Radio in the internet age

Video may not have killed the radio star, but can radio survive Pandora?

The online radio industry was on the verge of collapse until it negotiated a more favorable royalty system with record labels in 2008. Now music sites like Pandora and Spotify are serious competitors to good old-fashioned terrestrial radio.

“Pandora is one of the top, if not the top, radio stations in every market,” says John Hilton, executive director for Oakland, Calif.-based Pandora, highlighting a March 2012 total of 1 billion listener-hours, up 88 percent from March 2011. “The company is passing its own personal bests all the time for users and usage.”

Pandora touted a 5.79 percent share of the nationwide radio audience in March. Radio ratings leader Arbitron pegged only two subscribing stations – KOA AM and KQMT FM – as having more than a 5.0 share in the Denver-Boulder market during the same month. With more room for smartphone adoption – penetration is still below 50 percent in the U.S. – and more Internet-ready vehicles rolling off assembly lines, it’s hard to see Pandora’s numbers going anywhere but up.

The move toward Pandora, Spotify and other digital options might represent a bigger threat to traditional terrestrial radio than anything else, including satellite radio. Is this the end of the radio world as we know it?

Not so fast, says Bob Call, general manager of Lincoln Financial Media in Greenwood Village, owner of such Denver-market stations as KYGO FM, 104.3 FM (The Fan), and Cruisin’ Oldies 950 AM. “Whether it’s the advent of TV or cassette tapes, CDs or Pandora, the questions always come up about the future of radio,” Call says. “Radio has changed and adapted to listeners and clients for 90 years. I am confident in the future.”

Mike Henry, CEO of radio consulting firm Paragon Media Strategies in Denver and the creator of the “Jack” format, agrees. “New Media is trying to position Old Media as dead, but the fact of the matter is 93 percent of the public listens to traditional free radio every week,” Henry says, describing what he sees as the onset of “Pandora fatigue” among listeners. “The industry has actually caught its stride in the last six months to a year.”

Radio is coming out of what Henry terms an industry-wide “depression”: Nationwide advertising revenue for radio plunged from $18.1 billion in 2005 to $13.3 billion in 2009, according to media analyst BIA/Kelsey. It’s on a positive track for the last three years and should top $15 billion in 2012.

Henry says the industry is still riding out aftershocks of the 1996 Telecom Act. “That’s when everything changed,” he says. “The small print de-regulated radio. We’re actually in a post-consolidation phase right now.” Consolidation translated to less local coverage and more automation. “Hand in hand with that is a disconnect with the customer,” Henry says.

The consolidation pendulum is now swinging the other direction. Clear Channel and other large publicly traded radio companies have been selling stations and cutting costs, and they are far from diversified: More than 95 percent of revenue is still spot sales.

The industry’s online revenue, pegged at $405 million by BIA/Kelsey in 2010, is projected to eclipse $750 million by 2015. Clear Channel’s iHeartRadio allows listeners to listen to its 850 stations online, but when it comes to online radio, it’s hard to ignore Pandora’s superlative numbers. Lincoln Financial Media’s Call is dubious. “They are publishing numbers that according to them show significant listenership,” he says of Pandora. “However, they aren’t rated by the traditional ratings service Arbitron, so it seems like an apples-oranges comparison. No question, they compete for a listener’s time, but Denver radio is about Denver. We are serving a different audience.”

And serving the audience is a time-tested key to success in radio. “You better focus on the audience and not just cutting costs,” warns Paragon’s Henry. “Making it into a jukebox without any local meaning is a dead end” – which, of course, is the essence of Pandora.

New Belgium Brewing hasn’t advertised much on traditional radio, but the Fort Collins-based craft brewer created a pair of branded Pandora stations for the launch of its new Shift Pale Lager, featuring music from artists ranging from Neil Diamond to Black Sabbath. “We felt Pandora had a lot of compelling aspects,” says Greg Williams, who is on the New Belgium account at Backbone Media in Carbondale. “You’re able to hyper-target the audience with demographics and psychographics. We really like the integration with Facebook and other digital initiatives.

“The number of hours listened has
been incredible,” adds Williams. “We’re very happy.”

Williams says he also hopes New Belgium will benefit from the “halo effect” from Pandora being well-liked by its listeners, and that the limited number of ads will help cut through the clutter. Pandora’s model calls for a minute of ads every hour (versus about 12 hourly minutes for a traditional terrestrial station), as well as leveraging the Internet’s video potential and analytics.

Lincoln Financial Media’s Call sees it differently: Only traditional radio can deliver radio on steroids. “Pandora, one might argue, isn’t really radio, but a music-listening service,” he says, touting his station’s digital initiatives. “We are excited about the number of app downloads on smartphones, and we also see our streaming numbers increasing. Our social media relationships are growing constantly.”

