RAIN Guest essay: Former TargetSpot CRO Lipset on AdWeek: The Song Remains the Same

Friday, January 13, 2012 - 12:25pm

Yesterday in RAIN (here) we covered a recent AdWeek article about pureplay Internet radio's plans to go after traditional radio ad dollars. In a guest column today, TargetSpot co-founder Andy Lipset shares his thoughts on what coverage like this means for ad sales growth.

This week, AdWeek ran an article entitled "Streaming Has A Big Problem—It’s a Huge Success." A headline like this — as well as a coverage in a publication with such influence in the Advertising, Media and Marketing communities — should be construed as a great thing for the business of online radio. I believe, however, many areas of focus in this article — and many similar ones in recent weeks — could actually have a negative impact on the advertising spend that marketers and their agencies designate to online radio.

Both “pureplay” properties such as Pandora, Slacker, and Spotify, as well as the broadcasters such as Clear Channel, CBS, and Cumulus, have a lot at stake in their online radio investments. From Clear Channel’s investment into the buildout and promotion of iHeartRadio to the royalties and costs that Pandora pays to the labels to provide music, there is a significant cost structure involved in the digital radio space. The fact is that both constituencies need to attract significant revenue to their online properties. But in order to do this, there needs to be an adjustment in the way we think about the medium and how it is positioned.

To start, there is a common theme that continues to be weaved in many of these articles: that pure play services should be “separated” from the online streams of their broadcast radio counterparts. Many in the broadcast radio business have said pure play properties “are not radio, and therefore should not be classified as such.”

While they may be technically correct in terms of how a broadcast tower versus an online radio stream works, the reality remains that consumers have changed some of their listening habits. And advertisers, wanting to find those listeners, have redefined the way they can reach them. In the past, when a marketing plan called for a way to reach someone engaged with music content through an audio message, the only way to “get” that listener was to utilize AM and FM stations, then defined as radio. Today, the options for “getting” to those listeners have changed. As such, the advertisers have changed that definition and it is no longer about “radio,” but instead about finding “music consumers,” which encompasses radio, and also many other properties as well. So today, an advertiser may see that the CBS Radio streams and Spotify together are both great ways to reach the music consumer.

When you look at the space like this, the argument for separation of it makes little sense. It would be like the owner of a steakhouse saying that “the Japanese restaurant down the street isn’t really a restaurant because they do not serve prime rib.” The Steakhouse and the Japanese restaurant are still competing for people who want to eat out and they do not have to be mutually exclusive. Sometimes you want a porterhouse, other times you want sushi. The same goes for reaching the music consumer. The pure play properties, which have attributes such as personalization, and the broadcast stations, which have different attributes such as personalities, are not used exclusively by many listeners. In fact, research shows that depending on mood, most listeners will “eat at both restaurants” and at some times seek out broadcast properties, and other times pure play properties.

What concerns me is that by separating this universe, we actually create confusion and lack of clarity about the medium of online radio. We know that when clients are confused, they are likely to stall rather than spend in the medium. For the broadcast streams and pure play properties that are depending on this revenue, this is not how you grow an advertising marketplace.

Further confusion  and potential inertia  can be created when there is a lack of clarity of who buys the medium at the agency level. Does it fall under the traditional or digital buyer at the agency? When I co-founded Ronning Lipset Radio with Eric Ronning in 2004 and later at TargetSpot, online radio was only being bought by the radio community. That has changed in the past year or so, with more digital agencies expressing interest in the medium and purchasing it. It would be hard to argue against a point of view that Pandora and its sales force generated most of the interest from the digital teams, and that broadcast radio has been happy to see the doors opened here. I think we have to acknowledge that in 2012, both sides of the agency have the interest and budgets to utilize the medium should they chose to. Further, sometimes within a single agency, dollar flow into the medium by department will vary client to client.

Having more parties at the agency level showing interest in the medium should not be positioned as an obstacle, but actually as a positive for the medium. It means that budgets have an opportunity to increase from areas that typically haven’t spent in the medium before. It means that broadcast streams can see money from digital agencies. It means pure play properties can see money from the radio marketplace.

