Pandora Radio Is Not Radio

 

Why would a company like Clear Channel invest $60 million in Ryan Seacrest if jukeboxes or playlist services were all listeners wanted? Of all companies, Clear Channel would be the first to turn its radio stations into playlist services to save money if it could. But Clear Channel and other radio broadcasters invest hundreds of millions in local and national radio personalities because entertainers engage listeners and hold them longer, increasing ratings and ad revenues.

Radio has strong brand and personality loyalty, tremendous targeted audiences, and huge promotional power. Radio can turn on a dime to respond to the needs of tornado victims and can relate to a community based on the buzz of the moment. Radio's content is dynamic, whether it's raising money for a local cancer victim or playing a rainy-day tune to go with the storms.

And radio has a personal bond with its listeners: In a recent Arbitron survey, 79 percent of listeners said they'd be very or somewhat disappointed if their favorite radio station were no longer on the air. Radio is also curated by experienced professionals and extensive research so the music played is what the target audience most wants to hear. That is the magic of radio.

Enter Pandora Radio. As wonderful as it is, it's not radio. It's a playlist service.

Stations that try to be playlists probably can't do it as well as Pandora. But what Pandora cannot do, at least not now, is be local and relevant. What radio does best, and has always done best, is entertain, with real people and real personalities.

Don't get me wrong. Pandora is a phenomenal success. Its recent IPO filing is expected to raise up to $100 million and will be one of the most successful IPOs this year. It's hot and popular among investors who believe Pandora, with 80 million registered users, can take a high percentage of radio's approximately $17 billion in revenue. But if investors are considering Pandora on that basis, they should perhaps look at the statistics

In its IPO filing, Pandora claims to have more than 50 percent of all Internet radio listening. Not too shabby. But only 3 percent of all radio listening in the United States takes place in digital form. The rest, 97 percent, is still over the air. And most of the Internet radio listening Pandora doesn't get is terrestrial radio streaming.

Pandora claims to have streamed more than 3.9 billion hours of programming to its registered users. Seems like a big number, until you realize that annual U.S. radio listening is an estimated 179 billion hours. If Pandora had four times the registered users (320 million, more than the entire U.S. population) , it would be doing 15.6 billion hours, or less than 10 percent of all radio listening. 

Pandora has impressive revenue numbers: $90 million in fiscal 2010, up from $50 million in 2009. But the two top-billing terrestrial stations between them exceeded $111 million -- Hubbard-Bonneville's WTOP/Washington at $57 million and Clear Channels KIIS-FM/Los Angeles at $54 million). And they did that with probably a fraction of Pandora's listening hours.

Additionally, 60 percent of Pandora's revenues go to music licensing fees, which grow as listening grows. In contrast, radio is paying no performance royalty, and current negotiations would put a royalty at about 1 percent of revenues. Furthermore, WTOP and KIIS are probably throwing off 40 percent-50 percent margins after all expenses.

To launch an Internet-only playlist service and have it generate gross revenues approaching the two top-billing radio stations in the United States is impressive. But the prospect of Pandora's stealing a significant chunk of radio's $17 billion market may be an exaggeration.

I love Pandora Radio and find it an interesting phenomenon, but will it kill radio? Only time will tell. But, despite its name, Pandora is not radio, and it can't do what radio can do.

Comments

[Rolland]

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[NANO]

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[Soda]

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[Laura19Clayton]

This is great that people can get the loans moreover, it opens up completely new chances.

[Cheap North Face]

let's join our hands together to stop this kind of wrong doings. It may risk lives in the future if we just let them continue.

[Greg]

Radio lost it a long time ago. I grew up on Classic Rock in the late 60's to early 70's, with stations in the DC area like WEAM, WPGC, and WINX. Great music, engaging DJs, and real "local" radio. Nothing like Classic Rock on AM radio! WABC has their Saturday Night Oldies! Take a hint, radio.

[Joel Graham]

I have one teenager and one tweenager. I watch them carefully when it comes to the types of audio content they consume and how they consume it. While terrestrial radio and internet "radio" are part of that equation, they much prefer to listen to their favorite music as well as discover new music through...YouTube.

It's the ultimate in "customizable" audio. In fact, they often don't wait until the song is finished before they're on to the next suggested video that catches their eye in the right hand column of the page. They thrive on the ability to choose what they listen to next - a feature that radio and internet "radio" does not have. You can't get any more targeted than that.

Perhaps the biggest threat to the future of "radio" is something that doesn't resemble radio at all.

[Gregory (HDRadioFarce)]

Pandora is radio, and a hell of a lot better. No wonder, iheartradio is finally coming out with its own version. Instead of investing millions in the HD Radio scam, radio should have done "Pandora" a long time ago. Pandora is quickly taking over, and taking off like a rocket. Bob Struble and iBiquity duped the whole radio industry.

Take a lok at this Google Trends graph:

http://www.google.com/trends?q=hd+radio%2C+sirius%2C+pandora

[Eric Rhoads]

Mark is right. They are courting and getting them because they are grabbing radio listeners. My point (intended) is when broadcasters think they can compete as a music service they will loose. Radios strengths are local and entertainment. BUT they can also be weaknesses to those who  do them badly or PRETEND to do them (voicetracking etal). Radio is handing a lot of audience away but it does not need to do so. Though much cannot be prevented much can. Sadly radio will not react until its too late.

