INTERVIEW: Steven Kritzman of Pandora on Internet radio adoption in the U.S.

Thursday, September 26, 2013 - 11:55am

Steven Kritzman, SVP of Sales for Pandora, was on this week's Advertising Week panel which presented new survey research titled “The New MainStream,” a study measuring adoption of Internet radio among Americans who are online. (As a side point, see the new Pew study examining the portion of the American population which does not use the Internet.)

Pandora, along with TuneIn and Spotify, comprise the Streaming Media Task Force, which co-presented the Edison study.

RAIN spoke with Steven Kritzman about the Task Force, the reduction of AM/FM listening implied in the new research, car listening, and aspects of Pandora’s general advertising strategy. Following are excerpts of the conversation, lightly edited for readability.

RAIN: Can you talk a bit about the Task Force?

SK: We got into a conversation 6 or 8 months ago, in which we thought, “Wouldn’t it be great if we could do a deeper dive, and start to show people the behavior and document trends that are happening in the internet radio space, and to some degree paint a picture on the consumer shift that’s happening. While people understand that something is happening, they don’t really know to what degree. As you know from the results, it’s pretty dramatic. Half the [online] people in the United States are listening now. So it’s not only a niche thing; it’s a reach play as well as a frequency opportunity. That was the baseline for the discussion six months ago. Then we really wanted to say, Hey, we’d love to create something that we could push out as an industry, without a specific publisher agenda, on an annual basis, to show the incremental moves in time spent, and the behavioral changes.

RAIN: The headline point of the research package is the 53 percent. But another interesting research point is the extent to which new listening is displacing broadcast listening, and the extent to which it represents added listening during the day. The survey indicates that 44% of internet listening is replacing AM/FM. Do you have a perspective on how much displacement is part of what’s going on?

SK: I think a ton. The terrestrial radio industry has done a great job to mask the time-spent migration. Radio has always been a frequency medium -- at least, when I sold it for 15 years. [Kritzman is the former Director of Sales for Clear Channel Radio.] And now, over the last five years it has been re-packaged as a reach medium, that 92 percent of all Americans listen to radio every week. That is true, and radio is still incredibly relevant, and marketers should be planning for it. But, if you go to the RAB website, and you look at time spent with radio since 2007, it’s down 25 percent. That’s the number that is captured in that 44% [metric]. I think that’s where the majority of listening to Internet radio is coming from. I think there is a 1+1=3 [aspect]. I think people are spending a lot more time with audio, because of the portability -- you can listen to it in so many more places than you ever could [before smartphones]. However, there’s going to be some cannibalization.

RAIN: The car is one place where there is still a big disparity. Do you agree that internet radio has a long way to go before catching up to AM/FM in the car?

SK: I do and I don’t. 50% of our mobile listeners say that they listen in the car. We’ve got over 50M mobile listeners, and they say they listen in the car. As we look to the future, we see the car as one of our biggest opportunities for growth moving forward. One in three cars sold this year will have Pandora in it. That will increase over time. Over the next three or four years, I expect you’ll see our place in the car rise tremendously.

RAIN: Tim Westergren said this week that Pandora’s commercial load will never approach that of broadcast radio. Free users of Pandora see many display ads, and hear 2-4 minutes of audio commercials per hour. Will that increase, and if so, where do you think it will land in the future?

SK: It’s really hard to say what the ideal mix is. Our users will determine that. We’re always testing, and we’re always sensitive to the user experience. A lot of that will come from what our users’ palate is for the ads, and what types of ads they are. Because of the size of our platform, we can take a small percent of our audience, and test different ad types, so users will help us determine what’s most effective. That, in turn, becomes the most effective for our advertisers.

RAIN: When it comes to the balance of local and national advertising. How do you deploy sales resources between national and local?

SK: Both are important pieces of our business. With the scale we have now, north of 70M people nationally every month, we are a national branding opportunity. It’s a huge piece of our business. In the last two years, our scale has gotten to a point at the local level where we are, from an audience perspective, as large as many of the biggest radio stations in any individual market. We’ve been deploying resources in the top 28 market this year, and we’ll build that out next year. We’re getting as exciting responses locally as we did nationally. Looking a couple of years down the road, our local/national advertising mix will look pretty similar to most major media companies.

RAIN: Do you break out that revenue mix now?

SK: No.

RAIN: What about Australia and New Zealand? [Pandora's only non-U.S. countries.]

SK: We’re not live with advertising [now], and are growing the audience. I’m not directly involved, but the audience growth has been terrific, and we’re going to look to get ad support in the next year.

RAIN: Pandora is well represented on measurement systems along with broadcast. Does this research about internet radio help you gain presence for the sales effort generally, or are you past that point?

