2011 revenues for the record industry from streaming music royalties jumped to more than half a billion dollars, according to a year end report by RIAA. Revenues from subscripton services (like Spotify, Pandora One, Rdio, MOG, Slacker) jumped 13.5% to $241 million, and Digital Performance Royalties, paid by all other streaming services (including Pandora) rose 17.2% to $292 million.
In its fiscal year ended January 2012, Pandora paid out more than $285 million in “content acquisition”, the bulk of which is performance royalties to SoundExchange. The time periods don’t match up perfectly because the RIAA report is calendar year, but you get the picture — Pandora’s paying a huge amount to SoundExchange.
Which should make for an interesting next round of negotiations for streaming royalty rates. Tim Westergren has always been very vocal on this topic, stating over and over again that he’s not against a royalty, but that the current costs are too high. With the next round of CRB hearings looming, he’s talking about it again. But this time, he’s coming to the table with over a 100 million registered users. And he’s SoundExchange’s biggest customer.
Pandora’s also got a lot of investors, and they’re working that crowd as well, including this statement in their recent SEC filing:
“Since our inception in 2000, we have incurred significant net operating losses and, as of January 31st, 2012, we had an accumulated deficit of $101.4 million. A key element of our strategy is to increase the number of listeners and listener hours to increase our market penetration. However, as our number of listener hours increases, the royalties we pay for content acquisition also increase. We have not in the past generated, and may not in the future generate, sufficient revenue from the sale of advertising and subscriptions to offset such royalty expenses.”
This new revenue report from the RIAA shows very clearly that the recording industry is becoming increasingly dependent on the streaming industry as a very real source of bread and butter.
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.
Last week was a busy week for Internet radio. Clear Channel shook things up at the beginning of the week with their announcement of the coming “New iHeartRadio”, later in the week Spotify launched its US based service. While I think Spotify’s entrance here is interesting, I don’t think it will have an enormous impact on free streaming radio options.
Spotify’s on-demand service is more competitive with other highly interactive services that are looking to replace personal listening collections. Those include services like MOG, rdio and Rhapsody. Cloud based services that allow a listener to sync their own music files and stream from multiple devices are a competitor to on-demand services as well. Premium Internet radio services, such as Pandora One and Slacker’s premium ad-free option may also be affected, as I think they will compete for the same dollars.
More than 2/3’s of Internet users here in the US have paid for digital/online content already, according to The Pew Internet and American Life Project, 1/3 have paid for digital music online. That information validates the consumer subscription model. But how many different services will the consumer pay for? Probably not more than one or two.
In addition to all the streaming on-demand services competing for digital dollars, there are subscription based podcasts such as Adam Carolla, Bubba The Love Sponge and others. In fact, I think Sirius XM, with its monthly subscription fee, is ultimately competing for the same monthly listening subscription dollars.
The arrival of Spotify, long heralded by themselves, has been anticipated by industry watchers aware of their large listening share in Europe. But the general public is largely unaware of them so far. Interest in earlier Euro based services has been weak – GOOM Radio launched and quickly fizzled, and UK born Last.fm, which CBSRADIO picked up a few years back, has not been able to build a massive following.
It’s an interesting case study from the get go, one that I’m looking forward to tracking..
Lipton Iced Tea has teamed up with Pandora for a summer promotion that encourages listeners and tea drinkers to “Discover the Natural Side of Music.” All natural Lipton Iced Tea will sponsor a summer long promotion designed to emphasize the all natural ingredients in Lipton Iced Tea by tying in with acoustic concerts, artist videos and exclusive channels on Pandora.
Lipton and PANDORA internet radio will continue to engage fans by bringing exclusive and compelling content from major artists including Train, Kelly Clarkson, Bon Jovi, and more—representing a variety of genres. Each will share the unique and personal natural roots of their music as part of a video series on Lipton’s Facebook page.
Fans can also interact with the natural elements of music on Lipton PANDORA internet radio stations to cater to their musical preferences. Stations include Lipton Pop (Pandora.com/liptonpop), Lipton Country (Pandora.com/liptoncountry), Lipton Rock (Pandora.com/liptonrock) and Lipton Hip-Hop (Pandora.com/liptonhiphop).
This is a nice illustration of smart creative ways that Pandora and other online stations can offer value to advertisers that’s far removed from cost per thousand advertising. Pandora’s channels are the centerpiece of this brand’s promotion, the added value that they are offering their customers. The interactive channels that they have created will extend their brand further than any generic ad campaign ever could.
Are you thinking about how can you create smart advertising that adds that kind of value for your advertisers?
