Does Arbitron have a better mousetrap?

The technology used to measure local television and radio audiences today dates back roughly 50 years. It was launched in an era when homes had one TV set, families were nuclear and I Love Lucy was still in its first run.

Now Arbitron claims it has a better mousetrap: technology and methodology that takes local radio and TV measurement into the 21st century. Next month, the company will begin its test of new Portable People Meters in Philadelphia, after a smaller test in nearby Wilmington, Del.

If Arbitron's snazzy pager-size PPM succeeds, it would augur a monumental change in TV research methodology that would put paper diaries and set-mounted meters out to pasture and could bring Arbitron, best known for its radio-measurement service, into business with Nielsen Media Research, the television-ratings Goliath.

That's because Arbitron needs Nielsen as a joint-venture partner in order to launch its PPMs for both TV and radio in 100 markets over the next six years. Ultimately, Nielsen, which has dominated TV measurement for decades, must decide whether it wants to give a large slice of that lucrative business to Arbitron.

Without Nielsen's cash infusion and without both radio and television helping underwrite the cost of this massive undertaking, the full-scale rollout won't go forward, according to Arbitron President and CEO Stephen Morris.

Nielsen is already providing financial support and research data for the PPM trials, but the joint-venture option represents a much more dramatic—and pricey—involvement.

Right now, Nielsen measures local markets with a combination of set-tuning meters (in 53 markets) and diaries, although it is testing its own peoplemeter in Boston (see box, page 22). For nationwide ratings, Nielsen has relied on peoplemeters in 3,100 homes.

The Nielsen peoplemeter relies on test subjects to identify themselves when they begin watching. Arbitron's PPM automatically records what a user is viewing or listening to as long as he or she is wearing the device.

Over the past decade, Arbitron, which went public nearly a year ago, has spent more than $20 million developing the PPM. The device, smaller than a pack of cigarettes, is clipped to clothing or carried and tracks listening and viewing by automatically picking up special inaudible codes built into radio and TV programming. Everyone in a test family gets a PPM.

The price tag for a 100-market commercial deployment of PPMs is estimated at $100 million, according to Arbitron.

"It's a big number," Morris said. "It's too much money for Arbitron by itself."

Without Nielsen, Arbitron would most likely launch a very scaled-down version of its PPM system just to measure radio, the medium Arbitron dominates now. (For years, Arbitron and Nielsen did battle in local TV markets all over the country. But, as station economics changed, the business fell prone to price wars, and, in October '93, Arbitron dropped the television business altogether.)

"If they don't want to come in the joint venture, we will continue to look for ways to bring the technology to the market," Morris said. "But we would not move ahead with the current plan to roll out rapidly a bunch of local market measurements. ... We would certainly be thinking about our radio customers, and we'd have to get the cost down a heck of a lot to make it something radio could afford by itself, and we would certainly be working on that. [But] we would not be rolling out a local measurement service for television."

Optimally, Arbitron wants Nielsen aboard by midyear. And it says, if Nielsen still hasn't decided by year-end, the project will die as a television tool.

Some industry observers are pessimistic about the PPM's chances for success without Nielsen's support.

Alan Wurtzel, NBC's president of research and media development and an advocate of PPMs for national TV ratings, says, "If Nielsen doesn't want to do it, the Personal People Meter will be doomed to oblivion." But he also is a fan: "It's one of the most important things to come down in a long time."

Both Arbitron and Nielsen acknowledge that their customers—TV stations, radio outlets and cable systems—must give their imprimatur to the new roving PPM system or it's not a go.

Getting them all to sign on could be a battle. The three media constituencies are longtime competitors battling for every last local ad dollar, particularly during the current recession.

Madison Avenue, too, will have to throw its support behind PPMs.

Publicly, officials from ad agencies, TV and radio stations, and cable say they're all in favor of a measurement methodology that will be more accurate than diaries and set meters, which just can't keep up with the current media landscape of multiple TV sets in a household, out-of-home viewing, TiVo, satellite radio, video streaming, and the public's growing disdain for filling out diaries and punching buttons.

