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

During 2010:

  • 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.  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.

The Coming Battle – PANDORA VS. SPOTIFY

News that Spotify is about to launch in the U.S. has caused me to examine how this new entrant will impact Internet radio.  There are significant differences in the Pandora and Spotify offering.  Pandora has a giant head start having over 80 million registered users and an average audience of 451,024 AAS Monday-Sunday 6 AM – Midnight (according to Ando Media’s November Webcast Metrics).  If you ask most people whether they would like to choose the music they listen to or have someone play songs based on attributes of music, the overwhelming majority will choose the former.  Whether they actually engage in the behavior of creating a playlist or do not have the time wanting to be more passive and have songs chosen for them remains to be seen.  While I believe both Spotify and Pandora can coexist, Spotify is going to substantially curtail Pandora’s growth.  Pandora touts personalization but Spotify is the ultimate in personalization.  One can argue that Pandora may be better for music discovery but Spotify has a built-in social aspect which allows music to be easily shared among friends.  A Pandora IPO should happen soon or they risk having those upward to the right audience growth charts flatten out..

Where does this leave terrestrial radio.  Unfortunately for those stations in the music arena far behind.  I am still hoping that the terrestrial stations streaming on line will adopt a different approach but the high degree of fragmentation makes this difficult except for perhaps CBS and Clear Channel.  Clear Channel has been quite active promoting iHeart Radio.  Aggregating all of their stations however is not enough to compete with Pandora and Spotify longer term due to their relatively low level of personalization.

Let the games begin….

Internet Radio Revenue – WHERE IS IT?

Having been intimately involved in the Internet radio industry for many years (we were there at its birth), I am amazed that advertising revenue has developed so slowly.  It was 2004 when we formed Net Radio Sales to represent stations in the sale of national Internet radio advertising and this period was also when TargetSpot (another rep firm/network) was formed as well.  I estimate that national Internet radio revenue for 2010 was approximately $25MM.  Using the 80/20 (local to national ad revenue) rule of thumb would mean that total Internet radio revenue is $125 MM.  I question this number as streaming has been more effectively sold when stations are aggregated and thus far radio groups have been slow to figure out how this new medium is sold.  Local stations don’t have the expertise (yes this is beginning to change) but local ad unit rates can often be much higher since in many instances it is sold on a sponsorship model rather than on a CPM basis.  I estimate total non-Pandora internet ad revenue at $75MM based on my knowledge of what most groups are generating.

According to Ando Media’s November ranker, the top 20 Internet radio groups recorded an AAS of 866,481 (note: Monday-Sunday 6 AM- Midnight).  If this represents the head of the tail (as in the long tail theory first expounded on by Chris Anderson), then total audience is approximately double or 1,750,000.  Internet radio has three primary ad units; in-stream audio, video preroll, and display (sometimes synched with audio ad).  Let’s look at the revenue potential of each:

In-Stream audio advertising:

The number of ad units varies greatly depending on whether a station has terrestrial roots (just putting its over the air signal on the stream) or is Internet only.  Terrestrial radio stations that are streaming typically have 12 ad units per hour.  However, services like Pandora may only run 1 unit per hour.  62% of the audience in Ando’s November Ranker was from Internet only stations with Pandora representing the bulk of this number.  As a result we can calculate the following:

Terrestrial Streaming – 1,750,000 total audience x 38% terrestrial streaming x 12 units x 18 hours per day x 7 days per week x 52 weeks x $3.00 CPM/ 1,000 = $156,855,000 in terrestrial streaming revenue.

Internet Only Streaming – 1,750,000 total audience x 62% internet only streaming x 18 hours per day x 3 units per day x 7 days per week x 52 weeks x $3.00 CPM/1,000 = $63,980,280 Internet only streaming revenue

Total Streaming In-stream revenue = $220,835,280

Video Preroll Ad Revenue:

The top 20 groups measured by Ando recorded 323,750,301 sessions for the month of November (Note: Ando’s number only includes sessions of 1 minute or longer).  Again assuming this is half of the total industry audience would result in approximately 650,000,000 potential preroll video impressions (each session creates 1 preroll opportunity) x 12 months x $10.00 CPM would result in total video preroll ad revenue of $78,000,000

Display Ad Revenue:

Many stations have the ability to run a synchronized banner when an ad is playing although not all have this ability.  Some stations also rotate banners on their player which have no relation to an audio ad that is playing.  We could assume a premium in-stream rate for synchronized audio but have chosen to use the rotating banner on the media player as our projection model.

The average station has a 2 hour and 30 minute session duration.  Let’s assume one banner position that rotates every 3 minutes (avg length of a song).  This would create 50 banner impressions per session.  Multiplying the number of sessions (650,000,000) by 50 impressions per session  x 12 months would result in 390 billion display impressions.  Let’s utilize a 30 cent CPM which results in display revenue of $117,000,000

So aggregating all of the ad types we have the following total potential internet ad revenue:




In-stream audio


Video Preroll




Total Potential Ad Revenue


In total, Internet radio advertising has the potential of generating $415,835,280 in revenue.  What is actually being generated is far less.  Some analysts estimate that Pandora will generate $100 million in 2010 revenue.  While Pandora has some subscription models and sells music generating revenue let’s assume 80% or $80,000,000 comes from advertising revenue. This means Pandora represents 19% of total potential Internet radio advertising.  I believe Pandora at this point out bills the rest of their Internet radio competition combined.   Adding my estimate of 2010 Pandora and non-Pandora ad revenue means total revenue $155 Million or a sellout rate of 37% for the industry.  There is still a lot of unsold inventory.  Inventory sellout rates need to be much higher before CPM rates move higher.  It is interesting to note that terrestrial CPM rates are significantly higher at $12.00 (per Inside Radio).  This makes little sense as Internet radio is much more accountable (exact measurement) and has the ability to target ads to a much higher degree.  Why has ad revenue been so slow to grow? – I’ll deal with that in a later post.

