Pandora grows its sales force by 80% year-over-year, sees 112% growth in ads delivered

Thursday, September 6, 2012 - 12:05pm

Pandora mobile adsPandora's mobile revenue will soar over the next few years, as will the whole U.S. mobile ad market, eMarketer predicts. The research firm expects Pandora's mobile earnings to swell from $120 million in 2011 to just under $500 million in 2014. (By comparison, Pandora reported more than $274 million in total revenue for fiscal year 2012.)

"On a net basis, Pandora Media has emerged as one of the strongest U.S. mobile display ad sellers, and its share of the total U.S. mobile display market is expected to reach 20.5% in 2012," says eMarketer.

Pandora announced in its fiscal results for Q2 2013 it had grown its mobile ad revenue by 86% year-over-year, reaching nearly $60 million (find RAIN's coverage here).

In fact, Pandora is currently earning far more from mobile than heavy-hitters like Twitter and Facebook, says eMarketer. That, of course, may change over the next few years, as those companies get their mobile act together. Pandora trails Google's massive mobile intake of $750 million in 2011.

Overall, eMarketer predicts (here) mobile ad revenues in the U.S. will grow to more than $6.6 billion in 2014, up from $1.45 billion in 2011.

Pandora also recently disclosed to the SEC that in Q2 2013, it saw a 112% increase in the number of ads delivered compared to the previous year. Additionally, the company has grown its sales force by 80% year-over-year. But the average price per ad declined 27%, "due in part to the mobile ad mix," reports Business Insider (here).

And of course, as we saw in Pandora's Q2 '13 results, all this growth in revenue is still being outpaced by usage and thus by staggering music royalty costs.

Despite growing revenue more than 50% year-over-year, Pandora posts a loss in Q2

Thursday, August 30, 2012 - 12:05pm

Pandora earningsPandora's revenue and active user count both grew around 50% year-over-year in Q2 of fiscal 2013, while its mobile revenue nearly doubled. But that still wasn't enough to offset growing royalty costs, which amounted to nearly 60% of the company's revenue this quarter. To combat those high costs, Pandora has stepped up lobbying efforts for more manageable rates and is striving to -- as CEO Joe Kennedy said -- "disrupt the $16 billion radio advertising market."

The webcaster's revenue for Q2 of FY13 (the three months that ended July 31) reached $101.3 million -- up 51% year-over-year. Its mobile revenue in particular grew 86% year-over-year, reaching $59.2 million. "This quarter demonstrated that our mobile monetization strategies are working," said Kennedy.

Mobile represents around 58% of Pandora's total revenue, which accounting for 75% of usage. But Kennedy says they're "narrowing that gap... That ultimately is the key to getting the content acquisition costs down," he told Billboard (here).

Pandora accumulated 3.3 billion listener hours during the quarter, a growth of 80% year-over-year. The webcaster now has 54.9 million active users (up 48%). That growth in listening means higher royalty payments.

Pandora mobileDuring Q2 FY13, Pandora paid $60.5 million -- or just under 60% of its revenue -- in royalties to the music industry. That's up 79% year-ovear-year. Royalties have accounted for 63.9% of Pandora's revenue during the first half of the fiscal year, reports the New York Times.

All told, Pandora posted a net loss of $5.4 million for the quarter. That's the "sixth quarterly loss in two years," writes NYT, which also points out Pandora lost $3.2 million during this period last year. The problem, as always, are those royalty costs. Pandora is attacking the issue on two fronts.

First, the company "has already begun lobbying in Washington over its rates" in anticipation of new royalty rate proceedings, set to begin in 2014.

Second, "Pandora has been building up local advertising sales teams around the country, and also pushing to be included in ad networks that would put its service into direct competition with terrestrial radio stations," reports NYT (here).

"Salespeople are being deployed all over the country to compete with radio for advertising dollars," writes Radio Ink (here). "In 2011 Pandora had 427 people on the payroll. That number has increased to 589 employees with the bulk of the new hires (79%) in sales."

You can find Pandora's press release here.

Coady Diemar says royalty, scalability issues hamper AM/FM growth online

Wednesday, August 1, 2012 - 12:30pm

Investment banking group Coady Diemar Partners released a report today in which they suggest the prohibitive cost of streaming sound recording royalties, coupled with programming that doesn't translate well to the Internet, has led to radio's passive approach to pursuing an online audience.

A quick glance at Triton Webcast Metrics ratings (see a graph here) shows little positive growth for most terrestrial radio's online listening. The Coady Diemar report shows only 8 of 14 terrestrial broadcast companies posting online listening gains from May 2011-May 2012. The investment bankers suggest it's broadcasters' content (simulcasts with "8-12 minutes of commercial time" and lack of customization features) and "lack of scale" (it's not likely for most local radio stations to build Internet-sized audiences) that keep audience growth, and thus profitability, down.

Internet radio listening trends

Pandora, however, has used its advantages as a web-only service (customization features and the ability to build a national brand) for "phenomenal growth in reach and time-spent listening... According to Triton Webcast Metrics, Pandora’s listening in June 2012 accounted for approximately 5.98% of all radio listening, up from 3.37% of listening in June 2011... In fact, since September 2010 in any given month Pandora has captured between 78%-95% of the incremental internet listening."

So Pandora's created a huge online audience, but they face the same royalty hurdle as broadcasters. Despite an explosion of usage, Pandora's royalty obligation prevents them from being profitable. "We believe this lack of profitability is a major reason why terrestrial radio operators have not been more aggressive in marketing and promoting their online streams," reads the report.

