| NETRATINGS INC ITEM 1A RISK FACTORS An investment in our company involves a high degree of risk |
| You should carefully consider the risks below, together with the other information contained in this report, before you make an investment decision with respect to our company |
| The risks described below are not the only ones facing our company |
| Additional risks not presently known to us or that we deem immaterial may also impair our business operations |
| Any of the following risks could (i) materially adversely affect our business, operating results and financial condition, (ii) cause the trading price of our common stock to decline and (iii) cause you to lose all or part of your investment |
| WE HAVE INCURRED LOSSES SINCE OUR INCEPTION AND WE MAY BE UNABLE TO ACHIEVE PROFITABILITY We incurred net losses of dlra25dtta1 million for the year ended December 31, 2003, dlra17dtta4 million for the year ended December 31, 2004 and dlra8dtta4 million for the year ended December 31, 2005 |
| As of December 31, 2005, our accumulated deficit was dlra145dtta3 million |
| We intend to continue to incur significant expenditures as our company grows and as we expand our portfolio of products and services |
| As a result, we will need to generate significant additional revenue to achieve and maintain profitability |
| We may not be able to achieve significant revenue growth in the future |
| Our operating results for future periods are subject to numerous uncertainties and we may not achieve sufficient revenue to become profitable |
| Accordingly, we are still in the early stages of development and have only a limited operating history upon which to evaluate our business |
| One should evaluate our likelihood of financial and operational success in light of the risks, uncertainties, expenses, delays and difficulties associated with an early-stage business in an evolving market, some of which may be beyond our control, including: • the risk that a competing company’s Internet audience measurement service will become the accepted standard in the marketplace; • the extent of the global growth in the Internet media research and market research markets; • the potential inability to successfully manage any significant growth we may achieve in the future; • the potential inability to successfully integrate any acquired business, technology or service; and • the risks associated with operating a business in numerous international markets |
| 10 ______________________________________________________________________ IF OUR NEW PRODUCTS OR SERVICES DO NOT GENERATE THE REVENUES THAT WE ANTICIPATE, OUR FINANCIAL RESULTS WILL SUFFER During the past few years, we launched a number of new products and services that we believe will generate interest in the marketplace and result in increased revenues in the coming years |
| Our financial results during 2005 and beyond will depend in part on the success of these new product initiatives and our ability to generate meaningful revenues from them |
| If we fail in our efforts to market and sell these new products and services, our financial results will be negatively affected |
| Furthermore, we believe that our new products and services fill gaps in our product portfolio and that the introduction of new products will not result in decreased sales of our existing products |
| If we are mistaken in our view of the marketplace, and the introduction of these new products results in decreased sales of our existing portfolio, then our financial results will also be negatively affected |
| OUR QUARTERLY REVENUES MAY FLUCTUATE SIGNIFICANTLY AND BECAUSE OUR EXPENSE LEVELS ARE BASED IN LARGE PART ON OUR ESTIMATES OF FUTURE REVENUES, AN UNEXPECTED SHORTFALL IN REVENUE WOULD SIGNIFICANTLY HARM OUR OPERATING RESULTS Due to the evolving nature of our business and the markets in which we compete, our future revenue is difficult to forecast |
| Further, our expense levels are based largely on our investment plans and estimates of future revenue |
| We may be unable to adjust our spending to compensate for an unexpected shortfall in revenue |
| Accordingly, any significant shortfall in revenue relative to our planned expenditures in a particular quarter would harm our results of operations and could lead our stock price to fall sharply, particularly following quarters in which our operating results fail to meet expectations |
| Factors that may cause fluctuations in our revenues or operating results on a quarterly basis include the following, some of which are beyond our control: • the amount and timing of operating costs and capital expenditures related to the expansion of our business; • the amount and timing of costs related to changes in the size or composition of our panels, particularly as a result of turnover among panel members; • the impact on our renewal rates caused by our customers’ budgetary constraints or a perceived lack of need for our services; • changes in demand for our products and services due to the announcement or introduction of new products and services or the cancellation of existing products and services by us or our competitors; • changes in the pricing of our products and services in light of the services and pricing offered by our competitors; • the impact of possible acquisitions or equity investments both on our operations and on our reported operating results due to associated accounting charges; and • technical difficulties or service interruptions that significantly harm our ability to deliver our products and services on schedule |
