Pandora aims to get local radio ads
Online music service keeps adding listeners
CHICAGO — Fast-growing online music service Pandora has been touted as the future of radio, offering more than 150 million registered users customizable stations built on individual preferences.
The future of Pandora, however, may look a lot more like “WKRP in Cincinnati,” where sales managers in plaid sport coats pitch car dealers to buy radio spots. Hoping to turn an incessant tide of red ink, Pandora has added a local sales staff in several major markets to go head-to -head with old-school radio stations for advertising dollars.
“We are now one of the biggest radio stations in every market in the U.S.,” said Pandora founder Tim Westergren. “We’re actually big enough to really think about ourselves as a local radio (station) as well as a national one.”
Breaking down barriers to an entrenched industry and winning over media buyers may be more challenging than reinventing radio, something Pandora is well on its way to accomplishing.
Pandora, which rolled out its free online service seven years ago, dominates the Internet radio space with 70 percent of listenership and nearly 52 million active users. Its audience represents about 6 percent of total U.S. radio listenership, a share that has nearly doubled during the past year.
Fueling its audience growth is the migration of the service from Internet to interstate. More than 70 percent of Pandora’s listening hours are now mobile, untethered from computers via smartphone apps and unlimited wireless plans. For a growing number of people, Pandora is the car radio.
“We really have become radio writ large, not just computer radio,” Westergren said.
Unable to get much traction in the car with display ads, Pandora has shifted the focus of its advertising- driven model to traditional radio spots, a crucial initiative for the 12-year- old California-based company, which went public in June 2011 and has yet to turn a profit .
Earnings for the first quarter of
fiscal 2013 showed total revenue of $80.8 million, a 58 percent year- over-year increase. Advertising revenue for the first quarter was $70.6 million, a 62 percent increase from the same period the year before. The net loss tripled, however, to more than $20 million, with content acquisition — music licensing and online - only performance royalty fees — accounting for some 55 percent of expenses.
“Because of the very high music-licensing fees, Pandora pays over 50 percent of its total revenue for music, and unlike the broadcast model its fees go up with actual usage,” said Tom Taylor, news editor for Radio -Info.com, a Chicago -based trade publication. “So its only path to the kind of growth that will satisfy Wall Street is selling advertising.”
Listeners get about three stand-alone commercials per hour and are able to skip 12 songs per day. A small percentage of subscribers have upgraded to a premium service for $3 per month that eliminates ads and allows for unlimited song skipping, but nearly 87 percent of revenue comes from advertising, both Web display ads and, increasingly, radio commercials that can target demographics and geographies, down to the ZIP code.
Helping market Pandora as a local radio station are new data from Triton Digital, the leading provider of online -listening ratings for both traditional and digital- only broadcasters. Last month, Triton Digital added average quarter-hour, or AQH, ratings to its monthly reports, employing the standard metric used by Arbitron to measure and monetize audience for terrestrial radio stations. In Chicago, Pandora had a 1.0 rating, equivalent to a double - digit AQH share, among adults 1834, reaching more than a quarter of that population. Results were equally strong in New York, Los Angeles and other top radio markets.
Advertisers and agencies pushed for the average quarter-hour data in order to make a clearer comparison with broadcast ratings, said Mike Agovino, co -founder and chief operating officer of Triton Digital.
The move opens the door a little wider for Pandora, Slacker and other digital stations to compete for radio advertising dollars.