Arbitron delays electronic ratings rollout

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NEW YORK -- Arbitron Inc. is delaying the rollout of a new ratings system for radio stations in nine markets following complaints from broadcasters that the system's samples were too small to provide reliable data.

The delays announced Monday, which range between three and nine months, mark a significant setback for the new electronic ratings method, which Arbitron has been developing for years as a way to replace the 1960s-era paper-and-pencil diary system.

Several broadcasters have been raising objections to the new system, saying Arbitron was failing to meet targets for getting enough people to participate, particularly young adults ages 18 to 34 and members of ethnic minorities.

Arbitron said its earnings for 2008 would take a hit of between 22 cents and 33 cents per share as a result of the additional costs for extending the diary systems in the affected markets as well as the loss of anticipated revenues.

Analysts polled by Thomson Financial expected Arbitron to earn $1.77 per share next year.

Arbitron also lowered its earnings estimate for 2007, saying it now expects to earn between $1.30 and $1.35 per share, versus its previous guidance of $1.35 to $1.45 per share. Analysts were expecting $1.41.

The announcement came after the close of regular stock trading. Abritron's shares tumbled $5.91, or 12%, to $43 in extended trading after falling $1.68, or 3.3%, to $48.91 in the regular session.

The new ratings system is based on a pager-like device called a Portable People Meter that panelists carry around with them. The meter picks up audio signals from radio broadcasts automatically and is aimed at providing more accurate ratings than the diary method, which relied on listener recall instead of registering what they actually heard.

The new ratings measure is already in use in Houston and Philadelphia and will continue there, Arbitron said in a statement.

The affected markets include New York; Los Angeles; Chicago; Dallas; San Francisco, San Jose, and Riverside, Calif.; New York's Long Island; and a three-county area of northern New Jersey.

Most of the affected markets will now start using the new system in September 2008, instead of a phased rollout with dates ranging from December 2007 through June 2008.

While broadcasters have been putting pressure on Abritron to improve the reliability of the data, the announcement of the delays late Monday afternoon came as a surprise to many.

"I'm absolutely flabbergasted," said Dan Halyburton, who runs a group of three stations in New York for Emmis Communications Inc., shortly after hearing about the delays. "I think it puts our industry into a certain amount of turmoil. ... We felt every sign from them was they were working through these challenges."

Two weeks ago, four major broadcasters including industry leader Clear Channel Communications Inc. sent a letter to Arbitron demanding a plan for correcting the shortfalls in the sample sizes for the new ratings system within 30 days, calling it a "critical and immediate issue."

Steve Morris, the CEO of Arbitron, said in a statement Monday that the company planned to work closely with the Media Rating Council, an accreditation body, as well as broadcasters and community groups to improve the system and get greater participation, especially among young adults and members of ethnic groups.
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