Interview of Bob Neil
(May 23, 2008)
BN – Bob Neil, CEO of Cox Radio
CM – Carl Marcucci of RBR & TVBR
JM – Jack Messmer of RBR & TVBR
JM: This is Jack Messmer from Radio and Television Business Report, along with Carl Marcucci, and we’re speaking today with Bob Neil, the CEO of Cox Radio. And Bob your company and Inner City recently launched an ad campaign calling on the radio industry to urge Arbitron to put the PPM Rollout on hold until it gets Media Rating Council cccreditation in at least one more market. So the question first off is, why the timing? Why do you think this is critical now?
BN: Well Jack, I think it’s critical now because we’re coming up to a decision point in mid-June. Arbitron has to make a decision on whether or not they’re going to continue to rollout and we just felt this was a good time to try and make our case on why MRC accreditation was important. The fact that they failed the test once already in Philadelphia is not a good sign and, in our view, the fact that they are not moving along at a very rapid pace to get this taken care of. We just think for the trust in the currency that we need to have that checkmark that says the science of PPM is correct.
JM: Now, in the monthly Arbitron PPM Conference call with clients, Dan Mason from CBS took an opposing view and his rebuttal was that MRC accreditation is not what makes PPM or any other rating system a currency and he doesn’t think that it’s necessary to have the accreditation before going ahead with the rollout and using PPM as currency in more markets. Why is that so important to you and why do you differ with him on whether the MRC accreditation is vital for making it valid as a currency?
BN: Well, first of all, remember that before Houston was brought online as a currency Arbitron promised that they would get accreditation there. This isn’t just a minor change, this is a complete change in the way that radio is measured, sold and bought. It’s not a minor change. It was important enough for Arbitron to make sure that Houston was accredited. So what happened was they changed the system that they use primarily in the sampling regime from the Houston system to what they want to use in Philadelphia and beyond. They started the accreditation process and MRC basically told them you failed. We don’t accept this as good science. I think you have to take the events and look at them in totality in terms of how all of this has rolled out. It was important enough to Arbitron to do it at the very first market that they wanted to commercialize. So now they are saying that the biggest markets in America, the most rich media markets in America that that isn’t important anymore? We just disagree with that. We think that given the track record of Arbitron since Philadelphia’s launch – the poor sampling, the problems that we’ve had it’s just one right after another, leaving stations out of reports, but what scares us is they are not really ready to do this, that they’re in over their heads and if they’re in over their heads on something as simple as leaving stations out of a report, then that just scares us to death about what’s really going on in the sampling in the Philadelphia-style markets and beyond. We think if you take this picture as a whole and don’t just look at it as a snapshot, then what you see is Arbitron has had problems and we think the industry needs that comfort of knowing that the science has been verified before they roll out this new system.
JM: Do you feel that you’re standing pretty much alone on this or not?
BN: No. not at all, there are a number of other groups that believe this. In our industry we have different types of people and some people prefer to go to Arbitron in the background and talk to them about this. Some people prefer to be more vocal about it and Charles [Warfield of Inner City] and myself decided that we would rather be more vocal about it.
JM: The other point that Dan Mason had made was about his company using a number of other audience research tools that are not MRC accredited and that your company does also, so why not PPM without accreditation?
BN: Well Arbitron is the main currency for buying and selling. The reality is that tools like Media Audit and Scarborough, I call them add-ons, in other words they are used for qualitative information primarily and they base against an index against what you see in the Arbitron book. For example Scarborough will show you an index in some category and then you can index against the Arbitron numbers. The reality here is that if you go to an advertising buyer they don’t place an advertising buy off of Scarborough or Media Audit. They place the buy off of Arbitron. Arbitron is the primary currency and as the primary currency you need to have trust in that. For example, which would you rather have? Would you rather have the United States currency backed by the United States Government or would you rather have the United States Currency backed by McDonalds? Nothing against McDonalds here, but the point is you need that trust in the currency and Media Audit and Scarborough are not the currency that is used to buy and sell radio time.
JM: There is one PPM market that is accredited and its Houston, and you were in that market, so why isn’t that enough?
BN: I don’t think I understand the question Jack.
