In Car Radio

Many have debated what the in car audio solution will be.  My vision is shaped by the device we all carry today that has so many functions.  It’s hard to think about creating a new system to manage our audio in car experience.  As a result my vote is for better integration with a car stereo system and display.  Several auto manufacturers have taken this approach including Ford’s Sync which connects via Blue tooth.   The way content is organized and displayed is the key.  In car listening represents approximately 40% of all radio listening.  Rather than the 20 choices you may have today (terrestrial radio) in your local market, with Internet radio you can now listen to thousands of different station or through services like Pandora, create your own station.  Obviously this is going to have a significant effect on terrestrial radio listening and why pay for satellite radio (except where there is exclusive content).  Terrestrial radio, given its fragmented nature (do most people know who Citadel or Saga is?) does not have a brand while Pandora has almost become the generic name for Internet radio.  So while terrestrial radio will certainly be present both over the air and through streaming there are going to be many more options.

Given the risk of distraction while driving there are some companies such as Radio Time that are trying to make the enormous world of choice in Internet radio listening more organized in an easy to use guide.  Radio Time has been working quietly behinds the scenes for many years to get their guide established in consumer devices.  They are now gaining some traction in-car as well.  Another company working to make the in-car audio experience better is Livio Radio.  Livio has built devices and mobile applications where the display is customized for this environment.  Livio has teamed with Pandora and Radio time to bring an enormous selection of Internet radio station including both Internet only and terrestrial stations that are streaming.

Within the next year we should see the future of in-car audio much more clearly.

Pandora

Pandora is the leader in Internet radio.  They worked away in obscurity for many years.  Their early entrance combined with their  unique (many have copied now) approach to generating a customized listener playlist, gradually built a significant audience.  With listener registration data they have reached a scale where they can now geo target and sell local advertising in many markets.  Their recent deal with AdReady on the display front and positioning this as an ad opportunity for SMB’s is just one step in maximizing their advertising opportunities.  They have created music genres and I would not be surprised to see them expand to offer other types of content, news, weather, sports, etc although this gets them away from their music (genome) roots and this type of content creation would be more expensive.

Arbitron states that Sirius XM has 32 million weekly listeners.  Quantcast states Pandora reaches 8.4 million people on a weekly basis.  While Pandora’s audience is roughly one quarter of Sirius XM, Pandora is growing rapidly (Pandora audience increased 104% from 9/09 t0 6/10.  With Pandora pushing hard for in-car placement we believe Pandora will overtake Sirius XM’s audience within three years.  It blows one’s mind to think about the billions of dollars invested in Sirius XM to create their audience compared with the $100 MM (just a guess) that Pandora has raised to date.  Public offering for Pandora within one year is my bet.

Mobile

Yes mobile is hot.  It is hard to read any publication without coverage or prognostication on where the industry is headed.  For the radio industry mobile currently means streaming their audio content to a mobile device.  The primary way of doing this is to create an application for each major platform; iphone, android, blackberry.  Some early entrants in this field built a portal where client stations could be listed.  While some adopted this strategy Radio Time listed all stations in a guide format even though they had no business relationship with the stations.  This mobile strategy was not attractive to radio stations as their brands were lost and as a result mobile companies such as AirKast began building applications for stations.  The mobile handset also created opportunities to interact with listeners including album information, lyrics, station playlist, concert information, song purchase, music video or share station with friends.  Some mobile apps are not superior to many audio players on the market.

There are a preponderance of app developers but only a few which specialize in the radio vertical.  Like the early days of the web companies such as JacApps produce apps that are static and if a station wants to make a change they must go back to the creator of the app or start over again.  AirKast has built more of a mobile CMS platform which can be customized by the station and its service runs on its AirBridge platform (specially developed server architecture).   We see this more as the future of mobile.

While its cool to have a mobile app most stations will want to generate revenue.  Just like internet radio there are numerous advertising opportunities including video preroll, in-stream audio and display.  Typically when referring to a mobile network such as AdMob or Quattro Wireless this means display advertising.  The CPM or now mostly CPC campaign are not attractively priced as ads are not targeted or contextual but just fit to a mobile device.  I believe a listener/viewer is more engaged on a mobile device and thus CPM/CPC’s should be higher, witness what Apple is doing with iAd.  The problem is most ad campaigns are not designed for mobile and the creative is poor.  If we factor in geo advertising mobile ad rates should be significantly higher.  Stations need to participate both in a national mobile ad network (one that can sell video/audio/display) as well as sell it locally.  Currently mobile audiences are small but will grow significantly over time.  In car applications and better device tethering will propel mobile audience growth.

The question you should be asking your mobile provider is whether they can measure your mobile audience (something that Ando has not fully implemented) as well as insert the various forms of advertising and of course measure impressions created. We are in the first inning but this channel is going to develop quickly.

We need innovation

Radio stations are content to take their over the air content and just stream this content online. While this may allow their P1’s another way to listen it misses the significant opportunity to create more engaging content that is customized for the way people are consuming this new media. As discussed in a previous blog, one of the largest impediments to building an audience is the high commercial load carried by terrestrial stations. No longer is a station compared to a limited number of other stations in any market but to a much larger universe. A social element definitely needs to be included. While it is more difficult to compete for audience in this new world one cannot deny its existence as many radio groups are doing. Let’s stop paying lip service to Internet radio and put some thought and resources behind it.