"Venture capital firms continued to invest in Internet radio or digital music opportunities in the last year," writes Coady Diemar director Chris Ensley, despite a "lack of profitability" for companies like Pandora due in part to high royalty rates. But "most terrestrial radio companies, many of whom have public shareholders, were not in a position to incur" the type of losses associated with getting started in web radio. In Pandora's case, that totalled "$82 million in operating losses over the last six years."

AM/FM online listening flatlining or dropping for most

Those who've followed the Internet radio space since its inception will remember the industry's bewilderment at potential royalty bills amounting to many multiples of what any service was making at the time. How could something so one-sided in favor of the recording industry as the Digital Millennium Copyright Act -- which (largely) birthed the obligation for webcasters to pay for sound recording copyrights, at rates determined by the CARP (Copyright Arbitration Royalty Panel, now replaced by the CRB) -- have been passed? In 1998 there was no Internet radio industry to speak of to fight it. Had the NAB been "asleep at the wheel?"

The legend grew that broadcasters at the time weren't too worried about high online royalties. They served as a barrier to new media competition. And what did online streaming -- where audiences, and thus ad revenue, were miniscule -- have to do with end-of-the-quarter goals anyway? Radio certainly was in no position to spend $82 million and six years to find out.

As it turned out, of course, high royalties did not prevent the rise of Pandora and Slacker, nor has it prevented terrestrial radio's (still moderate) listening declines. It's also true now that broadcasters like Clear Channel recognize the importance of the Internet and see radio's gradual shift from "local over-the-air" to a market of audio content producers operating on all platforms.

In fact, Clear Channel and its iHeartRadio web and mobile platform are growing well. Ensley credits the company for being "aggressive in promoting iHeartRadio." Clear Channel has also sought clever ways of reducing the costs of streaming, like its new agreement with Big Machine (RAIN coverage here).

Coady Diemar Partners

"By combining its promotional prowess with a more satisfactory online royalty rate, Clear Channel should be able to reduce operating losses while increasing the speed at which iHeartRadio reaches profitability."

Indeed, Clear Channel and iHeartRadio may then be AM/FM's best hope, Ensley writes, especially when it comes to future car dashboards. "No radio station group on its own is likely to be able to compete with Pandora when it comes to being in dashboard on future car models." But by joining services like iHeartRadio or TuneIn, "radio companies can ensure they have a compelling service to compete with newer in-car/in-dashboard services such as XM Satellite and Pandora."

You can find the report from Coady Diemar Partners here.

Respected tech VC: Mobile "where the growth is;" agile companies best suited to adapt to its unique challenges

Friday, July 6, 2012 - 11:20am

Fred Wilson"From board meeting to board meeting, we are seeing a similar pattern. Web is flattish. But mobile is growing like a weed." So writes venture capitalist Fred Wilson in a new blog post entitled, "Mobile Is Where The Growth Is."

As we've touched on time and again in RAIN, this phenomenon directly impacts the web radio industry: the major players -- Pandora, Slacker, TuneIn and others -- all have massive mobile audiences. In some cases mobile listeners are even the majority.

This transition "presents both great opportunity and great challenges," writes Wilson (pictured), who co-founded Union Square Ventures (which has invested in companies like Twitter, Tumblr, Foursquare, Etsy and others).

For example, there are different expectations when it comes to mobile. "Mobile does not reward feature richness. It rewards small, application specific, feature light services... The phone is the equivalent of the web application and the mobile apps you have on your home screen(s) are the features."

Another big mobile challenge is monetization, as we've seen with Pandora (RAIN coverage here). "Monetization is different" on mobile platforms, Wilson writes. "Approaches like display advertising don't work as well on mobile as they do on the web."

Not that the money isn't there. Juniper Research now projects that mobile ad spending delivered via mobile apps will reach $7.1 billion in 2015, "a nearly three-fold increase over the span of three years," says Boy Genius Report (here).

Wilson points to Twitter as a good example of mobile monetization: "The ads are the default content object (the tweet) and are delivered right in the primary user experience (the feed/timeline). It's not surprising that more than half of Twitter's ad revenue is coming from mobile."

For radio, does this mean mobile ads should be audio (radio's "default content object") delivered in between songs ("the primary user experience")? Or perhaps a different, untried and experimental approach?

Indeed, Wilson argues the winners will be those companies and services that can "make a hard right turn super fast without flipping over the car."

You can find Wilson's full blog post at here.

Clear Channel Media names Rick Song as EVP of Digital Sales

Tuesday, July 3, 2012 - 12:40pm

Rick SongClear Channel Media and Entertainment has appointed Rick Song to the position of Executive Vice President of Digital Sales. Song has 20 years of media sales and management experience, most recently serving with Microsoft.

Song will work with Clear Channel's web radio platform iHeartRadio, as well as its Strategic Partnerships, National Programming Platforms and National Advertising Platforms. He will report to Tim Castelli, President of National Sales, Marketing and Partnerships.

"Rick is an innovator and he will be an integral part of our team as we continue to further capitalize on our company's digital assets," said Castelli.

Web radio platform Radionomy chooses TargetSpot for ads

Monday, July 2, 2012 - 11:35am

RadionomyEuropean-based online radio platform Radionomy has partnered with digital audio ad network TargetSpot. The ad company "has the mission of commercializing Radionomy's audience in the USA," writes Radionomy.

TargetSpotThe partnership will also allow Radionomy to sell "the entire U.S. inventory of TargetSpot to European advertisers." Radionomy already markets to audiences in France, Spain and Germany. It says it counts 7 million monthly listening hours in the U.S. and is growing 5% per month.

You can find Radionomy's press release here.

Syndicate content