New York Attorney General Andrew M. Cuomo has announced plans to file suit against Arbitron, alleging that the company has deceptively claimed that its new radio ratings system fairly measures audiences, when in fact it underrepresents African American and Latino listeners.

Arbitron has decided that the best defense in this instance is an offense, and has beat Attorney General Cuomo to court. Before the AG’s office could file its suit, Arbitron filed its own suit against the attorney general in U.S. District Court for the Southern District of New York, seeking to protect its free speech rights through injunctive relief.

The dispute concerns Arbitron’s long-running efforts to replace its paper-diary method of measuring audiences with new electronic Portable People Meters (PPMs). Because paper diaries rely on the memory of the participating listeners, they have been criticized as being unreliable and inaccurate. The PPMs are worn by participants and pick up hidden codes in radio broadcasts, thereby automatically recording participants’ listening habits.

The New York AG’s suit charges Arbitron with “failing to disclose important flaws in the PPM methodology to broadcasters, advertisers, shareholders and the public,” the attorney general’s office said in a statement announcing its plans to file suit. As of press time, the complaint had not been filed yet in court.

In the New York market, Arbitron recruits participants in its ratings studies from an insufficient number of households that use cell phones instead of land lines, and fails to recruit participants in person, “both of which disproportionately exclude African-Americans and Latinos,” the AG’s statement said.

Arbitron is guilty of other anti-diversity woes, the AG’s office said. The company “fails to appropriately designate households as Spanish dominant,” does not recruit listeners who neither speak English nor Spanish, and doesn’t sufficiently train users on the PPM, Cuomo alleged.

“Although [the Media Rating Council] and minority broadcasters repeatedly contacted Arbitron to advise it of the flaws of the PPM methodology and their likely effect on minority broadcasters, Arbitron did not suspend the commercialization schedule and failed to acknowledge the flaws,” charged Cuomo.

The attorney general will seek to enjoin Arbitron from engaging in deceptive and illegal practices in claiming that its system is fair, accurate and accredited by the MRC.

Arbitron Bites Back

For its part, Arbitron noted in its complaint that the company conducted more than 75 studies and field tests of the PPM before launching the system commercially in the United States. The system is used to develop commercial ratings in places such as Canada, Norway, Denmark and Singapore, the company said.

Arbitron acknowledged that the change in technology would spur a change in ratings.

“Because the PPM is a new type of ratings measurement tool which is more objective in nature than the paper diary and does not rely on the memory and recall of the participant, the audience estimates obtained from the PPM panelists using the PPM are not the same as the results previously obtained using the paper diaries,” Arbitron stated in its complaint.

“Across the board … Average Quarter Hour (“AQH”) ratings are lower for most if not all stations,” the company said, ascribing the trend to participants’ tendencies to “round up” in filling out paper diaries to the nearest top or bottom of the hour.

Where the PPM has been introduced in other markets, stations, including those with formats aimed at serving diverse audiences, have experienced an initial drop in ratings, Arbitron acknowledged. But several stations have learned to make adjustments to their programming and promotional practices to pick their ratings back up, Arbitron said, listing examples. These stations were able to improve their ratings without abandoning their basic formats, Arbitron stated.

“To Arbitron’s knowledge, in the nearly two years since the PPM has launched in Houston and Philadelphia, no minority owned station has gone out of business or suffered significant financial harm as a result of the PPM ratings,” said the company. “In fact, revenue trend data for the radio markets in Houston and Philadelphia for 2006 and 2007, the year PPM was commercialized in both markets, shows that minority-format radio stations have performed almost identically to the local markets as a whole.”

In addition, Arbitron noted, in Philadelphia, the minority-format radio stations “actually outperformed the local radio market when Arbitron implemented the PPM.”

Further, Arbitron has delayed its roll-out of the PPM technology to meet with minority-owned broadcasters in New York in an effort to satisfy their concerns, said the company.

“To the best of Arbitron’s knowledge, the broadcasters and advertisers in the markets where PPM has become currency have already prepared for the transition to using the PPM audience estimates and have or will adjust their programming to take best advantage of PPM.”

Arbitron noted that several minority-owned stations have top-rated shows under the new PPM system, such as the Steve Harvey Morning Show on New York’s WBLS, owned by Inner City Broadcasting, and the weekday morning programming of WOJO in Chicago, a Spanish-formatted station owned by Univision. Both were top-rated among key buying demographics for advertisers: 25-54 for the Steve Harvey show and 18-34 for WOJO’s morning show.

Arbitron blamed the current dispute on a “a small number of politically well-connected minority station owners and broadcasters who are displeased with the prospect that under the PPM system, their station’s ratings and rankings may decline from those previously reported by Arbitron under the diary system.

“However, any such decline in ratings and rankings, in Arbitron’s opinion as reflected by the PPM audience estimates, represents the likely listening audience for these stations and is in many respects driven by the programming decisions made by these stations.”

In response to the AG’s investigation, Arbitron maintains that its radio audience estimates are noncommercial speech protected from prior restraint by the First Amendment. Arbitron accused the attorney general of creating a “chilling effect” on the industry by filing his suit at a crucial time, when the industry is planning advertising budgets and placing ad programs.

Arbitron asks the court to declare that its actions are protected free speech, and to enjoin the attorney general from interfering with its efforts to deploy the PPM ratings system and publish the results from use of the PPM.

Why This Matters:  Arbitron continues to deploy its PPM technology amid this litigation. Nonetheless, until the issue of the PPM is resolved, the ratings produced by the PPM will be somewhat controversial.