Radio InSights

Why Didn't Radio Invent Pandora?

Why didn't broadcast radio invent Pandora?

It wasn’t a radio program director that came up with the idea for Pandora. It wasn’t a broadcast executive. No one in broadcast radio came up with the idea. It was Tim Westergren.

If anyone ought to have created personalized radio, it should have been a radio person, not a musician turned entrepreneur.

How is it that the entire broadcast industry from broadcast group heads to weekend jocks managed to overlook the potential of personalized radio?

All the music research done by radio stations over the years could have created a better algorithm for personalized radio than a bunch of musicologists making the stuff up.

It’s not that radio is unfamiliar with streaming. Radio stations have been streaming for 17 years.

You’d think that over this length of time radio might have experimented with different ideas, different approaches to what radio streams.

Instead, listeners have been treated to nothing more than terrestrial audio feeds with spots replaced with filler. Radio essentially wasted a head start of nearly two decades.

Radio produced no streaming innovation, nothing that might be thought of as the future of radio.

And it’s not like radio put all its best ideas on HD channels.

Let’s be honest. Pandora caught radio completely flat-footed.

Yes, Clear Channel’s iHeartRadio is adding non-traditional radio channels including personalized radio. CBS and other groups have announced similar projects to create their own Pandora-like services.

But radio will still be playing catch-up for some time. Radio will still be recreating what’s already in the marketplace.

Doesn’t it make you wonder?

If radio had used its nearly two decade-long head start to innovate and reinvent radio on it’s own, would Pandora would be as popular?

If broadcast groups had created entirely new streams unavailable on terrestrial stations, would radio be better off today?

We’ll never know, but Pandora’s (perhaps temporary) lead should be a lesson to everyone in broadcast.

To stay on top, broadcast needs to be creating digital radio innovations, not just reading about them.

Apple iPad: Toy or Listening Tool?

Is the iPad a major advancement in computing, or is it just an upscale teckie trophy, something to be seen using?

The pace of sales would suggest the former. Apple is on pace to sell 30 million iPads this year. The rate of growth exceeds anything else Apple has launched.

But new app research raises some interesting questions.

Localytics looked at the length of time users spend with different apps, and the number of times they use them. Graphs of the results are shown at the left. Click to enlarge.

Users spend the most time with news and music apps.

 

Unfortunately, the results are expressed as a percentage of the average time spent with apps. Users spend 228% of the average with music apps.

 

We suspect that Localytics doesn’t share the actual time because it is quite short.

What’s more interesting is the second graph showing the number of times people use an app. Games lead at 13 times a month followed by news and music tied at 5 times.

So an iPad user accesses her music app about once a week, and spends about two and a quarter times more time than the average app–-whatever that number is.

 

 

What does accessing a music app just once a week say about music apps?

 

Perhaps the iPad is more a toy than a really useful tool. Maybe users access their music with their iPhone or computer mostly and the iPad only occasionally.

Or maybe the app is the toy, just something to play with occasionally.

Either way, the study raises more questions than answers. But they are interesting questions.

Is it Time for an Internet Radio Shake-Out?

Have you noticed how many different services offer music on the Internet? The logos at the left give you some idea.

The list doesn’t include broadcast apps, or Sirius, but it lists most of the Internet pure-plays and music sources, both past and present.

Scroll down to see how many you recognize, how many have disappeared, and how many you actually use. To download the entire list as a JPG, click here.

Technological innovations follow a predictable cycle. At first there are just a few innovators. Then, as the technology takes off, the number of providers explodes.

As the technology matures, the numbers begin to dwindle. Companies merge and consolidate. The struggling companies quietly disappear.

IBM created the first desktop PC in 1981. Twenty years later, dozens of companies were manufacturing 125 million computers each year.

But the business has matured, and it has become difficult to make money selling desktop computers. Hewlett Packard, still one of the top producing computer manufacturers has already decided to get out of the business. More companies will follow.

Today we have fewer auto manufacturers, fewer Internet providers, fewer airlines, fewer record companies, fewer soft drinks, fewer banks, and fewer radio groups.

Regardless of the business, if it has been around for a while, there are fewer companies in it.

Internet music streaming is approaching two decades. Most technologies begin to go through some sort of shake-out about two decades into the business.

So the question is, where are we in the Internet music business cycle? Will Internet radio continue to grow? Will more companies join the dozens already providing audio products?

Or are we near a peak?

Venture capitalists are still pouring money into music services and Internet radio providers. Pandora’s successful IPO seems to have fueled even greater interest in the space.