My wife recently asked me to read “Who Moved my Cheese” by Spencer Johnson, M.D.  He uses cheese as a metaphor for what you want to have in life and the characters in the story are faced with unexpected change.  Some of his tenets which I list below are quite applicable:

– Change Happens – they keep monving the cheese

– Anticipate Change – get ready for the cheese to move

– Monitor Change – smell the cheese often so you know when is it getting old

– Adapt to Change Quickly – The quicker you let go of old cheese, the sooner you can enjoy new cheese

– Change – Move with the cheese

– Enjoy Change! – savor the adventure and enjoy the taste of new cheese!

– Be ready to change quickly and enjoy it again & again – They keep moving the cheese

 

Is Internet radio audience increasing? YES for SOME

While the answer to this question is yes – not all stations are sharing in this growth.  For the period September 2009 – June 2010, Internet radio listening to the top 20 audio groups increased 27.2%.   Unfortunately terrestrial radio, including even the largest broadcasters for the most part, is not sharing in increased audience levels.  As you can see below, the one entity enjoying substantial growth is Pandora.  Since Ando Media, LLC commenced measuring Pandora’s audience (Sep 2009), Pandora has seen a 103.9% increase in its audience while the top 5 station groups (excluding Pandora) actually declined 14.8%. The top 5 radio groups include the large terrestrial broadcasters such as CBS (CBS includes Yahoo and AOL) and Clear Channel. [Please note all data analyzed herein was taken from the monthly audience information prepared and made publicly available by Ando Media, LLC based on 6 AM-8 PM Monday-Friday].

*effective December 2009 – mobile stats for Pandora are included
**June stats include both terrestrial & internet only stations

Measurement of Pandora commenced in September 2009 and at that time Pandora’s audience share was slightly smaller than that of CBS (note September results for Pandora did not include mobile measurement).  In the month of June 2010 Pandora represented 45.7% of all listening based on the top 20 Internet radio streaming entities as measured by Ando Media, LLC.  This percentage increased from their 28.5% share of the Top 20 in September 2009.

Since the above charts include those stations able to report listening only in the U.S., it does not include many leading Internet only stations.  Commencing in June Ando created a way for these stations to measure only their U.S. audience.  As a result Internet-only groups now rank as follows based on the June ranker:

#9 – Digitally Imported, Inc

#12 – 977Music.com

#17 – AccuRadio

#19 – 1.FM

From September 2009 – June 2010 these groups collective audience increased 19.36%

Internet only radio groups in the June ranker accounted for approximately 50% of all listening.

I can only conjecture as to why Pandora is enjoying audience success.  I believe there are two themes here (1) Pandora’s ability to customize a user’s listening experience – Terrestrial radio is taking the exact same programming from over the air and streaming that programming.  The presentation and interface need to be customized for the channel where it is being consumed. A Pandora listener can be active and create new channels based on multiple song/artist input or choose a format of music depending on mood.   (2) Ad Inventory – Terrestrial radio’s high number of ad units per hour cannot effectively compete for audience where a strong competitor is carrying 1/10 the amount of ad inventory.  This low inventory load is not only true of Pandora but for most internet only stations.  The type of ad inventory also matters.  For example, 60 second commercials drive listeners to other alternatives.  While it may be argued that the internet only stations low commercial load means they are not monetizing their streams today, where audience exists, advertising will follow.

Targeting – Given Pandora’s required registration and technology it is able to target advertising to specific listeners based on location, gender and age.  This makes the user experience more customized allowing relevant content to be served.  While many terrestrial streaming stations have the ability to target it is typically only based on geography as other listener data/registration is not required of listeners.

Pandora’s audience is almost 10 times the size of the largest terrestrial station’s off line audience.  Given Pandora’s audience size they will be successful in leveraging their way into mobile and in car devices). Terrestrial radio is fragmented and for the most part they cannot agree on a unified approach (as evidenced by the current controversy over the radio royalty proposal organized by the NAB).  Pandora has announced a local sales initiative which will result in them being a competitor for not only national advertising but also in a broadcaster’s backyard advertising market.

Terrestrial radio has a window of opportunity to capitalize on IP delivery of its content.  However, just continuing to stream their existing commercial laden content will not work in the new ecosystem.

Robert Maccini was a founder and previously served as the CEO of Ando Media, LLC the leading internet radio audience research firm.  He was also a founder of Net Radio Sales (which was sold to Katz Media), the leading internet radio rep firm.  Mr. Maccini can be reached at rmaccini@angelstreetcapital.com or 401-854-1850.  Angel Street Capital provides consulting and investment funding for digital media start up companies.

HD RADIO D.O.A.

Unfortunately HD Radio was dead on arrival. This topic is like the emperor with no clothes. Many in the industry are afraid to speak up and state the facts. While a good idea when originally contemplated, technology passed it by before it was able to be launched. I cannot see how it can compete with IP delivery. The hundreds of millions of dollars invested in HD radio have been wasted. If radio groups could have invested this in their digital platforms the industry would be much further ahead.

Below we summarize the comparative disadvantages of HD radio compared with Internet radio:

• HD radio relies on the consumer having purchased a device where IP radio delivery is available to all those that have an internet connected device (Ibiquity states that 3 million HD radio receivers have been sold compared to the 240 million broadband subscribers in the U.S.)
• HD radio is one way delivery while IP radio is interactive
• IP radio audience measurement represents actual listening as compared with sample audience data
• Quality of Internet radio stream can be superior depending on bit rate of streaming chosen by station
• HD radio format positioned for competition against other terrestrial stations in limited geographic area
• The term “HD” is highly confusing to the listener as they equate it more with television/video
• Internet radio listening can be mobile as hundreds of apps have been created for smart phones while HD radio must rely on dedicated portable radios

Let’s put resources where there is the greatest return.