As the Wall Street Journal reported today (11/22) for the first time since the dawn of Cable TV, the number of U.S. households paying for TV subscriptions is falling.  Between the first and third quarter of this year 335,000 subscribers were lost.  The debate whether people are “cutting the cord” will continue until a trend is established.  Cable TV advertising revenue has been fairly healthy especially when compared to other media sectors.

We are going to see a number of turbulent years as the video model is reinvented.  Consumers now have a number of options for consuming video via the internet.  From my own experience when our family wants to watch a movie we no longer rely on Cable (we still do subscribe) but access Netflix through my son’s Xbox.  Cox is the cable provider for the State of Rhode Island and the lack of movie  titles on demand is startling.  Although we have a DVR box I just don’t have the time to figure out when a movie may be scheduled on a channel and record it.  It is easy to see how cable is losing out to other providers.

There are a number of competing services such as Hulu, Google TV, Netflix and Boxee that allow users to watch movies and TV shows.  There has been press surrounding content creators not allowing Google TV to distribute its programming.  In the end the content providers control which service will win out.  The same thing happened to audio with Apple getting the rights to sell most music titles (and now the Beatles too).  Consumers have spoken and they want to access content when and where they want whether is through their TV, computer or mobile device.

We are in the dawn of a new video era, one that has previously been envisioned but is now actually occurring.

Evolution of Radio Ad Targeting

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.

Monetizing Internet Radio

At a recent seminar I heard someone lament, “I have done everything they told me to do, I subscribe to Ando Media’s audience measurement and their ad insertion system, I have a mobile app, I signed up with Katz to sell nationally, how do I make any money”.  This comment was made by a smaller market broadcaster.  Unfortunately the resources that this person needs are not fully available.  While the tools exist, the right way to sell these digital assets is just being invented.  Many companies are trying various approaches to see what works.  I’m not sure if there is a “right way” to monetize Internet radio.  What works in a large market in many respects is not correct for smaller markets.  We are still in the trial and error stage.  The reality is that most small markets will take years to develop a significant on line audience to justify selling based on a CPM/CPC model so it would be better to sell on a sponsorship basis.  Even larger market stations have trouble selling on a CPM/CPC basis.  In an earlier blog I commented on how terrestrial radio streaming audience is not increasing while Internet only services such as Pandora are experiencing significant growth.  While there are some technological advances that will lead to higher audiences for terrestrial streaming stations (mobile and in car)  – stations need to adopt different programming for the internet (this includes adding certain customization options) and reduce the number of ad units.  I am not hopeful that this will occur especially in light of the recent NAB royalty proposal which would make it easier for stations to stream exactly what it being delivered over the air.

Companies like Katz and Target Spot are aggregating stations and are able to sell on a national basis effectively.  However, for the smaller stations and groups this may mean earning $26.75.  Nothing that will get anyone excited.  So you may ask – so why should I do it?  I’m a big believer that you cannot fight technology.  The internet and mobile phones have created a new distribution system for delivering audio.  This distribution channel is two way (interactive) and accordingly more accountable and efficient for advertisers.  Advertisers have embraced digital advertising while terrestrial radio revenue is declining.  Terrestrial radio still has a huge audience but this will erode over time.  I used to believe “where there is audience revenue will follow”.  My new mantra is “where there is audience revenue will follow unless there are more efficient and accountable options available”.

One of the advantages Internet radio has is targeting distinct audiences which I will deal with in a subsequent post.

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.