SK: I think anytime you provide research that is educational, it’s going to be helpful. The [internet radio] space is at a tipping point. We’ve got to do our job in the industry to educate on how much it should be allocated. Six percent of all time-spent on media is spent on print, and they still get 23 percent of the ad budget. Mobile represents 12% of time spent, and they get three percent of the budget. Radio represents 14% of time spent, and they get 10% of the budget. From my perspective there’s a huge paradigm shift that has to happen via education to marketers, to say that things have changed dramatically over the last five years. Studies like "The New MainStream" are one step in that direction.

Tim Westergren: Pandora's goal is to supplant broadcast

Wednesday, September 25, 2013 - 11:40am

Pandora founder and Chief Strategy Officer Tim Westergren was spotlighted in a hosted Q&A session at the Goldman Sachs “Communacopia” conference yesterday. (Transcript here; elaborate registration required.) In a wide-ranging discussion, Westergren elaborated on Pandora’s business priorities, the state of music rights management globally, the company’s ad sales efforts, competition from Apple, the Nielsen/Arbitron merger, and several other topics.

“Our goal is to supplant the existing broadcasts of formal radio, becoming much more pleasing to consumers,” Westergren remarked at the start. Throughout the interview he emphasized Pandora’s main differentiator being the quality of its music experience (“We build better playlists”), and a stay-the-course roadmap absent of reinvention.

Pandora is a two-tier Internet radio platform that offers free listening supported by advertising, and ad-free subscription membership. Westergren clearly articulated how the two programs, with their respective costs and revenues, are balanced. Business growth efforts are concentrated on the ad side, with the premium membership portion considered supplementary. Subscriptions account for 20 percent of revenue. “We’re not a premium business [...] the real name of the game for us is delivering on the ad-supported business [...] that’s really where the home run is.”

Accordingly, the free-listening cap applied during this past summer was not a ploy to drive subscriptions, Westergren said, although it did motivate some users to sign up. The cap’s purpose was to solve under-monetization of a portion of non-paying mobile listeners. When that loss was corrected (no specifics there from Westergren), the cap was removed.

When it comes to supplanting broadcast radio, distribution is paramount. The Pandora founder talked about capturing market share in cars and in homes (neatly corresponding to survey results released yesterday by Edison Research showing car and home as AM/FM strongholds), and a strategy of ubiquity. A significant portion of Pandora’s engineering force is dedicated to embedding the service in all kinds of devices, from dashboards to in-car CD players to refrigerators.

If device distribution is proceeding quickly, geographic expansion is stalled. According to Westergren, the problem is music rights negotiations. It’s no secret that Pandora is struggling with content costs. “Rights administration is just not a very healthy part of the music business [...] rights are granted country by country, territory by territory.” Pandora was able to open in Australia and New Zealand because of favorable royalty setups, but has been thwarted in other regions because of licensing obstacles. “As we think about deploying in new countries, right now we can’t even begin to do it.”

A few other points:

  • Pandora is embedded in over 1,000 devices.
  • The service’s recommendation engine, built on the Music Genome Project, is enhanced by over 36-billion up/down votes by users.
  • Westergren has been aggressively hiring local sales specialists, region by region according to market share.
  • There is no immediate, specific plan for recently-raised capital. Acquisitions are possible, but nothing on the horizon.
  • Pandora’s audio ad load will never approach that of broadcast radio. It is possible to achieve a “fantastic business” with fewer commercials.
  • Westergren likes the Nielsen/Arbitron merger for the usual “common currency” reasons.
  • The competitive impact of iTunes Radio will be “modest.” Pandora has faced many large competitors, and its share has grown.
  • Pandora is the third-largest generator of mobile revenue.

Edison Research: Streaming hits the MainStream

Wednesday, September 25, 2013 - 11:40am

Edison Research has released a new study of streaming audio adoption, indicating that over half of the American online population listens to Internet radio. The research package, titled “The New MainStream” (get it?) details survey results of 3,014 connected Americans over 11 years old. The report was formally introduced yesterday at an Advertising Week panel in New York by Edison president Larry Rosin, in collaboration with Edison’s Streaming Audio Task Force partners Pandora (Steven Kritzman), Spotify (Brian Benedik), and TuneIn (Rick Cotton).

The headline stat is this: 53 percent of online Americans listen to Internet radio to some extent. By this study’s definition, “Internet radio” comprises the full spectrum of online listening, divided into three categories:

  • Personalized Radio: Services like Pandora or iTunes Radio which allow creation of personal “stations” based on an artist or song. (39 percent adoption.)
  • Streaming Live: Online webcasts of broadcast stations, not necessarily local to the listener. (27 percent adoption.)
  • On-Demand Music: Services like Spotify and Rhapsody which feature random access of tracks and albums. (18 percent adoption.)

