Online Radio Advertising Lesson 3:The Pure-Play Business Model

Pure-People

The Internet, social media, and the continued popularity of reality TV have helped create a phenomenon where people have the ability to generate buzz about ideas, causes, shared interests, and even themselves. Consumers want ultimate accessibility, ease of use, and convenience with just about anything that comes to the market. Moreover, their behaviors are motivated by their individual tastes and preferences, changing moods, and discoveries. Media companies offering services characterized as ?on-demand? speak directly to the fact that the marketplace for entertainment is becoming increasingly consumer-driven. This means that in order attract the highly desirable users of services like streaming Internet radio, businesses must not only adapt quickly to new technologies, but also refine and focus their advertising and marketing strategies to match consumer attitudes.

Pure-play radio is a consumer-driven market which gives the user much more control than terrestrial radio delivers. ?The same can be said of its predecessor Sirius/XM radio. The fundamental concept of these platforms is to empower users to have the content they seek delivered right to their fingertips and ears. According to Adam Parness, the senior director of music licensing for Rhapsody, ?the truth is choice is the next format.? ?Many consumers use all the different platforms: they hear new artists on the radio, listen to their albums on Spotify or Rhapsody, then seek similar artists with a service like Pandora. ?Matt Ostrower, the director of artist partnerships and programming at Pandora says ?they work together quite beautifully.? So why can?t they all get along and why are they stepping on each other?s toes?

Radio Pie

Radio executives know full well that part of their business will continue to grow online, but yet knock the pure-play model as being unable to stand on its own. Internet radio is a new media, which incurs more operational costs with every new listener. This means some stand-alone providers are still waiting to make money, casting an uncertain future for streaming music as a business alone. For every hour of listening, one user brings in just over $20 of revenue, which is expected to double by 2016 and far outpace proposed $23 an hour licensing fees. Some providers, like Pandora, have also had trouble expanding their sales force as its audience grows.? Business analysts believe that independent streaming music providers will not begin to see a profit until 2014.

Traditional broadcast radio, on the other hand, maintains consistent operating costs, regardless of how many listeners it gains. It pays nothing to artists per play, whereas the pay-per-play rates of Internet radio companies are fractions of cents. So whether or not pure-play radio is a sustainable business model really depends on who you are asking. It may cost more for companies, but make more for undiscovered and lesser-known talent, in addition to the streaming air time they may never get without online music platforms. The airtime itself is a promotion for the artist, and often chosen by the listener. On top of that, many terrestrial stations are skewed in a certain direction and play a lot of the same music. After learning about all the pros and cons of the business model, I have decided that it all depends how you slice it as to whether or not it is sustainable. More importantly, the services are sought by consumers, regardless of issues that plague the industry and niche. Otherwise, why would a die-hard like Clear Channel?s CEO Bob Pittman help develop a spin-off like I Heart Radio?

The Ad Scape

In reference to the launch of I Heart Radio, Pittman states that the company ?wanted to show the world what Clear Channel can do with this national scale when we operate nationally ? Considering that the promotional concert sold out in 10 minutes, I?d say we get the point. So why can?t larger companies dominate national radio advertising, while pure-play channels rule the local airwaves? I?d say it?s because streaming radio companies don?t want to rely solely on local advertising dollars. Let?s face it. Huge conglomerates have much deeper pockets. It also seems that larger media groups like Clear Channel are poised to attract brands with national reach, rather than by going head-to-head with Internet radio companies, even if they are using the pure-play model, which does directly compete.

The fact is that advertising dollars have supported terrestrial radio as it has weathered the storm of many other musical developments. Advertisers have been sponsoring segments, delivering audio spots and running contests on air for decades. Pure-play channels are raising the bar by offering blended multimedia advertising on national and local levels through a range of devices. This very new concept sounds good, but has yet to catch on the way it must to validate the business model. Although online advertising campaigns through Internet radio are targetable and offer easier ways to measure results, it is difficult to measure whether or not users are engaging with brands on multiple devices, a common practice by today?s consumers. It has also been stated that steps need to be made to convert free service users into subscription-based users in order to make money from these platforms.

