SNL Kagan and Senior Analyst Robin Flynn have produced a 2011 report on the Economics of Internet Music and Radio that’s very comprehensive and insightful. Using existing data points from RAB’s quarterly revenue reports, publicly available financials on Pandora, and research from Triton Digital and Arbitron on audience, SNL Kagan provides an excellent summary of the marketplace and its players, both online only and radio broadcasters.
Digital/online ad revenue will become an increasingly important and larger portion of radio’s revenues. The report pegs annual revenue for 2011 attributable to digital/online, including website, streaming, hd, and other digital sources, at $713 million for 2011. That number will grow to $1.55 billion in 2021 and comprise 7% of radio’s overall revenues.
Internet only stations will grow revenue at a faster rate – coming from $293 million projected annual revenues in 2011, that number will be $365 million in 2012 but reach $1 billion in 2021. Those projections are based only on ad revenues and do not include revenue from subscription or song download sales.
Pandora’s IPO has provided insight to the business model for an Internet radio station, and it’s a challenging one thanks to the enormous share of revenues that are owed in royalties. SoundExchange takes 45% of Pandora’s revenues and leaves them still losing money after ten years. The report quotes several radio broadcast company CEOs discussing the expense of streaming thanks to those issues as well. But most agree it’s a channel that they can’t afford to ignore.
Internet radio’s audience is growing, and connected devices are expanding the audience and time spent listening. Optimizing cpms for targeted mobile ads is a critical piece for Pandora in overcoming the digital royalty expense. Interestingly, SNL Kagan has projected that Pandora will take 4% of 2011 mobile ad revenues in the US, ranking fifth behind Google, Apple, Yahoo and Twitter.
Arbitron has announced a deal with Euorpean based online audio ad serving and measurement company Adswizz which signals their intention to return to server based streaming audience measurement. During an earnings call, EVP/COO Sean Creamer reported that Arbitron signed an agreement with Adswizz last week.
“AdsWizz will process the server-based, streaming log files exclusively for our planned digital radio service. This collaboration is designed to help us to realize our vision for providing standard reporting metrics for over the air and digital streaming audiences on behalf of our current radio broadcast customers and for digital music service clients. We are currently working with both our radio station clients and the digital service providers to develop the first report deliverables.”
Arbitron departed from server based streaming audio measurement when it purchased and subsequently shuttered Measurecast in 2004. Earlier this year they announced a plan to develop a comprehensive streaming audio measurement solution. A server based streaming audio measurement solution would put Arbitron in direct competition with Triton Digital’s Webcast Metrics, which currently measures services including Pandora, iHeartradio, Slacker, CBSRadio, AccuRadio and others.
Creamer’s announcement also promises a solution for current radio broadcast customers and digital music service clients. While it may seem obvious that the only way to produce a credible streaming measurement platform is to include both streaming broadcast and online only services, I had heard rumors that some of the broadcast clients of Arbitron were opposed to a solution that included online services like Pandora and Slacker. I’m hoping everyone has come to their senses on this point.
Competition in audience measurement of streaming can only be a good thing as it will encourage continued development of each solution’s capabilities. It’s also a good sign of a thriving industry…
Triton has released Webcast Metrics listening data for stations on its platform for September. The numbers reported show Pandora’s Average Active Sessions up by about 75,000 over a full week daypart while Clear Channel’s iHeartradio gained about 8,000 in the same daypart. While Pandora’s raw number gain in AAS is much bigger than iheartradio’s, the two services each gained approximately 10% in the most recent ranker.
This is the first time that Clear Channel’s streaming audience has grown at the same pace as Pandora’s, and it came in the month of a major relaunch of iHeartradio, complete with a two day star studded live and streamed concert that reportedly cost the company $10 million. Clear Channel’s Bob Pittman has invested a lot of time and money in iheartradio, and these numbers indicate that it paid off in terms of increased traffic and listening. The report also shows that iHeartradio averaged 11 million more session starts than the month before – a handsome 20% increase.
The monthly report also shows CBSRadio losing audience, with an AAS that dropped from 97,712 to 93,448 – at least in part due to the loss of AOL Radio‘s audience. This trend should be countered by CBSRadio’s recent move to purchase Metrolyrics, one of the most trafficked music sites on the web.
Americans spend a lot of time listening to music in their cars. According to a new report by NPD Group, two out of three Americans say most of their music listening happens in cars. Most of that listening is still to radio and cds – but that appears to be changing.
