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Executives

Brian West - CFO

Analysts

Eric Boyer - Wells Fargo

Nielsen Holdings N.V. (NSLN) Wells Fargo Technology, Media & Telecom Conference November 9, 2011 9:05 AM ET

Eric Boyer - Wells Fargo

Okay lets gets started. I am Eric Boyer. I am the Equity Analyst here for Wells Fargo. This is Business & Information Services. I am happy to introduce Brian West, CFO, of Nielsen. Brian could give a quick introduction and then I will take it off to questions and will open it up to the audience for more questions. Brian?

Brian West

Thanks for having me, good to be here. For those who don’t know the Nielsen story the way we think about the company is all about the global consumer. And we think we differentiate around the global consumer in a couple of ways.

First of all, we do it around the world in measuring what they watch, what they buy, in 100 countries. And what’s unique about that is, we literally measure what they watch, how they think about video consumption, and what they buy in the purchasing behavior all around the world. And when that’s a unique advantage, and when you can bring both those things together, what they watch, what they buy, it helps a marketer achieve their objective, which is how do you grow the businesses and how do they graft to that next consumer all around the world.

For an information services businesses, we like syndicated scalable models, we are not interested in doing things that our customers who like repeatability. And for us, the last few years has been telling because it shown us just how resilient this business model could be. It’s got lots of long-term features around it’s revenue stream, it’s got terrific cash flow generation, and it’s got a leverage profile that’s getting lower and lower. So, overall we think it holds up just up in any environment and we are happy to answer any questions you guys might have around that are more specific.

Eric Boyer - Wells Fargo

Okay great. Just along that topic of resiliency of the business models, when attracted to investors, can you just talk about your performance during the last downturn, may be how you be, possibly better position even this time of going into hopefully not a recession?

Brian West

Yeah. So let’s start with a little more about the business, when we talk about the backdrop. When we go into a year, 70% of our revenue is under contract. 70% is a big deal to us. And the other 30% I have got these invisibility’s, not like it goes up and down by the day. I have got months if not quarter’s of visibility ahead of me. And those two features make it very unique.

The other thing about our business model is the information that we provide is fundamental to where the clients run their business. And our client organization, thousands of people on any given day are using our data in analytics to run their business, whether its how do you program, how do you sell TV advertising, or how do you go after retail strategy in the consumer attracted world.

So, that’s a big deal that they need the information when things are good and things are bad. And the fact they contract with maybe the long-term it’s telling. So, that’s what holds up just beautifully during times that may not be so good. So in the 2009 timeframe as an example, we never had a down quarter; never had a down quarter in our revenue line. It’s because of that this base business that’s long-term in nature.

And in fact our Insight practice, which are the things that on a contract that have got good visibility, they grew. And it grows fast as they may have in the past but they grew. Because again as our clients go through tough times, hard to thinking about changing behaviors of consumers, we are right there with them, trying to help them navigate it hopefully we had to help them defend their brands and helped them to grow. So, the models built for resilience is a wonderful model, this year it’s performing just great. And as we think about our stressed ’09 we feel comfortable that in just any environment we will be just fine.

Eric Boyer - Wells Fargo

So with Insight just may be the piece of business that you think you will see a sort of some weakness overall?

Brian West

Yeah. So, I am just using the word weakness. What happens is our Insight business is where we take the information in our Buy side, and we try to bring it to light, where you help a client look around a corner. So let’s today’s world. In this market, the U.S. and Western Europe, consumers are behaving very differently. They are value sensitive more couponing, fewer shopping trips, stock up and stay, trading down to private label. All of those things are important for out client to get ahead of and understand those shifts. And that’s what our Insight practice has helped them do. It helped them navigate all those shifts and all those changes in the consumer behavior. And that actually creates more opportunity for us in outlet.

But those same clients will decide where they spend that market research dollar to answer those questions. And right now, they still spend as to how fast they are going to spend. And in the ’09 timeframe that part of our business grew in the 4%, 5% range.

So it pulled the ballot this side. What I would like to have grown 10 sure, but even in a tougher time, they just made different decisions, the pullback and one Insight question doubled on another. So both are just fine and right now we think that the broader economic backdrop has our clients in this market and Western Europe, a little more cautious, a little more thoughtful of how they go after consumers in the research spend.