Angel Street Capital Invests in Mofuse, Inc.

Angel Street Capital has participated in Mofuse’s recent completion of a Series A preferred stock offering.  Mofuse provides a DIY solution for the creation of mobile websites.  Angel Street Capital believes that Mofuse provides a much needed service.  While much hype has been garnered around mobile applications, the bulk of mobile web interaction occurs in a browser and most websites do not display well on mobile phones.  Not every one needs an app as I wrote in a recent blog.  While there is a great degree of competition in this area we also believe the opportunity is large enough to support many competitors.

The Mofuse management team is led by CEO Annette Tonti and its founder David Berube.  We believe David has an excellent vision regarding the development path of the platform and Annette is a seasoned team leader and energetic new business maven.


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.

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.


Pandora is the leader in Internet radio.  They worked away in obscurity for many years.  Their early entrance combined with their  unique (many have copied now) approach to generating a customized listener playlist, gradually built a significant audience.  With listener registration data they have reached a scale where they can now geo target and sell local advertising in many markets.  Their recent deal with AdReady on the display front and positioning this as an ad opportunity for SMB’s is just one step in maximizing their advertising opportunities.  They have created music genres and I would not be surprised to see them expand to offer other types of content, news, weather, sports, etc although this gets them away from their music (genome) roots and this type of content creation would be more expensive.

Arbitron states that Sirius XM has 32 million weekly listeners.  Quantcast states Pandora reaches 8.4 million people on a weekly basis.  While Pandora’s audience is roughly one quarter of Sirius XM, Pandora is growing rapidly (Pandora audience increased 104% from 9/09 t0 6/10.  With Pandora pushing hard for in-car placement we believe Pandora will overtake Sirius XM’s audience within three years.  It blows one’s mind to think about the billions of dollars invested in Sirius XM to create their audience compared with the $100 MM (just a guess) that Pandora has raised to date.  Public offering for Pandora within one year is my bet.


Yes mobile is hot.  It is hard to read any publication without coverage or prognostication on where the industry is headed.  For the radio industry mobile currently means streaming their audio content to a mobile device.  The primary way of doing this is to create an application for each major platform; iphone, android, blackberry.  Some early entrants in this field built a portal where client stations could be listed.  While some adopted this strategy Radio Time listed all stations in a guide format even though they had no business relationship with the stations.  This mobile strategy was not attractive to radio stations as their brands were lost and as a result mobile companies such as AirKast began building applications for stations.  The mobile handset also created opportunities to interact with listeners including album information, lyrics, station playlist, concert information, song purchase, music video or share station with friends.  Some mobile apps are not superior to many audio players on the market.

There are a preponderance of app developers but only a few which specialize in the radio vertical.  Like the early days of the web companies such as JacApps produce apps that are static and if a station wants to make a change they must go back to the creator of the app or start over again.  AirKast has built more of a mobile CMS platform which can be customized by the station and its service runs on its AirBridge platform (specially developed server architecture).   We see this more as the future of mobile.

While its cool to have a mobile app most stations will want to generate revenue.  Just like internet radio there are numerous advertising opportunities including video preroll, in-stream audio and display.  Typically when referring to a mobile network such as AdMob or Quattro Wireless this means display advertising.  The CPM or now mostly CPC campaign are not attractively priced as ads are not targeted or contextual but just fit to a mobile device.  I believe a listener/viewer is more engaged on a mobile device and thus CPM/CPC’s should be higher, witness what Apple is doing with iAd.  The problem is most ad campaigns are not designed for mobile and the creative is poor.  If we factor in geo advertising mobile ad rates should be significantly higher.  Stations need to participate both in a national mobile ad network (one that can sell video/audio/display) as well as sell it locally.  Currently mobile audiences are small but will grow significantly over time.  In car applications and better device tethering will propel mobile audience growth.

The question you should be asking your mobile provider is whether they can measure your mobile audience (something that Ando has not fully implemented) as well as insert the various forms of advertising and of course measure impressions created. We are in the first inning but this channel is going to develop quickly.

We need innovation

Radio stations are content to take their over the air content and just stream this content online. While this may allow their P1’s another way to listen it misses the significant opportunity to create more engaging content that is customized for the way people are consuming this new media. As discussed in a previous blog, one of the largest impediments to building an audience is the high commercial load carried by terrestrial stations. No longer is a station compared to a limited number of other stations in any market but to a much larger universe. A social element definitely needs to be included. While it is more difficult to compete for audience in this new world one cannot deny its existence as many radio groups are doing. Let’s stop paying lip service to Internet radio and put some thought and resources behind it.

My wife recently asked me to read “Who Moved my Cheese” by Spencer Johnson, M.D.  He uses cheese as a metaphor for what you want to have in life and the characters in the story are faced with unexpected change.  Some of his tenets which I list below are quite applicable:

– Change Happens – they keep monving the cheese

– Anticipate Change – get ready for the cheese to move

– Monitor Change – smell the cheese often so you know when is it getting old

– Adapt to Change Quickly – The quicker you let go of old cheese, the sooner you can enjoy new cheese

– Change – Move with the cheese

– Enjoy Change! – savor the adventure and enjoy the taste of new cheese!

– Be ready to change quickly and enjoy it again & again – They keep moving the cheese