Angel Street Capital recently completed an investment in Livio Radio. Livio Radio, a Detroit-based team of auto infotainment and digital audio veterans, has established relationships with key content providers, automotive companies and retail players and has a validated, scalable business model that addresses a large, global market. Specifically, with the car being the final frontier of the rapidly growing internet radio market, Livio Radio has developed a suite of hardware products & middleware/software solutions that enables full in-car audio experience via smartphone for nearly any car – new or old. Put simply, Livio has enable Internet radio in the car. I recently wrote a post on Livio which can be accessed here.
In car listening is going to drive significant growth in Internet radio listening. In car listening to terrestrial radio represents the largest percentage of total listening and I believe the same will be true for Internet radio. Internet radio in-car listening is already occurring by connecting your mobile phone in various ways to your car’s stereo/entertainment system. I have always thought that it would be the phone that ends up being the device that serves as the conduit for in-car Internet radio listening. No one wants to set up yet another interface for listening and smart phones have now become practically ubiquitous. The collection of wires, adapters, bluetooth devices all deal with what is termed the auto after market (making a system work given what is already installed in your car).
One of the companies focused on in-car Internet radio listening is Livio Radio. Livio has many systems for making in-car Internet radio listening a possibility. The one I like the best is called “The Kit” which works with Blue Tooth. You download the Livio Radio app (which has 45,000 internet radio stations) and plug the nice looking compact device into your 12 volt lighter port. Via bluetooth the Livio phone app starts and your choice of Internet radio station plays via your car speakers. This approach works for the auto aftermarket but I would rather not have to insert the Livio device into the lighter port. The after market solutions will continue to be utilized for several years given the millions of vehicles already on the road today.
Only major Internet radio brands such as Pandora will be able to integrate with car manufacturers so that they are built in. There is a multi-year lead time and Pandora has been working on car company integration for some time. Car companies will not deal with a multitude of Internet radio providers. However, Livio Radio will make it possible for all Internet radio brands to participate. Livio has developed an API (think interface) that allows this seamless integration between internet radio stations and a cars entertainment system. The ease of use which terrestrial radio has had in the car for decades has to be present for large scale consumer adoption.
Terrestrial radio has a hard time understanding that in the end the consumer will decide what, where and how they would like to consume audio content. I believe consumers want Internet radio in their cars.
Angel Street Capital recently completed an investment in AirKast, Inc.’s Series A Preferred Stock offering. AirKast develops mobile applications which run on its AirBridge platform. One of the industry verticals it has targeted includes Internet radio. AirKast clients include many of the leading radio companies. The company’s TuneKast offering allows stations to stream their content as part of its application. Clients include ESPN, Radio Disney, Citadel Broadcasting, Salem Communications and many more. Members of Angel Street Capital have previously invested in earlier AirKast funding rounds. The company is growing rapidly and is well positioned to take advantage of the explosive growth occurring in mobile.
We just returned from the NAB Convention in Las Vegas having attended RAIN Summit and numerous meetings with industry leaders and firms involved in Internet radio. 2011 is shaping up to be the year of Internet radio especially given the IPO filing by Pandora. However there are some new partnerships and entries on the services side of the business which I have highlighted below:
- Liquid Compass has announced a partnership with ADSWIZZ where ADSWIZZ will provide ad insertion and impression measurement services for Liquid Compass customers. ADSWIZZ is a Belgium based company that has been operating in Europe and has been eyeing entry into the U.S. market.
- ABACAST has secured new funding and has launched a new Ad insertion system, Abacast Clarity. Additional partnerships have been announced with firms to assist in monetizing station ad inventory including Citadel Media and AdLarge. ABACAST also provides audience measurement services.
- A new company providing audience measurement has launched in the U.S., Touchcast. Touchcast based in Belgium has launched it Casterstats product.
- Ando Media (now known as Triton Digital) has secured Media Rating Council (“MRC”) accreditation for its Internet radio measurement service, Webcast Metrics
- Arbitron has announced that it is going to provide audience measurement services for Internet Radio
These developments should lead to a very interesting year in the Internet Radio industry. Given Arbitron’s dominance in measuring terrestrial radio it would be hard to bet against whatever platform they release not being the eventual winner. Will they buy or build?
Ando Media (a company we founded in 2004) has been the dominant ad insertion and audience measurement company serving the Internet radio industry. Triton faces heightened competition on the ad insertion side of their business and now audience measurement as well. As in all industries, now that the market has grown competitors are emerging.
There have been a number of recent developments in Internet Radio:
- Pandora has filed to go public and raise $100 million
- Spotify has concluded deals with leading U.S. record labels and announced a $100 Million equity raise
- Rdio announced it had received $17.5 million in funding.
- Slacker raised $3 Million in additional financing
- Clear Channel Radio acquired cloud based music system Thumbplay
- 2/26/10 MOG raised $9.5 Million
- Grooveshark raised $3.5 Million
Internet radio takes two forms, subscription model (all you can eat for low monthly fee or pay for no ads) and advertiser supported. There are pros and cons to both the consumer and the business model for both forms. In general I would favor the ad supported model but Internet radio companies such as Pandora pay a significant amount in music royalties thus making the business model less attractive.
