FCC seeks comments on new Arbitron methodology

The Commission has released a Notice of Inquiry (NOI) kicking off an investigation into Arbitron’s Portable People Meter (PPM) audience measurement system. The NOI was triggered by an “Emergency Petition” (available at the FCC’s website in two separate parts, here and here) filed last September by a number of groups (the PPM Coalition) concerned that implementation of PPM “would drop a financial nuclear bomb on America’s minority radio stations”. But we wonder whether the FCC’s full-tilt leap into the PPM fray will ultimately solve the problem that the PPM Coalition has raised, and it could turn out to have significant unintended consequences for all concerned.

PPM represents an effort by Arbitron to improve the accuracy of its audience-measurement data. Historically, those data have been (and in many markets continue to be) harvested from hand-written diaries subject to a wide variety of potential errors: poor handwriting, misremembered call signs, inadvertent mis-recording, etc., etc. Trying to remove the human error component, Arbitron came up with a system which, at least in theory, is able to automatically record (on a cell-phone size gizmo which the participant carries around everywhere) every exposure to any radio stream encountered by the reporting listener.

But as it rolled out its new system, a funny thing happened. Some stations which had previously shown up well in the ratings dropped precipitously. And a surprising number of those tanking stations turned out to feature minority-oriented programming. While correlation does not necessarily establish causation, it wasn’t hard – particularly for minority stations fearing a ratings tumble – to conclude that PPM was somehow at fault.

Who to turn to in the face of such a crisis? Why, the government, of course.

The PPM Coalition and its comrades expressed their concerns to the FCC, while similar complaints were presented to the attorneys general of a number of states. Arbitron ultimately settled with the states, where it faced potentially expensive litigation. While Arbitron may have thought that the concessions that it made in those settlements might have been enough to call off the FCC dogs, it would have been wrong.

In its NOI, the Commission seeks comments on three general areas. First, it asks for data and comment on the “PPM methodology and its effect on minority and urban-formatted station revenues”. This extraordinarily wide-ranging inquiry solicits detailed minutiae about the design and implementation of PPM as well as information about changes – actual or anticipated – in programming which may be attributed to PPM measurements. Second, the NOI asks a number of questions about how, and to what extent, possible inaccuracies in PPM measurements could affect the FCC’s ability to rely on Arbitron data – not a small question in view of the fact that the Commission’s multiple ownership rules have for decades relied heavily on Arbitron’s market definitions.

And finally, only after it’s already put all those questions on the table, the Commission asks whether it even has the authority to get involved in this inquiry at all. Remember, it’s the Federal Communications Commission – not the Federal Audience Measurement Commission. Historically its regulatory reach has tended to be limited to entities which actually use governmentally-controlled spectrum. And Arbitron, whose business is simply counting heads, is several steps on the other side of that limit. So there’s a huge threshold question of whether the Commission has any authority at all to pry into Arbitron’s business practices.

Normally, one might expect that a governmental agency would, as a matter of sensible analytical priorities, determine first whether it’s got any power to take any action at all before it cranks up an extensive inquiry. What purpose is served by the inquiry if, at the end of the day, the agency is powerless to do anything at all?

But it’s apparent from their separate statements that Acting Chairman Copps and soon-to-be-ex-Commissioner Adelstein are determined to jump right into the deep end of the pool, whether or not there’s any water there. And for the time being those two constitute a majority of the Commission – so away we go.

The NOI is just an “inquiry”, and not a formal rulemaking proceeding. Accordingly, even if the Commission concludes that it has plenty of authority (and, presumably, adequate staffing and other resources, and, oh yeah, enough expertise in the intricacies of audience measurement), it will still have to crank up a formal rulemaking before it can actually adopt rules in this area. It’s unlikely that we’ll see any preliminary conclusion of the Inquiry before the end of 2009, and possibly not until well into 2010 or beyond. A follow-up rulemaking would probably take at least as long, so any rules that might be adopted will probably not kick in until 2011, at the earliest. Since Arbitron has indicated that it is prepared to re-examine and adjust its PPM service by 2010, you have to wonder exactly what the FCC thinks it will be able to achieve.

That’s especially true when you realize that, according to the NOI, one possible basis for FCC authority to delve into this area goes something like this: since the FCC has historically relied on Arbitron data in, e.g., its ownership rules, concerns that the PPM methodology may make those data unreliable could raise questions about the FCC’s continued ability to rely on Arbitron. Fair enough.

But let’s think about that for a minute.

Implicit in that justification is the notion that the PPM methodology somehow falls short of some recognized or accepted standard of accuracy which Arbitron’s traditional hand-written diary method has presumably satisfied. But when was the last time – if ever – that the Commission examined the accuracy of Arbitron’s traditional methods? It’s really not right to assert that PPM introduces an unacceptable level of inaccuracy if you can’t show that the previous method was in fact any more accurate. And if the previous method was indeed unreliable, then doesn’t that raise serious questions about the legitimacy of the Commission’s longstanding Arbitron-based rules and policies?

The PPM Coalition doesn’t help itself or the Commission on that front. One of its complaints about PPM is that the PPM technology does not permit participants to express their “brand loyalty” to a particular station.  The PPM Coalition emphasizes that “minorities are by far the most brand-loyal of all consumers.” And this “loyalty”, asserts the PPM Coalition, is reflected in diary-based Arbitron measurements because “some diary participants may recall listening longer than they actually listened.” In other words, PPM precludes inaccurate reporting – inaccurate reporting which is possible in Arbitron’s diary method – that could reflect “brand loyalty”.

But that assertion could be read as an admission that the established diary-based system was itself subject to inaccuracy. And if (as the NOI suggests) measurement accuracy is an important, if not essential, basis for FCC regulatory reliance on Arbitron, should not the Commission be moving away from any continued reliance on any Arbitron data, be they derived from PPM or diaries? Inaccuracy, after all, is inaccuracy – and if inaccuracy cannot be tolerated in PPM, then it should not be tolerated in other measurement techniques.

Of course, beating up on the apparent flaws of Arbitron the Monopolist (with its chokehold on the audience data on which advertisers tend blindly to rely) doesn’t help the minority stations which justifiably fear the potential impact of the still-a-work-in-progress PPM system. For many (but not all) of those stations, the early returns on PPM have not been good, and it is understandable that those stations are anxious to seek some form of succor before it’s Too Late.

In view of the jurisdictional and practical limitations on what the FCC might be able to do, the deeper the FCC reaches into this particular can of worms, the more problems it is likely to encounter. Before the Commission can legitimately critique Arbitron’s methodologies, the Commission must develop expertise in audience measurement – not something the Commission has any established familiarity with. And any effort by the Commission to regulate Arbitron would require the re-dedication of scarce agency resources.

But those problems assume that we all decide to live with Arbitron. As it turns out, it is obviously not difficult to envision the development of a record which raises questions about the reliability of any Arbitron data. At that point nobody should be happy: the PPM Coalition would be without any way to try to establish their listenership, Arbitron’s credibility would be in shreds, and the legitimacy of any FCC rule or policy historically based on Arbitron data would be subject to attack. Moreover, the Commission would suddenly have to come up with some alternative to Arbitron’s market definitions. Good luck with that.

There may be strong political reasons for launching the NOI, and maybe the resulting publicity will produce some beneficial changes. But it’s hard to see any practical justification for a formal FCC proceeding. In the end, the proceeding may end up on the back burner, evaporating away without further distracting the Commission from more immediate chores more obviously within the agency’s authority.