Report: Ratings Compression Called Detrimental

The transition to PPM in radio’s largest markets ushered in an era of ratings compression. InsideRadio (paywall) is reporting that in New York two stations are tied for first in persons 25-54 in April with an Average Quarter Hour (AQH) rating of 0.5, four are tied for second place with a 0.4 and five are tied for third with a 0.3.  With ad inventory often sold on cost-per point, some say ratings compression has led to a “race to the bottom” in pricing, where the station offering the lowest cost-per point often gets the buy. 

The issue came up on Radio One’s first quarter earnings call, when CEO Alfred Liggins told investors the company was having ratings challenges in the Baltimore-Washington market.

“It’s market compression and how close the radio stations are in the rank to each other, so it’s really more of a pricing problem,” Liggins said. 

Research Director president Charlie Sislen blames compression on the methodology that rounds AQH ratings to one decimal point and claims “there may be a large quantitative difference between stations with the same reported rating.” 

Arguing that ratings rounding is “detrimental to our business,” he believes it’s time for Nielsen to change PPM methodology and suggests two potential solutions.  One would report ratings to more decimal places. The second would change how a station’s Gross Ratings Points (GRPs) are calculated by multiplying the number of spots by AQH persons instead of AQH rating, then dividing that number by the population.

The result would be “far fewer ties,” Sislen writes in the Research Director's blog.  But there are caveats. Changing the existing currency may be more precise but it wouldn’t improve the reliability of the estimate, which is tied to sample size. The statistical reliability would be “exactly the same no matter how many decimal places are shown,” he says.  Another issue is that an unrounded rating would be, on average, lower half the time and higher half the time.  “So you can charge more half the time, but less the other half,” he says. “But if buyers can see the difference between stations that are currently tied, the industry may be able to avoid the reverse auction,” where the lowest cost-per point wins.

Nielsen has not commented, according to InsideRadio.