JM: Why isn’t having that market accredited enough to allay your concerns about the science?
BN: Okay. As I said earlier, there’s a completely different system that they use between Houston and Philadelphia and beyond. So when they draw the sample in Houston – I’m going to try to explain this in terms that are as easy to understand as possible. The way that they recruit that sample is, I would call it a door-to-door. We recruit the sample that way. In Philadelphia and beyond it’s a telephone sample. I think you don’t have to be a rocket scientist, if you know that Houston is accredited and you know that Philadelphia has failed, not just hasn’t gotten there but has failed, then logic would tell you there is something different between those two systems and the way that the sample is put together. It would tell you that maybe there is something wrong with that and that’s why Philadelphia and beyond can’t get accredited. If Philadelphia can’t get accredited with that new system, that’s trouble for all of the rest of the markets because Arbitron plans on using that Philadelphia system going forward, not the Houston system.
CM: I had spoken to a couple of agency people and really there were two main questions that they wanted me to pose to you. The thing that’s interesting is that some of the agency community is voicing the same concerns that you’re voicing, which is kind of unusual in this game. So you’re both concerned about a couple things, but from their perspective they would like me to ask you what would it take really in a perfect world for you to be happy with PPM? What would you like to see happen as far as SPI and panel and methodology? They were really asking for some specific benchmarks that you would like to see before you’d be comfortable with PPM. Obviously one is accreditation from MRC. What would be some of the other things?
BN: I think when we look at the indexing and the sample sizes in individual demos, I think that’s an area where Arbitron needs to get more realistic. They arbitrarily set these benchmarks that they keep touting. Those benchmarks are not set by the industry they were not set by the Arbitron Advisory Council in fact, the Council asked for much more and Arbitron came back and said no we’re not going to do that. This is the best we’ll do take it or leave it. They’ve sent these benchmarks very, very, very low and when you look at the individual demos let me give you an example. In Long Island in the pre-currency information we cannot run a report on 18 to 24 year-old women for our Top 40 station because the sample is too small. Now Nassau-Suffolk is a Top 20 market. When PPM starts making its way down into the smaller market sizes those sample sizes are going to be even smaller so running individual demos – and look 18 to 24 is a pretty important demographic for Top 40 and Rock stations – and the fact that you couldn’t even run a report on that just is not acceptable. Arbitron’s proposed solution to that is that they lower the threshold in the software from a sample size of 30 down, they proposed a sample size of 10 to run a report.
CM: That is statistically almost insignificant, right?
BN: I mean that is insane in a market of millions of people you’re going to base an advertising buy decision or worse yet programming decisions on ten panelists? That’s just insane.
CM: What do you think is an acceptable SPI? I mean you could say maybe a household number or you could even say a persons number, but what do you think they need to at least hit to be reliable?
BN: I think in the individual cells and the individual cells are important – they can’t just take a number like six plus and say well you know we’re hitting this because, as I pointed out, if you look at the diary markets the 55-plus sample is being padded so they don’t have to pay any rebates. You can look over the last four or five years in any of those markets and you’ll see the raw number sample for 55-plus increasing and the raw sample number for 18 to 54 decreasing and hitting historic lows. I think the target in the individual cells should be 85%. I think that’s a very reasonable number, it’s not easy but for all of us to have some comfort that’s the kind of number that we should be looking at and the Advisory Council and a number of other broadcasters also said to them we don’t want six to eleven year-olds they’re not useful to us, so just take that sample and put it back in to 18 to 54 year-olds so we can bring the sample numbers up. Arbitron’s response to that is oh well our software was written for six to eleven year-olds and it’s like well then we don’t care if the pages are printed blank, you know, keep using the same software, but give a sample in the demos that are most important to buying.
CM: Now you made it clear that you in the past you are a believer in PPM, you just want it to be done right and obviously the biggest reason for industry questioning PPM is the sample size and getting enough people to carry the PPM, simply put. Do you have any ideas or suggestions that could bring up that sample size, especially with the younger demos that half of them don’t even know what a radio is anymore? I mean what can Arbitron do within an acceptable cost range to improve the carry rates, the sample size the people using these PPMs?