[Mark Ramsey]

Sigh. This is wrong. "Radio" is not what Radio is - it's how radio is used.

And "being radio" does not mean being identical to radio.

Pandora is courting YOUR advertisers broadcasters. Hello!

http://www.markramseymedia.com/2011/05/yes-pandora-is-radio/

[Steve]

Right now I'm listening to BBC Radio 3 streaming from London. I have a good friend who listens to BBC Radio 6. I listen to the Australian ABC and listener-supported SOMA-FM over the Internet as well.

Why anyone would put up with the crap served up by American terrestrial radio completely baffles me.

[Ron Rivlin]

It doesn't matter what we think it's called. To anyone under 30, Pandora IS radio. Case in point: While at the gym recently, the 20-something trainer asked me what I do for a living. I told him I was in the radio business. He said, "Radio? You mean like Pandora?" True story.

[Eric Rhoads]

Bravo for the push for programing centric content Barry. Its a giant issue and one, which will eventually lead to the dilution on audiences. At that point they will be much harder to get back.

[Eric Rhoads]

Bob: First, let me reiterate that I love Pandora and it may be an evolution of how we listen to music, but my point is that radios strength is its entertainment and localism. There are clearly abuses at some stations. The assumption is that that people listen only for music. Some do. Others want to feel connected to their community, to an individual (personality) and to what is happening in their community. In spite of these abuses radio does not appear to be loosing market share, in fact it has gone up 1% since the 1970s and has not deteriorated statistically at all in spite of all the wonderful new media offerings. That does not mean radio should get overly confident. They must be aware of these offers, compete in every way and not get lazy or, as I said, they may awaken to find the audiences have left them. My primary point is that radio stations pretending to be juke boxes alone probably cannot compete with something like Pandora, who can do it in a commerical free environment. So they should perhaps rely on what they do well. AND I dont disagree about the spot loads on some stations. Regarding the repetition issue, its been a lifelong battle over what people say they want and what they actually do. They say they dont want repetition yet the stations with the highest ratings typically have the tightest repetition. Odd, huh. I think what people are really saying is dont repeat the songs I dont like but you can play my favorite songs all you want.

Good comment, Thanks.

[Bob]

Pandora is the evolution of radio, radio as it exists now is dieing and close to dead. People do not want 15 mins of commercials an hour when they get 1 min on Pandora, you can't call terestial radio targeted, the play top 20 over and over or classic rock, pandora is targeted. The only thing pandora is not is people interrupting the music every once in awhile with unimportant stuff to say

[Barry Berman]

Pandora is radio. Anything that fIghts for share of ear, in a matter of speaking is radio. It is a far competitor to traditional broadcasters as it makes a valid bid for both audience and advertiser.
It may not offer local personalities. And if the audience decides that that is the determining factor, so be it.
One might argue that it's music programming is hyper local in as much as it's not programming for the larger community it's programming just for you.
And if it can deliver ads based on one's tastes, it can easily deliver content.
Let's not split hairs on definitions but get back to competing with content is lead more by programming art than accountants' knives.

[DannyCzekalinski]

Eric you are DEAD on. I also like Pandora. I like it when I'm tired of my iPod. I always thought Pandora was for people too lazy or not smart enough to update their iPod. I rush to turn on the radio for three things: a) to learn something b) to laugh c) to be engaged.

[Eric Rhoads]

Lance:
This is a very valid point. Much as been lost by cutting out the localism of many stations and the local talent. Thankfully not all stations have abandoned this strategy on music stations, though the trend is alarming. The great debate about national entertainment continues and I think if you were to ask Clear Channel they would tell you that their ratings in local markets meet or exceed those where local talent was replaced with someone like Ryan Seacrest, which of course makes it difficult to argue from a financial perspective. The proliferation of voice tracking, sameness, lacking localism is a huge concern and I agree that when consumers face the choice of a Pandora as a playlist service vs a semi-playlist with non-local/non-enertaining talent, it may be an obvious choice. The reality is that Pandora could easily implement a voice-tracking service, which would match what many stations are doing today. The only true protection for these stations is a return to truly being local and entertaining.

[Lance Venta]

Why did many radio stations go jockless in dayparts if research says listeners want more music and less filler?

The personalities that were considered appointment listening have been driven out of music radio to satellite, internet, or retirement. The industry built this mess by stripping the personality out of formats on a gradual basis and coaching listeners to want nothing more than a playlist service.

Now realizing that personality is what sets it apart is what is bringing News, Talk, and Sports to the FM dial. But they're still to timid to allow talent to become marquee personalities and appointment destinations like Stern did.

Anything that is taking time away from traditional radio listening is and should be considered a threat to radio be it SiriusXM, Pandora, or whatever is the next big thing.

[Bob Augsburg]

I agree. It's one of the reasons why WAY-FM began 5+ years ago investing heavily in talent. Great communicators are priceless.

[Eric Rhoads]

James we are looking forward to your role and speech at our pre-Convergence conference Radio Tech Summit (www.radioink.com/techsummit)

[James Cridland]

Dead right. And, further, Pandora is doing the 'radio' brand a disservice, as I said in February of this year...

http://james.cridland.net/blog/pandora-is-not-radio/