| WE HAVE LIMITED ABILITY TO FORECAST THE RATE AT WHICH SUBSCRIPTIONS FOR OUR SERVICES MAY BE RENEWED, AND WE MAY NOT ACHIEVE SUFFICIENTLY-HIGH RENEWAL RATES TO BECOME PROFITABLE We derive a large percentage of our revenue from annual subscriptions for our services |
| As our business becomes more established, we expect subscription renewals and sales of additional products and services to existing customers to account for an increasing proportion of our revenue |
| Any unexpectedly low renewal rates or a reduction in the number of products and services that we are able to sell to existing customers would harm our operating results and could prevent us from becoming profitable |
| To date, renewals have been an essential element of our revenue growth |
| We cannot assure you that we will be able to achieve or sustain high renewal rates, particularly during an economic downturn |
| Additionally, because many Internet-related businesses are still in the early stages of development, consolidations in our customer base or the failure of a significant number of our customers’ businesses could cause a decline in renewal rates for our products and services |
| 11 ______________________________________________________________________ IF THE INTERNET ADVERTISING AND ELECTRONIC COMMERCE MARKETS DEVELOP SLOWER THAN WE EXPECT, OUR BUSINESS WILL SUFFER Our future success will depend on the continued increase in the use of the Internet as an advertising medium, the proliferation of e-commerce and the use of the Internet as part of multi-channel marketing strategies |
| These markets and marketing techniques are fairly new and rapidly evolving, and it is not certain that the current growth trends will continue throughout the world |
| The adoption of Internet advertising, particularly by entities that have historically relied on traditional media for advertising, requires the acceptance of a new way of conducting business |
| These companies may find Internet advertising to be less effective than traditional advertising for promoting their products and services |
| They may also be unwilling to pay premium rates for advertising that is targeted at specific types of users based on demographic profiles or recent Internet behavior |
| The Internet advertising and e-commerce markets may also be adversely affected by privacy issues surrounding the targeting of this type of advertising or the use of personal information |
| Providers of goods and services online continue to work toward the establishment of commerce models that are cost effective and unique, and effectively deal with issues such as channel conflict and infrastructure costs |
| Growth in the use of the Internet for e-commerce may not continue at a rapid rate, or the Internet may not be adopted as a medium of commerce by a broad base of customers worldwide |
| Because of the foregoing factors, among others, the market for Internet advertising and e-commerce may not continue to grow at significant rates |
| If these markets fail to develop or develop slower than we expect, our business will suffer |
| THE MARKET FOR INTERNET AUDIENCE MEASUREMENT AND ANALYSIS IS HIGHLY COMPETITIVE, AND IF WE CANNOT COMPETE EFFECTIVELY, OUR REVENUES WILL DECLINE The market for Internet audience measurement and analysis is rapidly evolving and highly competitive |
| We compete with a number of companies in the market for Internet audience measurement services and analytical services, and we expect competition in this market to intensify in the future |
| We believe that the principal competitive factors in our market are: • the ability to provide high-quality, accurate and reliable data regarding Internet audience behavior and activity in a timely manner; • the breadth and depth of the product and services offered and their flexibility and ease of use; • the availability of data across various geographic areas; • the ability to offer high-quality analytical services based on the Internet audience measurement information; • the ability to offer products and services that meet the changing needs of our customers; and • the prices that are charged for the products and services, as well as the general economic conditions |
| Some of our competitors may be able to: • devote greater resources to marketing and promotional campaigns; • adopt more aggressive pricing policies; or • devote more resources to technology and systems development |
| In light of these factors, we may be unable to compete successfully in our market |
| IF WE FAIL TO SUCCESSFULLY CLOSE AND INTEGRATE ACQUISITIONS, OUR BUSINESS WILL SUFFER We may continue to acquire or make investments in complementary businesses, technologies, services or products if appropriate opportunities arise |
