Top executives of Arbitron were obviously thrilled to discuss the company’s new six-year contract renewal by Clear Channel Radio with Wall Street analysts. The deal gives Arbitron years of financial certainty going forward, but Clear Channel also got some benefits from the early renewal.
Analyst Jim Boyle of Gilford Securities noted that in the past the two biggest clients [Clear Channel and CBS Radio] had often gone down to the wire with contract expirations. So what made Clear Channel sign a renewal a year before its old contract would have expired? “What did Arbitron have to give up to get this done?” Boyle asked.
“Certainly I’ve been on record saying that from our perspective there was value to us in identifying the appropriate time to engage in conversations around early renewals, given the significant amount of dollars up for renewal in 2012,” replied CFO Sean Creamer. “The announcement today is a culmination of a nearly year-long dialog we had with Clear Channel – and certainly it is fair to assume in order to bring Clear Channel to the table we would have to have some financial benefit to them. They were under contract with us through 2011, so to sign an early contract renewal you should assume there was some benefit. But you should also assume we viewed the benefit they were getting at least equal to the benefit we derived from getting them signed to a contract that by Clear Channel standards is longer than they’ve ever signed. So no question it was, I believe, a changed dynamic in terms of the dialog and a very collaborative conversation that started out trying to understand what both sides needed, wanted from the relationship and I think it culminated in a contract where neither side got exactly what they wanted. And I don’t think you would have a signed document in any negotiation if that weren’t the case.
Arbitron isn’t disclosing details of how the Clear Channel deal is structured, but Creamer did note that annual escalators are an important part of all Arbitron contracts, so the Clear Channel contract does include escalators.
RBR-TVBR’s previous story calculated that the approximately $538.2 million that Arbitron will receive from Clear Channel over six years works out to an average of $89.7 million per year. Now we know that the first year of the contract will be less than that, since the payments will escalate over the six-year period.
So, asked Rich Tullo of Albert Fried & Co., would Clear Channel have paid more in 2011 under the terms of the final year of its old Arbitron contract?
“Yes,” confirmed Creamer. “We never discuss specifics of individual contracts, but clearly, as I think I just mentioned, they were under contract for 2011. To engage in a conversation for them to sign early would have involved, and needed to involve, a benefit to them in 2011.”
In Thursday’s conference call with analysts, Arbitron CEO Bill Kerr said there are benefits from the Clear Channel agreement that go beyond the financials.
“I think you know long-term contracts have always been a hallmark of our business model. Our customers sign long-term contracts with Arbitron when they have confidence in the value of the service they receive and the ability of our company to deliver on commitments. I’m pleased that the people of Arbitron have demonstrated to Clear Channel Radio that our PPM and Diary ratings validate the power of their medium in every market and on every platform it’s delivered. For some that might be value enough, but we want to enhance the value that reliable and timely audience data brings to the industry. As we go forward, Arbitron and Clear Channel will be working closely with other radio groups and industry associations in an advocacy program to promote further the power of radio. While the shape of this program is still being worked out, it should include joint marketing efforts, enhanced education of radio’s frontline sales executives and new marketing tools, such as our work to get radio data into the media-mix model, that can help grow the share of ad dollars that radio receives. The goal of all these initiatives is to further demonstrate how radio is a relevant and effective marketing tool for both national and local advertisers, especially today in our highly fragmented digital media environment. Helping our core customers and the industries we serve is critically important to us,” Kerr said.