Steve Morris explains PPM delay decision


There may be blood in the water at Arbitron, as analysts drilled Arbitron CEO Steve Morris yesterday on the dilemma the radio medium is facing right now with PPM. As the news of Arbitron delaying the commercialization of its PPM radio ratings service in nine markets made headlines yesterday morning (11/27/07 RBR #230), Morris held a conference call to shed more light on the decision and answer questions. The general theme was focused on restoring confidence and trust, but as one analyst mentioned in the call "Now that blood is in the water," when six months comes and goes, will the broadcasters be even more united in killing PPM? A class action suit is possible, but unlikely, as the MRC will be the arbitrator before it could come to that.

"No one is more disappointed than me on making this decision, but it is consistent with Arbitron’s history of confidence with buyers and sellers in the radio industry," said Morris. "We have a long-term partnership with the radio industry and in the end, it’s all about confidence and trust."

Morris also explained that the whole process of moving to electronic has not been without problems, and that Nielsen’s LPM rollout process took about a year to work though. "We are encountering a convergence of issues from different constituencies. It has been apparent over the last few days that we should not open up new markets until we can get confidence in the [ones we are already rolling out]."

Indeed, it boils down to confidence, compliance and currency-the three C’s. Are we going to move forward in 2008 to develop this currency the radio medium needs? By slowing down and stopping the currency, are they sending a mixed signal to their investors-the PPM is not right?

And by being on hold, investor confidence dropped and the stock plunged (see related story). The overview, as Bear Stearns analyst Victor Miller stated, brings more questions than answers: "Will ARB wait until it gets MRC accreditation before continuing its roll-out? How will ARB bring its 55%/67% 25-54/18-24 demo indexes up in NYC substantially? Will ARB be willing to increase sample sizes? How will advertisers revert back to diaries in NYC? How do advertisers remove diary/PPM bias from their minds? Will ARB be able to roll-out Atlanta, Detroit and Washington, three of the U.S.’ most densely populated African-American markets, without delay? Does this set radio back relative to other media? Will this embolden ARB’s competitor, Media Audit, to develop its cell phone technology?"

The PPM panels will still be active in the nine delayed markets. "We’re working on the assumption that the resolution will take about six months to bring the panels under alignment, said Morris. "In the meantime, we’ll be keeping the diary panels active for nine months. Running diaries simultaneously with the PPM in those markets is the reason for lower financial projections."

Those lowered projections, he said, will cost Arbitron anywhere from 22-33% in 2008 revenue projections. It shouldn’t impact 2009 projections, however.
When asked about increased costs associated with the delays and work to improve sample sizes, response rates and ethnic compositions, Morris said there should be no additional fees levied upon broadcasters. "We don’t see a fundamental change…and over time, there will be cost savings in efficiency and automation with going electronic to offset any additional expenses [in getting it right]."

Another issue brought up in the call was whether broadcasters might have any cancellation clauses in their contracts for the delayed PPM rollout and associated problems. Morris claimed there were none, since the broadcasters will still get the ratings they’ve paid for.

Houston and Philadelphia remain accredited by the Media Rating Council (MRC), said Morris. "The data is still statistically valid." We wonder how that might be possible, considering they’ve admitted problems with PPM and delayed the rollout in nine markets-another mixed signal that’s tough to digest.

RBR/TVBR observation: What might all of this do to agencies’ and advertisers’ confidence in the medium now that the numbers and methodology are in question? Could this chaos (with no blame mentioned) be hurting the radio industry in the long run because of confidence issues?

As well, it’s our feeling that the radio stations were not properly prepared for the drama of these numbers. There have been issues with compliance in the past and the final numbers didn’t change that much. Broadcasters have bought themselves six more months with this, but bottom line, electronic measurement is going to give different numbers than diaries, for a variety of reasons. It is likely a more accurate measure, but the learning curve and transition curve is turning out to be longer than expected. Can it be fixed? We’ll see in six months.

In addition, we’re hearing, but couldn’t confirm, that the MRC was instrumental in moving Arbitron to the nine-market delay. Arbitron would not comment on the "particulars of the MRC process."