It remains to be seen whether these media players, who say they are eagerly awaiting results from the Philadelphia PPM test, will put their money where their mouth is and support the new methodology. That's because PPMs will cost radio and TV stations more than the current Nielsen and Arbitron ratings systems, officials from both companies concede.

Arbitron's initial U.S. tests of its new technology in Wilmington, Del., were completed last fall, and TV and radio audiences overall were up compared with current measurement systems. In fact, the PPM shows increased use of all media, particularly by people under 35 and men, and the results disclosed big numbers for out-of-home viewing.

The big increase, though, was in cable viewership.

The final report, covering television from Sept. 27 to Oct. 24, put combined media at a 25.6 rating by the PPM vs. a 22.2 under traditional Nielsen and Arbitron measurements. Broadcast TV posted an 11.5 with the PPMs, basically equal to the 11.3 from Nielsen.

Cable's numbers, however, were radically different: more than double, a 4.6 vs. a 2.0.

The results haven't left everyone happy.

During a meeting that Arbitron held late last year for the media participants in its test, one attendee witnessed a testy exchange. At the session, he said, a Philadelphia TV-station executive pointedly asked, "Why should I spend all this money for research if cable is going to go way up?" Here's why, an ad-agency official fired back: "If you don't use the research, we're not going to buy you."

Ultimately, though, according to a veteran TV research executive, whether Arbitron's PPM is the best methodology for tracking radio and TV audiences is only half the equation in terms of the system's odds of being launched commercially.

"There are two issues here: research methodology and business," the executive said. "They are two totally separate domains. There are a lot of stakeholders here. The business aspects of making a change are more difficult than the research aspects. It's all about earnings and profitability."

Susan Whiting, who in January succeeded John Dimling as Nielsen's president and CEO, will play a major role in the company's decision on the PPM joint venture with Arbitron. It will be one of her first major decisions as head of the company, and it is a crucial one.

The method's prospect as a money-making business is just one of several issues Nielsen will study in deciding on the Arbitron joint venture, according to Whiting. "The decision factors would be the same things we'd use in any evaluation of technology, whether it'd be a meter, a peoplemeter or anything new," she said. "First, we need to know that the technology works. Second, we need to understand what the results look like. Third, we need to understand the research statistics, the cooperation rate and basic information about it. And we'd need to understand the business model. Then we need to talk to our customers and share that information and work together to make a decision."

Published reports that Nielsen will decide this spring, possibly even this month, whether it will joint venture with Arbitron are "inaccurate," said Whiting. "We don't have a specific timetable."

With the Wilmington test complete, Arbitron's next test, in the City of Brotherly Love, is about to start.

The Philadelphia sample will involve a panel of 1,500 consumers, age 6 and older. Last week, Arbitron announced that it has already recruited half of them and expects to have the full panel by the end of March. Eight TV stations, 38 radio stations and 22 cable networks are participating.

In the Delaware test, at its peak, 300 people were carrying PPMs. That phase demonstrated that consumers would, in fact, carry the PPM, on average 15 hours a day and that the PPM captured TV and radio viewing missed by current systems.

The Delaware trial provided data only for collective TV and radio. The Philly trial will break out ratings for individual TV stations, cable networks and radio stations to compare them with current Nielsen and Arbitron data, according to Marshall Snyder, president of Arbitron Worldwide Portable People Meter Development.

After the trial ends, Philadelphia will be the first market where Arbitron will commercially deploy its PPM system, Snyder said. The PPM panel will be increased to 5,000 to 6,000 people, and the system should be up and running by late this year or early next year.

Assuming that Nielsen becomes part of the joint venture, PPMs would be commercially deployed in three to five additional major markets in 2003, Snyder said.

That would be a huge change from the way current local ratings are determined, but everyone in the media business—Arbitron, Nielsen, and TV, radio, cable and Madison Avenue executives—seems to agree that the local-diary method needs an update or replacement.

"The diary does a better job in radio than it does in television," Morris said. "But, if you're looking ahead in radio and see satellite and streaming, the ability of a diary to accurately represent that much larger a universe is hard."

