One web site declared the partnership a threat to traditional radio’s local customers, its bread and butter. Audio4cast declared:
By partnering with AdReady, a pioneering technology company that makes display advertising accessible to advertisers of any size, Pandora's new sales team will be able to develop creative assets, traffic and manage campaigns for clients that it previously could not cost effectively service. Now marketers of all sizes such as bands, summer festivals, and local colleges, will be able to leverage the effectiveness and reach of targeted display ad campaigns across Pandora's growing audience.
This kind of announcement is red meat for the radio is dead crowd. Radio’s death defying continued strength perplexes and confounds those who look forward to dancing on terrestrial radio’s grave. They seize on every new-media announcement in hopes that their dream will finally come true.
Perhaps one day the pundits will get their wish, but it probably won’t come true anytime soon. A little math explains why.
The headlines have all focused on Pandora's big numbers: 40 million people registered, 15 million visitors a month, and 150 million Session Starts.
These numbers are impressive, but aren't very useful for advertisers. They want to know how many people will hear their commercial. So what they want to know is what a station’s average audience is. That’s why most radio buys are based on Average Quarter-hour Rating Points.
An AQH rating is the percentage of a town’s population that is listening to a station. One rating point is one percent of the population.
A top rated station might have a 0.6 rating for the week. A mid-pack station might have 0.3-0.5, and a niche station will have less than a 0.1 rating. A station with a 0.1 rating is probably going to be outside the top 15 in a major market and outside the top 20 in medium size markets.
Now that Pandora is going to sell local ads to "bands, summer festivals, and local colleges," it might be interesting to see how Pandora's ratings compare to local radio stations.
Unfortunately, that information is not released to the public. Pandora knows, but isn’t telling. We can do a "back of the envelope" estimate, though.
According to Ando Media, nationally Pandora has 261,714 Average Active Sessions, lasting at least a minute. Since Arbitron requires five minutes of listening to be counted, this gives Pandora something like a 30% boost over the five minute requirement, so keep in mind this probably overstates Pandora’s audience if it were measured by Arbitron.
If we divide Pandora’s AAS by the US population, we’ll have their rating. The 12+ population of the US is about 256 million, so Pandora’s national rating is something like 0.1. It might be a little higher in some markets, a little lower in others, but on average Pandora has the same average listenership as a typical niche programmed AM station, ranked outside the top 20.
What are the implications for Pandora’s local sales efforts?
In a town the size of Detroit, Pandora might have on average 4200 people listening. During the same time period WCSX has 16,000 listeners, WDVD or WWJ an average of 20,000 listeners. Cost-effective local stations have four and five times as many listeners. Why would you want to advertise your summer festival to just 4200 people?
Will Pandora manage to sell ads to local clients? Of course! We all know that no one listens to AM or FM. Everyone is listening to Internet radio and Pandora is the hottest thing out there. Just ask that one-tenth of one percent of Americans who are listening to Pandora right now.