PPM recruiting changes costing Arbitron more


In-person and cell phone recruitment of panelists is costing Arbitron more than was originally projected for its Portable People Meter (PPM) service, so the company is telling investors it won’t be back to pre-PPM profit margins anytime soon. That didn’t stop management from being upbeat about the business outlook at a Wednesday conference in New York.

For starters, Arbitron’s stock price has shot up in recent months as the advertising marketplace improved for its radio station clients, its biggest customer – Clear Channel Radio – signed an early renewal and it came to terms with the PPM Coalition, which had insisted on changes to make sure that minority listeners were properly counted. That led to new contracts with Spanish radio giants Univision and Spanish Broadcasting System. So Arbitron certainly had a story to tell that fit the 11th Annual CJS Securities New Ideas for the New Year Investor Conference.

Looking back on what PPM was supposed to cost, CFO Sean Creamer (who is also Executive Vice President of US Media Services) said it was originally estimated that PPM would cost the company 65% more to deliver than diary measurement. That’s the cost structure built into most PPM contracts with radio companies, very few of which have yet come up for renewal.

To date, he said, line-item costs have been slightly above or slightly below expectations and pretty much balancing each other out – “with two important exceptions.” The cost of recruiting cell phone only households was “certainly not contemplated in our model, certainly not to any extent what the actual penetration of cell phone households has become,” Creamer told the conference. Arbitron announced that it 2010 it would cost roughly $15 million to cover cell phone households recruitment. As the company became more efficient in that recruiting the cost estimate was lowered to about $13 million – “still a significant incremental cost relative to the original business model.”

The settlement with the PPM Coalition also added new costs for in-person recruitment and an address-based frame for PPM panel recruitment. That, Creamer said, added back the $2 million that had been saved from cell phone recruitment efficiencies.

“The goal of restoring our margins to the pre-rollout levels certainly will be taxed by the in-person recruitment and cell phone recruitment. It is our expectation at this point that we will not be able to return to the pre-rollout levels because of that. Not because of pricing, but because of the cost,” Creamer said in the Q&A period with conference participants.

That doesn’t mean that Arbitron won’t grow profits. As has always been the case, the company will seek price hikes as it negotiates long-term contracts with the radio groups which subscribe to its ratings services. “Margin improvement is something you should expect over the period ahead of us,” said Arbitron CEO Bill Kerr.

Something else to expect is the naming of a new CFO by the end of this month. That will free Creamer to devote his full attention to his operational role as head of US Media Services for Arbitron, a post he has held since last summer.

RBR-TVBR observation: Despite having to deal with some unexpected costs, Arbitron managed to complete the 48-market rollout of PPM and managed to satisfy its major critics in the radio industry and on Capitol Hill – not to mention a few state attorneys general. Now it just needs to satisfy the Media Rating Council and get some more PPM markets accredited.