The folks at The Media Audit/Ipsos would no doubt disagree, but CL King analyst Jim Boyle says "it is game over, we think" now that Arbitron now has PPM contracts covering about 90% of the radio revenues in the top 50 markets. With this week’s addition of Radio One, Boyle notes that Arbitron has signed PPM deals with nine of the top 10 groups and 13 of the top 15.
Arbitron reports its Q3 financial results tomorrow and will provide guidance to The Street. Boyle has a "Neutral" rating on the stock and notes that his estimate of 1.37 in earnings per share for all of 2007 is five cents below the consensus. He thinks that will take into account the extra spending Arbitron is doing on PPM to hit in-tab delivery guarantees and avoid have to make rebate payments to stations. "Even if no PPM rebate is ever paid, the higher-than expected-costs to avoid crossing the guarantee level should be an investor concern, in our view. If the rebound has largely occurred and minimal added costs are needed, that’s a plus for ARB’s margins improving as expected next year. However, a new cry has arisen from radio clients that want the rebate extended to shortfalls in select demographics, where the participation shortfall is often 40%-50% below goal and might require longer, higher incentives to fix," Boyle told clients in a research note.
RBR observation: Several large radio groups, led by Clear Channel, are still committed to finance testing of the TMA/Ipsos system as a cheaper and, they hope, even better alternative to PPM. It may be premature to call "game over" until that funding dries up. Arbitron contracts do not run forever. For example, the Radio One contract is for five years. So, how would a potential transition work? Radio groups could continue to honor their contracts for PPM and pay for the rollout of TMA/Ipsos, but then not renew for PPM as their contracts expire. This, however, would assume success on two fronts: 1) That the TMA/Ipsos system is proven to work as well as or better than PPM; and 2) The cost savings are big enough to justify the radio groups taking a short-term hit from paying for two ratings services. Those are two big "ifs" and Arbitron clearly has a market advantage by having PPM already up and running and rapidly expanding to additional markets.