Clear Channel Communications--the nation's largest owner of radio stations with nearly 1,200 outlets--is using its market muscle in an attempt to negotiate concessions in service and pricing from Arbitron, the auditing service that measures the popularity of radio stations.
After nine months of negotiations, Clear Channel has refused to renew contracts with Arbitron in 130 markets across the country, affecting upward of 720 of its stations.
The stalemate puts both Arbitron and Clear Channel in a jam.
Arbitron cannot afford to lose its biggest customer. The company receives 22% of its revenue from stations owned by Clear Channel and could lose $14 million for the remainder of the year if the contracts are not renewed. Clear Channel is gambling that it doesn't need Arbitron figures to validate its popularity.
"We are working very hard to keep Clear Channel as a valued customer," said Thom Mocarsky, Arbitron's spokesman.
While the dispute hinges on money, more is at stake, analysts say.
Clear Channel has also demanded that Arbitron, which began tracking radio stations in 1965, change its system so that it captures listeners who fall outside a geographic market but still can pick up signals from powerful stations. Arbitron measures stations' popularity by collecting diaries kept by 1.3 million radio listeners, including nearly 7,400 in the Los Angeles-Orange County market.
"Arbitron is developing a system that would allow our customers to mix and match geographical markets, so stations would get credit for listeners wherever they occur," Mocarsky said.
The dispute follows a period of consolidation in the radio industry that created giants such as Clear Channel. For decades, owners were limited to controlling just a few stations. But with deregulation, the economics of the market have changed radically.
Now Arbitron is no longer the only dominant player in radio.
"This is a case of the bully who comes back to the neighborhood and encounters the snot-nosed kid that he used to push around," said James Marsh, senior broadcast analyst for the investment firm Robertson Stephens. "But it's going to be more of a scrap this time. The kid isn't going to give up his lunch money so easily."
Both sides say they are continuing negotiations to reach a new agreement for the stations in the 130 markets. Contracts for those stations expired Dec. 31, but Arbitron granted two three-month contract extensions.
Two Clear Channel stations in Los Angeles whose contract expired Tuesday are KIIS-FM (102.7) and KXTA-AM (1150). Clear Channel also owns KOST-FM (107.5), KBIG-FM (104.3), KCMG-FM (92.3), KFI-AM (640), KYSR-FM (98.7) and KLAC-AM (570) in the Los Angeles market.
Neither Arbitron nor Clear Channel would say exactly how many stations lost Arbitron coverage Tuesday, when Arbitron released its spring ratings and the Clear Channel grace period expired.
Clear Channel, meanwhile, says it can survive without Arbitron, which provides the company's ratings in 187 markets.
"We are preparing our stations to operate without Arbitron," Clear Channel spokesman Randy Palmer said Wednesday.
"We are looking at other options, including possibly financing a competitor to Arbitron or generating the numbers internally," Palmer said.
But those options would take time, and ratings generated internally would be subject to allegations of bias. Clear Channel's dilemma is that there is no other service in radio like Arbitron.
"Arbitron is really the Ticketmaster of radio," said Jeff Pollack, chief executive of a Los Angeles radio consulting firm. "They have a virtual stranglehold on the industry. . . . Both parties need each other. Clear Channel is the customer but they need the objective information that Arbitron provides, so it's all going to come down to a deal."
Some analysts believe that Clear Channel is big enough to survive without Arbitron.
Regardless of Clear Channel's participation, the information about its stations' popularity is available. Advertising agencies pay for and receive data from Arbitron that would give them ratings for all stations in a market, including Clear Channel's.
Besides, analysts say, local advertisers don't rely heavily on Arbitron ratings when buying time on local radio stations. About 80% of Clear Channel's advertising revenue comes from local advertisers; 20% is from national advertisers.
"They can do business locally without Arbitron," said Drew Marcus, a broadcast analyst with the investment firm of Deutsche Banc Alex. Brown.
Clear Channel executives say they can sidestep ratings by shifting their marketing strategy to focus more on local advertising and promotional packages that combine Web site, on-air and event promotions.
"It would be inconvenient and would require us to retool a little bit," said John Hogan, a Clear Channel senior vice president whose region includes Southern California. "We would sell on results, based on our relationships. We would be more creative with our promotional opportunities. And, frankly, we would have to work a lot harder."