BN: Well, I would tell you I’m not a research scientist, so anything that I say has to be taken in that context. What I think happened here, and it’s a bit sad, is that PPM did not develop the way that Arbitron thought that it would. They thought they were going to have a partnership with Nielsen in every market that would also measure television and I think they foresaw that that’s the way this product was going to roll out. So when they started to do the testing and the calculations, I think they just underestimated the cost of actually doing this the way that it needed to be done. They are in a situation right now where they’ve priced the product and they’re finding out that this is going to be more costly than they thought. That’s a little scary given that they had five years to test this. To be really honest that’s their problem, they have to deliver a quality product to broadcasters and to agencies. That’s what we pay them to do. They’ve had a lot of experience over the years in dealing with this, but I really think – and I certainly don’t have any problem with folks trying to make more money, okay – but if you make more money at the cost of the trust that people have in your company to produce this data that leads to Pulse, that leads to Hooper, that leads to you being out of business, I think, at some point. The way to solve this problem, they could solve this problem tomorrow if they wanted to, they could just say well we’re going to use the Houston sampling regime, that’s accredited, we’re just going to use that in all the markets that we roll forward. When you ask them why they don’t do that they just look at you and say well that’s too expensive. Well wait a minute that’s what you sold us on, that’s the system that’s accredited, that you trumpeted that was going to be accredited. It was going to be wonderful and now it’s too expensive?
CM: Would you be willing to pay more for it? Would the industry be willing to pay the extra, because obviously Arbitron is not going to do that regime at a loss every year. They’re going to have to pass that added cost on. Would you be willing to pay a little bit more – I’m not going to say a significantly – more but let’s just say a bit more to get the product the way you want? Because it sounds like that’s an easy answer.
BN: Well look Arbitron was very closed during the [Clear Channel-led] RFP process when we said you know maybe what we need to do here is we need to understand what the costs of electronic measurement are. You want us to pay – in reality that 65% number that’s floated around but it’s more like 85 to 100% more for less sample and other things. We need you to explain to us why that makes sense from a business standpoint and of course they weren’t willing to do that. So here’s the deal though let’s think about it in terms of another industry. The airline industry would not sacrifice the safety of it’s customers for its profit margin because if they did it would be pretty obvious at some point after several plane crashes okay that people weren’t going to fly their airplane anymore because they didn’t believe the airline was safe. That’s a cost of doing business. Yes I could do things that would bring my profit margin up and bring my safety factor down. Arbitron’s responsibility as a business is to produce the product for their customers that they said they were going to produce and if their profit margins get hit in the short term I can assure you they’re making a lot of money even if they went to the Houston sampling regime. But it’s a question of often times in any company just, you know, what’s your threshold for how much money you want to make and how does that balance out with the product that you want to deliver? In my view we bought into a product that was supposed to have been tested for five years, that was vetted that they said was ready to go, and it isn’t. So that’s their problem, fix it, get it to that point and then as we come back around and continue to work on this, because nothing is perfect, than we can make those decisions later on about what are we willing to do as an industry if we need to do more things to make it better, but right now just deliver what you said you were going to deliver.
CM: Sounds to me like it’s as simple as Houston. I know that we. That’s a point to me that the industry can start from. Where you would be comfortable I think obviously the MRC would be comfortable if we moved that regimen over to other markets. The agencies would obviously be happy with that, so maybe the key really is to start with Houston and start over and see if we can move that to other markets.
JM: That’s certainly not the course that Arbitron is currently talking about taking, because they are gearing up to restart in the Fall with the rollout and they are satisfied that they have everything working, so I guess the question is, Bob Neil you already have a contract, so at this point it seems very likely that you would be paying for the service on Long Island as you already are in Houston – so why did you sign the contract in the first place if you had such reservations about the PPM rollout?
