Analysts' conclusion: Infinity blinked

You'd be hard-pressed to find anyone in radio or on Wall Street who believed that Infinity's refusal to renew its ratings contract with Arbitron in June (6/25/04 RBR Daily Epaper #124) was the final word on the matter. But many had expected a longer hold-out by Infinity. Based on the revised financial guidance that Arbitron issued after bringing Infinity back into the fold (8/18/04 RBR Daily Epaper #161), the consensus is that Arbitron had the stronger hand - - and played it well.

"It is positive for Arbitron. It looks like they actually got a price increase, based on the guidance that Arbitron gave when the company commented on it. So it looks like Arbitron had more of an upper hand than we had thought," analyst Kit Spring of Stifel Nicolaus and Company told RBR. Spring said he wasn't surprised that Infinity came back to renew with Arbitron, but reiterated that the ratings company appears to have gotten a better rate than he had been expecting. Even so, he's continued to take a neutral view on the stock, giving it a "market perform" rating. "The resiliency of their business model is stronger than I would have anticipated, but the concern going forward is that radio's slowing secular growth will impact Arbitron in the future, making it difficult for them to maintain their historical 7-8% organic revenue growth rate," he added.

Similarly, analyst Alissa Goldwasser was not surprised that Infinity came back, although she had expected Joel Hollander to hold out longer. "I had expected them to return, but I had expected them to hold out until about the end of the year," she told RBR. As a result, she has raised her rating on the stock from "market perform" to "outperform." In a note to investors, Goldwasser says renewing Infinity strengthens Arbitron's bargaining position as it faces the renewal of contracts at the end of the year with Clear Channel, its biggest client. Goldwasser said it was a little hard to interpret from Arbitron's revised guidance just what terms it reached with Infinity. "I suspect that Arbitron did not make any major concessions to Infinity," she said.

Back when Arbitron announced that Infinity had not renewed its contract (6/24/04 RBR Daily Epaper #124), the ratings company lowered its guidance to say that 2004 revenues were likely to be up only 5-7%, rather than it's previously forecast 9-11%. Now that Infinity is back, Arbitron says its revenues should be up 8.5-10.5% this year. The analysts interpret that as indicating a slight price increase, or at least no decrease, in the new contract with Infinity, since other factors have intervened to slightly reduce Arbitron's anticipated revenues this year - - one of which, of course, is Infinity taking its qualitative business away from Scarborough, which is owned 50/50 by Arbitron and Nielsen, and moving it to The Media Audit. That deal, also announced in June, is unaffected by Infinity's renewal of its ratings contract with Arbitron.

TVBR observation:

If you bought Arbitron's stock back in June, figuring this is exactly what would happen, it looks like you made about 3.4% over less than two months. But if you were lucky enough to buy in at the recent low just last week, your profit was over 18% if you sold yesterday. Not a bad return either way.