| Negotiating such acquisitions can be difficult, time consuming and expensive and our ability 12 ______________________________________________________________________ to close such transactions may often be subject to approvals, such as governmental regulation, which are beyond our control |
| Consequently, we can make no assurances that such acquisitions, once undertaken and announced, will close |
| Further, the process of integrating any acquired business, technology, service or product into our business may result in unforeseen operating difficulties and expenditures |
| Integration of an acquired company may also consume significant management time and attention that would otherwise be available for the ongoing development of our business |
| Moreover, the anticipated benefits of any acquisition may not be realized |
| We may be unable to identify, negotiate or finance future acquisitions or investments successfully, or to integrate successfully any acquisitions with our current business |
| Future acquisitions could result in potentially dilutive issuances of equity securities or the incurrence of debt, contingent liabilities or amortization expenses related to intangible assets, any of which could harm our business |
| VNU NV, THROUGH ITS WHOLLY-OWNED SUBSIDIARIES NIELSEN MEDIA RESEARCH AND ACNIELSEN, CONTROLS A MAJORITY OF OUR OUTSTANDING STOCK AND ITS REPRESENTATIVES CONSTITUTE A MAJORITY OF OUR BOARD OF DIRECTORS VNU, NV, through its wholly-owned subsidiaries Nielsen Media Research and ACNielsen, has a majority stock ownership position in NetRatings, which enables it to control the direction and policies of NetRatings, including the election of our board of directors, amendment of our certificate of incorporation, and decisions regarding mergers, acquisitions, consolidations and the sale of all or substantially all of our assets |
| This control may have the effect of discouraging certain types of transactions involving a change of control |
| In addition, VNU can control or influence the terms of our important commercial transactions, including our strategic relationships with Nielsen Media Research and ACNielsen |
| VNU’s representatives on our board are expected to recuse themselves from deliberations in which they have a conflict of interest |
| However, these directors may take actions that favor VNU’s interests over the interests of other stockholders, as a result, for instance, of conflicts of interest that are not apparent at the time of such actions |
| On March 8, 2006, VNU announced that it had reached an agreement with a consortium of private equity firms on a public offer for VNU’s outstanding shares |
| Assuming this transaction is completed, it is possible that the new owners of VNU will adopt a new strategy for our company or make different decisions regarding our direction and policies |
| For example, we cannot assure you, among other things, that VNU will continue to (i) own a majority stake in our company, (ii) provide various services to us and/or (iii) offer us the opportunity to develop joint products with other VNU entities, particularly Nielsen Media Research and ACNielsen |
| Likewise, it is also possible that the new owners of VNU will make different decisions with respect to our product investments, international expansion, use of our cash and other operating decisions |
| WE ARE DEPENDENT ON NIELSEN MEDIA RESEARCH AND ACNIELSEN FOR VARIOUS SERVICES RELATED TO OUR DOMESTIC AND INTERNATIONAL OPERATIONS Our NetView Internet audience measurement panel in the United States has been developed and is maintained by Nielsen Media Research as part of our strategic relationship with that company |
| In addition, ACNielsen has granted us a license to use ACNielsen’s sampling methodology and the “Nielsen” name outside North America in the Internet audience measurement business |
| Accordingly, for a significant period of time, we expect that our business will be substantially dependent upon these arrangements for the continued maintenance of our international Internet audience measurement panels and for other international business operations |
| Any failure on the part of Nielsen Media Research to devote adequate resources to the development or maintenance of such panels, or any failure on the part of Nielsen Media Research, ACNielsen or our other business partners to maintain the overall quality of these methodologies or to develop alternative sampling methodologies, will harm our business |
| In addition, Nielsen Media Research may terminate its obligations with respect to Internet audience measurement panels in the event it no longer holds at least 5prca of our outstanding stock on a fully-diluted basis |
| As noted above, in the event that VNU is sold to a consortium of private equity firms, it is possible that the new owners of VNU will make decisions that impact our ability to rely on VNU entities for some or all of the services that we currently obtain from them |
| OUR BRAND IS DEPENDENT ON THE REPUTATIONS OF THIRD PARTIES OVER WHICH WE HAVE NO CONTROL The strength of the Nielsen//NetRatings brand is also closely dependent on the reputations of Nielsen Media Research, ACNielsen and other business partners and the strength of their brands |
