Nielsen, the company best known in the music industry for tracking music sales, will soon measure just about every bit of major media Americans consume. Announced Tuesday morning, the $1.26 billion acquisition of Arbitron combines the leader in U.S. radio ratings with the king of U.S. television ratings. That's seven hours a day -- five for TV and about two for radio.
The acquisition will have clear payoffs. Arbitron will help Nielsen offer more information to its clients and provide Arbitron a springboard for global expansion. The combination of Nielsen's TV ratings and Arbitron's radio ratings creates a formidable, seemingly unbreakable measurement company. But that strength has some radio executives wondering if the distance between Arbitron and the next-best competitor is too great.
Arbitron will operate in Nielsen's "watch" business segment along with other media measurement operations that track music sales, online activity, song plays and other media activity, according to a source at Nielsen. Nielsen sees an opportunity to improve its measurement of streaming audio, out-of-home media consumption and multi-cultural audience measurements. The latter is especially important to some clients today. Nielsen often finds insights on African-American and Latino consumers for marketers and brand managers.
The two companies have a slight amount of overlap. Nielsen BDS is a client of Arbitron for the audience measurement component used in Billboard's Hot 100, Hot 100 Airplay, Country Airplay and many other charts. Arbitron's audience data adds the weight of stations and markets to song plays tracked by Nielsen BDS.
The acquisition should immediately benefit Nielsen shareholders. Nielsen expects the acquisition to add $0.13 to adjusted earnings per share in 12 months with a "modest" increase in leverage to support the purchase, according to information in Tuesday's investors presentation. Arbitron shareholders will fare well. Nielsen is paying a 26% premium over the Dec. 17 closing price.
Nielsen's new future got a warm welcome from the country's largest radio company. "We think it's a step in the right direction that Nielsen recognizes that radio, TV and digital are the top three critical media to marketers, and that this combination has the potential to offer broader insights and better measurement across multiple platforms," Clear Channel Media and Entertainment chairman/CEO John Hogan said.
But there are some potential drawbacks to the acquisition. Executives Billboard.biz spoke with fear the acquisition may lead to less competition, less innovation and higher rates.
"It's healthier for the radio industry and media when there's more competition for ratings," one former radio executive says. After Nielsen acquires Arbitron, other companies will be less likely to enter the marketplace and compete against them, he says.
Joining Nielsen means Arbitron eliminates at least one potential competitor: Nielsen. In 2008, Nielsen launched a radio ratings business, starting out providing radio ratings to Cumulus Media in 50 small- and mid-sized markets and Clear Channel in 17 markets. Even though Nielsen added more clients, it dropped out of the radio ratings business in 2010.
Nielsen may have been unlikely to re-enter the radio ratings business, but the acquisition lowers to zero -- or something close to it -- the chance Arbitron will face competition from a large, knowledgeable media measurement firm with enough resources to be a threat.
Alternatives to Arbitron exist, but radio executives say the drop-off to the next-biggest competitor is great. Stations can currently opt for small research firms such as Eastlan Ratings, which provides audience measurement data to more than 450 radio stations in more than 90 markets. One mid-sized market station owner who does not subscribe to Arbitron uses Media Audit to supply advertisers with information about the station's listeners. He argues that Arbitron does not provide accurate data for his mid-sized station and undercounts his demographic.
Any competitor that tried to take on Arbitron on a larger scale, as Nielsen did from 2008 to 2010, would be met with crushing startup costs and a powerful, entrenched brand with high switching costs in the advertising world. Getting radio stations on board is one part of the fight. Owners probably realized during Nielsen's brief attempt at radio ratings that ad buyers were too attached to Arbitron ratings, the station owner says. "Cumulus can take it, but if the media buyers don't take it, it doesn't work."
The outcome is far from certain, however. Arbitron may be more aggressive with its prices after the acquisition. But it would have no greater market power than before the acquisition, and stations regularly have complaints about its prices. The owner of several unrated stations in the South says he chose the markets of his stations in part to avoid needing to pay Arbitron.
"Dealing with the company in a medium-sized market ties a station's hands," he says.
Less competition could lead to less innovation in ratings measurement. One executive notes that pressure to innovate can come from a variety of places. He points to Arbitron's launch of the Personal People Meter, or PPM, in 2007. The PPM is a small, wearable device that measures what radio stations people listen to. He says Arbitron was responding more to pressure from advertising agencies that use Arbitron data than competitive forces when it launched the PPM.