The report shows that 80% of Americans listened to radio in their cars and that is a two point drop from a year ago. 53% listened to cds, which is down 4 points from a year ago. Meanwhile 29% are listening on a connected device which could be a smart phone or iTouch. That number is up 9 points from a year ago. Time spent listening with those devices has increased 9% as well.
“A tipping point is approaching when vehicles and portable devices move from a tethered connection to a more integrated one,” said Russ Crupnick, senior vice president and entertainment analyst for The NPD Group. “Smart devices streaming music could end up being the largest threat to CDs and broadcast radio since the dawn of digital music.”
More evidence that consumers are shifting to connected mobile devices for music. Pandora now has 70% of their audience on those mobile devices. Last week I featured a post about Mary Meeker‘s latest presentation which is all about mobile, and the way that mobile will make online audio the next big thing.
On the international Internet radio front, French streaming service Deezer has big plans. They’ll launch in 100 countries in the next few weeks, but stay away from the US to avoid high royalties and stiff competition. While some may consider the US market critical to the success of an online streaming service, Chief Executive Axel Dauchez says there’s lots of online music opportunities globally, in lots of countries not serviced by the big shots in the US. Pandora for example is currently only streaming in the US and European based Spotify is only in 8 countries. Even Apple ITunes is only in 30 countries. “The music industry earns 80 percent of its profit in seven countries so there are many under-monetized countries.” said Dauchez. Deezer’s upcoming launch plans include Germany, Italy, Spain, Turkey, Indonesia, Korea, Mexico and Brazil.
Deezer, an on demand streaming service, offers both ad-free and ad supported subscription based tiers. They are privately held and have raised some 15 million euros from investors to date. They claim to have 20 million users signed up for its free streaming service in France. That should grow with their newly announced integration with facebook and this expansion.
Deezer has been successful in developing telecom relationships, in particular with France’s biggest mobile operator, France Telecom‘s Orange, in which Deezer’s ad-free premium service, which usually costs about 10 euros a month, was bundled into some smartphone and broadband offers. This has helped them grow their audience quickly. France Telecom now holds 11% of Deezer. Deezer reportedly has about 50 million Euros in revenue and will break even this year – if so, that’s an accomplishment that none of the US competitors can claim.
Mary Meeker is widely considered to be an expert when it comes to spotting trends online. A partner at venture capitallist firm KPCB, she was named one of the ten smartest people in tech last year by Fortune magazine. She’s a popular speaker and analyst who has a knack for spotting the next big trend in technology. Lately Ms Meeker’s specialty has been mobile and the way it is revolutionizing the way we do everything, from shopping to consuming media.
This week, speaking at Web 2.0, Meeker gave a fast talking presentation about Internet trends. In it, she predicts that the next big thing is online audio. Lots of new technologies are contributing to this emerging trend. For example, she points out that while twitter and facebook have enjoyed enormous success with their mobile apps, it’s Pandora that has the largest percentage of their audience on mobile devices.
Meeker went on to mention new technologies that are driving the new trend, including Bluetooth enabled wireless devices which permit hands free access, higher quality, more compact wireless audio speakers, connected car audio, sound recognition and understanding apps such as Apple’s new Siri, and sound creation and sharing platforms like SoundCloud and Spotify.
The presentation is chock full of great info and perspective on the promise of mobile. There’s plenty of room left for growth for smartphones, mobile ad dollars are ramping up just fine, cpms are ramping too.
What’s more, the US has taken a leadership position in new mobile technology – thanks largely to Apple and Google. Innovation in Silicon Valley has never been more rapid.
And in case you missed this point a few paragraphs ago, Mary Meeker, one of my personal favorites in the biz, said that Online Audio is the next big thing…
You can watch her presentation online here.
Abacast, a streaming solutions provider, is helping broadcaster partners generate significant ad revenue with the Abacast Digital Ad Sales Program and the Abacast Clarity™ Digital Radio System.
Federated Media is a company that owns 15 radio stations in Indiana and launched their streaming initiative in September. Using the Abacast sales program, which provides training and sales materials to the stations, they were able to quickly sell 50% of their annual digital inventory, achieving annual streaming profitability, and generating an annual gross profit margin of 83%. “The digital revenue was almost entirely incremental,” said James Derby, Chief Strategy Officer at Federated Media. “We signed many new and existing customers that were excited about digital and wanted to jump in with our digital package.”
Neuhoff Media, a privately held company with 12 radio stations in Illinois, sold 40% of the available yearly digital ad packages in their first month using the Abacast sales and ad management systems. Gross profit margins from streaming totaled 50% after the initial month.