BN: Well, again, you have to look at the process on a timeline and you have to look at the process in totality. When we signed our contract we didn’t know too much about the new sampling regime, all we really knew about was Houston. The more that we found out about Philadelphia, the more fear we have about that system because, as I said, over the last even six months since the rollout was stopped there continues to be problem after problem after problem. I think that’s the main point – is number one, we didn’t really understand what was going on with the new sampling system. As far as Houston was concerned, we had issues that we felt we would be better off working on from within the process than from without the process. I think I said this recently on our corporate earnings call when somebody asked about it. It just isn’t much of a track record of anybody boycotting a rating system very successfully. From the standpoint, of if it has been agreed in Houston that this is pretty much going to be the currency and the major broadcasters in Houston really had coalesced around that idea and to have one person or one group say well we’re just not going to subscribe in Houston, that hasn’t been a very successful situation. Oddly enough we were talking about Dan Mason earlier I remember when he was working at Cook Inlet, remember Cook Inlet stopped subscribing to Arbitron in all of their markets for – it wasn’t very long I want to say six months or a year although I’m not positive on the timeline – and that just didn’t turn out to be very good for him. I think when you combine the fact that we didn’t really know what was going to happen with the new sampling system and we felt that we’d better off to work from within on Houston, that’s why we signed our deal.
JM: You mentioned your conference call, your company is a public company, Arbitron is a public company. You’ve expressed some concerns about how Arbitron has tied the compensation of its executives to the PPM rollout. Why do you object to that?
BN: I just have a feeling that that’s not the right kind of message to send to your customers. The message that it sends is that the senior management team, to get their payouts, to get their bonus payouts, is incented to roll the PPM out whether it’s right or not. I didn’t see anything when I looked through the SEC documents that would have indicated that there was any kind of a payout for the data being right. It’s up to them to incent their executives anyway that they want to they certainly have the right to do that but I don’t and I still do feel that it’s not the right message to send to your customers.
JM: The people who are running Arbitron – do you think they know what they are doing? Do you have any objection to how they are running the company?
BN: I don’t have any problem with the people at Arbitron. I have lots of problems with the decisions some of them make. I’m really not privy to how those decisions are made, or who makes them, or what the process is for making them. My problem is with their decisions, not with their people.
JM: It’s been I guess several years now that you’ve raising questions publicly about PPM, before the Houston accreditation when you did finally sign a contract, and since with what’s been going on in the subsequent markets. If Arbitron wanted to shut-up Bob Neil, what would it take?
BN: I think they could do it in 24 hours by saying tomorrow we’re going to go to the Houston sampling system in Philadelphia and beyond and our minimum benchmark in the individual demos is 85%. If they did that, I’d say that’s great, I think that’s a terrific starting point and we would be for full speed ahead as fast as they could do that and roll that out in the new markets, we’d be all for that.
JM: And if that doesn’t happen, what do you see happening to the radio industry if the rollout resumes this Fall as planned?
BN: Well it has the potential to get pretty ugly. The reason for that is that the losers in the PPM world – losers because of bad sampling or whatever – will call in to clear focus to advertisers everywhere, this is not an accredited service, the sample sizes are ridiculous and the case of Hispanic and African American broadcasters that are going to take major hits with this methodology, they’re going to be, I would expect they are going to work as activists in their communities to say that this is bad for African American and Hispanic owned business and it’s just going to be a big mess, that’s what’s going to happen. Oddly enough Cox’s radio stations in Houston and Long Island do just fine under the PPM system. But the people that don’t do fine are going to have some real and, I think more importantly, they’re going to have legitimate grievances that are going to continue to be talked about and just like we’re seeing in Philadelphia right now – there are buyers that are not buying radio in Philadelphia because they are just so unsure of what’s going on. They know that there are problems with the sampling. They know there’s problem with the system so rather than try to sort all of that out they just say, Ahh, you know the heck with it, we’re not going to try to place radio there and mess with it until this all gets resolved. Now moving on to the richest radio media markets – New York, Los Angeles, Chicago – if this same kind of problem keeps coming up and I can assure you that it will, then the broadcasters that aren’t doing well will have no choice but to defensively position the currency as a bunch of bologna and that’s not good for our business.
JM: Do you have any more questions Carl?
CM: No I think that covered it well. That was well said.
JM: Well we’ll thank Bob Neil for joining us today and I’m sure we’ll hear from you again, Bob.
BN: Thanks guys.
RBR/TVBR note: To listen to the Neil interview scroll to our Media Center at RBR.com entitled: ‘How to make Bob Neil shut up’