A new Webcast Metrics ranker of measured stations for March shows that Pandora‘s audience AAS sits slightly below the half million mark, a number that is just slightly above last month’s position. Last month, when Pandora’s number showed some negative growth, we learned that there was some missing data and that would affect March and April data as well: “During this period, the code that measures audience and time spent listening was inadvertently omitted by Pandora in some versions of their mobile applications. Therefore, not all of Pandora’s mobile listening is captured in this report.”
For the most part, the other leading groups or stations on the ranker showed increases: CBSRadio, Clear Channel, Citadel, Slacker, Entercom, ESPNRadio, Cox and Cumulus all saw modest growth in their AAS number while Digitally Imported, the third online only station in the top ten, saw a minute decrease in their domestic AAS.
AccuRadio, Salem and Bonneville continue to lead the pack with strong TSL numbers that are 3 or more times greater than Pandora and some of the other leading groups on the ranker. No doubt, this has to do with lots of sampling, but also to a loyal userbase for the three TSL winners on the ranker.
Yesterday Pandora added some levity to its lineup, by adding 10,000 clips by 700 comedians to its offerings. The clips will be available in much the same way that songs are – searchable by artist, genome coded so that listeners can indicate some preferences and then get personalized suggestions for similar artists.
Clips that I sampled were coded for featuring anecdotes, satirical observations, 2000s era comedy, jokes about personal relationships, male perspectives, sexual jokes, jokes about government, and sarcastic delivery.
Also added are new Comedy genre channels, ranging from Today’s Comedy to Golden Oldies Comedy and lots in between – 12 new comedy channels in all. Pandora Founder Tim Westergren told The New York Times that “this is a logical step under the umbrella of personalized radio.” The launch comes complete with advertising sponsors – the free comedy streams will be supported by two Unilever brands with a penchant for comedic advertising: Klondike bars and Axe male grooming products.
All of the clips appear to be sound recordings, and thus are covered by DMCA performance royalties. That means that there’s no savings to Pandora when a listener chooses a comedy clip over a song, is is sometimes the case with talk programming.
Pandora’s not the first to offer comedy channels to its listeners. Slacker Radio has had comedy available for a while and offers two comedy channels as well as custom, user created comedy channels such as Prank Call Radio. Slacker’s most popular comedy station ranks in the top ten among their more than 140 curated (or genre) stations. “As we have had great success over the past 4+ years delivering curated and personalized comedy stations to our listeners, it comes as no surprise that Pandora is making an entrance here.” according to Jonathan Sasse, SVP Marketing. Slacker is planning soon to launch hosted stations by leading comedians to further extend their comedy offerings.
In their signature way, Pandora’s blog post about the new offerings makes it all about the listeners and the artists. “We hope that the Comedy Genome Project will let people enjoy comedy they know as well as discover new talent that they love. And for comedians everywhere we hope that Pandora can provide a great big new platform for new fans. There is surely nothing more important than helping the world laugh a little more!”
Pandora’s multi year expansive ad deal with Toyota sure sounds like a big deal. Called the “Legends and Icons” campaign, it pairs various Toyota cars with music genres and artists on Pandora. It will be the largest campaign in scope and span to ever run across all of the Pandora Internet radio advertising platforms and will feature exclusive content from an expansive roster of internationally acclaimed and award-winning musicians.
The campaign launched last week and runs through early 2013. It’s expansive in scope – each month will pair a Toyota vehicle with a demo and a genre station on Pandora. For example, this month the target demographic is Adults 18-49 and the genre station is Top 40. The campaign will be featured across multiple Pandora Internet radio platforms, including the web, mobile, iPad, as well as video and curated mixtape stations created by the artists themselves that include never-before-heard audio content.
It’s a deal that grew out of an earlier deal that put Pandora’s Internet radio in Toyota cars via their Entune multimedia system. That deal was announced in January at CES. “We have enjoyed working with Toyota on an innovative approach to connecting with drivers by leveraging their passion for music,” said John Trimble, Pandora Chief Revenue Officer.
“Pandora shares the same innovative and creative spirit as Toyota, making it the ideal partner for this enduring, multi-platform campaign.”said Kim Kyaw, senior media strategist for Toyota.
This deal puts emphasis on the relatively new Pandora genre channels, which are pre-programmed rather than personalized streams. This is a direction that Pandora is going to need to head in as they make their way onto more and more automotive devices, where the ability of the listener to interact with the platform while driving is limited.
Given the addition of Pandora to new Toyota vehicles, Toyota probably got a pretty good deal on this ad campaign…
Last week we had a couple of good reasons to take a second look at subscription models for streaming music business. First, Last.fm announced that the radio service built into Last.fm mobile apps and on home entertainment devices will become an ad-free, subscriber-only feature on February 15th. It’s not practical, they explained on their blog, to deliver an ad-supported version of their streams on mobile and other connected devices, so they’ll continue to offer an ad supported free version from their website, accessible through your computer, but if you want to listen on other devices you’ll have to pay a monthly subscription fee of $3 per month – the cost of a “fancy coffee.”
