A Wake Up Call for Radio

Implications: The failure of the radio industry to deploy electronic measurement casts doubt on radio's growth.

Analysis: Last week Arbitron was forced to push back any additional roll out of its new People Meter Technology. This is a major setback for the radio industry and one that it can ill-afford at this time.

Radio revenues have been essentially flat for the last five years. What is happening to radio today is very similar to what happened to newspaper advertising over the past few years. Newspaper advertising was essentially flat until the last quarter of 2006. Thereafter, advertising revenues plummeted downward. In some cases as much as 15% to 20% of newspaper ad revenues have disappeared and moved to new media technologies. The radio industry’s failure to grasp this and quickly embrace the People Meter may result in its going the same direction.

Radio for too long has resisted the notion of electronic audience measurement. Going back to the days of Hooper Ratings, audience measurement was a function of people writing down what radio stations or programs they listen to. At various times companies such as Birch have tried measuring audience with telephone outreach. It has been largely agreed and at this point well-settled that the diary or telephone methodology of audience measurement does not accurately measure listeners.

Over the past several years, Arbitron has worked very hard to get the People Meter accredited by the independent Media Rating Council. It received an accreditation for Houston earlier this year and was on its way to receiving the same for Philadelphia in short-order, when the wheels fell off the bus.

While advertising agencies have been demanding that radio be more accountable for its actual reach for some time, the industry has dragged its feet for too long in moving in that direction. The ad agencies have been the one pushing the industry, rather than the industry pushing the agencies toward electronic measurement. All of this came to a head after the first month’s currency was delivered for the nation’s largest media market, New York.

As has been the case with measurement in Houston and Philadelphia, urban and Hispanic stations have suffered significant audience drops. Adult contemporary and contemporary hit radio stations have held their own or slightly risen. The urban and Hispanic broadcasters understandably have been extraordinarily upset by the drop in audience they have experienced. The question is whether that is the fault of the technology or whether it is a reality.

In the world of the Arbitron diary, distribution of diaries was over weighted to African-American and Hispanic diary keepers. This was done to ensure sufficient return of the diaries. In the PPM world, while there is some weighting, it is nowhere near the extent of that which had previously occurred with the diary distribution.

Everything came to a head following the distribution of the first month ratings currency for New York. Trade associations such as NABOB have gone out of their way to protest the PPM ratings, claiming that they discriminate against African-Americans and other minorities. So loud have they screamed, that the New York City Council got involved and now NABOB is asking Congress to investigate the PPM.

The result has been Arbitron delaying by six months any additional market rollouts of this new technology. This is a sad day for radio. It is sad for many reasons, but most of all it is sad for the industry because it has failed to grasp what this technology truly means for its longevity.

There is no question that getting accurate information from the younger and minority demos is vital for not only the radio industry, but for its advertisers. Arbitron has worked very hard to ensure compliance and has largely achieved that in Houston. Arbitron even went so far as to not charge its clients if it failed to deliver at least 90% of its demographic targets.

Perhaps the only mistake that Arbitron made was in its choice of markets to roll out the new technology. If rather than using New York so early on, it instead had chosen less diverse markets such as Seattle or Miami, fewer attacks could have been made against it. Unfortunately, that is not the case.

For radio to have any chance to maintain, much less grow its revenue base, it must have electronic measurement. Heads of the largest group broadcasters such as Bob Neil of Cox Radio, along with many of the other large groups have vociferously opposed PPM, claiming that Arbitron has not effectively perfected the technology.

Quite simply, this is a case of the industry putting its head in the sand. The necessity for electronic ratings is so strong that every major advertising agency in the country signed on to subscribe to PPM ratings before most of the largest broadcast groups. What that means is once again, the radio industry if failing to listen to its customers. Its customers are screaming for accountability. The industry is crying foul over accuracy of measurement.

The paradigm shift from diary keeping to PPM will cause a fundamental change in how radio is bought by advertisers. Radio will go from being a medium of frequency to being one of reach. Indeed in both Houston and Philadelphia, and in the early stage of New York activity, cumulative audiences grew sharply for many radio stations in each market, in some cases even doubling the reported diary number.

This will require a fundamental reeducation of radio sellers as well as radio buyers. There will necessarily have to be a one time reset into the evaluation of cost efficiency of radio buys. Radio will no longer be evaluated simply on a cost per rating point basis. After the one time reset, refocusing on reach, the playing field should be even.

In no way is to any of this to suggest that the people meter may not have some technological flaws. The MRC would not have given its seal of approval in Houston had Arbitron not met its minimum standards of performance. MRC accreditation was being withheld in Philadelphia and would have been continued to be withheld in New York until sample sizes and demographic distribution levels were reached.

Instead of radio embracing a new technology that will help stabilize if not grow industry revenues, it has taken its internal bickering not only to the court of public opinion, but now to the floor of Congress. People wonder why the share prices for every public radio company, with the exception of Fisher Broadcasting, have tumbled to single digits. Fisher only remains in low double digits because it also has holdings in real estate and television.

This is the industry’s last chance to get the message, or face the same fate as newspapers. The alarm bell is ringing for radio and it had better heed its call.