Thursday, 23 January 2014

On track with Rentrak

The TV measurement industry is not one of the most glamorous in the media world but they tend to produce great monopoly like businesses. Everyone has probably heard of Nielsen and their rating and measurement system. While the credit rating industry has Moody's and S&P as fierce competitors the TV rating system has been dominated by one company Nielsen. We found it strange that Nielsen has not yet made any major changes to its measurement given all the disruption in media ie TV everywhere, on demand and big data trends. Enter Rentrak (RENT) stage left, RENT has basically built up a better mousetrap for measuring TV viewing. What makes them different is precision, RENT is the only one to measure video on demand 100m TVs on a daily basis whereas Nielsen for example samples 20,000 with viewers filling out paper diaries of what they watched that night.

Census vs sample, whats gives you more confidence?
Anyone who has used Netflix or other streaming services knows on demand viewing is the way of the future. RENT collects 100% of this US on demand TV viewing. From the computer to your smartphone and to your tablet RENT tracks your viewing habits. RENT data is more comprehensive as it is a census approach rather than a sample method like competitors. RENT's database is larger because RENT collects data from households subscribing to Dish Network. Dish owns 6% of the stock in return for passing on their data. This precision gives ad buyers confidence.

Source: Rentrak investor presentation

RENT has 235 local station clients up from zero 3 years ago, as can be seen below the total addressable market is 2,000 stations. 50 of these stations have dropped Nielsen since signing up for RENT's products. RENT predicts their TV measurement business to grow 80% over the next several years.

                                                     Source: Rentrak investor presentation

Skip scene, the domino effect
While the stock has had a major rise since the start of the year in our opinion the rise has been justified. The shares rose on the announcement of landing CBS as a customer. CBS is one of the four largest broadcast networks in the US and under the CEO Les Moonves has been an innovator in the space. TV companies love data and with RENT can move beyond just age/sex demographics to combine viewing data with purchase data like cars and other product purchases. With CBS signed up it is a vote of confidence in their measurement system making it much more likely that the other networks will sign on with the service helping to make it the currency of measurement much like Nielsen. RENT has an expensive valuation but it is a very strategic company for the industry with its market capitalisation of $675 million still small given the opportunity.

Fast forward or rewind? Why 20% growth is misleading.
While overall top line growth does not look exciting at 20% this growth is being held back by RENT home entertainment business which basically measures DVD transactions from brick and motor stores. Given the outlook for such businesses like Blockbuster are not great RENT is expected to divest this business which should result in higher overall top line growth of 40%.

As consumer viewing habits change measurement has to change as well. While its not the most exciting business RENT is at the forefront of precisely measuring movies and TV everywhere the consumer is watching.


Disclosure: Decisive has a long position in Rentrak (RENT) stock 

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.