Liz Zale – Senior Vice President, Investor Relations
Brian West – Chief Financial Officer
Susan Dunn – President, Consumer Products
Mitchell Habib – Executive Vice President, Global Business Services
Steve Hasker – President, Media Products and Advertiser Solutions
Nielsen Holdings N.V. (NLSN) Shareholder Analyst Call September 13, 2011 8:30 AM ET
I’m Liz Zale, Senior Vice President of Investor Relations for Nielsen, and I’m very pleased to have all of you with us today to talk more about Nielsen. Before, we begin of course I will just share with you the Safe Harbor for forward-looking statements in case the statements are made during this presentation today.
Our goals for today’s meeting are really to give you a deeper understanding of the trends that inform Nielsen’s business particularly from a client’s perspective, to provide a much deeper understanding of both the Watch and Buy businesses, we will spend some time talking about Nielsen’s technologies and capabilities, and really how we do what we do, and we also are going to provide an opportunity for those of you here with us today to get a little bit more understanding of the technology, do some product demonstrations and actually a tour.
Just quickly going through today’s agenda. We’ll start off with Brian West, our Chief Financial Officer, who is here with us today. We also have the benefit of a number of members from our management team with us as well. Susan Dunn, the President of our Global Buy Leadership, who some of you met last night. Mitchell Habib, who is Executive Vice President of Global Business Services, and we will talk more about that. Steve Hasker, currently the President of our Watch Global Products Leadership, and then Susan will talk about the Integration of Watch and Buy, which is something that we’ve talked a lot about since we first started talking publicly about the company.
With all of our sessions, we will actually run Q&A after the Buy session and after the Watch session to enable you to ask questions of – either Susan and Mitchell or Steve and Mitchell as we go forward. And then Brian will close and we will also have Q&A at the end.
With that again I want to thank you for joining us and I’m going to turn it over to Brian West.
I’d add a stiff objective and it’s hopefully you’ll get a feel for the leadership development team of the company. It’s indented for you to get a face and a voice other than David and myself and I think you’ll be pleasantly surprised that we think we field the best teams. So that’s one objective I have you think about in addition to every ones Liz mentioned.
So we talked last night with many of you. This is as close as you’re going to get a plant tour. We are very proud of our facility here in Florida. This facility has around 1,700 resources here everyday. And what we do here, two things primarily, one is the operation centre for our Watch business, and you’ll see exactly what that means later in the day. And then secondly, it is our global engineering hub. So whether it's Watch or Buy, some of the best and brightest in the industry around this technology reside right here in this building. We’re very proud of the campus. It's under Mitchell Habib, in a minute, but we’re proud of being here in Florida, we’re happy you can join us.
We offset some framework that you’re very familiar with in terms of the content, but I just want to make sure we’re all grounded in a couple of principles before we turn it over to the key speakers. We are fundamental with two engagements around the consumer. What they buy and what they watch and we do it all around the world, 100 countries and we’ve been doing it for a long time. And hopefully today you'll get a sense for not just how we do the measurement, which is the core foundation of the business, but why measurement is important.
Why measurement is important? It is the bedrock of our business, it is proven to represent a very resilient business model both historically, but more importantly, on the future because we think this measurement capability and the trends that we align around Buy and Watch has big macro trends that we’re following and big macro trends that we feel good about for the long-term growth of the company.
The highlights, this hasn't changed. The first one, fundamental on Buy and Watch, we talked about it, no one else has those two things. And then Susan would give you a view of how they come together on behalf of clients. Second one, 100 countries, no one has got the global footprint, Mitch will describe more about what that means. Mission-critical, Susan and Steve in their own voice will talk about just what it means to have our information in the client world, how and forms of clients’ decision-making processes every single day.
The next one syndicated scalable products. We're not interested in doing things that is a study that you throw away and do it one time, not interesting to us. We like standard, scalable things ultimately that can be syndicated because it levers our platform and it reflects an information services company, regardless of the fact that our end markets are CPG, consumer product goods or media, it’s an information services platform that we built and that is proving the test of timing in good markets and bad. We’ll talk about some of the trends that driving us.
This point about an information services company. The first one is something I really want people to appreciate is that we do measurement science on behalf of client to help them drive value. An unmeasured medium is an undervalued property, there is no question and this has happened over the course of time.
So take for instance Univision. Univision in its early days, they were not subscribers, they weren’t measured, they went out to the market place and sold their own captive ratings. Pretty soon they decided to get measured by Nielsen, they became subscribers. Their ratings initially went down by two thirds, over three years their revenue tripled. Having independent third party measurement is important for our clients and important for the marketplace and they get value for it.
Wal-Mart recently came back into the fold in terms of CPG industry in this market. Manufacturers or retailers coming together to share information to help grow their businesses, again another testament the power of measurement have and Wal-Mart come back again which is going to help Wal-Mart help the industry and Nielsen is going to benefit from it.
There’s more examples. Steve Hasker will talk to you about the next big measurement challenge that we have which is online campaign ratings, where she is going to give the update on that topic, we’ve got a lot of enthusiasm. I’ll remind everybody that it is the early innings of a very long game, so we’re optimistic but I just want to make sure people understand that this is a long-term play.
We think that this ability to measurement is really core to not only our franchise, but our brands because Nielsen stands for neutrality. And it’s through this neutrality we think in the market place we have values that differentiates us from anyone not just market research but information services.
We seek to be as simply as we can on behalf of clients. We want to be open to anybody, any source of information and we want to integrate on behalf of clients. And we’ve been doing that for the last four, five, years. These values have stuck with us. We think they are meaningful and we’re just getting started in terms of how we express them to both clients and our employee base. We got the discipline in place on cost, investment and capital structure, I won’t describe that.
And again, our fifth objective today, leadership development. It’s a lifeblood of our CEO. It’s everything he does every single day and I think you’re going to see a little bit of that display today.
Watch and Buy, how we describe ourselves in the Buy side. 70% of the relationship of the Buy client typically is around multi-year contracts, long-term retail measurement, market share measurement, and 30% is more insight to help them look around the corner. We talked a lot about – example Procter, today we’ll probably talk more about Coke because that’s where Susan works for many years.
On the Watch side 80% of that relationship is typically long term contracts, the ratings, the subscription ratings. Steve has been around these clients for a long time. He’ll describe in his own words exactly what that means. But what’s important is both on Buy and Watch the core franchise are long term contracts with clients that have been with us for a long, long time.
You’ve seen this I would just add that on the last we’ve got one big important client right in the middle that we’re very proud. It’s a very big deal. I can only – I can’t use words more than Dave used on a conference call at the end of the second quarter. Check that in terms of how profound we think Wal-Mart coming back in the folders.
I'll talk about two big themes that are growing our business. As investors you should feel good about the long-term prospects of what we're behind. The first one is our developing markets business, the emerging middle class.
On the left-hand side of the bar chart, the blue bars, that is the number of people that are going to be coming into the middle class in the billions. And the line is how much incremental purchasing power they bring with them. It’s tens of billions with any demographer and it’s a similar survey. And in terms of where that’s coming from, it’s the graph on the right. That green and the blue, green is China and India, the blue is all the other markets. The yellow at the top that’s getting more narrow is the developed world. This is a developing marketplace that everybody sees particularly our clients.
We were with the clients recently and they did the math and said if we could just get China and India on a per capita spend basis that Mexico is, it’s a $40 billion opportunity for us. But our clients who are a lot of big multinationals on this market think about growth that's where they are going and they are not trying to create the US market overnight, they’re just trying to get incrementally better because the opportunities there in front of them and we go with them and we help them because we’ve got this that no one else has.
Our global map, no one else has got the coverage, hundred countries. And this business, our developing market business on the Buy side, the franchise is over a billion-dollar franchisee annual revenue. Five years ago it was half of that because over five years we have shoveled resources in the developing world in order to stay ahead of clients and this is paying off and it is doing very nicely double-digit, and Mitch will talk about more about some specific examples but we feel great about this and great about our capabilities and our presence.
The second big trend that we're following is choices around media. Now this on the left-hand side shows time spend over five years. Obviously some mediums are, people are spending less time with and others are growing. Now for us we’ve got presence in all the things that are growing. And it’s not just anyone device, TV, online and mobile, but it’s a fact its viewership, its consuming video and the new entry of the social network and the social conversation, social media.
The big, big deal we’ve got the right assets and also it’s driven by the right advertising expressions. As you can see the stuff that people are going to spend time with attract the revenue, the things are growing does. And Steve Has will talk about more about this, but it’s a big theme and it has more choice and more technology suit us just fine, but actually fitting with our model.
In terms of what this means for us in growth, many of you’ve seen this chart before. Two thirds of the business is that stable business, I talk about upfront with this long-term contract relationship and on top of that is the third of the business that is growing faster, and you're going to hear about a little bit about that growth from each of the presenters today.
Developing markets, you’ll hear from Mitchell Habib not just about our China story, but what makes us enthusiastic about doing other markets including Africa and India. The Insights and Analytics, Susan will talk about why important we need more than just the information, they need the insights and how we provide that for them and how we bring our Watch and Buy together is going to be the next frontier in terms of how we grow that side of the business. And then Online and Mobile, Steve will talk a lot about televisions and he’ll talk a lot about where we’re growing in terms of that space and how we feel good about the prospects.
Over time, you look at the chart on the right, ’07 to ’10 our revenue grew 5% in constant currency, this year we’re up 6%. That feels good to us and it’s the consistency of this model in good times and bad that we think holds up and we feel good about the long-term prospects. The stable base, lots of things for us to work on for growth.
And before I turn it over to Susan, I want to put in context how we fit into the equation and in terms of how we are organized. So the bottom part, the blue circles, those are all the commercial leaders out in the field. All of these commercial leaders report directly to Dave. They cleared up that quarter, they report right to him and they are with clients all day everyday helping solve their problems. Along with that in the last four years, we put together three big global functions areas. The first is, we work global with clients, we never did this before. So in the last three, four years we have big client leaders attached to our big global clients. Susan is a good example. She just recently got promoted into her current job. She was the Global Account Leader for Coca-Cola. Grew that relationship fantastically, so she got promoted.
On the upside global products, global products before there was never global practice in this company, every decision was made locally and incrementally if their local business could afford it. We rip that apart, we put a global organization so we can global prioritize where to make product best and we have a global product strategy. The tow leader that own those types of the business are here today. Susan as I mentioned on the Buy side came from Coke. Now she does global product for all the five, a greater leadership example, better with Nielsen 20 years. She was a diamond in the rough when Dave came in, promoted her, elevated and she is terrific in terms of how we think about navigating in entirely different requirements from our clients.
On the other hand there is the Watch part of our business. Steve Hasker, relatively new to the company two years, spent 13 years at McKinsey, was a Lead Media Partner, came to us because he was excited about some of the things that we are doing. He spent time with all of our media clients as an advisor in the McKinsey role. We’re glad to have him on our team and he is taking our properties to a whole new fronts that we otherwise couldn’t image.
And in the middle is really how everything gets done everyday. So before we were set optimized we globalized our operations and Mitchell Habib has come to us. He spent 20 years at General Electric and Citibank. And he knows the change management. He knows how to drive productivity, but more importantly, he knows how to drive innovation and change on behalf of clients. So that's how all these guys fit in. They all work for Dave and we’re just thrilled to have them give in their voice, their story of Nielsen and what they do.
So with that I'm going to turn it over to Susan.
Okay. We’re going to talk about the Buy business and I am going to talk about it from a client lens. Talk about the trends that are impacting our clients, but more importantly, how those trends also shape our Nielsen solutions. And Mitchell is going to get up and talk about how we measure the retail business; he’ll give you a case study on China and talk about our innovation and our technology progress.
So starting with the four trends that we are measuring and monitoring for our clients. The first is what Brian said, the growth in developing markets and it is beyond BRIC, right, our clients are still focused on BRIC, but it's also where do I go next? Where do I need to be in the next three years? What’s important across Africa from for me to be looking at? Closely related to that are the demographic shift. The demographic shift in the developing markets Brian, just talk about, the surge in the middle class and their spending power, the first time consumers but it's also happening in the developed markets. We are seeing in the developed markets an ageing population. We are seeing heavy Hispanic growth in the US. We're seeing the middle-class squeeze. All of these trends are so important to our clients’ brands and their portfolio.
