The Shrinking Universe

Image via CrunchBase

I know I sometimes get a bit “out there” with some of these posts.  Today might be one of those but hopefully you find the tidbit I’m about to discuss as interesting as I do.

Those of you who are outside of the media business might not be aware that Nielsen, the ratings company, updates what are called “universe estimates” every year.  This is to reflect the growth in households and of the numbers of people who live in them.  Those ratings you see reported are percentages of a universe – a 10 rating means 10% of what’s being measured – homes, Men, Women 18-34 – was watching.  Percentages are constant; universes aren’t, and this is where it gets interesting.  Let’s see what you think.

The ratings over time are a great way to measure interest in a program.  After all, it’s meaningless if a universe is bigger or smaller – the rating will reflect viewing within the population.  What does change is the number of viewers that rating represents.  5% of 1,000 people is bigger than 5% of 750 people, right?  This is a primary reason you now hear about “viewership” rising when, in fact, the ratings are often flat or down to sporting events (pay attention to those press releases!).  A slightly smaller percentage of a bigger universe can show growth in total numbers even if a smaller fraction of the world is watching.  Dropping ratings over time show falling interest even if the audience is getting bigger.

So what’s the news?  Well this is from the article I read this morning:

The percentage of U.S. households with television has declined for the first time ever, according to new TV “universe” estimates released late Monday night by Nielsen Co. The data, which Nielsen described as “advance” and “preliminary,” was derived from computations based on the 2010 U.S. Census, and shows that the percentage of U.S. households with a TV set will have declined by more than two percentage points from 98.9% currently to 96.7% when the new estimates go into effect for 2012.

This might be reflective of “cord cutting” – people ditching cable or satellite TV and only using streaming video via a broadband connection or it could just be a resetting of things based on the new data.  A statistical aberration or a trend?  Either way, the numbers of homes or people which are reflected in the ratings will drop for the first time.

The importance of this is that TV is sold on the basis of eyeballs delivered.  The ratings have been dropping, which increases cost per rating point levels but media buyers could live with that since the number of viewers continued to rise and the cost per thousand viewers wasn’t rising as fast.  If those levels decline, my guess is that prices will drop as well, despite a lot of pent-up demand for inventory.  This report is not good news for TV folks.

Any thoughts?  Do you think cord-cutting is causing this or is it just an aberration?