Nielsen on Tuesday announced a blockbuster acquisition that aims to extend its media ratings empire. Nielsen is buying Arbitron for $1.26 billion in cash. The price marks a 26 percent premium over Arbitron's closing price on Dec. 17.

Arbitron is an international media and marketing research firm serving the media -- radio, television, cable and out-of-home -- the mobile industry, as well as advertising agencies and advertisers around the world.

Specifically, Arbitron measures network and local market radio audiences across the United States, surveys the retail, media, and product patterns of U.S. consumers, provides mobile-audience measurement and analytics, and develops application software used for analyzing media audience and marketing information data.

"U.S. consumers spend almost 2 hours a day with radio. It is and will continue to be a vibrant and important advertising medium," said Nielsen CEO David Calhoun. "Arbitron will help Nielsen better solve for unmeasured areas of media consumption, including streaming audio and out-of-home. The high level of engagement with radio and TV among rapidly growing multicultural audiences makes this central to Nielsen's priorities."

Aligning with Competition

With Arbitron media measurement weapons in its arsenal, Nielsen intends to further expand what it calls its "Watch" segment's audience measurement across screens and forms of listening.

"These integrated, innovative capabilities will enable broader measurement of consumer media behavior in more markets around the world," said Steve Hasker, Nielsen's president of global media products and advertiser solutions. "We will also bring local clients greater visibility to empower more precise advertising placement and campaign effectiveness."

Arbitron and Nielsen once went head-to-head on some fronts. Nielsen is best known for its television measurement, but also deals in online intelligence, mobile measurement, trade shows and related properties. Arbitron brings in a radio element that Nielsen was missing.

Although the Federal Trade Commission may see this as creating a monopoly in the media measurement industry, we asked Greg Sterling, principal analyst at Sterling Market Intelligence, for his take on the deal. He told us it makes sense for Nielsen: "This is straightforwardly a move to fill in gaps in Nielsen's coverage and consolidate its leadership position in media measurement. Arbitron measures radio audiences and related streaming-technology usage."

Betting Big on Radio

Together, Nielsen and Arbitron generated total revenues of $6 billion in the 12 months ended Sept. 30, 2012. Cost synergies associated with the acquisition are expected to be at least $20 million and will be largely driven by the integration of technology platforms and data acquisition efforts. Although there is some duplication, the acquisition shows that Nielsen is betting big on radio.

"Radio reaches more than 92 percent of all American teens and adults because they love to listen to music, talk, news and information while at home, at work and in their cars," said William T. Kerr, president and CEO of Arbitron. "By combining Nielsen's global capabilities and scale with Arbitron's unique radio measurement and listening information, advertisers and media clients will have better insights into consumer behavior and the return on marketing investments."