Digital Revenue – We Need a Breakout

The RAB just released 2013 radio industry revenue information which reflected no growth over 2013 in total.  However, while spot radio was down 3%, digital revenue increased 18% over 2012.  The percentage of digital revenue is still small, only 5%.  Digital represents the greatest hope for increasing radio revenue.

We need better information on the components of digital revenue as there are many;

  • Website advertising (banners and pre rolls)
  • Streaming audio ads (desktop and mobile/ banners and pre rolls)
  • Other destination sites (separate URL – local community news, events, etc.)
  • Reselling other tools to advertisers (reputation management, SEO/SEM, social media, etc)
  • Some radio groups understand the need to be competitive for digital revenue and are forming digital agencies.
  • As the percentage of digital revenue increases we need additional data to understand what areas are gaining the most traction.
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IS PANDORA RADIO? – WHY THIS IS A RIDICULOUS QUESTION

Ever since the rise of Pandora’s audience there has been an effort to try to position the service as “not radio”.  I understand the defensive posture that terrestrial radio would like to take but in my view anything that competes with you is probably quite similar in nature.  Consumption of audio takes many forms but in the end there are only so many hours in a day.  Listening to Pandora most likely means less time spent listening to terrestrial radio (or did all of the 69.5 million active Pandora users never listen to terrestrial radio?).  We can argue about which form listeners prefer.   Currently terrestrial radio has the lion share of listening.  Pandora’s audience seems to have peaked.

Frankly I’m surprised that Pandora has not attempted more music curation and localization (they certainly have the user data given registration).  Could I choose which version I want?  Time will tell.

INTERNET RADIO SOCIAL BUZZ

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.

         

Unique Reach

Service

Followers

Tweets

Retweets

ALL

Average

Iheart

154,957

9,993

6,553

16,546

2,909,856

KROQ

68,570

1,554

2,128

3,682

1,248,637

Pandora

148,716

521,263

118,693

639,956

35,760,075

Rdio

90,145

10,403

7,905

18,308

3,768,454

Slacker

41,270

20,952

481

21,433

1,430,976

Spotify

436,545

275,878

38,230

314,108

35,500,325

Tunein

42,649

68,691

18,147

86,838

7,000,918

WBLS

7,096

2,107

413

2,520

679,258

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.

CES- RADIO DASHBOARD FRAGMENTATION (PART II)

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.

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.

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.

INTERNET RADIO IN THE CAR


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.

What Pandora Contrarians Don’t Understand

There are many who doubt Pandora’s ability to become a profitable entity like this article that appeared in Inside Radio on 6/9/11.  While it is true that music royalty costs will increase the larger Pandora’s audience grows, what is not understood is Pandora’s ability to generate revenue even given its existing audience.  Pandora had an AAS in the March 2011 Webcast Metrics 2011 Top 20 Ranker (Monday- Sunday 6 AM- Midnight) of 498,135.  Assuming Pandora ran 13 units per hour like terrestrial radio would result in gross revenue of $567,276,4138 (assuming a $10.00 CPM) compared to that reported for the 12 months ending January 31, 2001 of $119,333,000.  While I have assumed the same audience for 24 hours of the day and a $10.00 CPM what I have not taken into account is Pandora’s ability to generate revenue from video preroll advertising and display (both of which it is currently doing).  I would also argue that with Pandora’s ability to target ads CPM’s will be higher than the $10.00 I have assumed.  Consequently just from in-stream advertising the potential revenue is almost 5X that of what Pandora has recently reported.  Assuming a 20% sales cost would result in income  from operations of $334,000,000 rather than the slight loss actually incurred.  Pandora’s business model is not a suicide pact but one that is waiting to blossom and bear the fruit from many years of labor understanding what it’s customers/listeners want.
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Registered Users ARE NOT Audience

Yesterday at the Radio Ink Convergence Conference in San Jose Slacker’s CEO stated they had 26 million listeners.  In their IPO filing Pandora stated they had over 80 million registered users. I’m sure what Slacker’s CEO meant to say is that they have 26 million registered users.  There is a big difference between registered users and audience.   A large number of people may register and never use the service.  Actual audience is measured by Ando Media (now Triton Digital).  For the most recent data released, March 2011, Slacker and Pandora had an AAS of 39,697 and 599,214, respectively for the time period Monday-Friday 6 AM – 8 PM.  AAS is defined at Total Listening Hours (TLH) divided by the number of hours in the reported time period.  TLH is defined as the total number of hours that the station has streamed during sessions with a duration of at least one minute in total within the reported time period.  AAS in general reflects the average number of people listening.  For Slacker and Pandora this represents .15% and .75% respectively of their registered users.  Both companies cannot monetize registered users, it’s the audience that actually use the service that matters.