On the other side of it, in the developing markets, they are just continuing to go, they are going down very aggressively in terms of trying to find that developed market consumer. So it’s different than ’09 they are not behaving quite as dramatically and we think that the model we built to be just fine.

Eric Boyer - Wells Fargo

You mentioned about the markets, it’s been an area of strong growth for you. Can you just talk about some of the markets where your bigger markets were developing and kind of the trends that you are seeing there?

Brian West

Sure. So for us, in our Buy side of our business, which again is two-thirds of our revenue is built the growth is largely built on the performance of our developing markets. And that is where in many, many countries, I have big multinational clients Foster, Coke, Unilever, et cetera as well as local clients understand their market share in those markets and then how to go after new consumers. I have been doing in these markets for a long, long time. In the last five years, we have shoveled resources more dramatically to help extend our competitive advantage and to cover more parts of these countries and cover more countries.

And now I have got $1 billion revenue franchise in developing markets 2X what it was five years ago when we started. The big deal for us has been growing it at a healthy clip through the third quarter 14%. So we like those growth rates and we like staying ahead of it. And it’s China, and it’s not just China, the coast of China, it’s rural China, where our clients want more answers and more coverage. It’s India, it’s all of Africa, and it’s all over parts of South East Asia and Latin America. So we feel very good about the prospects and more importantly we feel great about our ability to penetrate to market.

As long as we keep giving our clients deep coverage on that particular market, more provinces and more categories within more provinces that’s what our clients are looking for, and that’s the investments that we are making. And that is as far as I can see because the big macro trend that we are riding, is the fact that, over the next couple of decades there will be more consumers moving into the middle class than ever before. And with that they bring tens of billions of dollars of purchasing power. And that’s what our clients need to grow, because believe it or not the next new consumer is not coming from the U.S. It’s not coming from this market. It’s coming from the developing markets, which is why you see lots of multinationals having lots of strategies on finding that developing market consumer. And that’s how they’re going to compete and win.

And the benefit of this is where the multinationals bring us in to get going, if the locals that eventually has to come in and buy the same data, at similar price points, that gives us lots of confidence in our marketing prospects in developing markets.

Eric Boyer - Wells Fargo

Well, what’s the next ways of developing markets that your customers are looking for you to go into? How long does it usually take for you to have those markets to become profitable?

Brian West

Well, they are profitable from day one. I mean, we don’t have ones that lose money. We go in with a eye towards profitability. It’s a matter of how quickly you can recover the investment and expand margins. For us, it’s for not necessarily new countries with the exception of Africa, because there are parts of sub-Sahara that we didn’t cover, and two years ago big clients including the Foster, the world said, you guys got to cover Africa. And we need to go there in a big way.

So you get out ahead of your clients, you start to add all the resources to go and be able to measure that retail footprint and then you start collecting data. So that’s a hot market for us.

But again, like I said, it’s also just important to be in India and rural China, because China is not obviously one market and once you get there it’s how deeply you can go in those markets. So it’s just as far as maybe I can see and we will continue to go ahead of our clients and go along because our confidence are telling us to.

Unidentified Analyst

There is lot of excitement about the online campaigns ratings, offering that you guys have just initiated? Can you talk about what that means to Nielsen and the industry in general?

Brian West

Sure. So online campaign ratings. Let me take a minute and describe what measurement is in the online world. Today there is three competitors for online measurement. There is captive, which is a publisher, publishing there own (inaudible) data, right. So, it’s if I design there is going to be a question about -- a question mark on the independence and objectivity.

Two-third party companies have emerged as independent measurements Nielsen and ComScore. And today, they project monthly estimates of -- if you are looking for particular audience we are most likely to get that audience. And they do it every month and no one can ever tell the advertiser if the audience actually showed up.

In television, I tell them the next day. So Media Company and television says, I’m going to tell you this to audience and the next day right with my rating I tell the buyer and seller whether the audience showed up. If the audience didn’t show up that was promised doesn’t make good, lost our currency, and that is what drives a multibillion dollar ad market is that currency and that measurement, that doesn’t exist in the online space, those are all the Wild West.

