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There have been a number of articles and speeches recently where people are questioning Pandora’s self reported audience. Is it 8.06% or 4%? While I do believe we need third-party measurement, that already exists with Triton Digital’s Webcast Metrics. From the rumor mill I also understand Triton is going to be measuring individual markets which will include Pandora.
Why is audience measurement important? Audience measurement is used as a planning tool. It is especially useful where audience metrics are utilized to determine delivery of an advertising campaign. Pandora and Internet radio have not such problem. With Internet radio you know how many people heard your ad. It is not an estimate unlike terrestrial radio. This is perhaps why most agencies buying Internet radio are not as hot under the collar as terrestrial radio in attacking Pandora’s audience estimates.
Google has finally arrived at the Internet Radio table although I must say the name of its service, “Google Play Music All Access” leaves something to be desired. Apple will most likely follow by the end of the year. There are still a lot of unknown details especially if any free ad-supported models will be forthcoming. One thing is for sure, there are only so many hours in a day to listen so most likely everyone’s share will decrease. This includes terrestrial radio. Terrestrial radio appears too busy trying to bail out the waning AM radio service and make non interactive HD radio work to attack IP audio. CBS was an early leader but their bets did not pay off. Clear Channel has now grown an impressive Internet radio service with over 30 Million registered users. However, we have gotten to the point where Clear Channel’s future interests may not fully align with the rest of the radio industry.
We just returned from the NAB last week and while there we attended the NAB’s day long session, Digital Strategies for Broadcasters. The panels were well prepared but sadly there were only 60 people in the room (92,414 attendees at NAB). One of the better panels covered the connected car. Panelists were from the Consumer Electronics Association, Connected Vehicle Trade Association and a consultant formerly with Lexus/Toyota/Scion. One slide I wanted to highlight came from Michael Bergman from CEA. This slide illustrates what is projected to occur through 2016 in the car. Note Internet radio growth with over 80% in-car penetration by 2016. Penetration is more than twice that of HD Radio. As I have posted previously HD radio lacks full two-way interactivity, a few extra channels with no compelling advantage in content and/or audio quality cannot compete with Internet radio. The Digital Strategies session opened with a chart showing current internet listening vs. terrestrial radio. Obviously an emphasis on today rather than the future…
Social Media is a key indicator of audience engagement and what is resonating in the social media ecosphere. While there are a number of social media channels for purposes of this analysis I chose Twitter. I utilized the services of Socialping, a company that specializes in Twitter audience metrics. Socialping provides twitter analysis including monitoring key words. I decided that I would apply Socialping measurement to Internet Radio. I created watch lists for key words for the following;, iHeartradio, Pandora, TuneIn, KROQ, Rdio, WBLS and Spotify. The measurement period is for one week beginning 2/25 – 3/3.
The above data reveals several key findings;
1) Spotify is the leader in followers with almost 3x that of Pandora. This is probably due to its more international offerings. However, Pandora and Spotify have approximately the same reach.
2) iHeart radio has more followers than Pandora. However, the # of tweets is only 3% of that for Pandora (Note: iHeart’s radio audience as reported by Triton Digital is 15.9% of Pandora’s). Has Clear Channel driven people to follow but they are not engaging with the service?
3) One of the top single stations in the country, KROQ has roughly half the followers of iHeart Radio.
4) While Tunein has less than one third the number of followers as iHeart they have 3x the reach.
As discussed in my prior post the technical side of car integration for Internet radio is difficult due to the many car companies, their suppliers and in dash systems. Pandora, Tunein, NPR and iHeart radio have an amazing lead on the terrestrial radio industry for real estate on the car entertainment systems. Pandora was integrated with every car company we visited at CES and claims to be integrated with 1,000 different devices. These integrated applications appear prominently as listening options. The rest of terrestrial radio streaming is for the most part not represented except as embedded in Tunein, Aha or iHeart. This is a major factor as to why many other radio stations have agreed to be included in the Tunein and iHeart platforms as it give them access to these distribution systems which also have in car access. However, in a point I made in an earlier post they are lost in a multitude of options.
Yes there is still a radio button in the car and this will not disappear any time soon. However, it is now just one of a multitude of choices. As we know people typically have about 6 presets (their favorites) and scroll among them. How will terrestrial radio compete in a fragmented dashboard. In my view it will not be based on music but other unique and local content. Unfortunately radio has reduced its investment over the last several years in its product. Very little programming is local and unique. Competition for other information such as news and weather is readily available from other sources. Those that do invest and have a multi-pronged distribution approach will be the winners.
We just returned from the Consumer Electronics Show in Las Vegas. The primary theme was Internet radio in the car. One of our portfolio companies, Livio Radio, announced FMConnect which allows terrestrial radio stations the ability to now take advantage of two-way communication (read; digital) utilizing the cell phone connected to your car’s entertainment system. Also Kudos to Fred and Paul Jacobs for inking a deal with Ford for their Ford Sync product. Unfortunately the car ecosystem is fragmented and confusing to a degree that is frightening. While developing an app for Ford is an attractive idea, keep in mind that this app will not work with all the other car companies’ entertainment systems. As currently stands a station would have to develop a different app for each car platform which is what Livio Connect is trying to eliminate. Livio is integrating with all car companies and their suppliers. Internet radio in the car can be achieved by many means as follows:
1) physical cable
2) Blue tooth
Some systems just mirror the phone with navigation still done on the phone. Others such as provided by Livio Connect allow listeners to control access to streams from the cars control. This makes controlling audio options much safer. This is also true of Ford Sync’s product but it of course is one of many in the car ecosystem and I don’t think that Chrysler is going to allow the Ford platform into their cars. Thus the need for a company like Livio which can work with all car companies because it has integrated into the chipsets of major suppliers of the in-car entertainment systems. Radio companies should leave getting connected in the car to auto industry experts given the vast, confusing world it represents and should partner with a company like Livio to deal with integration.
