The whole enterprise hinges upon a system for determining value which first came into being not long after television did. The television business has changed rather quite a lot since then, but the basic formula for measuring the success of a show and what rates advertisers will pay has not. DVR is now accounted for, but the basic concept is the same.
How Stuff Works.com is a favorite of ours, and they have a handy primer on the topic here. That column is more about statistical methods. Here’s a very helpful TV ratings 101 with more industry-specific concepts. In television, when people are talking about ratings, they are talking about information collected and analyzed by the firm that has owned this sector from day one, Nielsen Media Research. The Nielsen system catches a lot of flack for not being very responsive or democratic, but Nielsen itself has to balance the competing interests of its constituents, the television networks and the advertisers who pay to advertise on them. The system isn’t very responsive or democratic, but that’s not really Nielsen’s fault.
Here’s a good criticism of the system by Andrea Segal in The Cornell Sun, writing on behalf of important demographic, college students. An excerpt which sums up the state of things well:
In the digital age, however, with more channels than we know what to do with, such a small sample can hardly be taken seriously as an accurate representation of the entire country’s viewing preferences.