| Therefore, any negative publicity generated by Nielsen Media Research, ACNielsen or our other business partners, whether or not directly related to any Nielsen//NetRatings branded products or services, as well as any erosion of the strength of any of their brands, will adversely affect our own brand identity |
| WE MAY NOT BE SUCCESSFUL IN THE DEVELOPMENT OR INTRODUCTION OF NEW PRODUCTS AND SERVICES TO KEEP UP WITH THE PROLIFERATION OF ALTERNATIVE INTERNET ACCESS DEVICES AND TECHNOLOGIES RELATED TO THE EXPECTED CONVERGENCE OF THE INTERNET AND TELEVISION We believe that an increasing proportion of Internet use will involve alternative Internet access devices such as Web-enabled phones, television set-top boxes and Internet enabled gaming consoles and that there will eventually be a convergence of Internet content and television programming |
| Accordingly, in order to continue to provide information about 13 ______________________________________________________________________ audience behavior throughout all major segments of the Internet, we will be required to develop new products and services that address these evolving technologies |
| We may be unsuccessful in identifying new product and service opportunities or in developing or marketing new products and services in a timely or cost-effective manner |
| In addition, product innovations may not achieve the market penetration or price stability necessary for profitability |
| Finally, we may not be successful in adapting our data collection software to evolving types of Internet access devices or content |
| If we are unable to provide audience measurement information regarding any significant segments of Internet use, demand for our products and services may suffer |
| THE AUDIENCE MEASUREMENT SERVICES OFFERED BY NIELSEN MEDIA RESEARCH OR ACNIELSEN MAY EVENTUALLY HAVE FEATURES THAT OVERLAP WITH FEATURES OF OUR INTERNET AUDIENCE MEASUREMENT SERVICES AS A RESULT OF CONVERGENCE OF TELEVISION AND THE INTERNET Nielsen Media Research’s principal business consists of providing television audience measurement services based on audience panels that it develops independent of its strategic relationship with us |
| ACNielsen also derives a substantial portion of its revenue from television audience measurement services outside of the United States |
| If television and the Internet converge in the future as expected, any Internet audience information that is reported by television audience measurement services through these VNU subsidiaries may overlap with the audience information that is reported by the Nielsen//NetRatings Internet audience measurement services |
| In the event of such overlap, VNU’s services could begin competing with our services for the same research budgets among customers in the marketplace, and its offering of such services could conflict with its obligation to develop and maintain our Internet audience panels |
| OUR COSTS TO DEVELOP AND MAINTAIN ACCURATE INTERNET AUDIENCE MEASUREMENT PANELS, INCLUDING PANELS FOR OUR MEGAPANEL SERVICE, ARE SIGNIFICANT AND MAY INCREASE We believe that the quality, size and scope of our panels are critical to the success of our business |
| To date, the expense of recruiting and operating our audience measurement panels has made up a very significant portion of the cost of revenue reported on our financial statements and, therefore, any increase in this expense will likely result in a decrease in our gross margin |
| The costs associated with maintaining the quality, size and scope are dependent on many factors some of which are beyond our control, including the cooperation rate of potential panel members and turnover among existing panel members, and accordingly we cannot necessarily control these costs to match increases or decreases in revenue |
| To the extent that such additional expenses are not accompanied by increased revenue, our results of operations will be harmed |
| Recruiting panelists for our MegaPanel service in Europe and the United States has also required significant investment and there can be no assurance that we will be able to achieve or maintain panels of sufficient size to meet client demand |
| We have limited experience in developing Internet audience measurement panels, and we could experience lower cooperation rates or higher turnover rates in the future |
| OUR INTERNATIONAL OPERATIONS POSE UNIQUE RISKS THAT MAY DIVERT OUR MANAGEMENT’S ATTENTION AND RESOURCES As a result of our acquisitions in the past few years, we offer our products and services in numerous countries around the world |
| Our international markets will require significant management attention and resources |
| In addition, there can be no assurance of the continued growth of Internet usage and electronic commerce in international markets |
| The international markets for audience measurement services have historically been localized and difficult to penetrate, and the governmental authorities in each country have different views regarding the regulatory oversight of the Internet |
| For example, the Chinese government has recently taken steps to restrict the content available to Web users in China, and this has caused us to forecast slower growth in our business there |