Angel Street Capital recently closed on an investment in Fundation, Inc‘s convertible note round. Fundation provides on-line commercial loans of $50,000 – $250,000. Fundation has developed an automated credit decision engine and will use the Internet to target its offering to select industries and geographic areas. This is not a peer-to-peer lending model but rather a fund that will deploy capital utilizing Fundation’s platform. The platform will launch in the 4th quarter.
Given the recent filing by Reps. Jason Chaffetz (R-UT) and Jared Polis (D-CO) of the “Internet Radio Fairness Act,” bill and the significant impact that this could have on the economics for Internet radio we should all be following the upcoming music royalty negotiation that SiriusXM will undertake. The House Bill proposes the same standard as that governing SiriusXM’s music royalty rates. Should the rate currently paid by Sirius, 8%, be also what governs terrestrial broadcasters that are streaming this would significantly improve the economics of the Internet radio industry. Please see an excellent overview in David Oxenford’s blog.
This morning Fred Wilson, Partner at Union Square Ventures wrote in his blog post about sustainability which applies to Internet Radio. Some of Fred’s thinking comes from Clayton Christensen whom I have cited before in my blog. Here is Fred’s blog post:
If you want to stay in business forever, you have to focus on the long term. You must construct a business model that builds confidence and trust with your customers and keeps them coming back day after day, year after year.
Many business schools teach executives and entrepreneurs that business is about profit maximization. I don’t believe that. I believe business is about making a profit that sustains the business and enriches the owners but is not maximized in any period (month, quarter, year). I believe the goal of a business is sustainability so that all the stakeholders (customers, employees, owners, suppliers, etc) can rely on the business for the long term.
Let’s use an example. You own a business that operates on the web. You are a leading supplier of ecommerce to a vertical market. You generate $50mm in annual revenues and make a profit of $5mm a year. You see the launch of the iPhone and Android and think that your customers are going to want to connect to your business via their mobile phones. You ask your VP Product to scope out what it would take to build a comprehensive set of mobile apps that will allow this. She tells you it will take an investment of $5mm over two years to complete this project. You gulp. That is going to reduce your profits by $2.5mm a year in each of the next two years. What do you do? You make the investment because you must invest in the long term success of the business even though that is not a profit maximizing event. It may simply get you back to the $5mm per year of profits you were making before. There may be no ROI on this investment in a positive sense. It may simply be a defensive investment. You still need to make it to ensure you will be around for the long run.
Clay Christensen talks about this kind of thing all the time. Big company executives are asked to calculate a return on investment (ROI) on the investments they want to make. If the ROI isn’t greater than some minimum hurdle, the company doesn’t make the investment. And so along comes a smaller competitor who makes the investment and they eat the big company’s lunch.
ROI is not the right framework for companies to evaluate investments. ROI is for the wall street folks. They will use it to decide if they want to invest in your company. But when you make investment decisions in your company, don’t use the tools that wall street uses. Use the tools that animals use. Survival instincts. What will it take to ensure that your company is around in ten years, fifty years, 100 years? That’s how to think if you want to stay in business.
One of the most difficult decisions entrepreneurs and executives have to make is the decision to disrupt their own business. Let’s say you are a cable operator. You are making billions of dollars of profits each year providing voice, video, and data services protected by a monopoly business model. Along comes the Internet and it allows voice and video to be delivered to your customers via any IP network (wireline, cable, wireless, etc). You know that over time, this is going to disrupt your business. What do you do? Do you invest in this new technology and drive it into the market, hastening the decline of your monopoly protected business model or do you do everything you can to slow down the advance of this technology?
Sadly most executives make the latter choice. Most entrepreneurs make the former choice. The latter choice is about short term profit maximization but can, and often does, lead to the demise of the business in the long term. The latter choice is about survivability even though it will almost surely lead to a less profitable business in the future. Tough choice. But to me its an easy choice if your goal is long term survival.
One of the reasons entrepreneurs make these hard choices when executives don’t is entrepreneurs think like owners. They have that survival instinct in their gut. They don’t want their baby to die. Executives are hired guns. They are focused on maximizing the success of the business (and their compensation) over a short period that they will in the corner office. They have no incentive to think about what happens in 20 years or 50 years. They know they won’t be around. And so the company isn’t around either.
So when you construct your business model and create the culture of your business, emphasize sustainability over profit maximization in everything you create and do. This does not mean that you don’t need to make a profit. Profits are the essence of survivability. You can’t and won’t survive without profits. They are everything when it comes to sustainability. But just because you need to make a profit doesn’t mean you need to maximize it. Balancing the need for a profit with the need to sustain the business is the art of what you must do as the leader of a business. Do both and you win.