VC money doesn’t continue indefinitely, however. At some point, investors want to see a return on their investment, generally through an IPO. And there aren’t any more Internet music IPOs in the pipeline.

That means these services are going to have to become profitable soon. That may be difficult.

Pandora’s tremendous publicly funded lead is going to make it hard for other advertising-based services to gain much traction.

There’s also a limit to the number of companies that can offer essentially the same $10 a month “all you can eat” subscription music plan.

Both business approaches face serious hurdles, with too many companies chasing a small (but growing) body of users.

Then there’s the two gorillas in the room, Google and Apple, both exploring cloud-based music options.

Taken all together, it means we may be reaching an inflection point, a thinning of the herd.

If there is a shake-out, radio will benefit in one regard, but also face greater pressure.

Fewer Internet competitors helps clarify the playing field. Radio will be able to deploy its resources more selectively.

On the other hand, fewer competitors means they will have greater resources. Subscription and advertising dollars will not be as thinly spread.

The bottom line is that radio needs to continue to develop music discovery strategies while at the same time watch to see which way Internet radio is breaking, if consolidation begins.

“Mr. Broadcaster You’re Screwed!”

“Mister Broadcaster, you’re screwed!” That’s the message of a post breathlessly announcing a new WiFi standard:

Pundits scoffed at the idea that the Internet could ever live in cars (but) the just-released new Wi-Fi standard has a total range of 12,000 square miles – from a single base station.

Lest the potential impact on radio be missed, the poster added:

Do you think this will affect radio, Mr. Broadcaster?  What about you, Mr. NAB? What it certainly will mean is that the exclusivity rendered by broadcast signals will cease to exist.

Well, Mr. Broadcaster, before you get too concerned, read on.

Yes, indeed there is a new WiFi standard, and in theory it might cover such an area, but it has nothing to do with cars, and it’s implementation won’t have any impact on the vast majority of Americans--or radio for that matter.

Read a much more balanced description of the new standard here.

The actual coverage will probably be far less than the theoretical maximum. It uses line-of-sight UHF broadcast frequencies and requires powerful transmitters and tall towers to maximize coverage.

Most importantly, it is not designed for mobile reception (unless you equip your Prius as shown above...and leave it parked).

The new standard is designed to provide point-to-point Internet service for remote areas under-served by traditional telephone and Internet providers.

Despite the author’s all-too-apparent delight that Mr. Broadcaster will finally get what’s due, the post is a pipe dream, and we think we know what’s in the pipe.

New-media zealots have been predicting the imminent arrival of everywhere-Internet for years.

Remember all the cities that promised municipal city-wide WiFi? How’s that worked out?

In 2009 we coined the phrase Delusional Rapture to capture the frothy excitement new-media zealots exhibit when they talk about some future device or service they believe/hope will cause radio’s demise.

And it is always something in the future. The zealots all seem to believe that while radio may have survived everything thrown at it thus far, it is the next thing that will do it in.

If all their predictions were accurate, Mr. Broadcaster would be toast by now. However, the zealous enthusiasm of radio’s critics far exceeds the accuracy of their predictions.

Mr. Broadcaster faces many challenges as well as new opportunites, but radio is up to the task. That’s why the zealots have to fabricate boogeymen and hobgoblins. It keeps their spirits up.

Music discovery: Shaping up as the New Battleground?

The other day we posted about eMusic Radio, thirty-nine curated new music channels. Now Google has just rolled out Magnifier, a blog devoted to new music.

While there are plenty of new music blogs, Magnifier goes one step further, allowing downloads directly from the blog to Google’s music cloud.

We can expect more streaming players to put greater emphasis on similar music discovery mechanisms.

Broadcast has pretty much abandoned its traditional role of introducing new music to listeners. Even today’s CHRs play it pretty safe.

High profile efforts like that of eMusic and Google could usher in an era of broad new music interest after decades of music conservatism, where listeners favored the familiar over the new.

If music discovery becomes the new battleground, broadcast will have to rethink the cautious hyper-familiarity that has become a hallmark of music radio.

Is This Why Classic Hits Does So Well?

A recent analysis of lead singers of the top touring bands may shed some light on why the Classic Hits format does so well.

It turns out that 94% of the top touring artists are over the age of 40. Not only that, 40% are over the age of 60!

Pollstar looked at the top grossing tours of the decade, determined the age of the lead singer, and came up with the proportions shown below, courtesy Digital Music News.

The findings raise some interesting questions for both the music business and radio.

Why are successful tours so old? Is it that only boomers can afford today’s ticket prices, or is there something more fundamental at work?

It takes an investment of something like $1 million to break a new act. Given the poor health of the recording industry, the labels are backing fewer new acts.

