Kabrich's Got A Few Points -- Actually Four Of Them -- To Make
November 19, 2008 at 8:48 AM (PT)
YESTERDAY (11/18), ARBITRON held a conference call responding to the news that NIELSEN was entering the radio ratings business, and had signed CUMULUS MEDIA and CLEAR CHANNEL as it's first two clients (NET NEWS 11/18).
On the call was consultant RANDY KABRICH, a frequent ARBITRON critic, who reached out to ALL ACCESS with his take on the information shared during the call. KABRICH had four points in particular, that he found disturbing.
"At 17:45 into the conference call, ARBITRON is asked about improvements for the diaries, the key being 'Cell Phone Only Households,' writes KABRICH. "ARBITRON is at 5% now and will move to 7.5% in slightly over 100 markets (not necessarily markets 101+). It should be noted that current cell phone only households are estimated at 20% by the end of this year according to NIELSEN -- who does know, as they are address-based recruiting, not telephone number-based. Thus, even at 7.5%, ARBITRON is still leaving 12.5% of the CPO households out of the sample -- and that number will grow by next FALL when ARBITRON intends to have 7.5% CPO in some markets.
"At 19:10 it was stated 'cell phone only we did highlight on the last two calls as a wildcard in the sense that it is an expensive proposition that we expect we will become more efficient over time doing, but that is a challenge that is facing anyone who is in this business, including the new service provider in these small markets.' KABRICH continued, "This was a blatantly false statement (or indicates that ARBITRON does not even understand how their competitor operates), as by using (ABS) addressed based recruiting, NIELSEN covers 100% of those CPO households at no increased cost!"
So, Point 1 according to KABRICH, "From day #1 NIELSEN's sample for market's 101+ will be more accurate than ARBITRON's current sample in NEW YORK, LOS ANGELES or any other ARBITRON market other than HOUSTON, which is addressed-based!"
"At 4:22," KABRICH writes, [ARBITRON Pres./Chairman/CEO] "STEVE MORRIS states that advertisers told them that they want two books in condensed markets so the book does not go through fluctuations due to hype. The reason that advertisers need this currently is because the hype of CHRISTMAS music stations that run up the ARBITRON FALL ratings and not during the SPRING."
Point two says KABRICH, "As the NIELSEN rating period will not be conducted during the CHRISTMAS season, nothing can hype the numbers in these markets as the CHRISTMAS-'hyped' ratings that ARBITRON currently produces. Nothing seems to produce the 'hyped' numbers that CHRISTMAS music ratings does in the current ARBITRON ratings. Getting out of the CHRISTMAS rating hype arguably produces less-hyped numbers."
"ARBITRON’s #1 job is preventing more small-market defections like CUMULUS and CLEAR CHANNEL," explains KABRICH. "Losing $7 million in next-year revenue for a company that did $338 million in total revenue last year is a sustainable hit. But STEVE MORRIS doesn't want this to turn into a rockslide, where other clients in SANTA BARBARA and SAVANNAH and SHREVEPORT desert to NIELSEN.
"ARBITRON EVP/CFO SEAN CREAMER told CL KING analyst JIM BOYLE that all the revenue from markets 100+ 'is less than 20% of our total revenues.' It makes most of its big money from big markets, where it's still rolling out the PEOPLE METER and getting those price increases of 65% or more. ARBITRON’s got other businesses to keep rolling, too -- the contracts for CLEAR CHANNEL's non-PPM/non-NIELSEN markets are up. It still does business with CUMULUS in its top-100 markets, and those contracts aren't up any time soon. But investors are fretting, based on yesterdays stock-price drop to a new low of $21.69. ARB lost about 10% of its value yesterday (11/18) on that single-day drop of $2.48."
"Let's look at this a little bit differently, writes KABRICH. "So ARBITRON said it did $338 million in Total Revenue last year. On the call, they stated the margin was 30%, thus the profit was roughly $100M under that scenario. They also stated that the markets that CUMULUS and CLEAR CHANNEL bailed represented a $10M in revenue run rate with another $1.5 million from other smaller players in the market.
"Using the same formula of 30%, that means it cost $11.5M x 70% = $8.0 million in expenses to produce these ratings in these markets, with an offset of the remaining (thus far) subs of $1.5m -- so the cost is a $6.5m expense to keep producing these numbers." KABRICH concludes, "Thus, a $100 million profit --$6.5 million in expenses, $10.0 million loss of revenue = 12.5% cut in profit.
"At 7:51 into the conference call, SEAN CREAMER says 'so the revenue is gone and there won't be in the short-term any reduction in cost because it is our intention is to continue in those markets so there is certainly a significant bottom line impact to that lost revenue," writes KABRICH. "Furthermore, they state that 20% of their revenue comes from markets 101+. Thus, $338 million in revenue = $67.5m in revenue from these smaller markets. Using the 30% margins they state, that means the cost is $47.5m to produce these numbers and $20m in profit."
So KABRICH concludes point #3 is, "If ARBITRON ended up losing all customers markets 101+ and kept producing the reports, they would have their profit cut in half! So yes VIRGINIA, there is a significant impact possible from these small markets."
"While ARBITRON can bark all they want about TV measurement, if the current NIELSEN subscribers do not encode as they do not want two sets of ratings on the street, PPM is dead for TV," writes KABRICH. "Thus, point #4 is ARBITRON's PPM TV threat is dead if any of the majors decide not to encode, (and they would most likely have a reason not to want a service they do not buy on the street)."