Last Updated: April 8, 2008: 1:24 PM EDT
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Nielsen's new Web play

TV ratings firm looks to help advertisers better gauge the effectiveness of their ads with $225 million buyout of IAG Research.

By John Simons, writer

WASHINGTON, D.C. (Fortune) -- The Nielsen Company, best known for measuring television audiences, hasn't been immune from technology's bulldozing of the media landscape. In a key step aimed at staying competitive, the company announced Monday that it would acquire IAG Research for $225 million.

The move is aimed at helping Nielsen's advertising customers to better assess the effectiveness of their ads. On top of providing raw television or online audience numbers, Nielsen will now have data on how consumers respond to ads on television shows and online.

The IAG acquisition comes at a critical time for Nielsen and for advertisers. Nielsen, which says its research influences some $70 billion in annual advertising, has been threatened with obsolescence in the face of ad-skipping technologies like digital video recorders.

And as the economy has soured, so too has advertising spending. Ad spending grew an anemic 0.7 percent in the fourth quarter of 2007, its slowest pace in five years, and is expected to be sluggish in 2008, according to Bernstein Research. Meanwhile, online advertising surged 27 percent to $25.5 billion last year, according to research firm International Data Corp.

In recent years, Nielsen has been challenged by a number of upstart research outfits that use faster methods of data gathering and instant consumer feedback via the Internet. Last February, Nielsen executives were forced to apologize for its frequent delays in delivering audience measurements to customers.

The IAG acquisition should make Nielsen more competitive at measuring advertising results across all digital media, including television and the Internet. With the help of some 200,000 regular participants, IAG measures how well consumers remember TV and online ads and how much they like particular shows.

IAG sells its research to advertisers, broadcasters, and other content providers, among them American Express (AXP, Fortune 500), Burger King (BKC), Ford (F, Fortune 500), Microsoft (MSFT, Fortune 500), and Verizon (V). The firm also counts all of the major television networks and cable broadcasters among its clients, including NBC (GE, Fortune 500), CBS and ESPN. The company said in a statement that it generated more than $35 million in revenue, and had positive operating income in 2007. Nielsen generates $4.5 billion in annual sales.

"IAG will add a new dimension to Nielsen's media business and will be the cornerstone for a new analytics practice that will provide our clients with even greater insights and clarity," said David Calhoun, Nielsen's CEO.

Nielsen said it expects to finalize the transaction sometime before the end of June.

The IAG acquisition is part of a broader effort to bolster and augment Nielsen's measurement businesses and usher it into the digital age.

That won't be easy. "People who live in the most high-tech environments are less amenable to having their habits and consumption tracked," says John Rash, a media analyst with advertising firm Campbell Mithun. "The people more likely to be measured well are a generation or two older."

In February, Nielsen made an undisclosed investment in a Berkeley, Calif.-based company called Neurofocus, which measures television viewers' brainwave activity to determine how engaged they are with a program or commercial message.

Also in February, Nielsen announced the acquisition of Audience Analytics, a firm that makes software for analyzing data samples that Nielsen collects from household cable settop boxes. The company did not disclose the amount of the purchase. Nielsen has made it clear that it wants its data on new media viewing to be the same gold standard that its television ratings have been for decades.

To that end, Nielsen in 2007 bought Telephia, a San Francisco-based firm that measures, among other things, video-viewing on mobile devices. Nielsen also purchased majority interests in the Nielsen Netratings Internet measurement company, and Buzz Metrics, a firm that measures blogs and other consumer-generated media.

"We're a quantitative company; they're a qualitative company," says Nielsen spokesman Gary Holmes about IAG. "They bring something to the table that we don't really have yet."

Lyle Schwartz, an analyst with Group M, a media investment management firm, puts it another way. "IAG can help media buyers gauge how well viewers recall portions of programs or commercials - not simply whether they were watching, but how engaged they were in what they saw."

Indeed, part of IAG's research data is gleaned from consumers who play interactive trivia games at the firm's separately branded web site, rewardtv.com. The site quizzes viewers' recollection of advertising and programming from various broadcast and cable networks.  To top of page