Yesterday, Nielsen announced that they will make their new "Internet Meter" available by year's end to measure the online television viewing audience. Until now, this ever-increasing demographic has been left out of U.S. television ratings as Nielsen currently focuses only on live and time-shifted (i.e. DVR) TV viewings. Says the company, the Internet Meter software will be deployed by the end of 2009 to their "People Meter" households - the chosen few whose TV-viewing habits function as the representative sample for measuring a show's success. This new addition to the ratings game is bound to have a major impact on TV monetization efforts as both networks and advertisers will see, officially, how many viewers have tuned in to watch this "2nd screen."

The Internet Changes Everything, TV Just One Example

The internet leaves no business model untouched and unchanged, especially when it comes to media consumption. Whether music, movies, journalism, publishing, or TV, the impact of having high-speed, always-on connectivity has revolutionized how we interact and entertain ourselves. But in the wake of these changes, media companies are left struggling to monetize their efforts, all of sudden discovering that their old business model now looks like a square peg getting hammered into a very round hole.

TV viewing habits are just one example of this change. Not only are companies like Comcast and Time Warner experimenting with on-demand online viewing initiatives, the networks themselves now post their top shows to the web. The major TV networks have featured streaming video on their websites for years. Meanwhile, several networks and studios, including NBC Universal, FOX, and ABC, have banded together to offer Hulu, a popular destination for commercial-supported streaming video.

But putting shows online has its drawbacks, as networks are finding out. Without solid measurement tools, making the shows available on other platforms is, in the short term, hurting the bottom line. In a recent issue of TV Guide magazine, for example, it was noted that networks are specifically facing problems with re-runs. Where before a second airing of an episode from a popular show could make decent money, they're now finding less viewers tuning in thanks to on-demand offerings and online viewings. According to one unnamed network exec, this presents a huge challenge for the networks. "We're not like cable, which has a second revenue stream from subscribers," the exec said. "We need to amortize these very expensive shows."

Measuring the Web TV Audience: A Tricky Prospect

Through anecdotal evidence, we know that more people are watching TV online these days. It comes up in conversation among friends, especially when someone laments how they "forgot to record" a program. They now know they can go online and get caught up. Others find themselves relaxing in front of their laptop's screen nearly as often as they hang out in their living room to watch the big screen. In fact, thanks to the recession, more people than ever have decided to cancel their cable TV subscriptions to save money, realizing that many of their favorite programs are available through alternative methods, including online streams. Need proof? Just look at the Google Insights chart for the term "cancel cable."

Then there are the recent statistics from the nonprofit Conference Board that show how online viewing is on the rise. According to their findings, nearly a quarter of U.S. households now watch TV online, up 20% from last year. New shows are most popular, watched by 43% of viewers followed by 35% of viewers who watch sitcoms, dramas, and comedies. And 90% of the viewings take place at home.

Unfortunately, there hasn't been a good way to effectively monitor and measure the online TV viewing audience. When Nielsen previously reported on Hulu's viewing numbers for instance, Hulu lashed out at the company claiming the numbers were wildly inaccurate.

At the time, Nielsen was using a combination of web beacons to determine when streams started and stopped while also measuring the web use of a panel of 200,000 online users. Hulu themselves, however, preferred to quote numbers from measurement firm comScore, especially since that company reported a much higher reach even as Nielsen noticed a slight decline. The problem here, as we noted at the time, is that online measurements aren't standardized, making it difficult to accurately determine audience counts.

A brand, whether Hulu or any other online video provider, could look at the measurements from major firms like comScore, Compete, or Quantcast, and then pick the company whose estimates were the highest when crafting their "look at us grow!" type press releases. In all honesty, it's probably better that Nielsen gets involved to more objectively report the online traffic through their representative sample methodology. It may not be entirely accurate either, but at least you know that it's coming from an unbiased third party.

The "Internet Meter" Will Deliver Hard Data

At the moment, the Internet Meter software resides in a test group of 375 People Meter households, which has allowed the company to evaluate its capabilities before rolling it out to the remaining group. In addition, the software has been deployed to the company's online panel (as mentioned above) which now measures over 230,000 individuals. Installation of the software will be completed in 2010 but full implementation won't be seen until the following year. If that seems like too slow of a pace, it's only because the company is being very careful, fully knowledgeable of the major impact this technology will have on the TV industry. According to Sara Erichson, President, Media Client Services in North America, Nielsen will not take "any actions that would dilute the reliability of the core television ratings data."

Once the Nielsen data goes live, it will reveal a plethora of information regarding not just viewing numbers but also the demographics of who watches what and when. The information can then be used by advertisers and marketers who want to target niche audiences like the hip crowd who watches sci-fi shows but never stays home on Fridays to view them live on TV when they air. Or the group of people who are too embarrassed to set their DVRs to record "Ugly Betty," but sneak in the guilty pleasure online in their free time. Expect the online ads interspersed with the online content to soon become more precise and more targeted than they are now, thanks to these sorts of reveals. Perhaps the networks will even be able to charge more for ads, once they have numbers to back them up. That would be a good thing for the industry as a whole as well as consumers, since it could lead to more shows being put online. Who knows, maybe one day we'll even be able to purchase online-only cable TV subscriptions, too.