Fewer new acts means a smaller chance of finding the next superstars, so the labels continue to work the more reliable established acts–-even as the members grow older.

That’s good news for adult formats, but bad news for young formats.

Formats like CHR and Alternative need a steady stream of new product. And the more product coming out, the pickier music directors can be.

There’s a direct relationship between the quality of product and the success of a format. The stronger the music, the more listeners are drawn to a format.

(This is true for all formats, but adult formats have larger libraries that soften the impact when new hits become scarce.)

Formats that rely on a high proportion of new music have fewer options. When the quality of new music declines, the choice is between playing weaker new product, or playing a higher proportion of older product.

Either solution has a negative impact.Weaker product drives listeners off. Playing older music weakens the station's position.

One frequent criticism of broadcast radio is that it has abandoned young listeners. This isn’t really true.

The absence of young superstars has created a dilemma for potential new music stations. Superstars mold homogenous music tastes, a condition ideal for broadcast radio formats.

Today’s contemporary music is characterized by a tremendous number of niches that each attract small proportions of listeners. There is no homogeneous body of music that large proportions of listeners want to listen to, just the occasional surprise.

This impacts the concert business because there are fewer acts that can fill large venues. This impacts the radio business because it is more difficult to find a cohesive body of music that a station can play.

All this plays into Internet radio’s strengths. Specialized streams make more sense when the hits aren’t really hits. Today an artist can have a top 10 album and sell fewer than 30,000 units.

All these factors add up to a challenge for radio stations targeting younger listeners.

It also raises the specter of Lady Gaga going strong into her 60s. That will be something.

eMusic Radio: Let the Games Begin

There are those who think the battle is over, that Pandora has won. Just look at the company's tremendous lead!

The problem is that radio critics who claim victory think the game is in the bottom of the ninth when in fact it is just the top of the first inning.

The game has just begun.

This was vividly illustrated with the soft roll-out of eMusic Radio, thirty-nine curated channels of new music.

At first glance it might appear that Pandora has nothing to fear from the service, but it does.

Historically, markets evolve as a broad undifferentiated product is attacked by more and more new better-targeted products.

We’ve seen this played out many times in radio.

AM Top 40 began as a broad highly successful format. It was then challenged by Underground FM. Rock itself then split into narrower formats, while Top 40 morphed into multiple variations of stations playing the hits.

Radio has historically fragmented along music format lines, but this time around the fragmentation may be based on something else–-like music discovery.

One of the key benefits Pandora users cite is music discovery. The way users describe the experience is that their personalized channels play mostly songs they know, but now and then the service plays something new and unexpected.

emusic takes the benefit of new music one step further and uses (human!) programmers to create channels designed to highlight new and unfamiliar music. This is how Billboard explains the service:

The stations cover a wide range of genres and styles, from post-punk to alternative country to guilty pleasures (the site has plenty of major label pop stars in its catalog), and will be continuously updated by the eMusic editorial staff.

The more successful Pandora becomes, the more companies will target it with new better differentiated music services. That’s how competition works.

As we pointed out last year:

Pandora may have a tremendous lead over its competition, but it remains to be seen whether the service can sustain its lead. As countless Internet companies have discovered, there is no “first-mover” advantage when it comes to new-media.

As Pandora grows, you can expect many more new competitors, and more choices for users.

AOL Stumbles: A Teachable Moment for Radio?

Recent stumbles of two early digital leaders is a reminder that at Internet speed, winners can quickly become losers.

The struggles of AOL and Kodak should be a warning to both broadcast and its challengers that success is far from assured for either.

Millions of Americans discovered email and the Web using an AOL account and software. For years, AOL was synonymous with the Internet, but that was then.

Now AOL is struggling. The company has lost half its value in just the past year, 28% in the past few days. Today, Pandora has a higher market cap than AOL, despite a tenth the revenue.

A two year effort to refocus AOL into a content provider has faltered. Even the purchase of the Huffington Post for $315 million has failed to reverse declines in AOL traffic.

The New York Times reports that AOL's share of US display ad revenue continues to decline from 6.4% in 2009 to 4.2% in 2011. In contrast, Facebook has nearly 18% of display ad revenue, with Yahoo! close behind.

Kodak is most closely associated with film photography, but the company essentially invented digital photography, manufacturing the first commercially available digital camera.

Despite its initial technological lead, it faltered badly as it attempted to both keep film alive while at the same time reinventing itself as a digital photography company.

The company has had only one profitable year in the past six, and has watched as its stock price has fallen from $30 in 2006 to today’s $1.77.

