ratings

Pandora CFO Mike Herring addressed the Credit Suisse 2013 Technology Conference this week. The format was a moderated Q&A session. We pulled out three subjects within which Herring’s responses were of particular interest: ratings measurement, how Pandora sells ads, and its hybrid subscription/advertising revenue model.

On the subject of ratings, Herring pushed Pandora’s agenda of inclusion in traditional radio measurements developed by Arbitron (now Nielsen Audio). His talking points echoed what CEO Brian McAndrews said in Pandora’s recent quarterly earning teleconference, and we expect the company to continue hammering away on this issue. Currently Pandora releases a proprietary “share of total U.S. listening” metric every month, a number that disputed by some broadcast executives.

HERRING: “You mentioned Arbitron, they currently don’t measure streaming services like Pandora. Now that they’ve been acquired by Nielsen, conversations are ongoing. We’re optimistic that they’ll embrace the future [by] allowing us to be measured alongside broadcast radio. That’s what we’ve always wanted. Our release of monthly metrics are really about trying to put a stake in the ground about how we’re measured, how we stand up next to the competitors we have in the market for advertising dollars. We’d love to have that measure, [to be put] side by side within the Arbitron system.” 

Herring addressed a question about the rise of programmatic ad-buying, and how Pandora’s large-scale build-out of a sales network fits into the automation trend. Herring’s answer acknowledged the importance of both sides, and defends the future of personal selling.

HERRING: “So, you really have to think about it in two buckets. So, the audio side of the business or the broadcast side -- $15 billion in radio is really a consultative sale. You are [personally] pitching buyers on the value of your audience I don’t see that becoming an automated platform soon.” “We hear a lot about programmatic buying [...] on the digital side of things. And Pandora is going to be right alongside the leaders in that space in developing capabilities there. But on the audio side there will always be a feet on the street. You are out pitching agencies [which is] why we put people in 29 local markets last year to really pitch local radio advertisers.”

Herring addressed paid music and free music. When there is a steady focus on the subscriber number -- how many Pandora listeners pay a monthly fee to remove advertising -- analysts often must be reminded how Pandora prioritizes and balances the two sides of its business. In his reply, Herring valued subscriptions, but emphasized the advertising side of the revenue equation.

“[We] got to 3.18 million subscribers at the end of the last quarter. It’s a great business [which is] 20% of revenue. But at Pandora we fundamentally believe the big opportunity is not the 20% of people in the United States that are willing to pay for music. And there are a lot of streaming services that are fighting to get a piece of that market. We have a piece of it as an adjunct to our free business. We also have 67-69 million people who have grown up believing that music listening should be a free experience. They’re willing to listen to advertising associated with that. We think that’s a much bigger addressable market and that’s why we focus so much time on that. The subscription business will always be an important part of our business but not the main growth driver long term.”

Internet radio listening was almost uniformly flat last month, rather than down, as has typically happened in Julys past. Triton Digital released the Webcast Metrics Top 20 Ranker yesterday afternoon.

Last year, double-digit percentage drops from June to July were common (using the Mon-Sun 6a-12M Domestic Streams rankings). These were generally associated with the "summer doldrums," when fewer at-work listeners are in the office. No webcaster in the Top 20 fell more than 8% June to July this year, and a few (including Cumulus, NPR Member Stations, Cox, Univision, Idobi, and others) grew month-to-month.

Perhaps Internet radio's mobile device and in-car listening growth means that while listeners may not be at their desks, they're not as "disconnected" as in the past.

What's more, several webcasters are still showing significant listening growth over the past 12 months and so far in 2013. Triton Digital's aggregate AAS (average active sessions) for the Top 20 is 21% higher than it was in July 2013 (albeit with a slightly different make-up of webcasters). Just since January 2013, Clear Channel is up 15%, Slacker up 27%, NPR Member Stations up 20% (though it's likely partially due to adding stations to this group), Univision up 84%, and Idobi up 31%. A few other top webcasters, however, are still down since January: Pandora, Cumulus, CBS, EMF, Cox, and ESPN Radio.

Triton Digital's complete Webcast Metrics Top 20 is here.

Pandora reported 1.28 billion listening hours for July, up marginally from June (1.25 billion hours), and up 14% (1.12) from July 2012. This halts the webcaster's slide in listening hours reported in previous months. In March, before Pandora capped free mobile listening at 40 hours per month, it streamed 1.5 billion hours.

Pandora also reported its share of total U.S. radio listening to be 7.08% last month, and its "active listeners" total to be 71.2 million by month's end. While both these figures reflect year-over-year growth (they were 6.13% and 54.9 million in July 2012), both are relatively flat over June 2013.

Our coverage of Pandora's June 2013 listening is here.