Edison’s survey delineates and prioritizes why people are adopting Internet radio. Choice is the differentiating thread that runs through many responses. Consumer hunger for choice extends to track choice in on-demand services, and station choice in streaming broadcasts. Other responses, such as “Available on device” (44 percent agreement) and “More convenient than a regular radio,” (27 percent agreement) seem pointed at lifestyle customization.

Car and home remain staunch broadcast strongholds, according to Edison results. In both environments, Internet radio is meaningfully present, but running second. The disparity in cars (83% broadcast; 17% Internet) probably indicates the complexity and non-standardization which impede adoption of online audio -- a recurring theme in “connected car” sessions at last week’s RAIN Summit and Radio Show in Orlando. The delay in solving dashboard fragmentation gives broadcast radio a window of opportunity to develop distribution strategies on digital platforms.

Perhaps the most interesting aspect of the research is an implied expansion of listening hours as IP-delivered solutions insert themselves into formerly unoccupied contexts. From the press release: “The total time spent with audio is clearly expanding as people are now enjoying more audio from more devices in more places.” To whatever extent this premise proves out, it could provide a salve to AM/FM operators who feel threatened by the digital tidal wave.

Yet, the study’s main bullet points (see this infographic) do indicate that the shape of listening growth, and listening recession, imply upside for the Internet and downside for broadcast. Sixty-seven percent of respondents listen to more Internet radio than one year previous, but only 23 percent say the same about AM/FM. On the flip side, only six percent listen to less Internet, and three times that many listen to less AM/FM. (More than half of those surveyed listen to the same amount of broadcast radio year-over-year.)

The “listening expansion” theory is borne out by 26 percent of responses indicating that Internet radio listening transpires in “new time” previously spent without audio. Worth noting also, though, that 44 percent said that online audio replaced AM/FM listening to some extent. The upshot seems to include both realities: New listening time is being created, and some amount of AM/FM erosion is also happening.

Spotify adds four countries to its international portfolio

Tuesday, September 24, 2013 - 12:10pm

As jubilantly announced on its public blog (“Hello Argentina, Taiwan, Greece and Turkey -- Spotify here!”), the interactive streamer has expanded its reach. With the addition of those four, Spotify now distributes its desktop and mobile app experiences in 32 countries. The deal is standard Spotify: free, ad-supported desktop listening, a subscription tier to eliminate the ads, and a higher sub plan for mobile streaming and downloading.

Here are the international ranges of other music listening platforms:

  • iTunes Radio: U.S. only Xbox Music: 22 countries (free streaming available in 15)
  • Google All Access: 11 countries (U.S., Australia, added nine European countries in August)
  • TuneIn Radio: 80 countries and territories (see here)
  • iHeartRadio: U.S. only
  • Pandora: three countries (U.S., New Zealand, Australia)
  • Rdio: 31 countries
  • Rhapsody: 17 countries (some non-U.S. apps are branded as Rhapsody-owned Napster)
  • Slacker: U.S. and Canada
  • Songza: U.S. and Canada

As a counterpoint to the relentless regional agnosticism of internet radio (notwithstanding streaming broadcasts featured on TuneIn and iHeart), you might want to read remarks delivered by FTC Commissioner Ajit Pai (PDF) at last week's Radio Show luncheon. In his speech, Commissioner Pai held forth on the value of localism, before discussing revitalization of the AM band. 

Apple shakes the ground with early iTunes Radio usage

Tuesday, September 24, 2013 - 12:10pm

Apple is showing off some dazzling M’s:

  • 200M iOS 7 activations (iOS 7 includes iTunes Radio by default)
  • 9M iPhones sold (combined iPhone 5s and 5c)
  • 11M unique listeners on iTunes Radio

That last item is generating some noise in the media echo chamber, and some misunderstanding. Witness this CNET headline: “At this pace, iTunes Radio beats Pandora in a month.” As baseball enters the scramble of its final pennant races, it should be a reminder that in sports and business, it’s a long season. Predicting Pandora’s defeat after less than a week of Apple competition is like predicting an undefeated season for a pitcher who wins his first game in April.

Furthermore, there is an importance difference between unique users and active users. As anyone in the content business knows, attracting unique users is hard, but converting them to active users who return to the brand is even harder. Pandora has over 200M uniques, and over 70M actives. It is fair to presume that many of Apple's 11M uniques were engaged in experimental listening. The three-month build-up to iOS 7 and iTunes Radio, following Apple’s WWDC announcement in June, naturally created some degree of must-try anticipation. No data are available as to whether Pandora experienced a listening dip over the weekend. But whether it did or not, it is reasonable to assume that Pandora and Apple are sharing uniques. Some of them will probably become unglued from existing Pandora habits. But it’s also reasonable to assume that with Apple’s colossal iOS 7 footprint (e.g. those 200M activations, with more to come), some of the 11M uniques are first-timers dipping their toes into the currents of internet radio for the first time. Those might be users that Pandora will never acquire ... or never would even absent Apple's gravitational field.

