INTERNET RADIO AD INSERTION

There appears to be a growing movement questioning the cost of ad insertion for terrestrial radio stations that are streaming.  Saga Communications recently decided not to insert different ads into their streams but to let the same programming going out over the air to be distributed on their streams as well.  This movement if successful will sound the death knell for terrestrial stations that are streaming.  Given the other Internet radio listening options consumers will not choose to listen to a stream that is running 10-14 ad units an hour complete with some 60 second spots.

I understand that many stations are not making money from their streaming operations.  What I suggest is that rather than inserting PSA’s and other filler content that music stations insert songs.  The technology exists to do this and there should not be a charge for this type of non revenue producing insertion.  Some stations are doing this and there are no audio quality issues.  Ad insertion fees are not significant when compared to bandwidth and music royalty fees.

The course that is chosen will have considerable influence on the upcoming battle for in car listening.  Stopping ad insertion may save a few shekels in the short run but long term it will have more significant costs.

IS PANDORA’S AUDIENCE GROWTH SLOWING?

Today Pandora announced audience metrics for June 2012.  While these stats represent significant growth over the prior year, June results were lower than May except for share of total radio listening as can be seen below:

Listener Hours – 1.08 Billion (- 1.8% May to June)

Share of Total U.S. radio listening ( +3.1% May to June)

Active Listeners (- 2.2% May to June)

May also includes the Memorial day holiday (listening is often lower during such periods) which makes the decline worth noting.

INTERNET RADIO AD TARGETING

Ad targeting in Internet radio does not deliver for advertisers at the local level.  No it is not rooted in a problem with technology.  As recent announcements from Triton Digital and Abacast make clear, the technology exists.  However, since most station’s audiences are small and a significant amount is out of market listening (often over 40%) targeting will not yield impressions needed to generate significant revenue.  As a result targeting at the station level makes little sense other than possibly to guarantee to an advertiser an ad won’t be heard out of the metro.  Targeting is useful on a national basis as a combination of stations on a network can deliver results as long as the target is not too narrowly defined.  Pandora is probably the only service that can target locally without aggregation due to the size of its network.

Most radio stations do not collect listener data for their streams so the only targeting that can be done is geographic based off of an IP address.  Listeners will give up this data for something they value if it cannot be obtained from other sources, e.g. Facebook.  Some targeting is done based on station format, e.g. an AC station’s audience is primarily 25-54.  This is not always accurate.  IP addresses are not always correct as well which can result in lack of delivery of the campaign.

Mobile targeting is perhaps the holy grail as you can reach consumers closer to the point of purchase.  As with targeting to desktops the problem of scale is even a greater issue in mobile.  We have heard that Pandora is having difficulty monetizing its mobile audience which is 70% of  their total audience.  I don’t quite understand this as I would argue that engagement is greater with a mobile phone than on a desktop (you may leave your desk but typically you don’t leave your phone).  I believe that longer term we will see premium CPM’s for mobile.  Effective ad creative and proper delivery  will help.

Tunein – Developing a Revenue Model

  Tunein is perhaps one of the largest directories of Internet radio stations with over 50,000 stations listed with most available to be      streamed.  The company has been signing up stations to be part of their directory although we do not know the business terms of these deals.  I think it is safe to assume that they are not exclusive.  Tunein was created by the merger of RadioTime (on line station guide) and TuneIn (mobile Internet radio app).  While Tunein provides information about radio programs and can stream your favorite station, for many years they allowed users to connect to a station’s stream through their guide without having the station’s explicit approval.  Some radio station companies such as CBS have asked Tunein not to carry their streams.  Although obtaining a $6 Million investment from Sequoia, they struggled for many years on how to monetize the service.  Since they did not have a relationship with the underlying station they had no way to insert audio ads.  The revenue component could only come from preroll ads (audio or video), display ads, and featured listings.  Even preroll ads are questionable as many stations insert preroll video so Tunein would have to insert a preroll video ad in front of another preroll video ad,  something that would not make for a great user experience.  They appear to be running only ad network display ads.  There were preroll videos in front of some streams but again these are most likely the ones inserted by the stations themselves.