The article goes on to say the lack of standardized measurement is a problem in the medium. This is a very accurate statement — especially to tap into budgets that can vary at the agency level case by case. Traditional advertisers for years have been asking for a unified on air/online measurement of broadcast, and one that shows the pure play side by side the streaming audience of those broadcast stations. And despite some quotes in the article, the methodology between digital and broadcast buying is not all that different. One is bought off impressions and CPM; the other is bought off GRPs and CPP. They are all interrelated by simple math.

Having a standardized service that can speak to both sides of the buying community will only send more dollars into the medium. Unfortunately, it now looks like some of the momentum that started earlier this year is not going to happen the way the advertising community may have hoped. So, we will have to wait and see what develops — but ultimately market demand will dictate the right answer.

The bad news is this: when we pioneered the online radio sales space in 2004, there were many articles that sounded much like this one AdWeek ran this week. By doing a simple Google search, you will be pointed to articles around measurement and buying decisions in the medium from 8 years ago (although, I admit that the issue of separating pure play and broadcast is a new one.)

In order for this medium to grow, there cannot be another 8 years of articles like this. The industry — both broadcasters and pure play properties — need to come together and change the paradigm and their thinking. If advertisers continue to see articles about conflicts and obstacles, revenue in the medium is going to come much slower than anyone wants.

Pureplay and broadcast radio streams need to come together, as the advertising marketplace is increasingly looking at this not as radio, but as reaching music consumers. The space needs to recognize that advertising budgets are fluid and sometimes will flow between the radio side of the agency and the digital one. Finally, standardized, credible measurement of all properties, and one that can speak the language of radio and digital together, needs to be created, embraced and executed in the space. These three things will change the advertising flow into the marketplace and medium quickly.

So the challenge is, while the song remains the same today, are we as an industry ready to change our tune?

We appreciate Andy sharing his thoughts with RAIN readers. We invite you to share yours -- please use the feedback form below (you may need to click the "Add a comment" link below). Thanks!

Convergence of broadcast and online radio may question logic of keeping audience estimates separate

Thursday, January 12, 2012 - 9:00am

The ongoing tussle between the broadcast radio industry (which we covered most recently here and here) and Internet radio (mostly Pandora) over ad dollars is now on display for the ad industry in the pages (and website) of AdWeek.

"The streaming services need advertising dollars, and they have monies previously allotted to broadcast budgets in their crosshairs," reads the article, titled Streaming Music Has a Problem—It's a Huge Success. "It is, in general, a well-trod story: New medium goes after old ad dollars. But in this case, the stakes are unusually high. Online radio’s very survival depends on stealing ad dollars from its traditional counterpart, and it needs to do it fast." 

See, Internet radio's ad revenues have been estimated at just 5% those of the broadcast radio industry. In fact, listening is growing far more quickly than ad sales (Pandora CEO Joe Kennedy told CNBC (see video here), "In the short run we really continue to focus on investing (in) this tremendous opportunity to disrupt the traditional radio business. Today we only have a bit more than 4% of all radio listening in this country," he added, which "illustrates how much opportunity lies ahead of us.").

Then of course there's the "onerous" royalties arrangement for copyright sound recordings (an obligation broadcasters don't have, and the terms of which can't be changed until at least 2015) putting pressure on webcasters to bring those ad dollars in.

Aside from the size of the pile (eMarketer estimates broadcast radio's 2011 ad revenue at $15.7 billion -- the graphic you see is from AdWeek), what makes traditional radio ad dollars a logical target for webcasters is the form online radio advertising is taking: traditional audio spots. "As streaming usage migrates to mobile (70% of Pandora’s listening is via smartphones, for example) and vehicles (which utilize smartphones), the ads need to look and feel a lot more like traditional broadcast spots than display ads," AdWeek staff writer Erin Griffith reports. "Filling that mobile inventory with audio spots, supported by broadcast-allocated ad dollars, requires that streaming services are defined as radio, not digital."

And as webcasting emulates the broadcast model, broadcasters have buttressed their position by adopting customizable and interactive digital services themselves (e.g. Clear Channel Radio's iHeartRadio, CBS Radio's on top of CBS's purchase of "As consumption of all media shifts online, both sides — their respective diss wars aside — will likely need to act more like the other in order to sell their ad inventory." And this perhaps calls into question the logic of cordoning off listening estimates for broadcasters from those of webcasters. Especially when ad dollars, for both sides, are at stake.

Read the AdWeek article here. And we'd love for you to leave a comment with your thoughts (if you don't see the form below, please click the "Add a comment" link).

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