The third trend that we are monitoring is media. All the choices, the choice across platforms but also within hundreds of channels to chose from. It's challenging for our clients to target their consumers efficiently with so many choices. And the last is the economic cycle. Brian mentioned in good times and bad our analytics are needed to address the analytic impact on our clients’ business.
So what are our clients asking? What do they need from us? There is two fundamental things that every client ask us. What’s their market share and how do I achieve my growth? But it goes beyond that. They need to understand their consumers and not just the demographics of their consumers they want to understand how they are shopping. How they think about their brands, their attitudes and purchase behaviors, are they loyal, do they switch back and forth. And from a retail point of view, our retailers want to understand the same thing about their shoppers. Our clients want to understand innovation. They have all these concept ideas. How do they turn them into a product? How do they get from A to B, a concept to a product launch and what is the volume associated with that?
Our clients want to understand their marketing effectiveness. How do I spend my money, how do I allocate it across my options, my platforms, trade, media, and then am I getting a return on that? But it all starts with our information. We provide our clients a database, a data but we’ve got to turn it into information and insights.
So this is an example of a water report, it’s a real water report that goes to one of our clients. Down this side you’ve got all your products start to the category total water; they can drill down into UPCs items. Across the top you have what we call facts or measures, dollar sales, gross market share, pricing, in store toggle information. At this level this report is used for performing tracking, it’s pretty broad. But with a few clicks of a button, we can make it really tactical.
So this total US supermarket, I can toggle this report and get down to a market Atlanta. Click again get down to Kruger, all the individual stores within Kruger. So now the sales guy can identify where he has distribution gaps, he can identify where we has price compliance issues, so we report that looks pretty simple here actually the wealth of the information behind it with a few clicks.
So let’s look at that a little bit deeper. Here is prop water, we’re a syndicated company. For every item we code all the characteristic or attributes on this bottle. The manufacturer, the brand, whether it’s a PET, the type of plastics, how many ounces et cetera. So every water client has the same list of characteristics. What they do with it is unique, what they do with it turns it into insights. How they roll that up allows them to address their unique businesses from their competition. We may have one water client who is interested in all the water that has flavors or it’s an enhanced with ingredients, vitamins. Another may want to understand sports cap versus twist cap, and they do that by rolling up these attributes.
So who is using all of this information and insights at our clients, it's used broadly. The route drivers for our DSE clients have access to the information to understand how they should set a display in the store, how they should set the shelf, all the way up to the [CSV] who is using the data for executive reporting, sizing market opportunities globally, strategic planning and everywhere in between. Sales, brand marketers, the media group. The supply chain guys are using it for inventory management. The data is broadly used across the organization to make day-to-day business decisions. Our clients are dependent on this; it's woven into their business processes.
So I opened with the importance of developing markets, let me close with that same concept or thought. This is a list of our top six clients and it’s broken out on how they spend their yields in dollars between the developed markets on the bottom and the developing on the top.
Client A is the most global of our global clients. They are in over 200 markets around the globe and do business with us in just about every market we had data. But if you look at where they are investing, even with this global footprint it’s in the developing market. Contrast that with client X, they're just getting started and they are looking to Nielsen to understand where do I need to go, with which product, with which package type, and at which price points. We know this information and understanding those developing trends, understanding the consumers in the developed market, is so important to our client, was also important to us. And now Mitchell is going to get up and talk about how we measure retail and where we’re investing in the developing markets.
Good morning. Well I get started, I'm going to share with you just a little bit about what Brian started off with, which is GBS. When Dave joined Nielsen, he made a very conscious decision to create structure that would enable us to become the one Nielsen that was very important to our clients and the markets that we serve. And believe that in order to do that we really had to liberate, I use that word very carefully, liberate the assets within the organization. Brian described, Susan (inaudible), one could argue that she was liberated from a specific role. In GBS, we’ve moved in a lot of different functions so that instead of working as was described at a country-by-country level where we diminish the scale capability and the scale advantage that we have, we acted very small. We’ve put all of those things together so we can act large and make big bet. I’ll give you some examples.
Measurement Science, which is one of the most important functions that we have is now a part of the GBS organization. It serves both Watch and Buy in its delivery. We have all of the IT, all of the engineering, all of the operations, the field organization; we have some corporate functions like our BPI, which is Business Process Improvement. So there is a collection of groups, about 26 groups within the portfolio that service on a horizontal basis, all of the different client phasing organizations and product organizations that we have. That’s what GBS is.
What I got to share with you in this presentation today are three specific points. First of all I want to talk to you about the platform that we’ve created around a global Buy business. This platform has been inducted by generations of Nielsen associates. It’s not something that happened in the last four years. We’ve added to it, we’ve double down but really this is a big part of what we do. It significantly advantage to our clients and it is advantage to Nielsen. The second thing I want to share with you is there are very high barriers of entry into this global platform. It’s not easy for someone to try and come in and replicate it, and I’ll share with you some of the reasons why?
And then finally as Susan said, I’m going to show you a little bit, at a very high level, how it works and what we do to make it work. So first of all let’s start off with our differentiators. It’s all about quality, coverage, and capability.
On the quality side, it starts with and ends with our measurement client piece. Recognized around the world as the best, recognized about from the independent associations, regulatory organizations, they are a large organization. We have a 1000 measurement scientist that work every day for our clients. So in this organization with 1000 people we’ve made some changes, we’ve broken up into three different types of services. Part of that organization focuses everyday on delivering service to the clients and ensuring that the quality of the delivery that they receive from us. So it’s part of our operations team.
Another section of these measurement scientists are part of what we call centers of excellence. These centers of excellence focus on things like sampling, demographics, the things that we need to understand really well help our clients’ complete wins in the market they operate in. And then finally innovation. The innovation is part that again we’ve unleashed. This was not a big part of our measurement science group before but they focus everyday with our product leadership in order to make sure we can bring new products to market.
When Steve talks about the Nielsen online campaign rating, that would not have been possible without a heavy injunction of the measurement science team, working side by side with the product leadership team to get that done.
After that is coverage. Now the numbers on the chart speak for themselves. When we talk about the fact that we’re in over 100 countries, that's a really important to our global companies, our global customers, you saw the chart from Susan that the slide their penetration into developing world. They want to be able to go into those developing world with a partner that they trust, again just the math.
So Nielsen have over a 100 companies, the two other competitors in this space combined are now in 50s, that’s a seven-to-one advantage. Then you have to step back and think about it, what's the number of retail outlets to coverage, where are we getting this data from, right. We’re in over 25 million retail outlets combined as one, a twenty five-to-one advantage. And then finally it also down to how much do we know about consumers. We know nearly 6 billion consumers. Numbers two and three in the market place combined don’t know 1 billion consumers, again a six-to-one advantage.
And then in terms of capability, it’s always again begins and ends with our people. You’ve met Susan, you’re going to meet Steve. They and their teams are the best they were on, not because I say so, because in every RFP that we go to is about the quality of our people that enable us to win. We’ve also empowered them with great technology and a great structure. Add to that, but uniquely they are the only ones on the planet that can bring both Buy and Watch insights together for the betterment of the client and you have an unstoppable combination.
Okay, this chart is supposed to be in one chart, let me explain to you how this measurement process works. So I’m going to do the best that I can. The first thing you have to do when you think about doing a retail measurement business is you got to understand the dynamics of the market you’re measuring and we call that retail establishment survey. In order to do this, we put tens of thousands of feet on the street every day understanding the ins and outs in a market on what you think about the dynamic market, a market like China that’s expanding fast and the changes in the distribution pattern in a market like China, right.
I want you to think about a time where there is an economic downturn and a significant number of stores in a typical geography or closing. So we have to know that change in the dynamics of that marketplace in order to be able to provide an insight about it. And again there was no one else in the planet that has the tens of thousands of feet on the street that we do to continually assess how these markets are performing and the retail environment that they operate in.
Next, It’s all about sample design and recruitment. Sample design goes back to our measurement science team. They understand what that retail environment looks like and they create a sample that allows us to project what that market is based on a subset of the stores in the market, but again it goes back to those people on the street. I’ve got to recruit those stores to cooperate with us. I want you to think about your last trip either to the Caribbean or Southeast Asia because if you think you got it from a western mindset, you're thinking about walking into a grocery store or walking to a headquarters. But I've got to recruit all the way down to that bodega where you bought that carbonated beverage, right as you were walking around on your vacation. We measure at that level of detail in those communities.
Next, data collection. Again two different types of data collection. There is a modern world and a traditional world. The revenue percentage is higher in the modern world but the number of retail outlets is higher in the traditional world. There are more retail outlets in India than anywhere else in the world. And I’ve got to go in there, I’ve got to be able to count those and it’s a traditional environment. I get no electronic measure.
We talked about barriers to entry and I said India, let me give you an example. In India my retail count up until about a year ago was 25,000 units in India. We have recently brought it to 40,000. Now, I want to think about that 15,000 additional stores. Now, when you go in and you identify a market change and you go and you recruit a sore, obviously, I've got to recruit more than 15,000 to get 15,000 cooperators, right. Then in addition, when I bring those stores in, I don’t put them directly into the measure because they would create trenches, so I have to put them in quarantine. So I have to put them in quarantine for some times up to a year, normally six to nine months, but sometimes up to a year.
Now, consider yourself a potential person that wanted to enter the Indian market, a place where we have the market to ourselves. And you’ve got to compete with us and I have 40,000 retail establishments. For a year you would have to do 40,000 retail establishments, it’s actually more without any revenue, that's a really tough time.
Okay. Now I go to coding and processing, I'm not going to talk about coding and processing much here because I’ve got a slide on it. In fact I’ve got the same slide Susan has. We’re going to talk you about water. But in coding and processing, it really is about creating the metadata, the metadata that gives an ability to look for us geographies at the same products. And then finally, client reporting, I think Susan has highlighted this as well. Our client reporting goes to our clients on a daily basis, on a weekly basis, on a monthly basis, on a quarterly basis, and on an annual basis. Most of the reporting is done in distributing databases to our clients, some of our reporting goes to clients through Nielsen developed tools where they never actually take possession of the data; they use our tools to look at the insights provided by our data.
Okay. Water, whether you're on the phone or if you’re in the room, I'm holding up a bottle of water. And at this moment of time, this single bottle of water is pretty easy to code. Any one of us could sit down and look at about 30 attributes that we identify for this bottle of water. But again, I want to you to vision with me. I want you to go to your grocery store where you shop and I want you to look at the water aisle in your mind’s eye. Think about the choices in that water aisle, right.
Now, I want you look at all the grocery stores in your community. Now, I want you to think about it from the perspective of United State and now I want to you to think about it on a global basis. We are the only company in the world that has the richness of reference data that’s on a global basis. It doesn’t exist anywhere else. We have five million new products in a year. We have over 30 million products in our database.
Now, today, we do most of this manually right, and I do this in over 100 countries. What’s really cool is one of the technologies that we’ve invested in ahead of the need of the market is the product that allows us to take all of its global reference data and put it into a very modern system, a system that uses photography so that we take images of products and we are able to classify the products at some level with images. It will allow us to set additional hierarchies if you would. There are more choices for our clients to look at data.
The big challenge with changes to reference data, I want you to think about this with me, is that it could create a trend break, so that’s why historically people have not done this. We’ve created a technology that allows them to maintain their current trends for their local market, but also bring things up and say I want a European view, I want an emerging markets view, I want a global view and our clients are very excited about the opportunities they have this in an automated way and this is coming to life in some time around 2012.
Okay, Reach and Read. Reach and Read is probably one of the most exciting programs I get to work on and its exciting for the reason that Brian pointed our. Its really, really important to our clients. Susan showed you a chart with the penetration of developing and developed world from our clients, this is an opportunity for Nielsen to move the ball forward three years ahead of the needs of our clients.
