Credit: Shutterstock photoI t's no secret that live television viewership is on the decline in favor of other media, such as video-on-demand, time-shifted DVR watching and subscription services like Netflix and Hulu.
A less-known fact is that the total hours of primetime viewing across live TV, digital video recorders and VOD are on the rise, according toRentrak ( RENT ), a TV and movie measurement firm out of Portland, Ore.
Rentrak is firing on all cylinders to capture this data and then resell it to advertisers.
The key to its rising success: second-by-second measurement of what people watch on 60 million TV sets, whether live, on DVR or VOD. Combined with consumer-behavior data from its partners, Rentrak is able to provide very specific consumer-targeting information that advertisers use to place ads and efficiently manage their ad-spend budgets -- something that it maintains that no one in the industry has been able to replicate.
"We merge things like auto registrations with precise TV viewing," said Bill Livek, CEO of Rentrak. So, whenGeneral Motors ( GM ) advertises a particular car, it's able to target consumers who already own competitive brands and not just 25- to 54-year-olds, he says.
The company also claims to have saved 20% in marketing expenses to Obama's 2012 presidential campaign when it effectively helped target not just registered voters but "persuadable" voters, who are only 8% of the population, Livek told IBD. Rentrak is also involved with several candidates in the current election campaign.
Top Industry Group
With a market cap of just over $1 billion, Rentrak is midsize within IBD's Leisure-Movies & Related industry group, which is currently the No. 1 group in 6-month stock market price performance among the 197 groups that IBD tracks.
Some of the larger names in the group areNetflix ( NFLX ),Discovery Communications ( DISCB ),Lions Gate Entertainment ( LGF ) andCinemark Holdings (CNK) . And Rentrak is one of six companies in the group with a strong 90-or-better Composite Rating out of a possible 99.
Tracking "TV Everywhere" -- what people watch via regular TV, on their DVR or on-demand, as well as on other devices such as tablets -- figures big in Rentrak's results.
The company reported a 32% revenue increase to $28.5 million in its fourth quarter of fiscal 2015, which ended in March. For the year, it logged a 36% revenue gain to $102.9 million with gross margin gaining a point to 65%.
During fiscal 2015, revenue related to TV Everywhere rose 76% to $55 million, making that category the largest section of the business. The others are Movies Everywhere, OnDemand Everywhere and "other services."
Rentrak turned in earnings per share of 49 cents for fiscal 2015, up from 5 cents in 2014. Analysts polled by Thomson Reuters expect a 27% gain for fiscal 2016.
Rentrak is present across all 210 programming markets in the U.S. and counts over 600 clients among cable TV networks, local broadcasters and advertising agencies.
In addition to measuring TV viewership, Rentrak also measures movie box office results on a real-time basis. It collects and reports data on how many people go to the movies and how much they spend.
Fragmented Audience
Programmers and broadcasters have been facing a key problem for the past 20 years: audience fragmentation. "It's this whole issue of time- and place-shifting," said Todd Mitchell, director of research and senior analyst at Brean Research.
Viewers have been watching their favorite shows at a later time thanks to services such as video-on-demand, DVR boxes and the likes of Netflix and Hulu -- so-called "over the top" providers whose content comes to TV screens not via cable or satellite providers but over the Internet. Viewers also increasingly watch their programs on nontraditional devices such as tablets, smartphones and PCs, instead of on their TVs.
"So, fragmentation, time- and place-shifting all add to the inability to measure TV viewership adequately via a sample," Mitchell said.
Nielsen A Ratings Rival
Rentrak's largest competitor,Nielsen (NLSN), in October announced plans to establish digital content ratings (in partnership withAdobe Systems (ADBE) to count who's watching a show on PCs, laptops, tablets and smartphones. Nielsen already measures live, DVR and on-demand TV viewing habits.
But a sample of 29,000 households is how Nielsen has traditionally computed TV ratings that the industry is accustomed to, Mitchell notes.
"Increasingly viewership is happening outside of that sample box," he told IBD. "The net of it is that 1) ratings become less accurate and 2) ratings become understated. Therefore, what's happening is that content providers are not receiving full credit for their viewership." This translates into lost income.
Rentrak uses a census-like sample that collects second-by-second data from 60 million set-top boxes across all channels 24/7. In addition it aggregates server logs "for virtually every multichannel TV provider in the country -- about 110 million households -- and several over-the-top distributors," Mitchell said. "So that they can pick up all of the on-demand viewership. Linking these two together, you get an extremely accurate read of viewership levels."
Nevertheless it's been a slow road to acceptance, he says, because of what he calls a monopolistic structure that Nielsen has in place. Nielsen is much larger than Rentrak, with a market cap of $16.47 billion to Rentrak's $1.05 billion.
Nielsen primarily serves larger broadcasters, while Rentrak made inroads providing a service to local TV stations. It's the go-to company in that market, Mitchell says. In the past three years, Rentrak signed up over 450 stations out of 2000.
"They've won in local," Mitchell said.
A second market is made up of 425 smaller cable networks. Out of those, Mitchell says, Nielsen can only rank and rate the top 100.
"If you have less than a 0.1% market share, Nielsen calls you unrated, so the majority of cable networks have no idea how many people are watching them," Mitchell said. "Rentrak can tell them."
Finally, advertising agencies who pitch business against one another can make more intelligent media buys based on Rentrak's data.
But being in this business doesn't come without risks -- including the risk of further competition from industry juggernaut Nielsen.
Advertiser Support
One challenge is that "it is hard to see what the video advertising distribution world is going to look like over the next 10 years," said Randy Reece, senior analyst of equity research at Avondale Partners.
"Audience measurement isn't worth nearly as much to content providers as it is to advertisers," Reece said. "Ultimately the growth of the advertising market is going to dictate the market potential of Rentrak."
An example of this would be if it became easier for people to pay to watch video without the ads.
That said, the main appeal of Rentrak is that "it's growing on strong gains in market penetration combined with strong increases in revenue per customer," Reece said. "As Rentrak becomes a more important currency for selling advertising, clients are paying higher prices. ... and these (gains) should continue for multiple years."
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
