The concept of business is simple: fill an existing need or want at a price for which someone will pay. When a company can accomplish this goal in an industry with huge growth potential and little immediate competition, that firm is poised for success. The good news for investors is that Nielsen Holdings (NYSE:NLSN) is near this point, but it may be missing an even bigger opportunity.
A (almost) monopoly is expanding its reach
Television networks rely on Nielsen's extensive television program viewership data, among other analytics, to air your favorite (and most abhorred) programs. And, after receiving regulatory approval last month to acquire its rival Arbitron, networks will rely even more on Nielsen's data. Now, Nielsen's closest competitor is comScore (NASDAQOTH:SCOR), a tech firm that measures Internet users' online navigation. However, Nielsen and comScore do not directly compete. And even if they did compete, Nielsen wouldn't be comScore's biggest threat because of online data mining mammoths like Google and Amazon.
As a result, Nielsen secured its dominance as the go-to source for tracking viewership levels of television shows. But now, Nielsen is on the move.
Beginning in September of 2014, Nielsen will be able to track shows via smartphones and tablets, an unprecedented step in the industry. As a result, live programming viewing across these digital platforms and across all televisions will be centralized and streamlined through Nielsen's platform. The result will be complete data sets across several mediums, content Nielsen's customers can more effectively utilize, and consistent income for Nielsen. As Eric Solomon, Nielsen's Senior Vice President of Global Audience Measurement said:
Networks are starving for a number they can publish that really represents their audience not just on TV but across all platforms. I think it will start changing the narrative that "people are not watching TV shows. It's that they're watching on different platforms.
In addition to positioning itself as a sustainable, long-term company, Nielsen already boasts high industry profitability margins, especially when compared to comScore.
|Operating Margin||Profit Margin|
|*Data from Yahoo! Finance|
All this is great; however, Nielsen could be generating even more value for investors.
Nielsen's biggest (missed) opportunity
Since Nielsen's business model primarily revolves around packaging and selling its analytics to customers, I wondered why Nielsen does not also gather data on streamlined viewership. After all, a definite need exists for networks and cable companies to know how many viewers watch programs across all platforms. However, given that Nielsen is a near monopoly, it does not necessarily have to ensure it boasts several competitive advantages to remain relevant.
While Nielsen could still enter the streamline market, it could face fierce competitors. Amazon's Instant Video service, for instance, enables viewers to streamline TV programs, ad free! Many of Nielsen's customers, like TV networks for instance, use its data to estimate going advertisement rates for programs. So, ad free services pose a problem to Nielsen. Google Play could also pose a future threat because it enables viewers to streamline TV programs and other applications. If they desired, both Amazon and Google could sell the data they collect from their streamlining services to networks or cable programs, thereby giving networks the big picture estimate of viewers per program.
But, even if the tech giants see selling data as a cash cow, Nielsen is still positioned to dominate if it begins gathering data on all programs that are streamlined.
Nielsen's margins and competitive advantage are second to none; it is positioned for long-term success. But, in order to generate even more value for investors while becoming the one stop shop for data regarding program viewership, it must venture into the streamlined program arena.
Brendan Marasco has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Google. The Motley Fool owns shares of Amazon.com and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.