We sat and struggled with what we thought about Nielsen Holdings going public once more and there are two sides to the issue. As a US public company Nielsen may be more accountable in its dealings with advertisers and advertising channels like broadcasters. But on the other hand, Nielsen is currently held under Dutch law and is also virtually a monopoly, in a market that really has no need of a monopoly. In fact TV audience measurement is almost dangerous as a monopoly because the price of advertising can be artificially help up. And as such it should not be in the hands of a company that made a loss last year and which is saddled with $8.6 billion debt. The company does roughly $5 billion in annual revenues.
We are also coming to a period of technology when audience ratings will no longer need any element of audience participation ‘ it can become an entirely automated process and not rely on people meters or interviewing. And that threatens Nielsen. Elsewhere, where reporting can be automated, for instance in running audience figures for web sites, Nielsen has met stern competition, and is far less dominant than it is in TV. So Nielsen may also meet operator sponsored competition in TV audience measurement, making it less of a good investment this time around.
Nielsen is thought of mostly as a TV audience ratings company, and is now owned by KKR, Thomas H. Lee Partners, Blackstone Group and the Carlyle Group, all Private Equity Groups. But these companies stepped into to buy it out from VNU, a Dutch diversified group which then changed its name to Nielsen after acquiring it a few year earlier. The sell off was triggered when conservative investors overturned an ambitious plan by the then CEO, to acquire in health research and reporting, a business which had neat parallels to Nielsen. The CEO resigned and crashed the VNU share price, so the private equity deal was more of a rescue than an opportunity.
Now the dust has settled and Nielsen has offloaded many of its other, mostly European, businesses, and it is more like the original Nielsen business. And it will raise around $1.75 billion in an initial public offering and use the money to flatten down its debt, a process which will immediately give it access to cheaper and longer term debt, all of which will drive to the bottom line and take the venture back to its heady days of profitability. Last year it lost $491 million, and so far in 2010 its first quarter is showing a profit.
During 2009 Nielsen had a $282 million goodwill impairment and other impairment charges of $245 million. In other words it was cash positive, but not profitable. On the other hand it still has huge swathes of Goodwill to slowly write down (impair).
We are sure that investors will take this IPO and value it highly. Nielsen has lost none of its grip in the TV audience stakes, and is now in business in over 100 countries. When we last looked hard at this 4 or 5 years ago that was closer to 50 countries, so it hasn’t been idle. Everyone that wants to sell or buy advertising on TV has to deal with Nielsen right now. Our only issue is that there are long terms trends that either mean the price of audience data could potentially go down, that competitors can crash the partly and that Nielsen will not have such a tight grip in the mobile and internet advertising worlds, especially as both Google and Apple take big slices of that world and rely on real time interactive audience data.