| The success of our international operations will depend on our ability to: • effectively select the appropriate countries to serve; • recruit and maintain panels that are representative of a geographic area; • control costs and effectively manage foreign operations; and • effectively develop, market, and sell new products and services in new, unfamiliar markets |
| Even if we are successful in managing our international operations, we will be subject to a number of risks inherent in engaging in international operations, including: • changes in regulatory requirements; 14 ______________________________________________________________________ • deficiencies in the telecommunications infrastructure in some countries; • reduced protection for intellectual property rights in some countries; • more rigorous levels of privacy protection in some countries; • potentially adverse tax consequences; • economic and political instability; and • fluctuations in currency exchange rates |
| OUR BUSINESS MAY BE HARMED IF WE SUPPLY INACCURATE INFORMATION TO OUR CUSTOMERS If we furnish inaccurate information to our customers, our brand may be harmed |
| The information that we collect and information in our databases may contain inaccuracies that our customers may not accept |
| Any dissatisfaction by our customers with our measurement or collection methodologies or databases could have an adverse effect on our ability to attract new customers and retain existing customers and could ultimately harm our brand |
| Our customer contracts generally provide that each customer must indemnify us for any damages arising from the misuse of data, reports or analyses by the customer |
| However, we cannot be certain that our contract provisions provide sufficient protection and, in any event, enforcing these protections could be very costly |
| Any liability that we incur or any harm to our brand that we suffer because of irregularities or inaccuracies in the data we supply to our customers could harm our business |
| CONCERN OVER SPYWARE COULD IMPAIR OUR ABILITY TO RECRUIT PANELISTS OR MAINTAIN PANELS OF SUFFICIENT SIZE TO MEET CLIENT DEMAND, WHICH IN TURN COULD MATERIALLY ADVERSELY AFFECT OUR ABILITY TO PROVIDE OUR PRODUCTS AND SERVICES Public concern has increased recently regarding certain kinds of downloadable software known as “spyware” and “adware |
| ” These types of programs are often installed on a computer without the consent of the user or without the user’s full understanding while navigating the Internet |
| Concern over spyware and adware might cause users to be less inclined to download legitimate software from the Internet, including our proprietary metering technology, which could make it difficult to recruit additional panelists or maintain panels of sufficient size to meet client demand |
| While our technology is not spyware, some of these anti-spyware programs have identified our software as spyware or as a potential spyware application |
| We actively seek to persuade the authors of these anti-spyware programs that our software should not be included on their lists of spyware applications or potential spyware applications |
| However, to the extent that we are not successful, or to the extent that new anti-spyware programs classify our software as spyware or as a potential spyware application, our goodwill might be harmed and users of these programs might uninstall our software |
| Loss of goodwill or a decrease in the size of our panels could increase the cost of recruiting panelists and materially adversely affect our ability to provide our products and services to our clients, which in turn could cause our expected revenues to decline |
| TECHNOLOGICAL CHANGES MAY RESULT IN WIDESPREAD BLOCKING OR ERASING OF COOKIES, WHICH COULD REDUCE THE AMOUNT AND VALUE OF THE INFORMATION WE COLLECT AND ADVERSELY AFFECT OUR ABILITY TO PROVIDE OUR PRODUCTS AND SERVICES TO CLIENTS Our SiteCensus technology currently uses “cookies” and “action tags” to track the behavior of Internet users |
| Cookies are small files of information placed on an Internet user’s computer to collect information about the user’s visits to a Web site |
| An action tag, also known as “web beacon,” “pixel tag,” and “clear gif,” generally consists of a small string of invisible code that represents a graphic image request on a Web page that companies place on their Web sites to allow them to analyze the general usage patterns of visitors to their Web sites |
| Third-party software and our own technology and privacy policy make it easy for users to block or delete our cookies |
| Software programs, sometimes marketed as adware or spyware detectors, may block our cookies by default or prompt users to delete or block our cookies |
| If a large percentage of users delete or block our cookies, this could, among other things, reduce the amount and value of the information we collect, cause us to spend substantial money and time to change our technology, and adversely affect our ability to provide our SiteCensus service to our clients |
| 15 ______________________________________________________________________ Changes in Web browsers may also encourage users to block our cookies or impair our ability to use cookies and action tags for data collection purposes |