And Facebook and Twitter are quickly becoming the 21st-century equivalents of the call-in line. Grant Wittstruck, the newly minted director of integrated media for Max Radio of Denver (home to Hot 107.1 and Jammin’ 101.5), is leveraging 27,000 likes on Facebook to build a listener database that ultimately will allow the company to geo-target specific demographics with relevant campaigns. “We can send an email out to women between 40 and 50 within one mile of a car dealership,” says Wittstruck, who came to Denver earlier this year.

Max Radio no longer gives away spot ads on its online streams of its stations’ broadcasts as bonuses to terrestrial advertisers. “We put the kibosh on that,” says Wittstruck. “I went from zero dollars to five figures in a month,” he notes, with an ultimate target of getting a quarter of ad revenues from digital. Wittstruck is looking at online auctions, daily deals, websites like, streams through partner sites like TuneIn, and even print media to diversify Max Radio’s revenue stream.

“Ten years ago, there was no digital at all,” he adds. “I’m expecting it to really spike, like a hockey stick.”

Denver-based Liquid Compass provides online streaming infrastructure to more than 1,000 stations. CEO and founder Zackary Lewis says the company was founded in 2001 after streaming technology just began to catch on with listeners. “It’s been a bit of an uphill battle,” says Lewis. “There’s been a lot of talking and shaking hands.” Only about half of 10,800 qualifying stations in the country currently stream their broadcasts, he says. “There’s a great opportunity for growth both inside and outside the United States.”

Online radio offers advertisers demographic targeting, detailed analytics, and multimedia opportunities that terrestrial radio can’t deliver, Lewis says. “With the advent of iPhones and smartphones and other streaming devices, listenership is going to rise, and I think it’s going to continue on an upward trend for quite some time,” he says.

“A broadcaster will often say, ‘I want x percent of my revenue to come from streaming,’” Lewis says. “It’s more or less an arbitrary number. You should really say, ‘I want to grow my revenue by x percent, and how do I get there?’”

Digital monetization aside, the political polarization that’s dominated the airwaves since the Federal Communications Commission quashed the Fairness Doctrine in 1987 is another unavoidable radio issue, the question being whether it’s good for business or not. The recent Rush Limbaugh controversy that sprung from his berating of Georgetown student Sandra Fluke led numerous advertisers to pull their spots from not just Limbaugh but all political talk radio.

“Polarizing hosts live and flourish off of the 10 percent who believe every word,” says Paragon’s Henry. “However, for the past two to three years, there has been a growing understanding in radio circles that this approach is not long for this world. Many talk radio programmers are actively trying to mainstream their on-air product for wider audiences – I’m working with stations doing this right now. This movement may not be evident to listeners yet, but it is how the wind is blowing.”

Political controversy notwithstanding, public radio stations have enjoyed strong listenership in recent years. “These pure music stations on public radio are doing great,” Henry says, noting that nonprofit and commercial radio have a lot to learn from one another.

But radio does not operate in a media vacuum. There is plenty of competition for ears and eyes, and many competing industries are experiencing even more tumult than radio. “The traditional news media has laid off tons of people,” says Steve Outing, program director at the Digital News Test Kitchen at CU-Boulder. “As some of the bigger news organizations decline, if public radio can step up and replace some of that, it can increase their user base and donations.

“Public radio is getting pressure to do more locally,” Outing says. This is especially true in Colorado with the loss of the Rocky Mountain News in 2009, he adds. “The onus is on them to step up their game in terms of local news.” Regardless, strong fundraising in recent years hasn’t yet turned into an onrush of new local content.

“Business models are changing dramatically,” says Paragon’s Henry. “When Canada (the national public Canadian Broadcasting Corp.) is running ads, you know there’s a sea change. The slowest to change are major commercial operators.”

Henry thinks commercial terrestrial radio needs to diversify by playing to its strength. “The biggest thing radio can do is promote,” he says. “We can fill up stadiums, we can fill up shopping malls, you name it. We’ve got to send our audiences to gates we can be a part of. Number one, do great radio, and number two, start monetizing public events. Take it a step further: Own the event and send people to your own event.” In tandem with a strong digital push, the focus on events makes for “a powerful business model that makes money. It’s multi-point, not a straight line like selling spots.

“I’m very bullish. There’s never been a better time in radio to compete for listeners. It’s easy pickings. They don’t compete for audiences like they used to,” Henry says.

“If you know what local radio is and how to do it,” he adds, “that’s all you have to do.”