So in most cases you work directly in alignment with your client in terms of expanding your market. But for Africa, China and India, a place where four billion consumers reside, a place where the middle class is growing at a rate faster than anywhere else. This is a place where we’ve decided to double down and really move ahead much faster. I want to talk to you about how this particular program really highlights the value of the Nielsen Company, Open, Simple and Integrated.
Let me describe Open and how it relates to this program. When you think about technology, no matter what you do, you have to think about it in the context of your own personal experience. And so most of us growing up in the west will think about technologies with a western purview. We recognize in these developing economies and in these rural areas of these developing economies that just doesn’t work. So we went out and built a relationship with the India Institute of Technology. We have funded a team there to help us combine both technology and sociology in order to work effectively in these emerging markets, so that’s a demonstration of open. We knew we could do it we had to go there.
Simple, if you remember those retail establishment surveys, in some of these markets maps don’t exist, I can’t use a map. So we’ve built a cartography center in India to allow us to digitally create maps, simple map for us to use in Africa, China and India. So those tens of thousands of feet on the street to be more efficient and we can show the data work effectively with our client base. And integrated, this is probably the most important point; we are not doing this alone. We haven’t put a bunch of smart people in a tower and say go figure this out. We’re doing this everyday with our largest most important clients. Our largest most important clients are there with us developing the strategy and monitoring the execution around this program. And again this one has got us all really jazzed.
This is a tough chart for me because I’ve got to look you in the eye and say China is growing. So in case any of you’re not aware China is growing. What the chart also does is say how does that manifest itself into our marketplace. I’m going to give you two things to think about from this chart. First of all, one, the middle class as Susan showed you, is growing dramatically. And our clients think about the middle class. They think about it because they are customers that’s where they make the lion’s share of their money.
The second thing is the explosion of modern trade in China. Now what I want you to know is even though modern trade is exploding in China, it accounts for about half, little less than half of the revenue dollars. It’s still less than 10% of the retail outlet in China. And so the traditional trade still makes up the largest component of the locations that we have to cover.
Let’s talk about China. We’re going to use this is an example of why we feel really good about Reach and Read. When we went into China in 2007, we went in with our global national clients and we went in at a very high level. Over the last four years, we’ve gone from that high level to a much more provincial level so that we can provide additional insights to them. But what’s really cool about our experience in China is not just that we went there with a multinational corporation and that we’ve grown the business with them. And in the same period of time we’ve been able to grow our business with the local Chinese customers.
An example of which is COFCO, today our ratio of clients in China is 50% multi national and 50% local China. And if you can think about it in this way as we do, we went into China with the multinationals. We’re going to be lead out of China by those locals, because those local companies are going to expand their footprint globally. And as they do they will take Nielsen with them as the multinational squads into China. But as analysts you’re looking for output markets. Let’s the output markets that says, this step that this management team is making makes sense. And for me it’s a pretty simple one. Over the last five years, we’ve more than doubled our revenue from China and we believe and are excited about what region does for us in each of the markets that we’re operating in.
Okay, now I’m going to switch gears a little. Now, I’m going to talk to you a little bit about the technology that we are bringing to the marketplace that really differentiates us in this space.
Most of you’ve heard about answers on demand. Answers On-Demand does a couple of thing that heretofore were not possible in this marketplace. The primary differential, this is tough if you only remember one thing, is we change the world from an aggregated world meaning when you take all the data you bring in, you added up and create sub totals and you let people work off of subtotals because you had to reduce the volume of data because historically the processing power of the tools were not available for people to do anything else. So now we’ve got a world, we’re on demand, disaggregated data is available to clients. Let me give you some very practical examples.
I worked at one of my larger clients, lets call it, I can say the name Kraft, and I want to look at a new category or I want to look at a new geographic distribution. So one of my clients at Kraft for example Kroger wants to either change the geography of the set of stores or wants to create a new category. Historically that could take six months to a year for us to be able to provide them those most insights. Some questions I asked we could never have answered. Today, those answers are available to them in seconds or minutes and they don’t need to call Nielsen directly for it. They could go in AOD, they can realign those characteristics or those geographies and resort the data. The reason it wasn’t possible before was because you aggregated the level of data so that you couldn’t decompose it and reput it together. Here they’ve got access to all of the individual units.
Lets think about this deployment at Procter & Gamble. At Procter & Gamble, the discussion from Kraft is the same and the same capability Kraft does. Kraft has the same capability Procter & Gamble has; it is the exact same product. But when Procter thinks about this product, in addition to that description, they want to talk about how historically we look out the rear view mirror and wanted to explain what happens so that we can learn from it and go and make different decisions.
Procter is focusing very heavily on using this as a predictive tool, wanting to be able to forecast what’s happening, wanting to work without analytical teams so that they can say, I’m going to take action before it does and including all types of modeling in order to do that.
And then finally Safeway, Safeway is our launch retail client for this product. And if you take away one thing from the Safeway conversation, it’s this. We now have the ability to understand at a granular level what did that shopper have in that cart on that day they shopped? What were they supposed to that had them push that stuff in that cart. So we’ve got both the retail capability and a loyalty capability that enables precision marketing and enables us to make better decisions in the store and elsewhere around what we do. And so where are we with the answers and the math, so perhaps fully live everything else has turned off, Procter fully live not everything is yet turned off, safe way coming live that's where we are in the journey.
Now, I want to share with you that not everything is easy, right? Sometimes things don't always go as intended. We’ve talked about the linkages and the integration that we have with our clients one could call it stickiness. Well, that stickiness is always a good thing, but sometimes it creates challenges that you're not always aware of. I am going to use the Kraft example, we were light as you would expect on the Kraft team to identify for us what it is that ALG platform was going to go do in that environment. But to their team and our team surprises, there were linkages to the old legacy system that either they were aware of nor we were aware of, and so we broke some of those linkages and we’re working together to fix those linkages.
Those are things we will encounter to every one of these deployments because of the longevity of our relationship and the intimacy and the connectivity that our insights providing to downstream capability within their organization. We’re going to all think we’ve got a 100% of those things identified, we’re going to go live and we’re going to find three or four that we do. And we’re going to scrabble like we have to go make sure that we can go fix those three or four things, which is what we’re going and that’s going to pace our ability to roll this out to the large clients. We are going to make sure that we do everything we could do to make them as smooth as possible. I know we’ve learned from Kraft for our Procter deployment, Procter is easier deployment than Kraft was and the natural lease or yet, but I don’t want to leave you there any of them are going to ease.
And with that I think we go to Q&A.
Sure, just a few follow-up questions on Answers on Demand, the first would be after you’ve done rolling out these three clients, how large do you think this platform could be and what percentage of the larger buy clients you think will end up taking this program. And the second is, can you describe that financial implication of Kraft moving from the legacy system to Answers on Demand, both from the topline impact what do you charge for the product or how you charge for it and then what you’re able to do in cost savings when you shut down the legacy programs?
Yeah, on the second part of the question, I can answer that, so we’re not going to provide that data. The first part of your question I can answer easily. There are two types of clients that will be impacted by Answers On-Demand. There is the retail side of the clients and then there is the manufacturing side. Our expectation is we will get to100% on the retail side. It just make sense for the retailers to go to (inaudible) what will happen next year, it’s going to be a journey, but our expectations is that the retailers will all go to 100%.
On the manufacture side, we are going to be very cautious on how we roll it out. And it’s going to be clientele. So when the clients acknowledge the demand, we’re going to move in that direction.
You need a mike because there are people on the phone. Sorry, I know, I can hear you.
I don’t want to talk about the size of the checks for the small guys, but what I will tell you is we are going to be able to advantage our select clients and their capability as well. There are just like every business has segmented clients. We have clients that basically just take our information, we have clients that had a lighter touch from a client service perspective and then you have our multinational corporations, which we are – we live with them right. We will be able to front-end this program through a selection of those select clients, those mid tier clients to give them more capability. I’m not going to describe the type of those.
Yeah. So you call me, but I don’t remember the name because I don’t remember every name, but the largest e-commerce provider in China has now signed an agreement with us. And we will treat them just like a retailer. We look at the e-commerce providers like we choose, and that’s really what they are to us and we constantly are in dialogues with them and others to determine whether or not it make sense for them to cooperate.
Look I think Michael on the some the Amazon question. We’ve got resources in there, kind of pro bono to help them understand what it means, but like any big retailer they are just not use to share an information. So what happen over time probably, but right now we are just trying to show the power of what it can do, but that will be an Amazon decision and it’s not going to happen over night. Headcount of the company is lower than it was, but it’s still relatively high I think for the revenue base verus a lot of companies that I look at. And part of that has to do with much of the manual coding and you talked a little bit about potential to shift overtime. I guess streamline that, can you speak a bit more, what type of cost savings do you see and/or maybe broader how?
Yeah, I won’t give specific numbers around or exhibiting targets or anything like that. What I will tell you is that creation of GBS was really around creating one Nielsen, right, enabling us to focus on clients and use our scale to be larger. Additionally, it’s given us agility to go after big opportunity. Secondary benefit has been productivity. And there has been productivity delivered to this point and there’s still productivity as you identify to go forward.
We continue to invest for client growth, but we also invest in simplifying our environment and the simpler we make the environment, the less people it takes to run it. The reason P&G can’t do it for us is because P&G can only see P&G and if you take a product, a detergent from Procter and compare it other detergents, the key to this is the metadata component. The reality is we have to do it for Procter they can’t do it for themselves, many of our manufacturing clients actually leverage some of our metadata internally their own operations. Again another point of stickiness because they just cannot do them for themselves.
Just one thing that keeps on coming up, this is a guy who (inaudible) stay in the front-line, he build the scale of platform. He’s the guy that executed all, but in terms of long-term margin expansion, there is levers. You measure one Michael, where you start to get more modern trade over time, it can take time. Dan you mentioned AOD, so AOD will not just be option to get price from big clients but eventually you’re going to say, I’m moving all the shut down platforms, all of those margin opportunities are in front of us it just still happens that this guy has got about a 1,000 days working on and he’s trying to get the first few done right and done we feel great about and he’s done a great job on it, but made no mistake he’s got levers overtime that we feel very confident that there is more margin expansion opportunity, it just can take some time.
Again (inaudible) I don’t let you use the mike they won’t hear it.
How the social media play in all this stuff.
Steve is going to do is presentation and he’ll tough on it. We can answer if the question with Pauly later but obviously social media is a big part of what our CC clients are looking from us and it’s a big part of what we’re doing.
Could you talk a little bit about just how soon you'll begin to see the benefits from the Wal-Mart relationship? And for emerging markets, could you talk about what you see as kind of the gating factors to enable you to explode in terms of the size of that business?
Can you ask the second question again?
You know just trying to understand what needs to happen over the next few years for your emerging markets business to really have the kind of step out growth profile? It’s been high, but could it be higher, where are you in that phase of kind of harvesting versus investing?
Okay. From a Wal-Mart perspective, we are working actively right now with them. We have teams working very collaborative. We’ve taken first sets of data and all indications are everything is going very, very well. I get a weekly update on it. There are six items on the update, they’re all green, going up two colors in our world, the green and red, the yellow doesn’t exit. Green is good, red is bad, and it makes it very simple for us.
In terms of generating revenue from it, again, I'm not going to make a comment about it. But what I will tell you is, they’re going to begin to see benefits from the relationship in the first part of 2012 and I'm sure the rest of that follows. We said its 18, 24 months, but I think Susan once you answer it from a client perspective of what this means and how important to Wal-Mart hearing is?
Yeah, sure, it’s extremely important, so the way our clients think about it is from a coverage standpoint. What percent of their business is measured by Nielsen, what percent are we measuring on their behalf, right. And some of our clients HBA for instance, clients in the health and beauty aids, a significant portion of their business goes through Wal-Mart, but this closes that coverage gap so they’re able to get a full view of their business, but not only their business, their competitive business as well, right. They understand the whole category dynamics. They can now do more advanced analytics on the Wal-Mart business.