So, our objective in the last 18 months has been to try to bring to the online space a measurement that had accountability similar to television. And we’ve been working hard on what we call online campaign ratings, and it will give us the ability for an publisher and an advertiser to show, who actually showed up, what audience actually showed up, on a reach frequency basis, which are television terms, as well as demographics. And that is going to, we believe, bring big advertisers with big branded campaigns that are trying to measure across the Internet more steadily into the Internet space because they have a reliable measurement, and they can compare to television. So, one it’s accountable, and two you can compare to television.

So, we are just launched in August, and we are working hard on it for well over a year. We got a relationship with Facebook that allows us to have a co-panel of users to give us the ability to measure across the Internet. We’re excited about it. It’s early stages and momentums of ours good. We now have over 20 clients, big advertisers across all the big major verticals who are running campaigns through it, and they are testing it, and they’re going to develop a used case. And, we think, well before not too long, we’re going to able to have a product that we think its going to be pretty powerful.

But, I will caution everybody, nothing abruptly, nothing happens abruptly in market research measurement it just doesn’t. You got lots of constituents you are trying to organize, advertisers, publishers et cetera. And it just takes time and we will be very patient on this one, but we’re excited about the prospects.

Eric Boyer - Wells Fargo

On that point, maybe you can talk to the evolution of other audience measurements capability you had and kind of walks and steps of how you think, you can ultimately go evolving them?

Brian West

So the way we are approaching online campaign ratings, is we’re taking a page out of the television playbook. So it all began with advertisers trying to understand a little bit about their audience and ultimately the advertisers were comfortable with accountability measurement on their ad spend that they trusted. And then they moved it into lots of different dimensions on television.

So in the early days it was three broadcast networks and then it was 12 cable companies and then it was hundreds of cable channels, Satellite TV, IPTV, anyway of new distribution that got to television, we just kept measuring it. And we just kept staying ahead of technological trends of how you viewed television.

And as long as we are measuring 95% plus of what you consumed, this currently is probably just fine. Sometimes people don’t like their ratings, right, because when the ratings are down it’s Nielsen, but when ratings are up it’s really programing. But that’s what being third party means, right. You have to be going to have independent measurements and be willing to have fixed get in and work through that. But overtime it’s help build terrific businesses for our clients.

Lots of new cable channels. Online campaign ratings or this ability to do it on another screen is just the next technological change. Right, it’s just another way that you’re viewing video and we’re just going to keep measuring it.

As long as we can very methodically continue to measure, capture, and then measure what you consume regardless of the device will be just fine.

Eric Boyer - Wells Fargo

You mentioned Facebook, there are lot of questions about what it would mean if Facebook created their own advertising network, how that would impact the OTR offering if at all?

Brian West

So let’s remember that any publisher is similar to another media company. So to think that they can begin to just have an ad network and measure it themselves, they are going to have a problem with independents because it will be conflicted. The importance of third-party measurement can be missed on anybody. We think that the Facebooks of the world are planned for bigger spoils. They’re looking to bring more ad dollars to get more of their share of the ad dollars to the audience they deliver.

The measurement is just a processing component of that and the fact that they be conflicted makes it very difficult. So independent third-party measurement is very important. And it’s important for Nielsen as a brand because we have been doing it for a longtime both in the watch side of the business as well as the buy side of the business. Because the need for third-party measurement brings buyers and seller whether its manufactures and retailers or media companies and advertisers, bring them together in a marketplace with independent objective measurements to allow them to go do what they do best which is compete and win and grow.

So we think that all of the right economic interests are aligned around things that support third party measurement and we are right in the middle of one that we think is going to be the next wave, and we are positive about it. so, we view Facebook as a partner and a client. And we think that if we do well measuring there are going to just do great as they go and do what they do best, which is attract advertisers.

Eric Boyer - Wells Fargo

When one thinks whenever there is a new audience measurement tool or standard created there's a lot of push back from the industry. Can you just talk about how you work through that push back or where that push back might come with offering?

Brian West

So let's distinguish between analytics and standards. There really are no standards in the online measurement. There is a television standard that’s been tested again and again and again, and you've always got a new analytical component that may bring insight to a particular distribution channel. But standards are hardly get to. There is no standard online. Online campaign rating is our -- ComScore established to get standard, and we think that one it takes time, and it takes your ability to organize stakeholders that have very different views of the world. Ultimately, we are accountable to a quasi-regulatory body called the MRC. It's the Media Rating Council. And that is an organization of all of our clients, both agencies and advertisers and media companies that decide and validate the methodological ability of my measurement, and I'm accountable to that. They set the standard.