| Technologies like the Platform for Privacy Preferences (P3P) may also limit the collection of information from cookies and action tags |
| If these or other technological changes are implemented and we are unable to adapt our technology and practices adequately in response to these changes, then the value of our SiteCensus service will be substantially impaired |
| PRIVACY CONCERNS COULD LEAD TO LEGISLATIVE, REGULATORY AND OTHER LIMITATIONS THAT COULD AFFECT OUR ABILITY TO COLLECT AND USE INFORMATION ABOUT INTERNET USERS, IMPAIR OUR ABILITY TO PROVIDE OUR PRODUCTS AND SERVICES TO CLIENTS AND EXPOSE US TO LIABILITY Privacy concerns could lead to legislative, judicial and regulatory limitations on our ability to collect, maintain and use information about Internet users both in the United States and abroad |
| Restrictions could be placed upon the collection, management, aggregation and use of information, which could require significant engineering time and resources |
| Several states have enacted legislation designed to protect Internet users’ privacy by prohibiting certain kinds of downloadable software defined as “spyware |
| ” Similar legislation has been introduced in other states and the US Congress, including the Safeguard Against Privacy Invasions Act in the House of Representatives and the SPYBLOCK Act in the Senate |
| In addition, the European Union has adopted a directive requiring the disclosure of the use of cookies and instructions on their removal |
| It is possible that this legislation or future legislation intended to regulate spyware could affect our ability to collect information, which could prevent us from operating or distributing some of our products and services or which could require us to change our business practices |
| In addition, failure to comply with the law and regulatory requirements may result in, among other things, administrative enforcement actions and fines, class action lawsuits and civil and criminal liability |
| The occurrence of one or more of these events could materially harm our business, results of operation and financial condition |
| WE MAY NOT BE ABLE TO RECRUIT OR RETAIN QUALIFIED PERSONNEL Our future success depends in large part on our ability to attract, retain and motivate highly skilled employees in many locations around the world |
| Although we provide compensation packages that include competitive salaries, equity compensation, bonus incentives and other employee benefits, we may be unable to retain our key employees or to attract, assimilate and retain other highly qualified employees in the future |
| If we are unable to attract or retain key employees, our business would suffer |
| WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS We regard our intellectual property as critical to our success |
| We rely on patent, trademark, copyright and trade secret laws to protect our proprietary rights, and we seek to obtain the issuances of patents for our core technology and the registration of our material trademarks and service marks in the United States and in selected other countries |
| Our patent applications or trademark registrations may not be approved or, even if approved, could be challenged by others or invalidated through administrative process or litigation |
| In the first half of 2005, we decided to launch a program to enforce our intellectual property rights against various companies that compete against us in the Internet technology fields |
| As part of this program, we initiated patent infringement lawsuits in 2005 against five companies (Omniture, Inc, Coremetrics, Inc, SageMetrics, Corp, Sane Solutions, LLC and Visual Sciences, LLC) and also entered into licensing discussions with a few other companies |
| In February 2006, we initiated a patent infringement lawsuit against WebSideStory, Inc |
| Our lawsuit against Visual Sciences was settled in 2005, and our lawsuits against Omniture and SageMetrics were settled in 2006 |
| We cannot be sure that we will prevail in any of the remaining litigations, or any new lawsuits that we initiate, and any such lawsuits could result in a finding that our patents are invalid and divert resources from the operation of our business |
| We also cannot assure you that any other steps we take will be sufficient to protect our intellectual property from infringement or misappropriation |
| Moreover, effective intellectual property protections may not be available in every country in which we offer our products and services to the extent these protections are available in the United States |
| 16 ______________________________________________________________________ WE MAY FACE INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS THAT WOULD BE COSTLY TO RESOLVE OR MAY REQUIRE US TO MAKE CHANGES TO OUR TECHNOLOGY OR BUSINESS Third parties may, from time to time, assert claims that we have infringed upon their proprietary rights or that our own trademarks, patents or other intellectual property rights are invalid |
| In February 2006, WebSideStory, Inc |
| filed a patent infringement lawsuit against us in the United States District Court for the Southern District of California |