And then from a retail perspective, it gives the retailers a full market view. And so our retailers can’t see each other’s data, Proctor can’t see Wal-Mart’s data, but what they can see is the market that they compete in and it was incomplete before and now they have full ability to read the market and understand the dynamics of their competitor set.
In the developing markets, as you move towards more modern trade, theoretically I guess because more like the United States where the retailer has some power of the data, do you get a sense in any of the bricks that there is a retailer too that is emerging and might have the market power that Wal-Mart has in the states where they could start to not play wise and what are you doing to make sure that they learn the lessons that Wal-Mart did where it didn’t really work out?
Yeah, so first of all, let me just remind everybody, even when Wal-Mart didn’t cooperate we leveraged on Measurement Science on our panel right to provide an information and insights to our clients about Wal-Mart. The reason Wal-Mart came back into the family of collaborator because their competitors were actually getting better insight about them than they had about their competitors.
In terms of concentration of retailer sales, we have not yet seen that. I won’t project that it won’t happen, but we have not yet seen that. I believe that lesson that you pointed out that Wal-Mart lesson is something that people get, Wal-Mart is a client today, so I am just going to say I think you forgot it.
Thank you. So the questions that you’re getting around back to the Wal-Mart business, I believe investors are interested to find out what this is going to mean toward future minimization from your client base. Can you guys give us a historical perspective, let’s go back 10 years, I understand that you’ve leveraged the panel that helped to fill in the gaps, but can you may be talk about what impact the loss of Wal-Mart data had from a client perspective to the extent extreme, whether was churn or whether it was pricing, your thinking is that the correlation cannot be reversed upon the return?
Look, since very few of us were around then, probably Susan have a view, I won’t talk everyone class them ourselves, right, based on, God, when you lose Wal-Mart and it’s the end and it wasn’t. So we’ve been pretty clear to say that when they left, there wasn’t a big downtick and when they come back, it won’t be a big uptick.
Now, well there would be a recovery in the investment, absolutely it’s going to be good for growth long-term, absolutely, but no one is going to sit there and say you have lost a dollar here and they get dollar back in size in that way. Just know that the industry and the model held up just fine, because as Mitchell mentioned, you had the next best available data, which happened to be panel and proxy, but it was next best available. So as you can comment, but I just want to make sure understand that context that’s how we’ve been pretty clear on and we just want to make sure that we’re setting expectations as just about as clear as we can.
Yeah, so I’ll skip the investment piece of it, but from a client perspective, there weren’t lights out on data, it was definitely a pinpoint, right, because it wasn’t as easy to understand the marketplace. Our panel data is typically used to understand consumer behavior and our volume metric data comes from the retailer. So now we’re using our panel data to understand volumetric. So it’s doable and we didn’t have that big coax, but it was not as easy.
Now, from an analytical perspective, they just get richer insights and the inefficiencies I’m trying to kind of go around and figure out how do I get data aligned using second best, where are we gone, right. They’ll be very efficient, just how they get data today for Kroger and all of the other retailers that will show up on their database. And so I think the industry has spoken, I mean everyone is so excited about this, but I think it will just lift the analytics that they are getting and making it easier for them to understand the marketplace.
The other here, if there is value creation on their behalf as a result of efficiencies that they are generating that your future negotiations are going to trying to capture some of that additional value creation or through service level upgrades that they get through their greater enhanced analytics?
I think let me answer it this way, what our clients will get from us is a few things in terms of what they’ll purchase from us, right, they’ll stop getting the home scan deal, and they’ll start getting a view just like they get for any other retailer say Play, Publix, Kroger, right, so that’s one component.
The other component is that will be set into a total outlet REIT, so it will hold back us to a channel, right. And then it’s fed into the market, so the lower REIT. So on top of that then we generate the insight. They can do assortment studies; they can even do a marketing mix study down to the Wal-Mart level. And those are things we couldn’t have done using the panel data.
Those are all new services that the manufacturers and retailers in many regards will sign up for, look at this is, we’re excited, we’re a month into it. We think it could be a nice revenue lift, but it’s not going to be a huge uptick renaissance study in the client side.
I think the question about the insights business, can you talk about project areas that are particularly popular with clients now and maybe some that are struggling or where you’re in retrenching mode?
Yeah. So interesting, there has been a big trend in in-store activity, lots of interest around what’s going on with the shopper and in-store execution. And that is both in the developed market and the developing market. We have a service called Nielsen Store Observation set that tracks the developing world, what’s going on in terms of displays and activity within the store. That also has lead to a strong assortment business, right. So it’s all round the shelf, shelf management that is taking off.
Our pricing business is very healthy. So we talk about the economic cycle, as commodity prices rise our clients want to understand and they pass that along to their consumer and then what happens to sales. So our pricing business is strong. Our marketing effectiveness business is strong. Another one that moves up in an economy that is tight because as marketing dollars get tighter they need to understand how to spend them more efficiently. So the insights business overall is very strong, I will say in the developing markets we call it our basis business, but our innovation, new products forecasting business is doing very well. Am I missing anything?
Anything that maybe a little weaker?
Will get a little bit tight and it has rebounded, but if you think about two years ago when the economy was really tight, our clients didn’t have a lot of new items in their pipeline. So there wasn’t a big of a need when they are not generating a big pipeline of new products when the economy is tight, but that has rebounded.
Susan, just sticking with clients, can we take a little narrower lens on Europe, certainly our clients in our markets are really worried about kind of debt repayment and how that flows through in the consumer demand in the U.S., but especially in Europe. Could you talk to how are your client conversations in Europe, have they changed in the last six months around problems in debt repayment increase in Spain and Portugal, does that affect your world in the conversations you have?
In Western Europe, there hasn’t been much change, right. It’s been about the same as last year. In Eastern Europe, our business is growing. And so it’s the same conversation we have, our contracts hold up, right, when times are tough, but as their business gets tougher, they actually are looking to us for new insights, it’s just they ask questions differently than when times are good for them. So analytics moves out in good times to bad and it’s holding out in Europe as well, about the same as last year.
Speaking of the last couple of years, ad revenues (inaudible)
Our core business, Watch and Buy in ’09 acquisitions we’ve just had a lift. We grew 2%. (Inaudible) their performance, upside if ad markets are robust or tough, doesn’t matter they still need a date. If their ratings are higher that doesn’t matter similar in the Watch side, because that’s largely long-term contracted business for retail measurement, they need a good time or bad. So we didn’t have a tough 2009. I think that the business might have held up just fine and that was a stress test that we learn a lot about and we think that’s why over just for any cycle we feel pretty confident that the underlying business does just fine.
One last question, you didn’t mention Nielsen Catalina. How is that trending?
So Nielsen Catalina, I don’t know if everybody understands that, so Catalina which provides precision marketing in the retail outlet has a, I am going to use my favorite phrase treasure trove of information that we’re harvesting. And so that business is in fact coming off the ground, we’re utilizing both the technology that you’ve seen a little bit that I described you here and when I come up again, I am going to share some more technology with you in the Watch section. And so they’re actually able to harvest the technology from our core capability to bring their products alive, it’s very exciting.
And I have got that in my Watch and Buy integration section as well, I’ll talk a little more about it.
Great, thank you.
Okay, we’re going to talk about Watch. I never like to pull a Mitchell in the passion that he talked about water, but the good news is I did get a chance to talk about TV, Online and Mobile, which I know for many of you is pretty exiting, pretty interesting topic, but, I am going to try to do three things, and then hand it back over to Mitchell. I am going to try to talk about the trends, I’ll just revisit them pretty quickly, as I think they’re very familiar to each and everyone of you, but I think it’s worth setting the scene a little bit.
Secondly, I’ll talk about the needs of advertisers, immediate clients, and the reason it’s advertised them media clients is the Watch side of our business talks about in a very meaningful way.
And then thirdly, talk about how we measure what consumers watch across TV online and mobile, touch upon that and then hand over to Mitchell. So notwithstanding the economic sort of oscillations that we’re all enduring. And the theme of this chart and the trends is that the pie is growing. So whether it’s the shift of TV viewing across platforms and new distribution channels and the multi-platform ad sales opportunities that creates or the licensing fees that creates and those of you who follow the major media company will have seen this and some of the deals that they’ve been able to do in recent times. This also creates pretty significant opportunity for us, I’ll talk about it as we go through.
In addition to that the real-time multiple size of buying of Advent inventory is something that we’re experimenting with and figuring out ways in which we can use our data to fuel that side of the business and that creates opportunities for publishers to monetize the long tail and ways that weren’t previously possible.
And then last but not least, the growth in developing countries. If you look at the portion of ads spend in this growth projected over the next five years, the majority will come from the developing countries, so just similar trend on the Buy side.
There is a slight difference in terms of the implications of Nielsen in that there are very few if any, truly global media company. And so what we don’t do is travel quite the same way we do as the Procter has set forth. But when it comes to the tendrils on the analytics business within those countries, what we find is that our brand, our measurement science and our capabilities, our technology capacities are more and more valuable everyday, particularly as major advertisers go into those markets and demand better metrics, there we’re seeing a pretty exciting trajectory there.
In terms of the needs, Susan talked a little bit about the needs of our Buy clients. When it comes to the Watch data and the Watch Analytics, there is a foundational question, which is what content was consumed by demographic platform or device. And I call it a foundational question because for the Watch client, it really does inform their ad sales, and it informs their programing. So it informs both sides of their business, and it is the life blood of both sides of their business.
In addition, it informs the back lines in the marketing mix model, how they’re going to make the decisions, where they’re going to spend their money. And so these are the questions really flow from that in terms of how is viewing behavior changing, who they’re reaching online, online is a very hot topic for both the Buyers and Seller side advertisers as you will know, and social media, a question was raised, before I’ll touch up on a little bit before, but basically, when I joined the company in 2009, we were seeing a tremendous interest in social media.
We have the leading business in terms of the listening algorithm, it’s called BuzzMetrics, and what we were seeing was both excitement about BuzzMetrics and good solid growth there. But also real interest in the [sea sweep] on the topic of social media, help us figure out what social media means from a marketing plan, from a product development, from a customer service, all aspects of the business, and so that’s why we did the joint venture with Mackenzie, because we figured that to combine the worlds best data with the world’s best consulting, instead of relationships and we’re really starting to see the benefit of that, that’s for us an exciting story. Both of my campaign effective, we’ll talk about that effectiveness in the context of bringing Watch and Buy together, Susan will touch upon that and then how can I bit of monetize my audiences, which is really bring it together for the Watch clients.
Just sort of a quick remainder if you like, we do a lot of work in and around usage of media in 30 different countries, and if I focus just on the US as an example, there are two things that I hope to come out of this chart. One is that TV is still a big deal, right, still 80% of the time spent in terms of video is on TV.
And then the second is that it’s not a zero sum game, so I hope many of you have seen us get some multi tasking, they are real. But the notion of just as many you’re doing here on the PC and hopefully you’re looking at the sight, many, many, U.S. consumers, many, many global consumers do exactly the same thing, right, watch the TV and spend time on a Tablet or an iPad or smartphone. And that is growing the pie in very meaningful ways, that’s the first thing I would say on this.
The second is, and this category was a big reason that I left Mackenzie team and came to Nielsen, I’ll talk about the other reason that’s second, but one was the fact that Nielsen has in the US and in many other markets that they can’t see in TV, should not be underestimated in terms of our importance into the other areas of the business because whether it’s the folks in Silicon Valley who are looking to sell their inventory with television or even a games television, or whether it’s the marketers who are looking for a cross media platform. Without that asset, it would be fundamentally less relevant, the both sides of that business.
And that was something that I started to hear when I talked to the media companies in my old world and when I also spent time with major advertisers they give a lot of the time, with that recurring same, tell us how these works with TV, tell us how these works instead of TV, tell us how these things will come together because we understand the consumers going to cross platform, we as marketers made to us well and that’s a very important thing for us.
