Pandora's ratio of revenue to its share of radio listening means earnings potential, says Billboard

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Issue Date: 
Aug 9 2013 - 1:00pm

From Issue:

Labels and performers critical of Pandora's efforts to lower the royalties it pays often say the webcaster should simply sell more ads and generate more revenue. Billboard says its analysis of Pandora's business model indicates it is, in fact, "well-positioned to turn its massive listening audience into profits."

It's simply a matter of monetizing its audience at the same rate as broadcast radio, according to the analysis.

"Pandora had roughly a 7% share of U.S. radio listening in June," writes Billboard's Glenn Peoples. "A 7% share of the $16 billion radio advertising market is worth $980 million to broadcast radio. Pandora’s revenue during the last four quarters was just $417 million. That implies Pandora’s current market share could generate an additional $563 million."

Morgan Stanley analyst Scott Devitt predicted a 15% share of radio listening for Pandora by 2015, which at its current montetization would amount to half a billion in ad revenue. Billboard reasons that if Pandora squeezed the same revenue out of its inventory as radio, it would be four times that ($2 billion).

So, would Pandora need to load up on ads like so many local broadcasters, with several 6- or 8-minute spot breaks per hour? Wouldn't that substantially affect audience? Or would superior ad-targeting mean Pandora could charge advertisers a substantially higher rate than broadcast radio, requiring fewer spots to generate the same revenue?

That specific question isn't addessed in the analysis, but Peoples does write, "no other platform can deliver both audio and display ads to more than 71 million monthly active users while allowing advertisers to target by demographic characteristic and location."

Read the Billboard analysis here.


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Billboard's comparison is weak

Wow, look at this newspaper company - it has a readership of 20 million! And this different website that publishes news has 20 million viewers. Shouldn't their revenue be exactly the same?

Of course not. AM/FM is completely different from the web. Just because both services happen to include music and audio ads doesn't mean revenue should be the same.

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