Welcome to the first official Brad Saul on radio blog, a three-time-a-week look at what’s happening in the world of terrestrial, satellite, and Internet radio.
There’s a lot to talk about from the world of radio over the past few days.
The biggest item last week was the IPO for Pandora. Initially, the stock was to be launched at between $6 and $8 a share. By the time all of the hoopla and cheering was completed, it actually launched at $16 a share, running up on its first day to just about $24 a share before settling back near its original offering price. Later last week and into this week, the stock has fallen below $16. People are wondering how it is possible that a company that has never made a profit can create such buzz on Wall Street?
It does hearken back to the days of the old dot com gold rush. That was the day when you could literally launch anything with dot com attached to it and make a fortune. I actually thought about launching a company called Stealth.com. It was so secret you couldn’t know what it was, but it was going to forever change the face of e-commerce on the internet. I figured I would launch the IPO at $10 a share, watch the stock price run up to $70, sit out my lock-out period, and sell my stock and make a fortune. It seems that there is a little of that going on with Pandora.
With music licensing costs as they are, even though Pandora did $100 million in revenue last year, it still had a loss of nearly $40 million. It is no coincidence that the biggest cost for Pandora continues to be the cost of playing music. While there are 90 million people signed up for Pandora, the more they listen, the more it costs the company, and the more subscribers they get, the more it costs the company as well. It does seem to be a flawed business model, heavily dependent on advertising revenue to support it.
While last year internet radio advertising sales were $853 million, and Pandora clearly was the largest piece of that. But there is a long way to go before ad sales can ever possibly support the costs of Pandora’s business. Of the 90 million subscribers to Pandora only 13% pay the monthly subscription fee.
You can read all about the Pandora offering at KurtHanson.com.
My guess is that by the late summer or early fall, the stock price will fall into the single digits. It’s something we’ll have to watch.
Mike Agovino, President of Dial Global made news yesterday when he talked about the flawed model for internet radio. He pointed out that on a cost per thousand basis; just the licensing fees for music are approximately $5 per thousand. That does not include the cost of talent, much less the cost of paying AFTRA fees associated with the commercials that air on broadcast streams. You can read more of Mr. Agovino’s comments at radioinfo.com in the Taylor-On-Radio Newsletter. It does seem as though broadcasters have yet to figure out how in fact they are going to make money on the Internet. Yet as he well points out in his comments, and most people in the industry agree, internet radio is the future of our industry.
Fifteen percent of all radio listening at home now takes place online, 90% of radio listening in the office is online, and that is mostly music streaming. Every major automotive company is now offering Internet radio as a factory installed option and it won’t be long before internet radio does to terrestrial radio what FM radio did to AM radio in the 1960’s.
For radio to move into the 21st century and take advantage of all the Internet has to offer, it must do more than just stream its broadcast signal. There are so many creative ways that radio stations can take advantage of their beach front property, namely their call letters. One example can be found at Cinesport.com. It’s a service that allows radio stations to have video highlights of major league baseball, NFL football, NBA basketball, and NHL games on their site. In the coming days and weeks we’ll talk more about what radio stations can do to help their listeners use their web sites more effectively and take advantage of the call letters they have that are stuck into peoples’ heads.
On the pure play internet front, podcasts still lead the way. Radio is no longer an industry of, “You’ll get what I’ve got when I’ve got it.” It’s now an industry of, “I want what I want when I want it and how I want it.”
At the NAB convention earlier this Spring, research from Target Spot was presented showing that three years ago only 43 million people in this country had ever listened to a podcast, and in 2011, according to the survey, 76 million now report listening to one or more podcasts every week.
It was just about a year ago that Forrester Media Research at ForresterResearch.com published a study showing that people who hear ads in podcasts are 37% more likely to buy those products or services than if they heard, saw, or read about them in any other mediu and 70% more likely to feel good about those companies’ products or services.
That is a great arrow in the quiver of those involved in monetizing podcasts. You can see an example of how a podcaster swung from a garage to a full fledged business can be found at TWIT.net.
Later on in the week we’ll talk about pure play Internet radio; how best to use it and podcasts to generate listenership and revenue.