In 2004 the Radio Advertising Bureau predicted that PPM would add $396 million more to local radio’s top line.
Maybe it did and prevented the recession from being worse. Maybe it didn’t. There is no way to know one way or another.
What we do know is that during a time when local radio revenue declined by nearly $6 billion, radio increased what it paid Arbitron by about $84 million.
This during a time when radio groups were slashing operating budgets.
As Jerry Del Colliano regularly documents, massive layoffs have cut deeply into radio’s talent pool. Program directors have been put in charge of stations thousands of miles apart. Even large market radio stations have been automated, with entire staffs eliminated.
But we’re getting ahead of ourselves.
We first highlighted the RAB study in a post last year What is PPM’s Real Economic Value? You can see a summary of the study here.
At the time, radio was a $20 billion industry, so the study was effectively saying that PPM would have minimal impact on revenue, perhaps a 2% gain.
Despite the minimal potential, virtually all major groups got behind PPM, and as they say, the rest is history.
Three years later as the industry spiraled into recession revenues began a free-fall. Revenue in 2009 dropped 18% alone from the previous year after a 9% drop the previous year.
Nearly $6 billion in annual billing has evaporated since 2006's peak.
If predictions of a 6% rise in revenue for the year come true, the industry will recoup less than a billion dollars of the accumulated loss.
That’s the bad news.
The good news is that Arbitron escaped the recession unscathed. The company is headed for another record breaking year. As the graph at the left illustrates, Arbitron has managed to grow over 20% as radio crashed.
Arbitron is rather tight-lipped about what it charges radio stations. However, as a public company, it is required to release quarterly revenue reports.
Last year, a year when radio revenue declined 18%, Arbitron had revenues of $385 million, up $16 million over the previous year.
The graph at the left shows the change in revenue for Arbitron and radio during the recession. We’ve indexed revenue growth to 2007 for each and plotted the change in revenue over time.
We know that station fees comprise 85% of Arbitron’s revenue, so radio stations paid the company about $327 million in 2009.
Since Arbitron’s diary business is mature, there’s very little growth there. The real growth product is PPM. Seventeen markets switched from diary to PPM last year.
Assuming most of Arbitron’s revenue growth comes from the transition to PPM means that each new PPM market has to pay the company another million dollars for the privilege.
That is money that once went to salaries, marketing, and other productive investments.
The third graph puts this all into perspective. It plots Arbitron’s radio revenue as a percentage of local radio’s revenue by quarter on a rolling four quarter annual basis.
Local radio paid 1.5% of its revenue to Arbitron in 2007. Local radio is now paying 2.4% of its top-line revenue to Arbitron.
Arbitron should not be faulted for doing what every business tries to do, which is to grow its business. The question is whether radio has its priorities right.
What other radio station budget line has gone up 11% in the past two years? In what other areas have radio stations decided to invest more money in the past two years? Air talent? Marketing?
Deep programming and marketing cuts have seriously imperiled radio at a time when it can least afford it. Under assault by digital alternatives, radio should be at its best.
Instead of investing in the product, radio is plundering the product to spend ever increasing dollars with Arbitron.
Is that really the best investment of radio’s shrinking dollars?
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