And what I'm happy to say is that as we introduce this new online campaign ratings product from the get go we new that MRC, this seal of approval was going to be in for and it is the first independent online measurement that has the MRC accreditation. It's a big deal. It was deliberate because we wanted to get into the standard stage. So, we believe that there's lots of folks around us who validate that standard and we think that any new analytics could be very interesting and may compliment our currency in many ways or compliment our standards but it is hard to think that they get replaced.

Eric Boyer - Wells Fargo

Why don’t we open it up to the audience for questions? Let's start with you. Wait for the microphone just so that the webcast can here the question.

Question-and-Answer Session

Unidentified Speaker

It’s interesting to hear the strategy with regard to online from a business perspective. There is also a concurrent legal strategy, and you filed a lawsuit again ComScore and the countersuit. Unfortunately, their countersuit is fast tracked and your initial lawsuit is not. And there has been summary judgments and this is kind of go jury at the end of the month. Maybe like to sort of talk about that elephant since it seems like its little more its pertinence certainly.

Brian West

Well, obviously, I can't comment the litigation and I want. Well, I will just tell you is that companies invest in IT and you got to protect it. And you do that and I wouldn’t be too concerned about that one, that will play itself out and we will see.

Unidentified Speaker

Hi, just a couple of questions maybe first it’s conceptually difficult for me to understand one of the points you made earlier about how it’s impossible to determine if the online video audience was delivered I mean just obviously as a consumer I know exactly how many YouTube views have been giving clip there were yesterday. I know how many there were today unless it’s a physical audit problem with YouTube like you think they are lying to you or miscounting the number which Ann Anderson has benefited the third-party. It’s not clear to me how it would be difficult to tell whether or not a given online video audience appeared?

Brain West

So let’s start with a premise of what’s important to an advertiser. First of all they want to project reach in frequency and demographics. They want to know how many people and who. That you as an individual but the type of audience that you project and that’s the way it works in television and that’s what marketers spend a lot of time trying to drive ad campaigns.

Today, you don’t have that capability in the online space. Sure, you can serve up. You can have a server (inaudible) you have. Nielsen accounts or will do projections on the estimates of people who are likely to show up on your site. But there is no back-end. So what’s different is that our products for the first time will have an advertisement will get tag. So if you’re Procter and you’re trying to advertise Pantene, we tag that ad upfront, we run it across the Internet and then I can measure by lots of technology and measurement science how many people saw it, and then I could also with a big panel happen to be using Facebook users, the demographics of who saw, in a projection basis. That and then delivers the next day to say, here is the estimate of people who actually saw it because you had the ad tag and you can measure it. That doesn’t exist today. And that’s what makes us unique.

But more importantly is answering the second question is compared to television because more and more brand advertisers are having campaigns, better campaigns and they want to run on television, on online, and all over the place. And they need that measurement to give it a consistent ability to say that I get what I was looking for and that’s what’s unique.

So look at early stages, and if the wild west out there today because of the lack of accountability all of that means is that mediums get more discount than others. And the publisher, they don’t want to get discounted, they want to get credit for their audience, and we are trying to help them do that.

Unidentified Speaker

And then, maybe just a second related question actually too, I think the second half your answer. So, if you think about the sort of the whole TV world, basically you guys controlled both the data itself in the sense that you did all the survey work and you came up with a raw data set and then you turned it into the end product, which the customer gets. I think depending upon what your view is, your five to ten year view in the future a lot of the digital players are going to control the data about their audience. So there is still like some meaningful room for you guys like I’m not saying your business is going zero rating but obviously they will have a bigger part of the total value chain relative to the world of TV. How do you serve overall and think about that trend? Is the data piece will get compressed and not be worth as much don’t worry that the whole world is like so big, we have those huge business for us, how do you think about that?

