Understanding the math - looking at the possible ramifications
Arbitron has published their "Adjusted PPM Cost Conversion Utility" at www.ppmconverter.com. I've not seen a lot written about it other than in Arbitron presentations. On the eve of the release of "currency" data in Philadelphia, it is the best insight that we have into where things stand from a publicly available source of data.
Based on the best information that I can discern about the sales climate in Philadelphia right now, it appears that the marketplace Cost Per Point is around $225. Market demand is moderate.
If you click on this graphic, you'll see a larger table - it might possibly even be readable. (I suggest a right-click and "open in new window" so that it can be open alongside of this post.)
From the bottom of the chart, you'll see that the CPP Conversion Factor is 1.23. That means that, using this list of stations, if the diary AQH rating was a 1.0, then the PPM AQH rating will be a 0.8 or 20% lower.
Based on that, if the "average station" was to hold its spot rate, the CPP would increase by 23%. Based on a $225 Diary CPP, the new marketplace PPM CPP would be $276.75.
(Note that the data that will be released on Friday morning will include for the first time the Clear Channel stations which began encoding on March 8th. The 1.23 Conversion Factor is based on encoding stations and an "average" of Jan/Feb 07 PPM data vs FA06 Diary data. That conversion factor, even without the CCU stations, is consistent with Houston. I would expect it to change only slightly once the full compliment of encoding stations are available.)
The sales paradox is that if you look down the CPP Conversion Factor column, there is no "Average Station."
KYW-A and WMMR-F can actually raise their rates and still be at or below the market CPP. Most stations have a more difficult sales proposition.
WBEB-F would have to drop rate by 11% to meet the marketplace CPP. They may be able to demand the premium over the marketplace CPP.
The extreme example is WRNB-F whose AQH Rating drops in half. If they were to hold rate, their CPP would now be 62% above the marketplace CPP (assuming they were previously getting the full marketplace CPP). If they were to achieve the new marketplace CPP in the PPM scenario, they would have to drop their rate by almost 40% to achieve that CPP.
Will an agency allow a station that now shows up much lower on a demo ranker a significant "premium" over the 23% marketplace CPP increase? Will there be only a "marketplace" recalibration or will there be some type of format or target audience recalibration as well? Will the Black and Hispanic marketplaces move independently from the general market?
The reality is that nothing has changed in the "real world" as to the number of listeners who are tuning into this station. Only the measurement has changed. Local advertisers buy a station like this because they presumably sell cars and refrigerators and mobile phones. No fewer customers will respond just because the folks being measured are wearing meters rather than filling out diaries.
Should a station like this now suddenly be worth less? Intellectually, an understanding of what is truly going on with listeners would suggest not. In my gut, understanding what I know of the buying/selling process, I am concerned that it will be priced as if it was worth less. And that is the kind of casualty that the radio industry doesn't need right now.
Ultimately, pricing will reach a new equilibrium based on supply and demand. PPM gives a whole new meaning to "less is more."
How will agencies and advertisers evaluate and implement this data in the new paradigm?
We finally get a chance to know.
MSO
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