Just drilling to online for a second, I'm sure that there will be some questions around online campaign right and I will talk about that in a minute. But the trend that we all understand, I touched upon it before in the previous chart is good solid growth in terms of time spent online, it’s the sort of second biggest, usage in terms of the platform in front of the highest growers. And you see the growth rates here, the growth rate is strong in both the US and the rest of the world. But the Watch and the Buy are looking at that and saying, okay, we understand that the hardest to reach demographics of going online, but how do we get to them, or how do we program to them, how do we attract those audiences firstly, and secondly, what’s your advertising messages in vehicles being the online arena.
On the right side of this page, I think it points to an opportunity but also a problem to the market. If you look at the blue in the bottom, you will see that the growth of display is relatively modest and display is of course is a proxy for big brands building those brands online and that growth rate has been overshadowed by search as we all know and also overshadowed by direct response. And that was really one of the fundamental facts that led us to make a big investment which is now behind us to see because we figure that they were two issues there that were preventing display from really growing at the rate that it should be growing and growing in proportion to the number of people online, the quality of those demographics and the time spend.
The first was creative, so there is always been skepticism is to whether our banner and the button in some of the created vehicles work online. And secondly, no independent third party audience measurement. Brian talked about any medium that is not measured is undervalued, you also talk about and I’ll give you an example the other things I did my old world was to do study unrelated to Nielsen give a study of growth rates of different types of media.
So we look from the US, it’s all measured media and we looked in 10 or 12 countries it’s the measured media as well. And what we found was that there were a bunch of things that drove different growth rates, but the single most important one was whether there was an independent third party audience measure in place in that marketplace. And if you think about why is that the case, well if you have that measure and it’s importantly it’s trusted by the advertisers. The advertiser will then spend more on that media and that will enable the media to then reinvest in itself and the growth rate is still fulfilling.
Well I thought I was a bit of pretty clever in sort of uncovering this fact at Mackenzie and that was the other reason that led me to come to Nielsen. The first is our position in TV is a very important place to from which to make investments in online and mobile and we’re doing that, I think at an aggressive rate. And the second is this point that the power of independent third party audience measurement. It’s not yet, it doesn’t get exist in online naturally what led us to make the investment in online campaign writings.
So what do we deliver, Susan talked a lot about the uses of our data, I just want to leave you with that going through sort of all of the points here. I want to leave you with the central theme, whether it’s TV in terms of the local and national, the national being a see three the other night or online we – it’s in the aspiration for online campaign ratings or our extension across platform, in the form of extended screen. The key thing here is either currency enabling metrics, because these are the ratings on which advertising is traded.
And if you think about how difficult it is to break the trend, how integral they are to our clients businesses, both on the Watch and the Buy side, and just how hard they scream at us if we get it wrong or the numbers go down. These numbers really are integral to the advertising ecosystem in many, many countries in which we operate. And when I first joined the company, first couple of days, I got a client on the phone and they were all worried about the ratings going down for a new piece of marquee programming and first I thought it’s the terrible thing, and it’s always a bad thing to have a client. I have said, and then I pretty quickly realized that it’s a good thing that they are so wedded to our data and it’s so important to their business.
And so just to expand that a little bit, obviously for the media companies it is the currency on which their advertising is traded in television and we’re extending that into other platform. Firstly, secondly, they do use it therefore for programing decisions, not where the audiences and what’s the independent measure of those audiences, and in nine times out of ten, they don’t have access to that data, so they don’t know until they come to the Nielsen ratings, they don’t have a means of getting to that information. They also, you will see whether it’s really demand unless we’re moving this, they talk about Nielsen data in their presentation, I am sure you’ve seen that.
And then it’s also integral to, as Susan talked about the back lines of the sales and marketing and also the advertising agencies, so it really does play that role, all the way into the marketing mix modeling. And so an OCR, what problem are we trying to solve within OCR, I touched upon it before. There is a bunch of players including Nielsen who provide estimates of audiences, so I am looking to reach males 18 to 24 and wants my new product. And I come to Nielsen and then I come to a bunch of other players, and I try to figure out, what are the top five or six websites, and I think Buy around the campaign, and unlike television, where I then look at the Nielsen ratings, and then I am either happy or I demand to make good, but there is not such a mechanism in online. Does that to make sense, once these nine mechanism upon which to drive accountability in the online media, instead what I do is, I go to the server log data of the publisher or I got to double click server log data and it’s not independent. It’s not third-party, it’s a captive measure by and large, and that fundamentally reduces the confidence of the advertiser in the media.
We made an investment in OCR, Nielsen online campaign ratings, what is it? It’s a GRP, gross rating point, by reach and frequency, by age and gender produced on a daily basis that any campaign large or small and it’s comparable to TV. Okay. So it’s a gross rating points, reach and frequency, age and gender, daily, comparable to TV, and the power of it is that it will measure any campaign 10,000 impressions or 10 billion impressions with very, very good accuracy.
The output, there are many, many ways in which this data we think can be used, but the key output and the one that the advert type of clients with whom we’ve working and there are many of them through the beta phase and now into the first few weeks of product. The key output that they first go to is in those examples this [60 odd percent] is an example, which is, if I’m looking for males 18 to 24 and I, on my campaign across five websites, what Nielsen online campaign ratings does in essence is tells me the percent on target delivery. I know for example CNN and New York Times and FoxNews.com I know how many impressions and how many unique users, those for such delivered and I know the percent that were in my target.
So, if I am targeting males 18 to 24, I know that the New York Times delivered 68% and I know that CNN delivered 72%. Okay, that’s what it does. And that is comparable to my television ratings. Television ratings that I showed you just before. For the time ever able to say I know the reach and frequency on TV and I know the reach and frequency online. They are both produced by Nielsen, they both stamped by (inaudible) pulled another and the MIC. Okay. So this is a – we think a pretty big step forward.
And then of course on top of that we can then add the advertising effectiveness measures. We and others can have advertising effectiveness measures. I think we are going to show the video. Here we go.
So, I think at breakfast this morning a few people had seen this before and comment on, so I won’t go at in great detail, but the point here I hope the video is self explanatory, but when we work with an advertiser they put a very light Nielsen tag on the ad, that tag when it is viewed by you an audience member buy us the three places. It buy us to a Nielsen server and we just count the number of impressions so that’s the census count and is a full census count. It’s not an estimate or anything else, but a full census count.
The second place it files is to out panel, and this is our TV and PC panel, which is Mitchell talked a little bit later, but it is the best of its kind in the world. It’s the one where we visit households four times a year, we know but they drive of all way that they’ve got three kids, I want to (inaudible).
And then last, but not least, it files to third party data providers. Now, the data provider that we started with was Facebook. Okay, and basically think about Facebook an extension of the Nielsen households, but if you think about the Nielsen households from a television environment, we now have a 170 million of them in the form of Facebook. And the reason we started with Facebook is very simple and that was they have the best demographics. You think about, I assume most people here have a Facebook page if you don’t your kids have them or uncles have them. People tend not to lie about who they are in Facebook, because if I pretend I’m a 21 year old male, my friends are pretty quick they are going to point out that is in fact not the case and I’m going to have to correct that. So, we know exactly what the error rate is thanks to the work that Paul and his team have done with Facebook on the Facebook panel. And we know we are able to balance that off the (inaudible) panel.
At the end of everyday, basically what we receive from Facebook is aggregated privacy compliant information that we then put into this patent pending calibration engine. So, we touch those resources data and from that we produce gross rating points. This is the process that thanks to the filing of the patent, we’ve been very transparent about with our clients, but the advertisers and the publishers and with the MIC and if you would have seen two weeks ago we got it credited by the MIC. It’s the first audience measurement product in the online environment that’s ever been credited by the MIC.
So, we think that only helps. We are talking to other publishers beyond Facebook and we’ve been in active discussions for a period of time. As I said, we’re starting the product with age agenda because that’s the basis on which many market has made their marketing decisions, it’s the basis on which TV is measured. It’s not to say that we want to extend the product beyond the age agenda. And as we add other publishers what we’re looking for are sources of data that our advertiser clients are asking for. So remember if we get a ground floor of advertiser saying, okay, get the age agenda, but I really want information on parents and we will led that. If you want information on income or education levels then we’ll add that over time.
So we feel pretty good about where we are and I think the only, last point I’d make, I think Brian is that, this is about creating a new industry standard and we’re very excited about we’re very optimistic, but it takes time. If I get it back and read the history books, it took us time to become the standard in TV and it will take us time to become the standard [media]. So we’re being very methodical about marching down that product.
Benefits, I think these, I hope these are clear and I'm happy to answer (inaudible) any questions on this accountability, the insights of planning, we’ve spent a lot of time with the agencies talking about how to sink this up with the agency planning process.
Comparability of the TV, I can’t emphasis that enough. Automation, just to be clear here what Mitchell has built is a system that we can scale globally that we can scale into social that we can scale into mobile. And I'm not promising even when we do those things, but he has built something that is a great platform that we can very easily extend, it’s not something we’re going to have great difficulty in taking to other areas and he and his team built it with those extensions in mind.
Specificity, this is a big one because no matter how small the campaign, we can pick it up, which just cannot be done with the panel-based solution. No matter how small the campaign we can pick it up and that in a fragmented online environment is very, very important.
And then last but not least, when we first designed the product and we first started to build that, we were – spent a lot of time in DC and a lot of time with the privacy advocates. And we’ve really gone through this with the fine (inaudible) when we got everybody happy, including the MIC who are increasingly looking hard at privacy. So we’re very comfortable with that, we’re comfortable this product can go to Europe. We are comfortable that we will pass every test on a privacy front. And with that, I’ll hand over to Mitchell.
Okay. Before I get started, let me just make another comment on the MRC. In fact that the MRC credited this product, so quickly after launch it’s again a testament to our corporate values open, simple and integrated. The historical process that people go through is they do other work in the background, they launch their products and then they seek MRC approval. MRC approval could take 6 to 9 months, recognizing that we said, you know what, instead of doing it the traditional way, we will think outside the box, we value the MRC into the process at the ideation phase, and so for each stage of our work they and the auditing team within the MRC participated, it still took 6 to 9 months for them to do the work, they just did it while we built the product and so really a big advancement for our client community, because they can rely on the independence of the MRC that this is in fact the right measure, so we’re very excited about that.
In this section, I’m going to talk about, again three things, one, that the choice those choices consumers have are exploding in terms of how and what they consume in terms of content. But I want to take away though that the more choices consumer had the better it is for the Nielsen franchise because we are the only ones positioned to be able to handle those varieties of choices. And then again in a very quick fashion, I will describe to you how the process works.
Remember Steve’s chart, TV that big [round] blue 80%, don’t forget TV is still growing, right. In this period of time, TV doubled in terms of the hours in the household. So TV although a much larger piece and the percentage of growth is less, it is a still growing form of consumption from consumers. In terms of how this works, again I want to start off with the answer here, choices are expanding, there is a lot more choices for consumers and those choices have been expanding over time.
If you think about when this business started, the choices the consumer had were basically three broadcast channels, right you watch three channels and that's what you had to measure. And before the distribution started to explode in terms of choices, the number of channels that people could consume exploded. I'm not going to walk you through each one of them, but obviously the introduction of cable and satellite changed the landscape of TV forever.
In 2009 though, we had another change that didn’t get as much [fancier] was also changing the way of the distribution path and that was the move in the U.S. from analog to digital. It's freed up a different additional distribution path for our clients in terms of providing content to the ultimate consumer and that's really expanding their inventory as they look to monetize that inventory, again we're able to help them to do that, which is ultimately what our job is. And this little green star at the bottom is the takeaway.
Today, we cover 95% of the video that’s displayed in the U.S. and as long as we continue to do that and we are able to do that, and done it historically and we will do it going forward, we have the only currency that make sense in the U.S. But what does the process look like? By no surprise this is very similar to what you saw in the buy side of our business. So, the Watch process for measurement is similar, it’s not identical, but it’s similar. It starts-off with sampling. We have to understand the universe. Then it’s metering, capturing what people and who are watching right, then it’s collection of the data, processing it and delivering. I’m going to take you through each one of these, but the level of detail is pretty hot.