Brain West

So, that whole TV business in total, more people watch television today than ever before believe it or not and that just is true as the day of launch. So, we like the power and the size of television so do advertisers. The question is, how do you shift like how do you look at the shift as people go to other places for information and that shift awaken lots of things, it might be shift away from radio or print, newspaper, whatever. So, time spent across television is growing, across online is growing a lot. And, we think that in mobile device all of that we think works well for our franchise because that’s what built around. Its video consumption not necessarily what device it came across, because again, if I measure the way you consume video, regardless of how you got there, whether your TV at home, whether it was on your iPAD, or your online PC as long as I am capturing that and then I can report back to publishers, media companies, and advertisers, here is the audience. You guys go and do what do best, which is program and advertise we will be just fine, we think that there is a very unique placement for third-party measurement.

So, yeah will the business models change about how they monetize themselves? Sure. Would anyone have thought social media would be as big and powerful today ten years ago, probably not? But all of that means is that they have a more and more need for third-party measurement to validated the audience, so then they can again do what they do best.

So, we think that everything will be just fine. It actually presents more opportunities not less; because what will happen is you have more client opportunities i.e. publishers and then you have got advertisers who are even more indented shift dollars to media. And we think that bodes well for TV, for watch, for our businesses in total. We like the prospects and we were able to get a pretty good hand applause.

Eric Boyer - Wells Fargo

Any other audience questions, over there?

Unidentified Speaker

Two quick ones. The C3 and the N gain for your TV and then secondly on the OCR that’s display as well as video, correct?

Brain West

Yeah. So yes in the second part and I don’t think. We loved the C3, so that’s another example how we adapted on behalf of our clients to give them a better measurement and we think that still proven out to be a very good investment on our behalf to think that our clients have benefited from that in many, many ways.

What’s the next evolution, don’t know. Are we going to be ready for it, I think so because everyday that’s when we wake up worried about, how do technological shifts, what will that mean to our underlying business? More importantly what’s it going to mean to our clients, because our clients needs to be out there staying ahead of those trends. That’s one example of a trend and there is lot others that may come but we just got be ready for them and I think we’re pretty adaptable for it. I would love answering our question Buy side by the way. How is that?

Unidentified Speaker

(inaudible)

Brain West

So we our measurement as required by our clients is C3, right, which is average program ratings. And as that evolves as they see these evolve. Technologically we’ll be ready for it, but that’s not what they need right now and that will all happen overtime and the risk for us is on one hand you’ve got to make sure you can technically do things. On the other hand you’ve got to make sure that your things are ready for it. Because when you’re in a situation, where you got lots of stakeholders, like I said nothing happens at Brockley, because you have to make sure that you have the measurement, credibility, and methodologies that serves your business today on how it moves. So what that looks like tomorrow can’t tell you. Are we going to be ready for it, I think so.

Eric Boyer - Wells Fargo

So why don’t we spare time for one more. I will ask the final one. Well you talk about the Buy segment finally I want to recollect that side. But you couple of months ago announced a relationship with Wal-Mart, expanded relationship there. Can you help us understand the timing of when you should see revenue from providing that extra data to your current customers and then additional incremental revenue from the expanded Wal-Mart relationship itself?

Brain West

Sure so another example of why third-party measurements are important. Recently Wal-Mart has decided to after ten years to share its resell data with the U.S. Cooperatives. Now Wal-Mart everywhere else in the world we work with, it was just the U.S. market that they decided not to share. And now we are a preferred provider status where we all work with Wal-Mart manufacturers to restate and announce certain measure, all of that coverage that Wal-Mart has to deal with. And it’s a big deal; it’s a very significant event for the industries, for retailers, for Wal-Mart and for Nielsen. So all of that is playing out as we speak to investors, lots of resources. But basically be prepared to handle all the new data volumes and in the second quarter we will out there with data to sell the clients and we are excited about all the feedback we have from not just Wal-Mart, but retailers, manufactures, interesting it’s going to get more visibility on the U.S. CPG markets. So we are excited about it.

Eric Boyer - Wells Fargo

Well as far as the timing of the revenue though, when should that roll on?

Brian West

So, as I said, the really -- the law it will still ramp up slowly. But really we need to deliver the data in the second quarter of next year is when you're going to start to have it and more fully see to the clients.

Eric Boyer - Wells Fargo

Okay, and I think with that we're about out of time. So, thanks again, Brian.

Brian West

Great, thank you.

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