They Didn't Get SMART: The television industry looks to digital measurement.

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You could almost hear the sighs issuing from the halls of Madison Avenue and the corridors of Broadcast Row last May when Statistical Research Inc. announced the death of its SMART TV ratings initiative. From buyers and sellers, who have long been dissatisfied with the state of television audience measurement, it was an anguished sigh. But for Nielsen Media Research, it was a sigh of relief: The reigning king had quashed yet another threat to its monopoly on the TV ratings business.

After an investment of $40 million from a consortium of networks, advertisers, and agencies, and years of research and development, SMART finally said "uncle" when the financial backing necessary to take the project from a laboratory concept to an actual ratings system failed to materialize. The deal hinged on the willingness of the media industry - specifically, the major broadcast networks - to pony up millions in advance service fees, which fiscally conscious network managers just wouldn't do.

"We're still a little stunned," says Susan Nathan, senior vice president and director of media information services at McCann Erickson, and chairman of the American Association of Advertising Agencies' media research committee, which has investigated the issue of TV ratings measurement for years. The problem, she says, is that, given the trail of other failed attempts to launch a Nielsen competitor - including efforts by Television Audience Assessment, AGB, R.D. Percy & Co., and Arbitron's ScanAmerica - it now seems unlikely that another player will emerge to take on Nielsen.

Ultimately, it may not be necessary, given the future of digital television - which contains the technology to measure itself. In fact, digital developments have moved so quickly that some feel SRI's project would soon have become obsolete, anyway.

"SMART was never going to be the be-all and end-all," says Nathan. "It was a way of getting better short-term answers for an industry that needs a long-term overhaul."

Many feel that SMART's greatest weakness was that it was essentially a "me-too" service that offered relatively little that was better than Nielsen's. And its significant breakthroughs - including a digital TV coding system and a set-up that gave its clients access to respondent-level data - were quickly embraced by and incorporated into Nielsen's current and planned measurement systems. Of course, the industry is quick to point out that if the SMART threat had not existed, Nielsen would not have been spurred to make such improvements.

While Nielsen executives say they won't drop the ball in trying to remedy current problems with television measurement - including sample size and local measurement - their eyes are focused on the future. "What we're most concerned about," says Dave Harkness, senior vice president, planning and development for Nielsen, "is someone else coming up with an approach that is novel and aimed at tomorrow's environment." An environment in which people are as likely to be watching The X Files on their computers as on their television screens.

Nielsen has begun exploring that environment in conjunction with companies that otherwise could evolve into its biggest new competitors. The company formed a strategic alliance with Microsoft, which a year ago led to a breakthrough "software meter" capable of measuring TV viewing within a Windows 98 environment. Nielsen has also begun analyzing computer TV viewing for several hundred households equipped with Intel's Intercast PC/TV tuners. Other hybrid TV/Internet platforms are being developed by WorldGate, America Online, and Microsoft's WebTV. Finally, Nielsen has emerged as a rival in the Web ratings business, acquiring a strategic stake in NetRatings to form Nielsen/NetRatings, which competes with Media Metrix.

But perhaps the most significant alliance struck to date is with Time Warner. Though digital broadcast TV will arrive some day, industry analysts believe digital cable will get here first, and Time Warner, with entry into 12.9 million homes, will be in the vanguard. Nielsen's recently signed seven-year contract with the cable company includes an agreement to jointly develop methods for analyzing the so-called clickstream data that will be generated by digital cable set-top devices. In fact, many insiders believe "clickstream" will ultimately replace "television channel," since the set-top box is really a computer with an operating system that can serve up various content, be it a TV show or a Web site. "Channels disappear in a digital TV environment," says McCann's Nathan.

Digital technology also raises some fundamental issues about what constitutes viewing. If, for example, a viewer is watching a basketball game on one-third of his television screen, doing his finances with Quicken on another, and has the Internet running on yet another, how should viewing be rated? Nielsen has turned to its own clients for the answer. To help redefine "viewing" in the digital age, Nielsen has initiated a PC/TV committee, including such visionaries as Microsoft media research czar Andy Fessel.

Still, the industry will have to figure out a better way to deal with households that are not, and may never be, connected to digital TV or the Internet. Otherwise, says Gale Metzger, SRI's president, "we'll have a system that only measures what the digital haves watch, and one that neglects to record the viewing habits of the less affluent have-nots."

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