So, let’s start off with sampling. The national panel for Nielsen is considered the gold panel standard of all panels. And the reason is as Steve described earlier. We invest a lot into it and it’s not financial investment, it’s touchpoint intensive. So, we have a field force that goes out and recruits these family numbers. And they only do so after we use something called area probability sampling. And if you want me to go into a separate session and we could spend a couple of hours talking about why area probability sampling is the right approach. Here let me just do it simply.
Instead of sending people out and saying go find me a home that you can recruit. We already know that this a home that has a specific demographic this specific home you have to go get for us. That’s a very different approach then most measures that happen that you rely on in the rest of your world and it gives you a level of confidence around the veracity of this panel that does not exist in other panels around the world or in other measures. And so we go out, we recruit that family, our field force coaches them, our cooperation rates are very, very high and there is an intimacy that is actually for them, which mean our field organization and our panel hold very cool. So the national panel accepted as a standard it’s where we derive a lot of the strength in the Watch side of our business.
As you go to the local site, the larger local markets again very similar to the national market very robust as you move downstream in the local market to the tail end of the market it’s tougher. Those are the diary markets. Now we are doing a lot of new things to inform our local measures and one of the things that you just recently seen is we are going to take return path data or set-top box data to inform our local measures.
Now you need to understand return path data cannot replace a sample. So, I can’t just say you know what instead of having that local panel I’m going to use return path data, it’s too bias, it’s too narrow and the data is just not pure enough. But I can’t take it to fill in my gaps we are also lean on utilizing the national panel to inform that data around the local panel. So, it’s a three-step approach. But our panels are really very important for the measures in the Watch side.
Metering. Metering is about what’s being consumed and who is consuming, though on the meter our AP meter is an invention that we have, a patented invention that for the first time is able to capture both a signature and a quote. Every other market around the world uses just signatures, and the reason for that is the type of distribution that occurs in those markets. So here is what it means, in your households, it is likely that you can see the same content on multiple channels. Like so that you could see the same show not only on channel one but on channel [Audio Gap] All of these crediting rules, which have evolved overtime sit in our systems and allow us to make these decisions. Our view is, if we ever went to the marketplace or anybody ever went to the marketplace or anybody ever went to the marketplace and say, what let’s build the crediting rules from scratch considering that every one of these properties are clients complete for that last rating point, nearly impossible. The fact that they’ve evolved overtime give us the ability to have it.
This is my last chart, and it’s favorite chart in the deck. This chart describes what Steve talk about, which is the platform that we’ve built for our watch business. About five years ago, our watch business had a technology platform that really was more to the early history of the watch environment than the current one. So metering and processing were integrated, most things were internally developed within the system, so you had a lot of complexity built into the system, and we decided that neither our customers nor Nielsen would able to predict how consumers were going to consume media.
Now, we needed to build a modern platform that would say, wherever consumer wants to consume media doesn’t matter, we’re going to enable that, we’re going to be able to measure it. And the media free data environment enables us to do that, and the key takeaway here is, we separated processing from metering.
So all of those steps like reference data, collections, and all of that stuff sit over here on the left side of the page. We then just have to had either a physical or virtual meter that is utilized to capture what and who’s being viewed, and that’s relatively simple for us to do. I’m going to give you a real life situation with one of our large cable customer.
A large cable distributor asked us to come talk to them about tablet measurement, and you could tell from the body language in the dialog, tablet measurement is very important even though it’s less than 1% of all video consumption, that they’re going to make a big investment in this place, and they wanted to make sure Nielsen was going to be there to make sure valuing that meter.
I get a little bit of fun out of doing stuff, and so I had one of our engineers with us, and at the right moment in the conversation, I said well I appreciate how important this is to you, let me show you something. And we pull the tablet out of our bag, and we instantiated our meter, and we showed them, us being able to collect water marks on tablets today, and their jaws dropped. The fact that we were already ahead of them, it enables to capture that data really was very exciting for them.
Now there is a lot of hurdles for them to get through and us to get through before we make a part of the currency. But what we’ve done as a result of media 3.0, we’ve eliminated any roadblock or any concerns that we or our customers have, that we can capture; media distribution no matter what the world comes through in terms of that capability. So we are very excited about it.
And with that I think Steve and I will take your questions?
These McKinsey market disruption, one of the key typical things in market disruption is your disruptors starts at the low end of the market where they comes in since there is a lot of money there and then it moves up market with the clients, just talk about the 150 markets in which you lost your accreditation, that's creating opportunities for your competitors to come in with set-top box data not as good as yours, but yours is no longer accredited. Talk to me about kind of why aren’t you worry that creates an inroad for potential market disruptor competitors?
I would say a couple of things. Firstly, we’re the only player who’ve done a proof-of-concept with set-top box data that’s being sort of universally accepted. We did in January, we did it in three markets, we did it in a local people media market, diary market. So I think you’ll find if you look how that sort of stopped some of the competitors in their tracks, in terms of those low smaller market disruptors. So that's the first thing.
The second thing is, set-top box data in and of itself, and Mitch will touch upon this, is actually doesn’t caught us to be frank for a couple of different reasons. If you think about the matrix on which buyers and sellers advertisers’ trade, they are looking for representativeness, that’s going to represent the whole market, be at a local market or the country. They are looking for demographics; they are looking for precise measure of the time spent.
So a set-top box data without a panel doesn't have demographics. The set-top box provider has no idea whether the TV is on or off, or who is actually watching it. If you think about my house, I am a Direct TV subscriber, I leave the set-top box on it all times, other members of the family who are watching that TV, the set-top box provider has no idea who that is. So to turn set-top box data into an interesting analytic product, it can be done all day long. To turn it into television ratings without a panel is nearly impossible. So it’s not to say that we trivialize those competitors, we think a lot about them. But we’re pretty confident that the quality of our panel and our ability, proven ability to tie together with panel information set-top box, puts us in a pretty good spot.
And then one of the – for you Mitchell, one of the biggest criticism is the size of the panel, feels really small. Could you talk us through why don't you just have tried to – what are pros and cons of just making your panel larger?
Yeah, so the size of the panel is very much a scientific exercise. We could increase the size of the panel dramatically than national panel and you would not get any more degrees of granularity. So again, I try to represent that in the area probability sample what we do, we understand the demographics frankly at a level that no one else does and that allows us to project usage based on that sample. The math just doesn’t make sense for us to add it, if they did we would. There is no reason why we wouldn’t add to that sample.
Lets say online campaign ratings really take off, do you expect there to be a kind of a major shift in terms of advertising dollars from TV to online once there is a market that’s really working there? And then I guess your competitors are kind of always talking about Nielsen, is there anything happening competitively that makes you think that anyone’s making any inroads into that market that really matter?
In terms of shifts, I’d be sort of reluctant to guess. I think what’s going to happen is initially I think there will be some shifting between publishers because some are going to deliver in the first instance and some are going to have to have more trouble delivering. So I think you’ll see those who got a very good understanding of their audiences who will benefit in the short run. And I think that the way this space moves others will pick up pretty quickly and I hope that provides an analytics opportunity for us I think it will and early indications are that we will to help those that struggle a lit bit in the first instance. So just with in the online medium you may see some movement around that and some noise around that.
Over time, I think it will result in greater confidence in online because you’ve got an independent third party saying this is how many delivered and the advertisers will trust that they will spend more money online. Where that money comes from I think is a bigger question, perhaps some of it comes from TV, I don’t know. I would bet that a chuck of it will come from below the line, it will come in-store, from promotion, from direct mail, from e-mail campaigns because the measure is that accurate that it’s going to give that part of the marketing mix I think some really some good stuff to think about.
In terms of the competitors, there is no competitive product in the market to online campaign ratings, there is nothing that’s MIC accretive, there is that measures in a census way campaigns big and small, and there is nothing that’s comparable to TV. There is nothing that can be scaled up in this way. So again, I don’t want to give anyone the impression that we trivialize our competitors, we don’t think a lot of that’s going on in the marketplace, for this particular product there is no real competitor, some said they want to be, but there is not today.
Could you talk about the pricing of the C3 rating verus the old rating, was it three times the price? That any advertiser have not pick up the C3 rating?
C3 was the standard that they all agreed upon, so really, you need to pick or choose and we have response to give the best information for the viewer with C3 and there were no big moves either way, it was a better metric that everyone needed, so it was something we have to facilitate on behalf of the industry. That was not – I think we got big move the pricing, it just didn’t work that way, this is basically try to make existing metric more robust.
There is a lot of talk about measuring media across platforms, but I'm wondering where we really are in that development and how important it is to your clients and to your business overall?
We can split this one. So from a capability perspective, we put extended screen into production already. So extended screen is already in C3, so PC consumption. And if you remember Steve’s chart, the number fall off pretty precipitously, right, 18, 13, 5 and one. From a capability perspective, we have the capability now and those of you on tour are going to see it to do tablets and smartphones, I'm not having my phone but smartphones. We’re just not there yet, so from a (inaudible) capability there is nothing that stops us from doing it. There is a lot of client hurdles that have to be jumped, rights, distribution rights all that stuff that need to get worked through, but in terms of anything else I’ll turn this over to Steve.
So, I think we’re moving with and ahead of the market on this one. What I mean by that is to Mitchell’s point we can and do measure 95% of the video content whether it’s no matter what device it’s on. So we have the technology to see it and we do see it. So that’s the first question and that’s what makes me easily very soundly or not.
The second question is what do you then bake into the ratings. And they are two separate things because the first one we determine, right, so Nielsen determine, Mitchell determines what engineering investments we make and what we go measure and then how we process the data, how much we capture, how much we can process. And we’re very comfortable with where we are there.
The second one is then what will the industry accept in terms of the rating and Brian’s point about C3. C3 was something that we kind of do measure, but it was the industry that decided it was going to be an average point across the commercial pod within a program, that wasn’t necessarily Nielsen in a pool around when (inaudible) said, this is the one that has to be.
So this is what we have done, what we have done is extended C3 into the online environment and we’re well-positioned to expand it into tablets and smartphones as well. So as soon as the industry is comfortable with that, we will be ready to do that, that’s the first one. The second one is online campaign ratings, Paul and his team have done a lot of work to put that together with TV, as I described and you’re going to see some more activity from us in that way. So that marketers can see their campaign across both.
And as and when the time comes we will add mobile, but it’s important to remember that mobile advertising today is very, very small and it’s not yet clear to anyone and we do a lot of work with the leaders in the space. It’s not yet clear to anyone and team leaders is to exactly what form mobile advertising will take, will it be video, will it be mostly m-commerce, will it be just playing between and we will be ready for it, no matter what happens, but I think what we don’t want to do is get too far out and find we’ve invested in something that’s not helpful.
The Watch side, I think over time, probably fair to say Nielsen wasn’t always the most loved vendor of many. Can you talk about, you joined in ’09 in the downturn and can you talk about what you, how you’ve gone about improving, bolstering client relationship, say and I think it’s incumbent as you’re launching new products and how you get them to embrace this?
Yeah, it’s a great question. So I think before, well before I arrived, what we used to do was sort of churn out ratings and then almost hope to find it ring, because typically if the rank that was quietly set up, just put a fantastic program out hell in earth, and that will not be right, can the numbers be so low. So what we’ve done is made two, pretty big investments, they are largely behind us. The first is, Brian talked about the major client labels, so we have taken some of our very best people and I know this because I’ve recruited personally a bunch of them from Mackenzie, so we took partners at Mackenzie and we put them on the major clients.
And I can’t tell you what an impact that had because effectively that person sits on the client side of the table and demands Mitchell and me, better performance and just continually lift the bottom behalf of that client, firstly. Secondly, they have relationships all the way up to the CEO, which Nielsen media research did it in the past we now do. They are counseling the CEO on programming decisions on ad sales decisions and that's a big – that's a big change for us. Those one investment, the other one we made was in analytics, so we bought in a gentlemen called Bill Mott who is a very well-respected leader in the analytics field. And who thinks about advertising sales effectiveness all day along.
We combine Bill with Pat McDonald and Howard Schimmel who were pretty gifted people that we had in the company for many years. We've bought in Leslie Wood, we bought in [Mike Chae], so we put together a team of people to – and we give them full access to ad data and all they think about all day long is how do we use that data and other third-party source of data to help provide insights to clients. And that's very different than we where today.
