IAB Call for Audits: Transparency or Conspiracy?

When the Interactive Advertising Bureau called out online measurement firms ComScore and Nielsen/NetRatings for delays in opening their rating systems to an outside audit, most publishers, advertisers and agencies commended the push for transparency.

However, when and if audit proceedings by the Media Ratings Council come to a close months from now, there’s no telling whether much will change. Indeed, some question the motives of the IAB and its publisher members and wonder if the online ad industry could be doing itself a disservice in calling for the audits.

In his April 20 open letter to ComScore and NetRatings, IAB CEO Randall Rothenberg suggested the measurement firms establish a “near-term timetable” for independent audits and accreditations, implying the MRC should be the group to handle those audits.

“I’m happy the letter pointed out the MRC because we’ve been trying to get these companies to be part of our process for a long time,” said MRC Chief Executive and Executive Director George Ivie. “We didn’t drive the IAB letter,” he added.

According to Ivie, NetRatings completed a pre-audit last year, while ComScore began the pre-audit process “a couple years ago” but hasn’t finalized the pre-audit process. In a pre-audit, the MRC evaluates a company’s operations to isolate things that need adjustment before the actual audit. The MRC has submitted a proposal for a full audit to NetRatings, Ivie told ClickZ News.

Both companies, he added, “have been moving through this process slowly, it’s clear.”

A letter sent this week from Nielsen/NetRatings CEO William Pulver to the IAB’s Rothenberg stated, “NetRatings anticipates attaining full MRC accreditation in the future, similar to MRC accreditations held by many established media measurement companies, including Nielsen Media Research, which submit to regular audits.”

ComScore, on the other hand, seems less likely to budge when it comes to working with the MRC. In a response to the IAB’s letter, the firm stated, “As part of our efforts to achieve transparency, we have opened our methodology and processes to an evaluation by the Advertising Research Foundation. We are in the final stages of this evaluation and hope that the results will be publicly released in the near future.”

If the measurement firms do agree to an evaluation, the MRC will not conduct the actual audit; rather, the council acts as a liason between the company undergoing the audit and one of three CPA firms chosen to perform the audit, Ernst and Young, Deloitte and Touche, or PricewaterhouseCoopers. PWC conducts the IAB’s annual Internet advertising revenue report. Once that audit is complete, MRC members employ the information to evaluate the methodology in question, determining whether to accredit it; the CPA audits typically take around six months, and the final MRC assessment “could take months,” said Ivie.

The MRC doesn’t collect any payment for the audit, according to Ivie, but passes along full payment to the accounting firm from the company undergoing evaluation. In this sense, the MRC is intended to act as an objective third party, removing concerns regarding corruption or conflicts of interest.

The MRC is funded solely by dues derived from its members, each of which currently pays $11,500 annually. This affords them access to audits of other firms providing third party reporting, such as DoubleClick, which is an MRC member. Most members are media firms or trade groups including CNET Networks, Yahoo, the IAB and the Newspaper Association of America.

A handful of agencies are also members, such as Starcom, Carat North America and MediaVest. For audits of their own internal measurement systems, members must pay an additional CPA charge, which is passed through the MRC. Ratings services including Nielsen/NetRatings and ComScore are precluded from membership in the MRC.

Web publishers, which comprise the bulk of the IAB’s membership, have long dealt with frustration from audience measurement reporting discrepancies between their own site-side numbers and those of NetRatings and ComScore. Advertisers and agencies insist upon publishers using to third party reports to validate claims about their audiences size and make up. Many publishers contend panel-based measures underreport the number of users visiting their sites or mistake audience demographics.

“The reality is this is a push by the IAB and MRC, and it makes a lot of sense from the publisher standpoint,” said Julian Zilberbrand, associate director digital operations at Mediavest Digital. Though he believes validation of the NetRatings and ComScore systems “is healthy” for agencies and advertisers, those groups aren’t necessarily demanding it, he continued.

“Advertisers should care,” said Jarvis Coffin, president and CEO of ad network Burst Media. “If not, they have to call into question their commitment to the whole issue of standards and measurements in general.” Burst’s measurement system has been audited by BPA Worldwide for the past seven years, according to Coffin.

Most media agency execs agree they and their advertisers will always demand third-party reporting to complement and validate publisher-side numbers, no matter the outcome of a NetRatings or ComScore audit. “From the advertiser side, I absolutely want third-party tracking,” affirmed Christine Peterson, associate media director at Carat Fusion.

Some insiders say the IAB and its publisher members have more in mind in pushing for audits than mere transparency for the sake of industry growth. Because some publishers resent the fact that they are compelled to pay for third-party reporting they believe undermines their own numbers, some say publishers may be hoping for NetRatings and ComScore to be discredited. This, in turn, could establish more credibility for publisher-side reporting, some believe.

However, one media agency insider, who asked to remain anonymous, thinks exposure of the NetRatings or ComScore innards may backfire. If advertiser trust in these large two measurement firms erodes as a result of audits, their trust in online advertising could weaken, dampening enthusiasm towards Internet spending.

“We need to be concerned whether we’re shooting ourselves as an industry in the foot,” said the source.

If the audits do occur, they may not have a major impact, said Stephen DiMarco, VP and CMO of Compete, a market research firm that tracks the online behavior of two million consumers in its panel. “Is this going to have the impact of a [Sarbanes-Oxley]? That sounds like a stretch,” he said, adding, “If it makes marketers more comfortable spending more of their ad dollars online then it’s a good outcome.”