Two pioneering companies with enormous strengths and deep pockets both find themselves struggling.

What are the lessons for radio?

First, there is no First Mover Advantage. In digital, the opposite is more often the case. Early entrants into a space help identify opportunities, but generally the companies that follow are more successful.

Google+ launched in June, years after the leading social networks, but it has already become the fastest growing social network, attracting nearly 30 million members in its first month. Analysts expect it to surpass LinkedIn and Twitter in its first year.

Pandora has shown there is a market for personalized radio, but not even a hundred million registered users is an insurmountable lead. Now it is up to broadcast groups to exploit the opportunity Pandora identified by creating their own brands of personalized radio, refining and expanding the category.

While watching immediate threats, keep an eye on the horizon. Personalized radio may be the future of radio, but it's popularity might fade to be replaced by something else.

Crowd-sourced radio like Jelli hasn’t gotten the attention that Pandora has, but broadcast shouldn’t dismiss it. Even while broadcast develops its own personalized channels, the industry should research alternatives such as crowd-sourced radio.

AOL understands that survival will depend on creating original content. However, failed efforts like Patch show that Internet companies don't understand how to create it.

Radio understands how to create unique content, but radio has to ratchet-up its investment in quality content to remain competitive with new threats.

Worry more about the quality of your product than how people listen to it. If the content is good enough, people will find a way to listen to it.

And radio can’t stop evolving. Radio's competitors will continue to grow and evolve, and broadcast has to adapt to remain competitive.

It all boils down to providing what listeners want. Remember, listeners decide what kind of radio they want to listen to, not radio groups.

Listen to listeners and make sure you offer the type of radio they want.

And understand that what they want will change, and that it can change quickly. Don’t be so committed to one approach that it blinds you to other possibilities.

Sex and Silly Surveys

We’re sure you’ve seen them. Those surveys that ask whether a person would rather give up some other gadget or their smartphone.

“If you had to give up (insert device here) or your smartphone, which one would you give up?”

Whether the choice is television, radio, or anything else, the smartphone always wins.

There was a lot of hand wringing among broadcasters when the story first broke that listeners would rather give up their radios than their smartphone.

And radio critics had a field day. They pointed at the results as clear evidence of the growing irrelevance of radio. Radio’s death couldn’t be too far behind.

A new study puts this silliness into a more useful perspective. As reported by Mobiledia, a recent national study found that a third of Americans would rather give up sex than their smartphone.

A majority would give up alcohol, caffeine, chocolate, or exercise, while 22% would give up brushing their teeth.

The significance of people willing to give up their radio before their smartphone is no greater than their willingness to give up chocolate or sex.

These are so what? type questions. They tell us nothing about the relative importance of gadgets or actions. The fact that radio or television never wins these comparisons means nothing.

Keep that in mind next time you read a survey that forces a person to choose between radio and some other gadget or medium. These questions are asked to generate headlines and cast new media in a positive light. 

Read the original TeleNav press release and learn such shocking things as twice as many women as men are willing to give up sex, go here, and find an infographic for your wall here.

Yes, Pandora is Radio: WKRP Cincinnati.

Remember WKRP the 1980s comedy about a struggling Cincinnati radio station?

WKRP tried and tried, yet remained a minor player in Cincinnati radio.

It didn’t stop Herb Tarlek, the station’s irrepressible account exec, from going after business even if it meant playing a little loose with the facts.

Tim Westergren is Pandora’s Herb Tarlek, playing fast and loose with the facts to make Pandora look bigger and a more significant player than it is.

A recent example is the PowerPoint presentation Pandora put together for the investment community.

The 72 slides are a mix of wishful thinking and back-of-the-envelope calculations all designed to give a truthiness patina to the dog and pony show.

Slide 12, for example, shows Pandora’s tremendous lead over its competitors in Ando Media rankers. We’ve all heard the stories.

Yes, Pandora is a giant in streaming. The problem is that Pandora is a giant in the land of little people. Streaming remains a very small segment of radio listening.

Pandora’s real target is broadcast radio, so it has to appear bigger. It isn’t enough to dominate the Ando Media rankers, it has to show it is competitive with broadcast radio.

So the slide entitled Pandora’s Rapid Growth traces out Pandora’s exponential growth curve in something it calls Share of Radio Listening Hours, now at the dizzying height of a 3.6 share.

The slide notes sources of Ando Media, Arbitron, and the US Census Bureau (!), but only Herb Tarlek could come up with an estimate using these sources, and then have the balls nerve to carry the estimate to one decimal point.

The problem is that there is no agreed metric for radio listening hours that combines broadcast radio with streaming. Even worse, any estimate of total listening is nothing more than a wild guess.