Music streaming is not a one-winner business, any more than the mobile ecosystem industry consolidates around a single dominant player. However, carrying through that comparison, major-league internet listening will probably boil down to two, three, or four preeminent platforms, surrounded by a cloud of smaller indies. If that’s how it plays out, it will in retrospect be unsurprising that Apple, with its intense user trust and equity in the music and mobile businesses, took a giant first step.

It might be worth noting that on Monday, Pandora stock (ticker: P) skidded from its Friday close of $26.99 to yesterday’s final price of $24.26, a plunge of just over 10 percent. There can be no certain connection between Apple's strong start and the precipitous one-day decline of P stock, of course. But Wall Street is no less reverberative than the media business.

Evaluating iTunes Radio and Pandora: Intelligence and inventory will shape the outcome

Tuesday, September 24, 2013 - 12:10pm

Media reviews tend to binary considerations -- either/or judgments of new products. Accordingly, reviews of iTunes Radio are commonly framed in opposition to Pandora, as in SFGate’s review premise: “Now that iTunes Radio has shipped to millions of iPhone and iPad owners, does that mean you should delete Pandora?”

The single-service presumption is wrong for people who carry a few different listening platforms on their mobile devices, but has an underlying reality. First, it is a natural consumer behavior to settle into one solution and build a habitual connection with it. Second, any streaming service grows in personal value the more it is used, as the user invests time listening, evaluating, creating playlists, sharing socially, and generally building equity in the platform. Loyal use pays off in better experience, especially when a recommendation engine is guiding the music. All such engines become smarter over time, as you thumbs-up and thumbs-down songs and skip tracks.

Platform intelligence is the first of the three i’s which frame the user experience of iTunes Radio, Pandora, Google All Access, and other internet radio providers that algorithmically personalize audio to the listener’s preferences. The Echo Nest is a large solution provider for many platforms. Pandora, of course, has built a proprietary recommendation brain (its Music Genome Project) over many years.

The second of the three i’s is the service interface -- the look-and-feel of the desktop and mobile clients in which the user builds a listening home and identity. 

Finally there is inventory -- the underlying catalog from which programming emanates. Some listeners want Top-40; others plumb an immensely long tail of 30-million tracks.

Accepting for now the premise that iTunes Radio is facing off primarily against Pandora for the lean-back listening market, the intelligence and inventory aspects of each will tell the story. Pandora’s genomic brain has proven out to millions of users as an exceptional listening experience. In a pre-RAIN Summit conversation, Geoff Snyder of Pandora described how algorithmic calculations enhance the intensive human evaluation of song characteristics. The gigantic collection of share, thumbs up/down, and skip metrics amassed by Pandora creates an amorphous cloud of intelligence that envelopes genome considerations and further personalizes an already smart engine.

What does iTunes Radio bring to the table? A recommendation intellect enlightened by the user’s personal music collection, in some cases garnered over ten years of iTunes purchases and imports. For a new service lacking any history of thumb-and-skip actions, that insight represents a meaningful and instant snapshot of user taste.

The inventory issue plays out sharply in comparing iTunes Radio with Pandora. While the exact scope of Apple’s catalog is not disclosed, the company’s direct licensing extends its existing comprehensive label relationships. Pandora, which pays statutory royalties, owns a slow-growing catalog whose every track is hand-qualified. Pandora’s library is fractional compared to Apple's, and a devoted listener can hear some staleness over a period of time.

Our intensive listening test of custom artist-centered stations running in parallel on iTunes Radio and Pandora revealed more adventurousness in iTunes Radio, as it explored the wider boundaries of its catalog, but also more mistakes. Song skips seemed to throw the stream off-track from personal preferences, as if they were over-weighted. (The testing was located in an iTunes account with zero purchasing history and no local collection.) Pandora provided the usual strong customization, but with selections previously heard in a long-standing station.

Apple will benefit from its ecosystem advantages, as commonly predicted. Perhaps a surprise that iTunes Radio was not surfaced as a distinct icon on the mobile desktop, it nonetheless will probably attract first-time internet radio users. Placing the iTunes download store links against full-track listening could extend iTunes’ legacy business, which might be facing a downtrend as access replaces ownership.

But there is probably not enough intelligence in the Apple system to lure Pandora users who have built years of customization equity in their platform. What Pandora needs to keep the scales balanced is a much fatter catalog -- and better sooner than later.

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