As we see every year (here's our coverage of 2012's June Webcast Metrics numbers), online listening tends to dip in the warmer months, and this past June was no different. We're well into the annual "summer doldrum" period when more people tend to "unplug" from electronic media, including Internet radio.

Some webcasters saw AAS (average active sessions, as measured by Triton Digital's Webcast Metrics) fall as much as 8%, 10%, or even 12% from the previous month. (By the way, we're looking at the Mon-Sun 6a-12M Domestic ranker for this analysis. You'll see why that's important below.) Most webcasters, however, saw similar declines in previous years, and most are still well ahead of last June. This includes Clear Channel (up 28% over June 2012), Slacker (up 25%), EMF (up 20%), and Pandora (up 19%).

What's more, some webcasters bucked the traditional "June swoon": rock webaster Idobi grew 16% over May; ESPN Radio was up 4%; Univision up less than a percent.

Other coverage we've seen reports that most webcasters didn't see the typical June drop in listening, and that more than half of broadcast groups saw listening increase in June. These reports seem to be based on Triton's Mon-Fri 6a-8p Domestic ranking. In that ranking, groups like Pandora, Clear Channel, ESPN Radio, and Univision enjoyed modest June gains.

To make your own comparisons, see Triton Digital's Webcast Metrics rankings for May 2013 here and June 2013 here. You can see the Top 20 ranking for Mon-Sun 6a-12M Domestic streams below.

Arbitron says it will discontinue "Total Line Reporting" for broadcasters that don't subscribe to its ratings service -- likely as a way "to woo back non-subscribers that benefit from TLR," suggests Inside Radio (here).

Total Line Reporting enables stations to combine their online simulcast listening with over-the-air listening for ratings purposes. Now, starting with the winter 2014 book in diary markets and the January 2014 report in PPM markets, non-subscribers will be reported as individual stations only. Ad buyers will not see combined ratings for simulcasts of non-subscribing stations, beginning next year.

As we reported here, Arbitron recently changed the requirements for what's considered a "simulcast," requiring stations to stream 100% identical content (programming and ads) only in their home Metro and DMA. The new policy allows the station to stream any content it likes outside its home Metro/DMA.

RAIN Summit Orlando will feature a discussion panel dedicated to ad-insertion and broadcast radio online simulcasts on September 17. We have more detail on that panel here.

Industry leading webcaster Pandora saw its April Average Active Sessions (the online radio equivalent of Average Quarter Hour) fall 7% March to April, in the first full month of its 40-hour/month cap on free mobile listening. Meanwhile, most of the top streaming broadcast groups saw double-digit AAS growth in April.

Triton Digital's Webcast Metrics Top 20 rankers for April were released yesterday.

While Pandora's listening was down a bit, broadcast groups like Clear Channel, Cumulus, and CBS Radio all enjoyed 11%-13% AAS bumps in April. Clear Channel (which has the iHeartRadio online radio platform) is up 42% over the past twelve months, and up 21% in 2013 alone. Only Cox among the top broadcast streamers was down in April, 12%. While Cox's AAS is down 10% so far this year, it's still grown 21% since April 2012. Note that Cox recently sold several clusters in markets like Birmingham, Richmond, south Connecticut, Hawaii, Louisville, and Greenville -- and this ratings period reflects the loss of that listening.

Internet radio pureplay Slacker continues its streak, up another 11% in April (and 40% in 2013). And the online-only webcaster idobi, which seemingly came out of nowhere in November to join the ranks of the top pureplays in Webcast Metrics, also got a 10% AAS bump in April.

These numbers, by the way, all come from the 6a-12a, Monday through Sunday "Domestic" ranking (see the chart below). A former top pureplay in that ranking, Digitally Imported, is now the top pureplay and second only to Clear Channel on the "All Streams" ranker (which takes non-U.S. listening into account). (Note that Pandora is not a part of this ranking.)

Pandora instituted its listening cap to temper its sound recording royalty expenditure. Since advertisers aren't paying as much for mobile ad impressions, the webcaster monetizes ad-supported mobile listening at a significantly lower rate than on desktop computers. Listeners who hit the cap can pay 99-cents to listen for the rest of the month, or purchase the Pandora One subscription to listen commercial-free (about $36 a year).

Apparently, a good number of listeners are doing exactly this. Pandora added more than 700-thousand new subscribers to its Pandora One service in its first quarter this year, up 114% to more than two-and-a-half million (and more net new subscribers in the quarter than in all of fiscal 2013) (see RAIN here). Pandora now also has the top-grossing "non-game" app in Apple's App Store (more here).

You can see Triton Digital's full April 2013 Webcast Metrics Top 20 rankers here. RAIN's coverage of the March 2013 ratings is here.