And I'm not going to tell you that they aren’t two clients that have pissed off with us on various days, because the one example what they like them to be, but I think what you’re seeing is a seismic shift in terms of the way they think about Nielsen and how Nielsen can help them, but here in the U.S. and internationally.
Yeah I add one more point to that. Think about what our performance was five years ago, in terms of delivering those metrics, it was poor, right, we intended to be late and we had a lot of reprocessing that have to happen. So take with what you just described is about not truly being aligned with the client’s objective and poor delivery performance and to say that they were not happy with us at that moment in time is quite an understatement.
We worked really hard and invested in order to make sure that doesn't happen. So if you looked at one of our heat maps, which describes our performance, in 2006 it was more (inaudible) significantly more than Re. We measured our failures two days a week, every two days we have a failure now it's an exception (inaudible), so what we've done is we’ve improved our (inaudible) ratio, we’ve talked about that a lot, what we commit to delivering, we actually deliver, so we’ve taken that noise off the table, I think those combinations really have changed those.
Could you talk a little bit about OCR pricing strategy and is Facebook currently selling against OCR and are there any other publishers using the shift?
So the product is three weeks old. And we've run about 75, we ran about 8 campaigns through the beta, just to test it and we tried every way we possibly could to break it, and we didn't break it. We’re pretty comfortable with the sort of the underlying operation associated.
We've got 75 campaigns running today through OCR and what we’re doing is working with both the publishers, the agencies and the advertisers themselves to look at the specific use cashes. And a great many of the advertisers had look at the early data and say okay, when can I drive accountability, can I get a make good on this, but nobody is doing that yet today because it’s three weeks old. And so what you’re going to see from us over the next six months is working onside hand-in-hand with those major clients to help them use the data, to help learn – we will learn from them and they will learn from us and as we get those ratings, we will be taking that off to our other clients.
So it's really too early to tell exactly how they are going to use it, but all the signs are positive. In terms of the pricing, we’ve set up a pricing structure, we deliberately we priced this at a premium, we think it's a premium product and we’ve set up a pricing structure that is very similar toward TV, so subscription based pricing and the similar characteristics.
And I guess just to clarify a bit on the online campaign rating capabilities. On the slide you are speaking to display, but as I understand it could be wrong it is also capable of rich media and online video if you could expand on that and I get a follow-up?
That's right, when I talk about display what I’m – it’s really for me and I apologize sort of explain this, it's a proxy for all branded advertising and so it doesn't matter, which side it runs on, it can be video, rich media or static. It can be run through an ad network, it doesn’t matter, right as long as we ad itself runs, if it turns that the tag fires and we see it.
And then we’re not going to get a lot of color on market size of this thing going forward, maybe help us understand the size of your, early if the composition of your online business today, how is kind of the mix among publishers, agencies and advertisers as your client base today on the online industry?
Yeah. I mean I won't go too far into it, we look I think today, I’d (inaudible) until we look like everyone else than we're a publisher centric because we are providing estimates to publishers that they use in their ad sales presentations, trying to have to be other questions.
I think that Brian’s tried every which way to try to mute expectation through OCR and I know you have a lot of important things going on, but just to the point that you just made that you are holding a lot of hands, you actually have staff at Disney and whoever else that’s using it. Does that mitigate the expansion near-term that it, no?
What we’re doing is we’ve showed a if you like handpick some of the most advanced advertisers and most advanced thinkers on the agency side and then the publishers, because as I said we want to learn as much as from them as we can. And so as they start to think about, how do we integrated into their workforce? How to use the data and how to use that in the dialog with the other side of the advertising trade? We just want to make sure, we learned from that straightaway and so that we can share it in an appropriate way with other players. So there's not a great constraint, I mean anyone who wants to sign up for this today can sign it.
This is another advantage of Buy and Watch putting together because there’s a big play here on the Buy side of our business and our Buy client leadership team are very involved in (inaudible).
So let's say that OCR takes offs the way that you envision it? I just appreciate that there are always be a need for side centric – side metrics. Was it core of it not only in audience measurement businesses? How do you foresee those to broader product offerings existing…
I mean your portfolios there, does that all incremental or is it foresee any modest cannibalization of what you're currently offering as market as such shift their spend and have a current to (inaudible) have before?
That's not a business for us today, right. It's not something that I mean we've been in that game for a number of years. We came into that game as a result of the acquisition of NetRatings. But it's really not been a huge focus for us firstly.
Secondly, I would think overtime and again I'm looking at the same crystal ball you are on this one. I think that as an accountability type measure in one that just have so much accuracy and it's actually a commercial measure like a campaign measure like OCR, is that gets more traction, the estimates probably become narrow in their usage. What I mean by that is that the publishers still needs to program their side, right. And they still need to understand where the audience is going and how those audiences are flowing through the various pages. So they’re still going to need a source of that data. They get someone like (inaudible), but they only get their own site data from (inaudible) so they still need a competitive read on that. So I think they is still a business there, but I'm not as bullish about as I am some of the parts including NOCR.
Okay. One final question, how was the online business doing internally (inaudible) qualifications?
Yeah, it’s fine. I mean we’re seeing good growth, obviously is in the, it's something long and it’s a competitive space. But as you saw from the growth in online advertising, it’s a healthy space and so the publishers themselves looking for more and more of that.
Social media have been great I think handful to global platform [three mobile] still very good.
My favorite topic, the integration of Watch and Buy. So this morning you’ve heard us talk about how we measure what people watch and how we measure what people buy, but now I’m going to talk to you about what happens when we bring them together. And the data comes to life when we bring them together, because we can help our clients understand how what people watch, influences what they buy. This is important because our clients are spending billions of dollars on marketing and they need answers to their questions.
So there is big – three big questions they ask us that we can help them with. The first is, are my ads reaching my consumer target? The second is, Do my ads breakthrough? Do they resonate with my consumers? Are they changing the perception of my brand? And the last and most important is, what is the reaction consumers are having, are they purchasing more of my products because of my ads? And they would take you through how we answer these questions through our Watch and Buy data.
Steve already talked to you about how we measure reach; so I’m going to start with ad effectiveness, do my ads breakthrough? We can help our clients understand recall, we can help our clients understand where they should place an ad, is primetime NBC better than (inaudible) Network, which TV show should they place their ads with, should they run their campaign on. And then we help with comparisons. We benchmark, we database all this to allow us to benchmark one campaign against another. They’re not only, can compare campaigns within my own portfolio, but I can compare to my competition. So let me tell you how it works.
It starts with you consuming media in your own environment. So you are at home, on your couch watching CSI. Within 24 hours you go to a website and you answer trivia like questions about the program you just watched. Roving into those questions about the programs are questions about the ads. And there are two important things, one is you are consuming this in your own environment, so this is real time, you answer those questions with in 24 hours, which allows us to give our clients insights and enough time for them to make an impact should they need to change something. So what insights do we give them? It starts with just general recall. You remember seeing a beverage ad, and if so, do you remember what brand it was? Let’s say it was Coke Zero, so now I remember that there was Coke Zero ad. Do you remember what the message was? What was the intent of the ad? That it was zero calories and tasted like Coke. These are multiple choice questions.
Did you like the ad, and would you buy the product? These numbers in itself are interesting, but what happens is, when you start to benchmark them against other ads in your portfolio or your competitions. So if our client is airing an ad and has really low recall, but they have another ad that’s also running, that’s performing a lot better, the data so timely that they can switch those out inflates. So they’re making real-time decisions on ad effectiveness.
So we can take that a step further and we can help our clients understand the reaction to those ads on purchase behavior. So when we bring together the Watch and Buy data, we can now measure reaction. So let me give you a quick example. Historically, our clients targeted their consumers based on demographics, women 25 to 44, where we now all women 25 to 44 don’t consume media the same way and they don’t have the same purchase pattern.
What we can do now through our shopper level royalty data, we can help our clients target based on purchase behavior. So let’s say, I want to build royalty for my brand. You can go in the Buy data and sign shoppers who are switching back and forth between my brand and my competitor’s brand.
So now, I pulled out a brand target, because the data is integrated with the Watch, we know with those consumers that new brand target are consuming in terms of media. So now our client runs their campaign against this new brand target and we can measure it through the Buy data, what reaction do they have? What impact did that have on purchase behavior? We can take that a step further and we think help our clients understand ROI.
Again, by integrating the data, we can answer so many questions for our clients, but there is three big ones, the first is how much do I need to spend in marketing to meet my sales goal. The second is how do I allocate that spend across trade, across media, and within each and the last is how do I optimize it. So after we run the analytics, we give our clients this information in a software tool, and the reason why that’s important is because it makes it part of their day-to-day decision making process. Rather than give them a PowerPoint deck, we give them a tool that they can play with throughout the year as things come up.
So what if my market budget was cut by 10%? They can go in and run scenarios. What if I want to take money from TV and put it to Internet? They can do those what if analysis, but they can also do what’s best, meaning how do I optimize my spend, and they do that through the simulator and optimization routine.
We know this data is really important to our clients, and we know that because our revenue has grown quadrupled since 2005. So the size of this business to put it in perspective, the size of the marketing effectiveness business is now the same size as our total business in China. Okay. So that’s it for Watch and Buy.
Thanks. Okay, I’ll pass it off quickly, it appears before, just to remind you around what we love about the model what financial expression is that, that gives the revenue growth. It’s really driven by this long-term basis there with us and the developing market growth, the insight net solutions growth that Susan has talked about and the online and mobile that Steve mentioned. So we feel like we’re well positioned across all three fronts.
Scalable platform, Mitchell, it’s an understatement to talk about the power of the platform they’ve build, there is a lot hard work, took a lot of actions, made us more contemporary, put in place where it should have been all the time, but really built a platform that we can grow from, Media 3.0 is a good example. A example of an investment behind that is going to fuel the growth in front of us.
And at the same time while we are taking a lot of cost out and being efficient on our productivity, we’re reinvesting across all parts business, you guys have heard about all today and we remain very bullish in that front. And then on the deleveraging we talk about, how deleveraging is our goal and we’ve got some nice earnings power that we are going to be able to show to investors over the near and long term.
And here is a reminder of the financial performance, up 5%; top line up 6%; first half year-to-date; EBITDA was 10% over the period and then year-to-date, 8%. We are very comfortable with this kind of performance and reinvestment. And then deleveraging, many ways we have seen this, we are over a nine times, as of the second quarter, we were under 4.5 feels very good for us to be in this kind of position as a way to continue to delever.
This is not new chart, you saw this before, and well I would say we're not muted, I would say we're trying to make sure we get everyone aligned with expect. We are very comfortable with some things and portfolio and it's not demand, it is one that is just getting started. Given that stable with three big clients and there’s more to come that's going to be some it's going to grow over the long-term.
OCR we just don’t know how big it is, but that's come in our way developing markets. The worst thing would be for us to stand up and just throw numbers around and be responsible. So we will tell you when we know, we can size it, but we’re planning for a business going to grow very consistently over time, expand the way it was invest to that. Previously and it's the way we think about investment going forward, but we feel good about the long-term prospects. We feel good about how we’ll be able to expand margins and reinvest and that we feel good about the position we have in terms of earnings power and leveraging sales, nothing new here, just another reminder of how always be running the business and we will be as transparent as we can with to make sure that you guys get the first view of exactly where we’re heading. It is just some times we get very enthusiastic about products, but as you can imagine we've got a meters test of one or clients and two there are industries that we serve.
And with that we’ll go to Q&A. So you can ask Mitchell, Steve and Susan any wrap up Q&A that you feel like.
Brian just a question on developing mortgage you’re pretty clear in the presentation about the opportunity in China and India and then you had that sort of other (inaudible). What are the sort of top five other emerging or developing markets I guess it is most juiced up right now?