| While we believe this lawsuit is without merit, we cannot assure you that we will prevail in this litigation |
| Any claims of infringement and any resulting litigation, including the WebSideStory litigation, could subject us to significant liability for damages, restrict us from using our technology or from operating our business generally or require us to make changes to our technology |
| Any claims of this type, with or without merit, could be time-consuming to defend, result in additional expense and divert management attention and resources |
| In addition, such claims could result in limitations on our ability to use the intellectual property subject to these claims unless we are able to enter into royalty, licensing or other similar arrangements with the third parties asserting these claims |
| Such agreements, if required, may be unavailable on terms acceptable to us, or at all |
| If we are unable to enter into these types of agreements, we may be required to either cease offering the subject product or change our technology underlying the applicable product |
| If a successful claim of infringement is brought against us and we fail to develop non-infringing technology or to license the infringed or similar technology on a timely basis, it could materially adversely affect our business, financial condition and results of operations |
| SYSTEM FAILURES OR DELAYS IN THE OPERATION OF OUR COMPUTER AND COMMUNICATIONS SYSTEMS MAY HARM OUR BUSINESS Our success depends on the efficient and uninterrupted operation of our computer and communications systems |
| A failure of our network or data gathering procedures could impede the processing of data, the provision of our services and day-to-day management of our business and could result in the corruption or loss of data |
| The servers on which we collect and process our panel members’ data reside in Nielsen Media Research’s facilities in Oldsmar, Florida and at IBM Global Service facilities in Paris, France |
| We currently have a back-up data collection facility to provide redundant network capacity in the event of a system failure |
| However, this back-up facility only has the capacity to collect our Internet audience data, not process it |
| Accordingly, our ability to report Internet audience data in real time is dependent upon the efficient and uninterrupted operation of Nielsen Media Research’s and IBM Global Service’s computer and communications hardware and software systems |
| Despite any precautions we may take, damage from fire, floods, hurricanes, power loss, telecommunications failures, computer viruses, break-ins and similar events at these data centers could result in interruptions in the flow of data to our servers |
| In addition, any failure by these data centers to provide our required data communications capacity could result in interruptions in our service |
| In the event that any of these data centers should discontinue its services to us, we would be required to transfer our data collection operations to an alternative provider of server hosting services |
| Such a transfer could be costly and result in significant delays in our ability to deliver our products and services to our customers, which could damage our reputation and harm our business |
| 17 ______________________________________________________________________ We intend to develop other back-up systems outside of our primary facilities |
| However, as we replicate our systems at other locations, we will face a number of technical challenges, particularly with respect to database replications, which we may not be able to address successfully |
| Although we carry property and business interruption insurance, our coverage may not be adequate to compensate us for all losses that may occur |
| ANY MISAPPROPRIATION OF PERSONAL INFORMATION ABOUT OUR PANELISTS THAT IS STORED ON OUR COMPUTERS COULD HARM OUR REPUTATION OR EXPOSE US TO CLAIMS ARISING FROM DAMAGES SUFFERED BY THOSE PANELISTS Personal information regarding our panelists is included in the data that our software captures from a panelist’s Internet use |
| Our panel data are released to our clients only on an anonymous basis |
| However, if a person were to penetrate our network security or otherwise misappropriate sensitive data about our panel members, our reputation could be harmed or we could be subject to claims or litigation arising from damages suffered by panel members as a result of such misappropriation |
| Under California SB 1386, companies that maintain data on California residents are required to inform individuals of any security breaches that result in their personal information being stolen |
| In the event that any personal information about our panelists residing in California was misappropriated, we could incur significant costs in complying with the disclosure requirements of California SB 1386 |
| In addition, any such disclosure could harm our reputation and result in a higher rate of panel attrition |
| GOVERNMENTAL REGULATION OF THE INTERNET MIGHT HARM OUR BUSINESS The applicability to the Internet of existing laws governing issues such as property ownership, libel and personal privacy is uncertain |
