MUSIC BOX [Albuquerque Journal, N.M.]
(Albuquerque Journal (NM) Via Acquire Media NewsEdge) Jan. 06--Todd Eric Lovato is a fan of radio, even though he may not listen to it in the traditional way. The Santa Fe-based musician and managing editor of SantaFE.com, an arts and culture website, has downloaded apps that allow him to listen to his favorite news programs, like National Public Radio's "Morning Edition," on his smartphone, iPod tablet or laptop, when it's convenient for him.
He still listens to his iPod to hear music that he's downloaded, but he relies on Internet radio services, like Pandora, Spotify and iHeartRadio "to fill those specific times when I don't know exactly what I want to listen to," he says. "It's almost like they're filling a mood."
For many of these Internet radio services, the listener requests a song or an artist and then the service generates a mathematical algorithm that determines which songs or artists should be presented on the playlist. By favoring or rejecting songs, the listener can customize a playlist and essentially program their own channel.
"Sometimes, those algorithms are so spot-on, it's a little creepy," says Lovato, 33. "The upside is you have music on demand, even if it's not completely customized. The downside is it makes me feel a little guilty because I still have an attachment to the old way of consuming media, like listening to terrestrial radio and my compact discs. ... An algorithm can't give you a sense of community, like my favorite terrestrial radio stations do, but they do give you a damn good playlist."
What this represents is "a tectonic shift in how listeners get their music," says Dominic Paschel, vice president of corporate finance and investor relations for Pandora Media, the largest of Internet radio services.
And now Pandora is gearing up to match local advertisers in markets around the country with individual listeners in those areas. Operators of terrestrial radio stations in the Albuquerque market are dismissive that an increased presence by Pandora will either hurt listenership or ad revenue.
"We're always competing against all the other media for advertising dollars, so this is just another competitor, along with TV, newspapers, billboards and other radio stations," says Chuck Hammond, regional market manager for the 16 Clear Channel stations throughout New Mexico.
But local media buyer Erik Lohmeier, managing director of marketing services for Agenda Global in Albuquerque (formerly DW Turner), which buys media time for clients, says station operators may not be feeling the heat now, but they should be concerned.
"Digital media is growing like crazy, and Pandora is no exception," Lohmeier says. "It has become a major player. Advertisers go where the consumer or customers are, and that dictates media buying decisions."
With more than 175 million registered users, the Oakland, Calif.-based Pandora has seen its market share of the Internet radio-listening audience inch northward of 75 percent. The Pandora app is so popular it is second only to Facebook, Paschel says.
By comparison, Clear Channelowned iHeartRadio, the secondfastest growing Internet music service, has about 20 million registered users, says Hammond. iHeartRadio, headquartered in New York City, has about 10 percent of the Internet radio audience, as measured by Triton Digital radio services. In addition, iHeartRadio livestreams about 1,500 radio stations from coast to coast.
If iHeartRadio has fewer subscribers, its 15 million song collection dwarfs Pandora's 1 million songs; however, what Pandora does with each song helps create the music service's image and marketing focus. Its "Music Genome Project" analyzes songs based on up to 400 musical attributes, and generates a complex mathematical algorithm to organize them before the songs are placed in Pandora's curated collection, explains Paschel, who grew up in Albuquerque.
When users enter a song or artist name, the song's musical DNA, so to speak, serves as a guide on how Pandora sequences additional music. Listeners can then click on a "thumbs up" or a "thumbs down" to each song, providing additional information on musical tastes. From that initial song or artist request, a listener can create one or more personalized "channels."
"Based on that, as well as registration data that includes gender, zip code and birth year, we can tailor advertising to particular users," explains Paschel. "We can make advertising dollars more targeted and effective and advertisers can pick artists and genres to reach listeners."
Pandora generated $273 million in revenue in 2011 and was on track to finish 2012 with nearly $400 million in revenue, says Paschel. iHeartRadio does not at this time run advertising on its user-created channels, though its streaming terrestrial stations are rebroadcast intact with all commercial breaks, says Hammond.
iHeartRadio, however, is not Pandora's major competition; rather it is terrestrial radio stations, which continue to account for about 83 percent of all radio listening, with satellite and Internet radio providers accounting for the rest.
The bulk of Pandora's expected $400 million revenue comes from digital media advertisers and businesses in eight of the top-10 radio markets where Pandora currently has ad sales staff. The goal is to expand the number of sales reps on the ground to most of the country's radio markets, including Albuquerque, Paschel says. That's a lot of markets, but also a lot of potential to grab a slice of the $16.5 billion in radio advertising dollars available nationally.
The Albuquerque radio market, with about 30 stations, generates nearly $30 million a year in local advertising revenue and another $10 million in digital and national advertising, says Hammond.
Still, Clear Channel and other local station operators say they aren't sweating the possibility of a more active Pandora eating away at local ad revenue.
Clear Channel's strategy has been to "deliver content where listeners want to get it, which was part of the reason the company established iHeartRadio," he says. But that also begs the question: If they weren't worried about Internet radio, why create the service
Likewise, Milt McConnell, general manager of the seven Cumulus Media radio stations in the Albuquerque market, calls Pandora's impending competition for local advertising dollars a "nonevent."
Local radio has held up against assaults from "digital, satellite and every kind of new electronic device," he says. "The good news is (terrestrial) radio has adapted and we are on all those platforms via an app or through iHeartRadio."
Further, local radio offers something that Pandora can't. "People still enjoy local entertainment and content and remain loyal to that listening habit," McConnell says.
And it's that connection that is terrestrial radio's saving grace, notes Martha Whitman, owner of KOAZFM (103.7). On the air for less than a year, "the Oasis" has brought back smooth jazz in an updated format that also incorporates world music, Latin guitar, urban and New Age.
"We are locally owned and that's more important to advertisers, because we're supporting the economy here, and their dollars are staying here. Also, Oasis programming is done locally, the program hosts are all local, and we are independent."
Whitman says it's not clear how Pandora could sound local or develop the same relationships in the community as local stations. "I'm not sure how having more competition really changes the game much."
Local stations will always have a following because of their ability to provide local content, such as news, traffic, sports and homegrown personalities, says media buyer Lohmeier. But more and more, consumers of music are gravitating to services, like Pandora and iHeartRadio, which allow them some control over content with self-selection options and easy user interfaces.
At the same time, "advertisers are trying to be more relevant and create connections with customers in meaningful ways," a task made easier with digital listeners whose profiles, tastes and other information are more readily available.
"All things being equal," Lohmeier says, "Pandora will become a market share contender."
And that's one box Pandora is anxious to open.
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