While no public data exists on the size of the Tunein network in a press release dated 3/22/12 announcing the carriage of The Wall Street Journal Radio Network, Tunein claimed to have 30 million listeners and be in the top five in Apple’s App Store’s music category.  It would be great if Tunein would release more audience metrics but I can only surmise that they need to develop their business model first by entering into an agreement with stations whereby they can obtain part of the ad inventory or solidify premium placement for accessing streams.  Any measurement would a duplicate of that also measured at the individual station level but at least we would have a better feeling for the use of the Tunein platform.  Tunein is a great service and one that we watched the founder, Bill Moore, develop and where we came close to investing on several occasions.  Whether we made the right decision or not remains to be seen.

iHEART RADIO FOLLOW UP

I have received numerous comments about the post I wrote last week entitled “What do Broadcasters’s see in iHeartRadio”.  My post has been interpreted in a number of different ways.  Let me first state that iHeartRadio is a great service and one that I have loaded on my iPhone.  Clear Channel has markedly improved the user experience, especially on a mobile device.  In order for terrestrial radio to continue to be successful I believe these elements are key:

1) Reduction in number and length of ad breaks – iHeartRadio’s decision to run no ads was a great decision. When ads are introduced hopefully the spot load will be low.

2) Customization – With its newly designed customized listening experience iHeartRadio is on the same playing field with other services such as Pandora and Spotify for the first time.

I would like to highlight one reader’s excellent point. For smaller stations that can’t afford to invest in a mobile platform iHeartRadio is a way to for their listener’s to access their streams on mobile devices.  Also integration with Facebook may be beyond smaller broadcasters capabilities. Further, due to its larger scale, iHeartRadio’s potential access to in-car systems would give smaller stations in-car  presence.

My intention with last week’s post was to have readers take away that stations looking for monetization should not rely on iHeartRadio’s platform to deliver meaningful revenue.

 More and more audio will be consumed via the IP channel.  For any station to be successful it must provide a well thought out functional interface as well as desirable content.  The listening experience with Internet radio can be active in that a listener can interact with the service while audio is streaming.  iHeartRadio can provide such an interface for terrestrial broadcasters who may find it difficult to compete on a sheer music jukebox basis with such services.  Terrestrial radio can capitalize on its unique content such as sports, news, local information, music curation etc. so, it does have this advantage.  Their challenge will be to continue to provide such content in an environment where ad revenues are declining and those dollars that are invested are increasingly going to digital media.  My hope is that terrestrial radio will rise to the challenge.

WHAT DO BROADCASTERS SEE IN iHEARTRADIO?

Is it extension of their brands? Is it increased advertising revenue?  A new distribution platform?  A number of broadcasters have agreed to have their internet streams added to Clear Channel’s iHeartRadio platform.  Even though I believe in added distribution channels, there simply is very little benefit for stations to join and distribute their programming via this platform.  Being added just means that you are one of more and more stations/channels on this increasingly fragmented platform.  While stations may get to keep their in-stream audio ad revenue I’m sure Clear Channel is keeping all pre-roll and display revenue.  Will this platform result in some added ad impressions and therefore revenue?  Yes but not enough to buy a cup of coffee.  Of the five featured stations today, all were owned by Clear Channel.

For Clear Channel this is a beautiful thing.  They get content for free to add to the offerings on their platform to the consumer and take advantage of the effects of “the long tail” (No one broadcaster will benefit dramatically but Clear Channel may in the aggregate).

It appears that this is more a feel good strategy that terrestrial radio is doing something in digital.  As I have noted before, Clear Channel is tiny compared with Pandora’s audience (about 15%).  Based on Triton Digital December 2011 Internet Audio ranker, even if you added all of the top 20 terrestrial stations’ audience including Clear Channel it would still only be 42% of Pandora’s audience .  What’s more, Pandora’s audience is increasing rapidly while the terrestrial stations audience has not increased over time.