Moreover, with new pure-play companies continuing to emerge, whether a company is able to monetize its business model or not will depend on if the profit margins are big enough to outpace the competition. Still further, some speculate that stand alone streaming radio companies are being built to eventually be absorbed by larger media companies. Depending on which forecasting is accurate, pure play stations may be giving traditional broadcast companies a run for their money or calling CEO?s like Bob Pittman their new boss.

I Heart Humans

According to the Clear Channel CEO, another reason that services such as Pandora can?t claim to be Internet radio is because they lack deejays and local customization. ?You need human beings to bond to? he argues. This brings me back to the fact that streaming Internet radio is a consumer-driven market inside an arena which obviously encourages human bonding through sharing, socializing, and a common love for music. Furthermore, users can listen outside their geographic location, but still receive local advertising with some service providers. On top of that, the users? ability to create individual channels coupled with their quick adoption of new technology means that consumers might create local customization all on their own. Businesses can just stick their ads right into pre-made, targeted stations. Some might even say that half the job is done. Many companies outside of the radio industry are creating branded stations, too. I think what Bob Pittman means is that there are no media giants or celebrities associated with Internet radio. There are plenty of humans, and ridiculous amounts of bonding.

For the most part broadcast radio talent ranges from deejays airing live, on-location, and sometimes by pre-recorded computer program. Some terrestrial stations have a unique voice to brand them, but no actual live deejays. There are still strong voices in terrestrial radio, but my guess is that if they suddenly started broadcasting online only, that their loyal listeners would follow. Otherwise, Sirius XM and Howard Stern wouldn?t still be around. Ultimately, consumers will follow the music and personalities, not the companies airing them.

Best of Both Worlds

Clear Channel ultimately champions traditional radio, but has latched on to streaming radio platforms to give the consumers what they want, which is choice and personalization. I Heart Radio broadcasts all of its terrestrial Clear Channel stations online, digital only stations, custom radio, and strong social network features. The difference is that these features are all in one product, which Pittman believes is the better approach. Some Clear Channel stations are also broadcasted on Sirius XM Radio. Bob Pittman is very passionate about terrestrial radio, but also wants to be a big name in streaming music. This is probably due in part to what Pandora CEO and founder Tim Westergren has witnessed, which is that ?Internet radio is beginning to draw advertising dollars because it?s targetable. It?s a richer experience, which leads to higher click-through rates.? Sounds like a case of a good idea replicated by a bigger company that may eventually put the originators out of business.

Leveling the Field?

According to a Futuresource consumer research study, ?Living with Digital?, the number of US and European Internet users listening to Internet radio or music streaming services on a regular basis has remained relatively unchanged since 2009, at 38% in the USA and 30% in Western Europe. However, the study also shows that total Internet radio listening hours in these territories has increased by 27% and around 20% respectively. That means that the preference of music platform towards a pure-play model is increasing. Online services have experienced rapid growth thanks to the strength and speed of cloud computing and a renewed desire of consumers to discover music online. Internet radio will continue to be popular even as it faces growing competition and holds scattered mind share and consumer attention. The best bet for advertisers is to use streaming radio advertisements as part of a larger radio marketing campaign so that they work together, filling in all the gaps where each option falls short.

In the next part of the series, I will take a look at the implications of mobile marketing and streaming Internet radio. This is an even more targeted approach to making sure your advertising is seen by the right people, at the right time, and on the right device. If you are just checking out this series, learn more valuable information by reading the first two articles and see if Internet radio advertising is a good strategy for your business.

Interested in reading more about advertising using Internet radio? Check out the other parts of the series.

Lesson 1: The Players and Listeners
Lesson 2: Benefits for Advertisers
Lesson 3: The Pure-Play Business Model

Source: http://humandmt.com/online-radio-advertising-lesson-3the-pure-play-business-model/

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