But, he added, "the cable people have the most basic issue [with diaries]. Under the current system, a large number of small but very valuable channels that have targeted audiences get zeros in that measurement system. ... It's not surprising that, in Wilmington, the most dramatic increase in share is cable, which basically doubles its share."

PPMs solve many of the problems inherent with diaries and set meters, according to Arbitron. They are passive, so a user doesn't need to do anything to record the media he or she is being exposed to. And since they travel with the person, they pick up out-of-home viewership: at work, bars, hotels, college dorms or airports.

Research officials at several TV stations have at least one explanation for cable's huge ratings increases in the Wilmington test: The sample included one county that isn't even in the Philadelphia DMA. That means that the Wilmington test reflected viewership in three counties for cable but in only two counties for TV stations.

"It does concern me," said Elliot Cohen, research director at WPVI-TV Philadelphia, an ABC owned-and-operated station. "But cable got an artificial boost. The Wilmington sample was way too small and contained only three counties, one of which was not in the Philadelphia DMA. We're looking for data for individual stations."

Jeff Finken, research director for WPHL-TV Philadelphia, a Tribune-owned WB outlet,feels similarly. "We're in a wait-and-see mode," he said. "Once we have a full year of data and can see an apple-to-apple comparison and expand it to a full DMA, then the picture will get much clearer."

Other broadcasters maintain that, even if PPMs substantially boost cable's viewership, that's just a reality that has to be dealt with by TV stations.

"We've always suspected that cable was getting the short end of the stick," said Harold Simpson, vice president of research and development for the Television Bureau of Advertising, which exists to tout the value of local broadcast television advertising. "We're willing to give them their just due. As a researcher, my main goal is to get it right."

Even NBC's Wurtzel, who would like to see PPMs replace Nielsen's peoplemeters to track national TV viewership, argues that accurate ratings data—even if they boost cable—are a necessity. "The discussion should not be 'your [cable's] ratings are going to be higher.' There is a bias in diaries against cable that is well-known. So TV stations have had an advantage, and everyone knows that. The worse thing for a research methodology is for it to be inconsistent. It has to be reliable and accurate, and then let the chips fall where they may."

Gary Fries, president of the Radio Bureau of Advertising is a fan of the PPM system. "This definitely helps radio and, beyond that, helps the advertiser. TV stations can't ignore their data. Once the information is out there, you can't bury your head in the sand."

Jerry Lee, president and co-owner of WBEB(FM) Philadelphia, considers PPMs the future of radio measurement. "In the long run, there will be a high payoff for radio, television and cable. You can trace a panel's purchasing power. Everyone wins in the end. Broadcasters don't have a choice."

Cable operators are thrilled with the PPMs' results to date.

"This technology allows us to play in the same sandbox as the television stations," said Adam Perel, vice president of national sales for Philadelphia-based MSO Comcast Cable Communications. "If the result of the Personal People Meter is that networks like Animal Planet and Bravo, which don't show up in diaries or metered reporting, get demographic ratings, then it legitimizes them for ad agencies."

Jim Gallagher, general manager for Comcast MarketLink in Philadelphia, which serves 1.9 million subscribers, doesn't see PPMs "spelling gloom and doom for anybody," including TV stations. "Even if broadcast's ratings were to go down by 10%, there is so much demand for their inventory that their prices will just go up."

Ad-agency officials are awaiting the results of the Philadelphia phase of the PPM trial, but they are believers, in theory.

"We are very supportive of it," said Ira Sussman, executive vice president and director of IM Futures, the research arm of Initiative Media. "But it's too early to judge based on the small data that's come out so far. I'm optimistic but looking for more information. There obviously are some concerns about changing the way everything is done."

Said Kate Lynch, vice president and global research director at Starcom MediaVest, "It makes sense to take a more holistic view of how consumers use media. ... It's definitely the right approach."

Arbitron has an answer when asked why Nielsen would ultimately cede its dominance in TV-audience measurement by teaming up with it. "If our technology is really clearly better and the economics are acceptable to them, then they would be fools not to go this way," Morris said. "It's a business decision, and the marketplace will ultimately drive the outcome."