RADIO STATION WEBSITES

For the most part there is nothing compelling on radio station websites.  The primary reason that most people visit is to start the station’s stream or find information about what a station is playing.  In a just released survey by The Media Audit, visits to station websites declined YOY from 17.7% of U.S. adults to 17.6%.  As more and more options exist for listening to a station’s stream off website (through mobile app, Facebook, etc.) traffic will continue to decline.  Most stations don’t promote their website because there is no original content and when the station’s website is mentioned it’s usually due to a contest which in my view artificially drives traffic to a site.  Tweets and posts show up in a listener’s stream in many cases so no need to access the website.  So how can radio develop unique content?  Without investing a considerable amount of funds I don’t think there is much that can be done.  However, I do believe there are other opportunities to create content and develop other brands.  For example, one company I am working with Inner City, has for many years put on a weekend event in New York City called Circle of Sisters where over 40,000 people attended.  There is an opportunity to further develop this well known brand apart from the radio station.

At Angel Street Capital we have invested in a local news site called GoLocal Providence (www.golocalprov.net) and they are in the process of rolling this same platform out to Worcester, MA.  The site has been incredibly successful in challenging the local newspaper. Initially GoLocal launched in Providence with a local radio station partner.  This opportunity exists for radio companies but I would suggest partnering rather than trying to develop it internally.  Radio stations have a giant megaphone to launch other brands as they have been doing for their advertisers for many years.  It’s time to use this megaphone themselves to develop brands they have an equity stake in.

THE STAKES – INTERNET RADIO AUDIENCE MEASUREMENT

We have been watching the recent developments in Internet radio audience measurement.  Here are the stakes:
ARBITRON   is trying to develop new business and generate more revenue
PANDORA wants to have audience data to sell advertising and capture a portion of ad revenue going to radio
ANDO/TRITON wants ARBITRON to stay out of Internet audio measurement so it will not have a giant competitor
CLEAR CHANNEL et al don’t want Pandora to be able to compete for radio advertising.
What all parties need to consider is what advertisers want.  I have to chuckle at some of the points raised recently by Arbitron.  Does a moving people meter really mean someone is listening to radio?  If an audio source is present near a people meter did the listener actually initiate it?  Was it really their choice?  I have always believed that server side data is better than an estimate.  PPM methodology is an estimate based on a representative sample (many argue the sample is too small).  With server side data you have actual data – use it.  Ando Media currently uses server side data to prepare its Webcast Metrics Internet radio top 20 ranker.  Arbitron has announced that they are going to utilize server side data as well although many of the details are still forthcoming.  Arbitron is being held hostage by its existing terrestrial radio clients over measuring Internet radio only stations such as Pandora.  Of course terrestrial radio companies represent the bulk of Arbitron’s current revenue.
Audience data is utilized in Internet radio as a predictor of the number of ad impressions that can be generated.  Audience measurement data is not used to calculate ad impressions. When a listener starts a stream then most ad servers, including Ando, will then insert ads prior to the stream playing ( preroll) or then begin inserting audio on receiving an ad cue.  You do not have to be listening for any set period of time.  By its very nature, in Internet radio each impression is counted when a listener actually hears the ad.  Do advertisers care that different people hear different ads?  You bet but not why ARBITRON raises this issue.
Maybe what we need is an impression measurement validation firm.  In any event it’s going to take some time to sort out Internet radio measurement and it’s unfortunate that there is not a larger advertiser voice?  Some big dogs are in the fight.

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INTERNET RADIO JUST BECAME EASIER TO USE IN-CAR

One of Apple’s new services announced for the iPhone 4S is Siri.  Siri is a built-in application that takes voice recognition to a whole new level.  Siri is going to be an incredible application to utilize in the car allowing you to be hands free.  While certainly there is a broad range of services Siri can perform, the one of course that I key in on is listening to radio and in particular internet radio.  I envision asking Siri to: “stream mvyradio.com”, “skip song”, “don’t play that artist”, “pause”, “raise volume”, “share this track with my friends”.  The possibilities are endless and the concern over accessing content while driving and navigating through listening options is going to disappear.  This also has some implications for terrestrial radio as skipping to another station just became a little easier.  I have already ordered my iPhone 4S and can’t wait to try it out in the car.