TV Ads: Measuring Viewer Engagement

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Those companies have their products enmeshed in the programs, for instance having aspiring chefs riding around in and sometimes winning new Toyotas, and a weekly Ford commercial on Idol that features the remaining contestants.

Tweaking Weak Ads

Engagement ratings have earned credibility with advertisers because IAG provides the ratings for the networks' programs and the advertiser's ads from the same panels of consumers who rate both. Advertisers are able to quickly match up high-engagement ads with similarly scoring programs. Conversely, this system exposes weak ads quickly, letting advertisers yank them, fix them, or replace them—sometimes within days.

In the fall of 2008, for example, Ford increased the engagement scores of a Lincoln MKS ad that seemed as though it should be scoring higher simply by tacking on details of a popular retail promotion that was launched after the ad began running. Fixing ads quickly based on the daily data feedback saves Ford millions in inefficient ad impressions. "When we get price guarantees on the TV program's engagement scores, it's almost like we are getting the prices guaranteed on how well our ads are doing and how closely they are watched, and that is pretty close to the holy grail for me," Farley says.

The enormity of the data collected by IAG over several years has helped define an effective commercial. According to Lois Miller, president of Nielsen/IAG Automotive, a specialty unit of IAG, the firm also digs into the show's viewer demographics. That allows a company such as Ford or American Express (AXP) to make sure that underperforming ads not only are recalled, but that ads are scoring up to expectation among viewers in the target demographic. "If the overall engagement score for a Ford pickup truck ad was mediocre, but was very high among men 25 to 55, that's what is important and that's what they need to know," Miller says.

Nielsen/IAG's method is fairly straightforward. Each night the firm surveys tens of thousands of TV viewers, out of a panel of 2.5 million, on how well they can recall program and ad details. Answering 10 out of 10 questions right demonstrates engagement. If the respondent gets only 3 of 10 questions correct, not so much. The same method is applied to how well viewers liked and recall the ad, and whether they understood the message intended.

No Universal Pricing Standards

NBC (GE) opened the new ratings can of worms in 2006 when it cut a deal with Toyota to guarantee the automaker certain engagement scores for programs like Heroes and Top Chef. If IAG's engagement ratings for the shows were too low, Toyota got "make goods," or additional ad time for no charge. That way, NBC closed the gap between the number of engaged viewers it had pledged the auto company and what it delivered.

Yet as limited as traditional Nielsen ratings may be when measuring multiscreen, ad-skipping TV watchers, many players aren't ready to shed traditional Nielsen ratings. That system remains the primary currency between networks and ad buyers because of competing ideas on how to best measure engagement. "Engagement ratings are proving very useful media planning tools, but they aren't to the point where we can use them as a hard currency, a standard that absolutely everyone agrees on, to replace Nielsen ratings as our primary price guarantee" says Alan Wurtzel, president of research and media development at NBC, which is signing engagement-rating deals with numerous advertisers including American Express, Verizon Communications (VZ), and General Motors (GM). "That's a high threshold to clear."

But many others don't see that as a problem, says Sam Armando, a senior vice-president at media-buying agency Starcom MediaVest Group, which handles clients like Coca-Cola (KO) and Miller Brewing. In 2005, Starcom cut what many believe is the first engagement-rating price guarantee deal with Court TV, which was looking to attract more advertising despite its small audiences. "We did that hoping people would say it could have been done lots better and then would have some better ideas to get us off Nielsen ratings, which was the point," says Armando. But companies and critics, he argues, have been so busy since then trying to establish a perfect new standard to measure engagement that "we're probably not as far along as we could be."

"We don't need a perfect new standard," says Armando, "we just need the tools to make us a lot smarter so we are advertising to as few people who are asleep or otherwise not paying attention, as possible."

Click to view a slide show of TV shows with the most product placements.

Kiley is a senior correspondent in BusinessWeek's Detroit bureau.

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