The 3.6% number is simply a made up number linking Pandora to radio listening. It means nothing and relates to nothing measured in the real world, but it does look impressive.

But Pandora isn't satisfied showing exponetial growth using a mythical metric.

To continue the sting Pandora next releases carefully selected narrow demo local AQH ratings.

You may have seen the headlines (exclamation points added):

“Pandora's 18-34 AQH is higher than any station in the top five markets!”
“In Atlanta, Pandora as big as Q100, Hot 107.9 among younger listeners!!”
“Pandora ratings beat Z100 and Hot 97!!!”

Lest readers miss the point, Herb Tarlek Tim Westergren added:

Listeners are increasingly turning to Pandora personalized radio to listen to music at home, at work, in the car and all points in between. It's a great platform for advertisers to connect directly with their audience throughout the day.

If personalized radio makes Pandora a great platform, why the need to create AQH ratings? To make broadcast look weaker.

If you lump those millions of streams all together, of course it is going to total many more listeners than an individual radio station. That should be obvious.

Comparing Pandora to a single terrestrial radio station is just a clever trick. It is Pandora’s three card monte.

Comparing Pandora to a single station is meaningless. The only meaningful comparison is between Pandora Media (Pandora’s corporate enity) and broadcast groups.

What does Pandora look like compared to the leading broadcast groups? Not even close.

NOTE: Despite the posting of specific station AQH ratings elsewhere, Arbitron has ordered that we remove the broadcast group rating graphs originally included in the post. The graphs now appear without ratings and groups names. You'll still get the idea.

In New York, Pandora is ranked a distant fifth with just a fifth of Clear Channel’s audience. CBS has three times the audience of Pandora.

In Los Angeles, Pandora is tied for fourth, but still at a fraction of Clear Channel, CBS, and Univision.

In Chicago, both CBS and Clear Channel have four times the audience of all of Pandora’s millions of streams.

Back in 2010 we noted Pandora and Westergren’s obsessive effort to cast broadcast in the worst possible light to make Pandora look that much stronger:

"Someday Pandora will go public. Westergren and those who financially bankroll Pandora will become a multi-millionaires. Understandably, there is an incentive to talk up Pandora and make it seem bigger and more important than it actually is.

"Fair enough. However, since he seems to have a compulsion to distort and manipulate the facts repeatedly attacking local radio, it is time for local radio to push back and set the record straight."

Unfortunately, just the opposite happened. Radio took this latest effort hook, line, and sinker. Herb Tarlek would be proud.

HD Radio: The Fizzled Tech Revolution & Other News

The tech revolution that fizzled.

That’s how PC World recently described HD Radio. It along with netbooks, municipal Wi-Fi, the Segway, Internet appliances, and seven other technologies made the magazine’s fizzled tech list.

Maybe it was just coincidence, but about the same time the Long Beach Press-Telegram reported:

Radio Shack is essentially out of the HD Radio business. A shame, since the Shack was one of the early supporters. Radio Shack has every one of its house brand HD Radio units on clearance.

Add to that a steady stream of critical comments about HD Radio on the audio “gearhead” forums. Here’s an example of a recent comment:

HD radio sounds awful. Regular FM sounds more pleasing. It (HD) is distorted and crunchy like an old low bitrate MP3. The god awful top end is not worth it.

While tech discussion groups are generally critical of most things, it is nearly impossible to find even HD users praising the service. The best they seem to say is that it isn’t as bad as people claim.

Poor coverage, unreliable signals, low fidelity, and lack of unique formats add up to overwhelmingly negative discussions about HD among an audience most likely to embrace higher fidelity radio.

The HD alliance can take some solace that disinterest and criticism of digital radio seems to be international.

London’s Daily Mail reports that analog radios are outselling digital radios three to one in the UK. Slow US HD radio sales are understandable because Americans will be able to listen to analog radio for the foreseeable future.

The U.K. intends to shut down analog radio broadcasting all together once digital penetration reaches 50%, a goal that is moving further and further away as people continue to buy analog radios.

Australian radio is also seeing slow digital sales. Consumers there remain skeptical and complain about quality of service:

In Australia digital radio is suffering from poor reception and in many areas there is no reception. In metropolitan areas such as Sydney digital radio owners are struggling to lock onto a signal.

The fact is, digital radio sales are weak everywhere. Enthusiasm for digital is not growing. If anything, many early adopters have become outspoken critics.

Despite massive marketing efforts, listeners in multiple countries are shrugging their shoulders and telling us that the promised benefits fall well short.

And that’s why technologies fizzle.