“Abacast has built mature systems that enable our customers to build profitable digital businesses that take advantage of this growth trend.” said Rob Green, Abacast CEO. Green attributes the early success of these two partners to successful integration of Abacast’s Clarity™ Digital Radio System which provides a complete solution for online radio streaming. In addition, the Abacast Digital Sales Program offers digital sales training and brandable sales presentations for station sales execs.
It’s a smart move for Abacast to offer both technical and digital sales training solutions, one that shows that they mean to become business partners with their stations, something that should help them build their network..
Triton Digital has introduced a new product that radio broadcasters can use to interact with their listeners. Check in Radio is an app that listeners can download to their smartphones and use to “check-in” with their favorite radio stations. It’s basically Foursquare for radio, agreed Patrick Reynolds of Triton when we spoke about it yesterday. I think it sounds like a pretty useful tool for stations.
Check In Radio is easy to use for both radio stations and listeners. After registering their station, broadcasters simply announce their contest on the air as usual, but ask listeners to “check in” via the simple smartphone interface within a specified time period to be automatically entered into the contest. The app has an intuitive user interface and GPS-based location awareness that automatically pulls up stations in the listeners’ current area. Stations can access the intuitive back-end interface to monitor check ins and select winners.
Check in Radio is a free app for iPhone and Android. Stations can register their station and begin using it right away. Claiming their station enables broadcasters to access a back-end dashboard which features check in monitoring and enables stations to determine contest winners.
This sounds like a cool way for stations to interact online with their FM listeners. It also gives stations an opportunity to expand their relationship with those listeners. In the meantime, Triton is expanding their database on those listeners as well..
There is a growing number of artists who are taking their music promotion directly to their fans by offering streaming access to it online. Why not – it’s a great way to give people a sample – and if they like what they hear they might buy a song, share it online, or buy a ticket to a live performance.
Singer songwriter Ryan Adams‘ latest album Ashes and Fire went on sale this week. For the past few weeks, listeners could sample songs or listen to the entire album online at NPR Music, SoundCloud, or at the Ashes and Fire website.
Some might think he’s crazy, offering his entire album upfront for all to hear. How on earth will he sell albums? In fact, I think Adams and a growing number of artists understand that the formula for selling songs has changed, and restricting access to your songs isn’t the way to get folks to buy your music. Instead, offer a listen to everyone. In fact, offer them the chance to hear your whole album! If they like it, do you think they’ll be satisfied with returning to the website every time they want to hear it? Of course not – they’ll buy it, or the songs they like from it. And maybe they’ll come see a show as well.
CBS Interactive Music Group has purchased the top lyrics site on the web. Based in Vancouver, Metrolyrics is the third largest music site in the world in terms of traffic. Founded in 2002, it has a database of more than 700,000 songs and 48 million unique users per month. The site was built initially by a high school student who discovered that “song lyrics” was one of the most popular search terms on the web. In addition to its deep catalog, one of the strengths of Metrolyrics is that all of the content use is properly licensed.
This is an impressive move for CBS IMG at a time when they had appeared noticeably quiet amid a flurry of activity surrounding some of their competitors. In recent months they had lost a deal with AOL Radio which moved to Slacker, and faded into the background while Clear Channel’s Bob Pittman and his team made a big splash relaunching iHeartradio. CBS IMG services such as Radio.com and Last.fm were noticeably missing from facebook‘s recently announced integration of third party streaming services.
But coming up with the purchase of one of the top ten music sites in the US and top three globally is an impressive move. Metrolyrics is already integrated with CBS IMG’s other anchor services including Radio.com, Last.fm and mp3.com. It’s clear that they see the opportunity that this massive amount of traffic presents for their platform. Metrolyrics users that search for a certain song’s lyrics will have links to personalized Last.fm stations returned along with their results, along with recommendations for similar artists. Free mp3.com song downloads will be offered on the Metrolyrics site as well. Content developed by any Radio.com music station will be featured on the Metrolyrics page as well.
“Searching for lyrics is a core behavior of both the casual and passionate music fan,” says David Goodman, President, CBS Interactive Music Group. “MetroLyrics is the leader in the category, and has methodically built a loyal following by embracing the inherent social intentions of the music community. Our assets integrate naturally into the existing framework of MetroLyrics and vice versa. The immediate back and forth effect between the premier online properties will have overwhelming benefits to users.”
One interesting note is that Metrolyrics has a partner deal with AOL Music and claims to represent 30% of their traffic. I’m thinking that’s traffic that CBS Music would like to see going to its own services at some point in the future..