| In addition, governmental authorities in various countries may seek to further regulate the Internet with respect to issues such as user privacy, pornography, acceptable content, advertising, e-commerce, taxation and the pricing, characteristics and quality of products and services |
| For example, China has recently taken steps to require certain companies to restrict their search engine results and other content available to Web users in China |
| Therefore, any new legislation regulating the Internet could inhibit the growth of the Internet and decrease the acceptance of the Internet as a communications and commercial medium, which might harm our business |
| Finally, the global nature of the Internet could subject us to the laws of a foreign jurisdiction in an unpredictable manner |
| LEGISLATIVE ACTIONS REGULATORY REQUIREMENTS APPLICABLE TO PUBLIC REGISTRANTS MAY CAUSE OUR GENERAL AND ADMINISTRATIVE EXPENSES TO INCREASE AND MAY IMPACT OUR RESULTS OF OPERATIONS In order to comply with the Sarbanes-Oxley Act of 2002, as well as changes to Nasdaq listing standards and rules adopted by the Securities and Exchange Commission, we were required to enhance our internal controls and hire additional finance personnel and to retain additional outside legal, accounting and advisory services, all of which have caused our general and administrative costs to increase |
| For example, we have hired outside consultants to assist us with our compliance with Section 404 of the Sarbanes-Oxley Act of 2002, and this has resulted in additional general and administrative expenses during 2004 and 2005 |
| Recent changes in the accounting rules, in particular the rules relating to accounting for employee stock options, have increased the expenses that we report under generally accepted accounting principles and adversely affect our operating results |
| Additional changes in the accounting rules could cause our financial results to be negatively impacted |
| A SALE BY VNU OF ITS STAKE IN NETRATINGS COULD ADVERSELY AFFECT OUR STOCK PRICE There are no contractual restrictions on the ability of VNU, through its Nielsen Media Research or ACNielsen subsidiaries, to sell shares of our common stock, although sales in the public market will be subject to the volume limitations of SEC Rule 144 |
| Pursuant to these volume limitations, a controlling stockholder may sell shares under Rule 144 only if the shares to be sold, together with the shares sold during the past three months, do not exceed the greater of 1prca of the issuer’s outstanding shares or the average weekly trading volume of the issuer’s shares during the preceding four calendar weeks |
| Nielsen Media Research, ACNielsen and several of our other stockholders have the right, under certain circumstances, to require us to register their stock for sale to the public, with the exception of the shares issued to ACNielsen in the acquisition of eRatings |
| Should VNU decide to sell its stake in NetRatings, it could adversely affect our stock price |
| Additionally, VNU will have the ability to transfer control of NetRatings, possibly at a premium over the then-current market price |
| Because VNU will have the ability to effect such a transfer of control unilaterally, other stockholders could be denied an opportunity to participate in the transaction and receive a premium for their shares |
| As stated above, VNU has announced that it has reached an agreement with a consortium of private equity firms on a public offer for VNU’s outstanding shares |
| Assuming this transaction is completed, we cannot assure you that the new owners of VNU will decide to retain its stake in NetRatings |
| 18 ______________________________________________________________________ DELAWARE LAW AND OUR CHARTER DOCUMENTS CONTAIN PROVISIONS THAT COULD DISCOURAGE OR PREVENT A POTENTIAL TAKEOVER OF OUR COMPANY THAT MIGHT OTHERWISE RESULT IN OUR STOCKHOLDERS RECEIVING A PREMIUM OVER THE MARKET PRICE OF THEIR SHARES Provisions of Delaware law and our certificate of incorporation and bylaws could make more difficult the acquisition of us by means of a tender offer, a proxy contest or otherwise, and the removal of incumbent officers and directors |
| These provisions include: • Section 203 of the Delaware General Corporation Law, which prohibits a merger with a 15prca-or-greater stockholder, such as a party that has completed a successful tender offer, until three years after that party became a 15prca-or-greater stockholder; • the authorization in the certificate of incorporation of undesignated preferred stock, which could be issued without stockholder approval in a manner designed to prevent or discourage a takeover; and • provisions in our bylaws eliminating stockholders’ rights to call a special meeting of stockholders and requiring advance notice of any stockholder nominations of director candidates or any stockholder proposal to be presented at an annual meeting, which could make it more difficult for stockholders to wage a proxy contest for control of our board or to vote to repeal any of the anti-takeover provisions contained in our certificate of incorporation and bylaws |