I find it ridiculous that terrestrial radio executives and Sirius/XM don’t believe that they are in competition with Internet radio or that listeners don’t want a personalized experience. Customization can be actively managed (Pandora) or derived from one’s social media graph. I do understand that radio groups still derive 95% of their revenue from terrestrial and this is where they need to devote the bulk of their resources. However, they must be prepared (literally) for what is coming down the road.
When talking about music with my 16 year old son, I asked him how he learns about new music. He had two responses; 1) Facebook (when his friends “like” a song or artist and 2) www. thissongissick.com. The later is a site containing new artists or mixes/mashes curated by an individual. A shift from professional curation (the PD) to crowd sourcing and opinion molders has taken place. My son does listen to terrestrial radio in the car but he seems to already know just about every song that is being played and on only two occasions can I remember when he was excited about something he did not immediately recognize. Of course terrestrial radio playlists are extensively tested to weed out anything he would not recognize and like. On the way to school this morning (a 20 minute ride) I counted 72 changes of radio frequency due to commercials or monotonous jock talk. He was searching for music. This is a broken search function model which will be fixed in car dashboard 2.0.
XM/Sirius does have some unique content not available elsewhere (e.g. Howard Stern) that consumers are going to continue to want. XM/Sirius is a different distribution system with the advantage being ubiquitous across the U.S. I question whether their all-music channels can compete unless of course there is no Internet connectivity.
There has been an explosion in Deal a Day companies led by Groupon and Living Social. BIA/Kelsey estimates 2010 revenue for the industry at $873 Million and revenue continuing to grow in double digits. Deal a Day sites continue to add markets and many are establishing a local sales force. Coupons are attractive and can result in businesses attracting new visitors through the offer. In addition, business owners can easily quantify and measure the quality of the response, e.g. did it lead to other product sales. There has been criticism as to whether the bulk of coupon buyers are existing customers, while in part true, it also contributes to existing customer loyalty.
While some would argue that Deal a Day companies should be lumped in with Direct Mail, I believe Deal a Day companies do compete with radio for marketing dollars. Their establishment of a local sales force is highly troubling to the radio industry already struggling to eek out positive revenue growth. Many companies such as www.tencoupons.com, Deal Current, Second Street Media, Tippr, TownHog and others are aligning themselves with radio. These radio aligned Deal a Day companies will help those more innovative radio companies obtain a share of this market and reduce the risk of revenue loss.
With terrestrial radio we had studies by Arbitron and others that broke down the composition of a format’s demographic audience (20% 18-34, Soft AC skewed more female, etc.). This information was based on data collected from the people who filled out a diary. Location based advertising was somewhat easier because a station’s over the air signal only covered a specific area and in many cases a defined Arbitron metro. Advertisers targeted audience based on format and market. Other qualitative information for the most part was missing or again was based on format.
With Internet radio we have the ability to know the exact number of listeners, where they are located, demographic and other qualitative information. Let’s discuss each of them:
- Location – at the very least based on IP address we can with about 80% accuracy know where a listener is located. Total accuracy can come from requiring audience registration (many station are reluctant to do this as they feel listeners will just click away to another station) or from the use of a cookie.
- Demographic – While format can still be utilized information could be obtained with listener registration information
- Qualitative – This can be obtained with the use of a cookie and tracking where a listener goes on the internet
As a result Internet radio has the ability to better target advertiser messages. In a mobile context, a 19 year old male could be served up an ad for a free slice of pizza when walking by House of Pizza at 4:30 pm. Targeting makes ads more efficient. However there is also a down side. When you start slicing segments of an audience you often have difficulty in generating enough impressions. This problem will be mitigated as Internet radio audience continues to grow.
From a technology standpoint Ando Media, the largest Internet radio ad insertion company has a server side targeting system. Many companies such as Target Spot utilize a player based system. Player based systems have limitations as there are many ways of consuming Internet audio where a player does not exist (mobile and audio devices such as Sonos).
Ad agencies are striving to be more efficient investing their client funds. Even if targeting did not exist with Internet radio you know that an ad was actually heard and where it was heard as compared with terrestrial radio’s estimate that it was heard – I believe this to be very powerful.
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.
We just returned from the Fall National Association of Broadcasters convention in Washington, D.C. The mood was significantly more upbeat given the positive growth in radio revenue this year. One of the key themes of the convention was developing a digital strategy. Of course there are those who don’t want to acknowledge that the world has changed. Advertisers now have a way to measure results and be more efficient in their advertising expenditures. This structural shift in advertising has taken a heavy toll on traditional media including the radio industry. Lay a recession on top and well 2009 was a year the industry would like to forget. However, increasing revenue in 2010 has caused some to believe that “radio is back” and that digital is not important.
The radio industry is confused as there are so many different strategies and groups hawking digital initiatives and tools including social, web site, mobile, couponing, etc. Some of these products have a “cool” factor but I question the ability for a station to generate revenue given what little resources are being devoted. Just having a tool does not lead to revenue generation. In one of the panels a gentlemen lamented that he had done everything recommended, he had a non-station centric website, he was streaming, using Ando, but had no clue as to how to effectively monetize it all. Someone needs to bring some order and research to this chaos. In future blogs we plan on addressing each of the silos in a station’s digital media arsenal.