So, Africa sub-Sahara it's probably the next one on the list by far, so when we talk to clients including Procter Co, Unilever that's where they’re getting very focused. And as Mitchell mentioned they those clients are actually the ones that are sitting next to trying to find exactly how we're going to read because Africa the continent, Sub-Saharan is like the country is look like a dynamics of how exactly you measured that. That's they’re very focused on that. Eastern Europe for sure parts of Southeast Asia will still remain robust, but I would say in terms of where they don't have headlight today and measurement at Africa.
As it relates to your partnership on set-top box data with Kantar should we read something bigger about Neilson being more of a partnering workstation when you think about the technology in-house versus acquisitions versus the partners?
Yeah, so a great question. This was around our recent decision to get set-top box data, which is DirecTV information. I would say that the local problem that Mitchell described, right, remember what we're talking about is less than 1% of the revenue of the company. However, it's the biggest team in year-end for our clients, who hate the instability, and you just want any response to make sure that you can do in a way that has the right economics in return and the ways to build into the clients.
So that is really what drove us trying to get a better measurement. They couldn’t afford electronic measurement that we do it in the top market. But we think we’re on some that is affordable, scalable and yes we need others data. And I think as Steve mentioned or Mitchell mentioned, historically we would have been a public company, but we are very willing to work with other providers. We work with charter data on that very topic, we work with Cantor because it is about getting a better robust clients local measurement we’ll do it, all day, everyday. But in terms of philosophically, this part we don't have something, Catalina, the joint venture we have with them. They have disaggregated overnight retail data, right.
We have, which we don’t know one as we have that we have just update overnight media data and it just make some natural to bring those together and to – as a commercial operating do things for client. We’ll do things like that all of the time. And then Mitch will goes through a protocol of how we thinks about doing that across the platform, but those are examples where somebody had something that we didn't have and we weren’t go to try to fill it out, but it made sense on behalf of the clients.
I just wanted to add to that that it extend beyond raw material, right. If you think if that raw material, it does extent the technology side, so we have identified a series of partners that we have now strategic alliances with. So we feel very good about those alliances and how they helped us accelerate our ability to bring some of these products to market.
Media 3.0 allow us to bring NOCR to market in less than a year, something that would have taken us if we've done all the inventing ourselves much longer. And so that's really the strategy that we’re implying. We think a lot of about a company called [Simcoe] many of guys may have heard of them, but we could not do some of the things that Mitchell mentioned about a firm like that.
You guys know that very well in 2009, and not to make too big of a deal of it, but your growth rate decelerated from the normal mid-single-digit growth rate in both of your segments to about 2% organically? And at that time in the company you had theoretically a lot more cost to take out of the business. So the first question I would ask is, are the economic picture and a lot of the macro indicators that we look at start to soften. How much visibility do you have even into the back quarters of the year and into 2012 in terms of the basic guts of the business, contract renewals, pricing discussions, to excluding kind of the exciting things like Wal-Mart, how do you all kind of feel about the base level of activity? And the second question would be, how do you think about, if things really do get perhaps worst than 2009 or at the same for an extended period of time without the physical help of that bid (inaudible) stimulus. How do you think about, how much cost you could take out of the business if you really need to?
So let me just (inaudible) for their most part both in ’09 and today, the commercial discussions, renewal rate pricing conversations nothing has changed. If I remind everybody in ‘09, we both on the Watch and Buy we renewed two very big clients in pal pricing with August days with no real change to the commercial situations that had been the concept we’re ruling off.
So that just doesn’t change, and I think that’s a function of the data we provide, the relations that we’ve doing it for so long and just the expectation of how that’s going to work commercially. So there has been no change now, there wasn’t a change before. I think for us it would be around the more discretionary nature, the things that they get to make the choices on, it’s not under long term contract. They will make decisions and part of the discussion ‘09 was, they started to make different decisions. They will pull back in some areas, but reinvest in others, but that’s kind of we’re playing for.
For us in terms of if there was ever need to take productivity out, here is what I do know, is that we always talked about the need to expand margins. And we’ve been pretty open at just how much are they going to expand. And I would tell you that, if for some reason the top line where we feel worse, then you’ve got investments you can dial down because as I mentioned, you dial up investments in the business pretty quickly and dial it down pretty quickly.
And also think that, Mitchell he continues to integrate parts of this company that otherwise you didn’t think you could integrate. So when we had a play to GBS back in ’06, ’07, it was the IT operations of the system. Over time we realized that there was no better person to grab big bodies of organizations and make change happen very quickly, that’s why he got measuring science, right. Measuring science is never a part of global business services, probably just so it was a lot of resources intensive that wasn’t done as efficiently as we could do.
Mitchell has come in and brought order, organization and efficiency to it and by the way can build it, so those things in the company that is big, will always be out and front of you. Will it be the expansion that we saw over the ’07 to ’10 timeframe, no, but we think that we’ll be able to expand margins and make returns? My gut is yeah, and regardless of the economic environment that we’re in.
So we’ll be ready, we’ll be responsive and that – we’re not so tight that we’ll probably would become the platform of all the investments.
We’re really well positioned as well in that. We’ve changed the component of our labor mix over the last four years. So there is percentage of labor mix that the exist before, which is non-Nielsen employee labor. And as Brian said, those dials are much easier to move up and down. And so for Nielsen as a whole as we globalized our reach we’ve done it with partners, and those partners we have the ability to move those resource sets up and down as our requirements there. It’s great. So topic consultant services, we did a big huge relationship with them. There are 1,000, literally 1,000 of resources that work on Nielsen stuff that are more variable in nature as they subscribe.
So just a brief follow-up. So much of your business is contracted when you enter any given quarter or a year that even to drag down your growth rate by 300 or 400 basis points really means that the discretionary stuff is coming down a lot and lot. And because of that stuff bulks with at least some amount of lead-time, I’m curious you touch a lot of different geographies, you touch a lot of different types of CPG companies, what are you seeing out there in the macro environment, does it feel like we are heading back into ’09 or do you kind of feel differently?
Yeah. So I will start with the obvious developing markets. They are not slowing down on new product introductions right and it’s being largely multinational lead. I believe that they are taking the long view of begin to get those consumers with very different product offerings and hasn’t slowdown, it’s doing just fine. We are seeing clients make trade off between do I invest in a new brand or do I descend an exciting brand? And Susan talk about, in some cases that present opportunity for us. But those would be in more of the market that you’d expect the U.S., Western Europe.
Macro economic outlook, I think that in this market U.S. held up better than you had expect from the headlines for any U.S. company. I think Europe, Susan mentioned no better, no worse, a kind of just sideways and the developing market is just picking up the steam. So I think we feel really good about the position that we’re at. And like you said if there is a – well, it’s not under contract, the short cycle you know that they are going to start to pull back resources, it’s not like tomorrow. So you get a little different way indicator.
But right now, I would say the one thing that is on our mind is that we talk about in the dinner confidence in August just – in this market was horrible, right. It was like post-Lehman and we really as a set of companies in the U.S. every company has (inaudible) because there is a lot of different ways that could be impacted for our clients and for our business at large that’s not good for anybody, but we’ll see what happens as we head into the fall. But that’s the one thing that we saw that wasn’t as big a surprise, but we’ll see what happens, the retail held up beautifully, those are all the retail numbers. They haven’t seen any kind of impact.
And as I mentioned when you think about this market the bifurcation of consumers, we have a bright line of deal of $100,000 here in one class and under it’s a different class and we measure sentiment in each one of those. You have a $100,000 you feel recovery only that turns out many of those people out there and population is largely in the under $100,000. And they’re feeling so great, all right, they’re not feeling any better today than they did back in ’08 timeframe. So all of that for us creates an environment where we kind of help our clients (inaudible). But two as we have stress test in 2009, we had similar circumstances, the business model held up, wouldn’t expect to be any different now and we’ll take all the appropriate actions that you’d expect.
Could you talk a little bit about just the regulatory context in China? China has got a mixed record of allowing western companies to come and exert market influence, how should we get comfortable with that and how do you see its development?
It’s a great question because many companies and this is part of what Mitchell and I grip with this is, you’d started to going to China in the 90s and all the JV relationships. Art Nielsen Junior plant in the flag there decades ago before you had to do a joint venture. So we started there and booked that brand from the beginning, we inherited that. So we don’t have that kind of issue.
As a matter of fact, what we do is, we go with the government and we inform some of their big macroeconomic indices so that Bureau of Labor Statistics for China, all the Nielsen data is responsible for accumulating much of that data. And every quarter, we issued out to the government, with the government in terms of here is a view of the economy of China. Terrific position that we built up in the last four years and it just tells you that in that market, they are look into Nielsen as a third party independent voice of what’s happened in their market place.
So we see opportunity more than anything. (inaudible) in the media side and how that’s all going to work that’s how we can take longer, but overall our position in China relative to collaboration with government in terms of what matters. We feel pretty good about I know Steve, you have a different view of explaining that.
I think on Brian’s point as we split on that, the Watch side and the media side is tougher because you come up against the minute you’re planning on television programing, you coming up again CCTV or online ccbtv.com and so that’s tougher. We are quite, we’re sort of observing to that, we’re seeing very regret inside our social media play. We point to that around brands, so what is the social sentiment around the big brands, that doesn’t want fail of anything there. And we’ve done where we’ve needed to, we’ve done a couple of joint ventures, which we’re sort of excited about that help mitigate some of those risks because of the relationships that our joint ventures partners have with the…
…with all five business wholly owned as discussed.
Can you talk little more around the 30% of the business, do you have limited visibility into what that biggest pieces of that are and how much visibility you do have it is not an overnight issue (inaudible) little more granularity?
Sure, I would say the single biggest would be the basis business, new sales forecasting, we do that for just about every big multinational all over the world, lots of studies. And typically they are going to give us a angular visit and as they start the year and say look we are going to do 200 or 100 new sales forecasting study this year and that we will either resource up and then if they were able to pull back on that, you’re talking probably four to six maybe even eight months lead times before, you feel the effect of it. By the same token has happened last time, as soon as that start to feel more pressure they were screaming at it to get more resources up on pricing and that’s just something we try to do from a resource management standpoint with inside our insight business but like I said it’s not like a short cycle order that is to lose the order tomorrow because they are in the middle of many of these studies and they take time to be a little bit more of a heads up.
Okay, and last one.
Most of the discussion about the developing market is on the Buy side because it’s for you, from my stand of view you are putting most of the investment. Is there much opportunity in the Watch side in some of the developing markets I know that you mentioned in China kind of working on it places like India?
Yeah, so China if we think about a couple of different things, I mentioned the social media that's exciting and also we have a joint-venture to do television ratings with one of the cable MSOs and that's progressing well and we also have a pretty robust analytics business around media data.
In India, we are seeing the same kind of it’s pretty similar profile, so social media is very, very hot topic in India, we’re seeing good growth there, we have a joint-venture with WPP to the television audience measurement, which is a pretty stable growing, our robust businesses they can’t see in that market and we are making some pretty interesting best thing in the mobile space in India just because of how important that platform is to the Indian consumer. Over and above that, we compete for and typically do very well in the different tenders that come up for television audience measurement. So in the next 24 months, there’s a couple of, couple have come up in Eastern Europe and we’re pretty confident that we’ll do well in those. And you’re going to see us make some investments in places like Africa, ahead of the market, so that we’re well positioned to win.
I mean, I think that the thing to remember, and I touched upon with the watch business is that, there are very few of any global business. So we rely on different strength to winning those markets, we rely on our brand, we rely on our technology, we rely on our ability to take out that sort of infrastructure and metering expertise into those markets.
We also rely on the buy side of our business, because we’re in 100 countries on the buy side. We have great relationships and we know the advertisers. And as those markets develop, what you see, it is one big thing, it’s that the advertisers demand better and better metrics, and so in affect, the same dynamic does flow through and it’s starting to trickle through into our watch business. And it’s all happens that the most sophisticated market is the CBG market, and that’s where we have the great relationships with, we’re quietly confident when it comes to developing markets in watch, but it will be a longer path.
Great. I think that wraps it up. So I just want to thank everyone again for joining us today. Thank you to Brian and Susan; and Mitchell and Steve for sharing the work that you do everyday, and we appreciate all of you joining us.
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