its 
Own, New York Times, August 8, 2005, Lorne Manly and Raymond Hernandez, 
p. C1
---------------------------------------------------------------------------
    First, what is proposed is not government regulation but a 
government requirement. The requirement mandates a monopoly to work 
with the industry and to play by long-standing and long-accepted rules.
    To call this bill ``government regulation'' is a smokescreen, 
created purposefully to raise a frightening hydra and to conjure a 
burden that stifles innovation. Working with the MRC is not working 
with the FTC--or any governmental bureaucracy. The MRC is a creation of 
the industry itself. Accreditation is held up only if problems arise--
if a ratings service is not doing things right. The MRC system has 
worked well for decades and is respected and accepted by all, buyers 
and sellers, who have to use audience research numbers. This confidence 
is a necessary prerequisite for a media industry that exchanges 
billions of dollars on information. That information must be reliable.
    In 1963, the industry and Nielsen agreed to work collaboratively to 
build and ensure confidence in ratings. The MRC was set-up to avoid 
government regulation and now, this legislative proposal only requires 
that they live up to that earlier commitment--which in recent times 
seems to be deemed as optional by Nielsen. The legislation is 
appropriate and will benefit everyone.
    Second, this bill does not stifle innovation; monopolies stifle 
innovation. As I explained at the hearing, the MRC would expedite 
gaining acceptance of new and better approaches to measurement. Had the 
SMART initiative been funded, I would have asked the MRC to audit the 
rollout in order to signal efficiently the value and accuracy of our 
approach.
    Nielsen has little or no incentive to do better. During the 
discussion section of the hearing, I noted that Nielsen skipped homes 
with new digital recording devices, such as TiVo. Ms. Whiting stated 
that Nielsen could now meter such homes. Only recently have they 
announced that capability, many years after the digital recording 
devices entered the marketplace. This lag time between measurement of 
time-shifting viewers and actual use exemplifies the ill effect of a 
monopolized industry. Further, the industry will have to wait an 
additional year, or years, for Nielsen to bring their total national 
sample up-to-date and to have the proper share of new high-tech homes 
in their sample for complete measurement.
    Third, Nielsen says that it is ``in the truth business'' and casts 
the dispute as a battle between the buyers and the sellers of the data. 
In effect, Nielsen maintains they are above the fray and they can't 
satisfy everyone. If Nielsen were to focus on research quality, they 
and the television marketplace would be the richer for it.
    Instead, the appearance is that they are focused on short-term 
profits at the expense of long-term investing to produce a better and 
more accurate measurement. The appearance is of doing only what they 
have to do to get by. Their history of anomalous and inconsistent 
numbers are caused, I believe, by business decisions animated most by 
the bottom line. The lack of adequate support staff and the failure to 
institute effective quality control procedures over their operations 
are illustrations.
    The roll-out of an improved meter provides an example of their 
slowness to invest for improvement. I noted in my testimony that 
Nielsen responds only when a competitor challenges them. In 1998, when 
the A/P meter \2\ was being developed and SMART was a real possible 
alternative to their services, Nielsen published a well-designed 
research plan to create a scientifically-based approach to new A/P 
operating rules. Seven years later and much delayed, Nielsen is ready 
to roll out this ``A/P meter'' and integrate the technology into the 
measurement system. In addition to the inexplicable wait, only on the 
eve of the installations of the new meter did Nielsen propose efforts 
to fill in the operating-rules gap. The planned research of 1998 had 
never been completed and still hasn't. Effectively, Nielsen's new A/P 
rules will be set arbitrarily and be modified as experience dictates.
---------------------------------------------------------------------------
    \2\ A/P Meter stands for Active/Passive Meter and was designed to 
enable identification of programs tuned on metered sets without relying 
on station calibration.
---------------------------------------------------------------------------
    A champion of truth would have introduced the new meters years ago 
and completed the original research plan. Nielsen's slowness to 
innovate and to improve damages themselves and the industry.
    Fourth, Nielsen's posture as the protector of minority interests 
camouflages the true problem. Minority groups are right to be concerned 
about the accuracy of Nielsen ratings. As I testified, black and 
Hispanic homes have more people in them. That means it is more 
difficult to obtain good data from those homes. This is true for every 
measurement technique, be it the LPM \3\ or the meter-diary approach. 
The MRC is the best assurance minorities have of a measurement service 
in which all population segments are appropriately counted.
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    \3\ LPM stands for Local People Meter.
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Media Rating Council
    In my July 27 testimony, I advocated that the MRC audit be an open 
process. That is, the audit reports, which are the basis for the 
accreditation process, should be available to the entire community. 
Transparency would benefit the marketplace by putting all users on an 
equal footing. It would bring pressure to improve operations more 
quickly when problems are identified.
    Effectively, the Statistical Research, Inc. People Meter Review of 
1987-88 was a full and complete open audit. The Advertising Research 
Foundation has performed audits of media rating services and, as a 
matter of policy, their audit results are open to everyone. Open-audit 
precedents exist and have served the industry well.
    In addition, distribution of the full audit findings takes the onus 
off of the current process of accrediting or not accrediting. A pass or 
fail grade is too rudimentary for the sophisticated evaluation 
required. The market needs to know and understand the accreditation 
process. Further, concern articulated about the politicization of 
accreditation voting (to the extent it is real) would be ameliorated by 
open audits. Everybody could monitor the process and providers would be 
accountable from beginning to end.
Conclusion
    It would be truly regrettable if this bill did not pass because 
some lawmakers don't like government regulation and others fear the 
disenfranchisement of minorities--when neither issue is the real 
problem. Decoys and diversions created by Nielsen should not triumph.
    The real story is that the proposed legislation would reinforce 
industry self-regulation and provide better protection that all people, 
including minorities, are counted more accurately.
    I remain hopeful that Congress will intervene to ensure that the 
1963 standards for audience measurement review will persevere and 
transcend the political aisles.

                                  
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