Last is not the first (get it?) service to head in this direction – many other services offer ad-free versions of their sites for a small subscription fee. Pandora One, Pandora‘s ad-free version, costs $3 a month as well – although they do offer a free version that is available with mobile devices. It’s working out okay for them – as we saw in Pandora’s recent SEC filing, they have managed to convert a small percentage of their large user base to paying customers, and generated 13.6% of their revenues in the first 3 quarters of last year from subscriptions.
Other services are working the subscription model as well – MOG, rdio, and Rhapsody, who offers unlimited streaming for $10 a month along with the ability to transfer playlists to a device for offline listening.
The Pew Internet and American Life Project reports that 33% of Internet users said they had paid for digital music online – which presumably includes downloads as well as access to premium streamed content. Digital music topped the list of items consumers were most likely to pay for.
Streaming music services have struggled to develop successful business models. CBSRadio, which owns Last.fm, no doubt decided that profitability or the pursuit of that is important enough to implement some changes that will no doubt impact the size of their audience. Can they leverage their brand and audience into a decent size subscriber base? Some early indicators say they just may be able to.
I have a business card from Jessica Stoner Steel, EVP of Biz Dev at Pandora, that she gave me when we first met, sometime in the early 2000s. The card doesn’t say Pandora, it says Savage Beast Technologies, powered by the Music Genome Project. That was before the site was live, and before any of us had ever heard of Pandora. As far as I know, Jessica was one of Pandora’s very earliest employees.
Now Pandora has 275 employees, and has taken the lead position in Internet radio in the US. Of the top measured sites and stations in the US, they can claim a 50% share of listening.
The SEC filing says that they changed their name to Pandora in May 2005. It’s taken less than six years for Westergren and his team to build a brand and execute a vision, and they have done it very very well.
I remember that early conversation with Jessica Stoner (Steel). She was firm in her belief that what they were doing – it wasn’t live and she wasn’t revealing much – was revolutionary. Good for artists and listeners. Better than what anyone else was offering. In fact, her confidence seemed to me at the time to be a little cocky. But I never forgot the conversation.
I think the one thing that Westergren and his team have had from the very beginning was a vision. A dream. A conviction. That their Music Genome Project would revolutionize listening and satisfy artists and listeners. Really, the biggest thing that Pandora has had going for it from the beginning was Tim Westergren and his passion. He started traveling around the country holding town hall meetings to connect with listeners. Preach his vision. Build his brand. And he did it with genuine passion and dedication to both sides, the artists and the audience.
Pandora is an epidemic, in the very best, Tipping Point kind of way. And if the past five or six years is any indication, Pandora’s IPO will be a success.
By now you’ve probably heard that Pandora has moved to go public. On friday afternoon they filed a registration statement with the Securities and Exchange Commission of their intention to sell shares via an IPO as soon as possible after the filing. They seek to raise $100,000,000.
The document they filed is full of great info about their business and their strategy.
Pandora says they are redefining radio from a one to many to a one to one radio listening experience by enabling personalization and discovery. Their Music Genome Project, which assigns attributes to songs and then is able to define and deliver an individual’s preferences for music, is their key weapon. Listeners choose to listen to Pandora because of this service, because it is free and because it is everywhere. Advertisers choose the service because it offers a one to one delivery, multi platform options, and an “enhanced messaging environment.”
Pandora has 80 million registered users. Listening on mobile devices is higher than on computers. According to AndoMedia’s ranking of the top 20 stations or networks in the US they have more than a 50% share. Perhaps they should have added the caveat that not all stations or networks are measured by Ando’s service, however they do list their reliance on third party measurement services as one of their risks.
In the first nine months or 3 quarters of last year their revenue was slightly more than $90 million, $78 million of that was ad sales and the remainder was subscription. The ad revenue number includes more than $6.6 million in ads they run as part of the Google ad network.
A daunting 60% of those dollars are paid out in royalties which they call “content acquisition”. Pandora was not profitable last year based on income and expenses for the first 3 quarters. In the fiscal year ending January 2010 they lost $16.8 million.
Westergren owns 2.4% of the company he founded by maxxing out credit card after credit card back in the early 2000s. CEO Joe Kennedy has 2.7%.
Pandora’s going public is big news for Internet radio. They are by far the most widely known Internet radio service in the US, and their success or failure will impact the ability of other services to do the same. May they thrive…