Radio InSights

Ando Media & the Missing Ratings

Seven months ago Ando Media announced that they would be seeking Media Rating Council accreditation. At the time, Paul Krasinski the company’s COO, stated:

Accreditation will not only validate our metrics, but it will give the Internet audio industry a measurement standard that's been validated at the very highest level.

Responding to Ando’s announcement, MRC’s executive director George Ivie declared:

(Ando Media's) participation in the audit and accreditation process demonstrates its leadership in bringing greater transparency and accountability to this emerging media space.

We wonder how the accreditation process is going.

The reputation of Internet radio’s gold standard in online metrics might be a little tarnished. It has been over two months since Ando released its monthly Internet Audio Top 20 ratings. The February ratings were announced on April 1st, and since then nothing.

Years ago when Arbitron tried to embargo their top line numbers, radio trades (justifiably) rose up in righteous indignation.There hasn’t been a similar reaction to Ando Media’s disappearance.

Maybe because no one noticed?

The reason we’ve been waiting for the release is the growing evidence that Internet radio consumption has peaked.

It was an issue we first raised in April when we noted that according to Arbitron research, Internet radio stalled in 2009. We revisited the issue in May using Ando Media trends that raised further questions about the future of Internet radio.

We had hoped to do additional analysis with Ando’s March ratings, but Ando Media ratings seem to be MIA. We attempted to contact the company regarding the missing ratings with no response.

Last time this happened, Ando Media was changing their methodology to boost the apparent ratings of their clients. Perhaps the company is once again tweaking the numbers to make sure Internet radio continues to grow.

Makes you wonder, doesn't it?

AccuRadio Corrects and Contributes

We heard from AccuRadio’s Founder/CEO, Kurt Hanson today, responding to yesterday's post. He called to remind us of Ando Media’s switch from Arbitron’s five minute rule to a one minute rule last September.

We first wrote about the change last November here, and more recently here. We should have noted that the change impacted numbers beginning in September 2009. You’ll note in the post’s graph that TSL and average starts both dropped when the rule was changed.

Kurt makes the point that correcting for the the rule change, AccuRadio actually gained, not lost audience in subsequent months. 

Kurt was kind enough to back up the claim by providing a graph of AccuRadio’s global AQH going back to January 2008 using consistent methodology. We’ve reproduced it here.

AccuRadio grew rapidly throughout 2008, and showed year over year growth for every month of 2009. So far this year the service is again pacing ahead of last year, up 14% in the first four months.

The graph does a great job of making our case that AccuRadio is a good canary. A long documented performance will tell us a great deal about Internet radio’s future.

With AccuRadio’s help, we hope to continue to update the service’s performance over the coming months.

 

AccuRadio: Internet Radio's Canary in the Coal Mine?

Note: We've updated this post here with additional information.

Has Internet Radio stopped growing?

We first raised the question last month in this space after Arbitron released research that showed no growth in the number of people listening online.

An analysis of Ando Media trends has raised additional questions about the future of Internet radio.

Pandora has orchestrated a magnificent public relations coup to become the face of Internet radio. The New York Times, Washington Post, and Wall Street Journal have all given the service priceless publicity, and as a result subscriber numbers have exploded to over 50 million.

Because so much of the news about Internet radio has focused on Pandora, one would naturally assume that Internet radio is rapidly growing. Pandora, however, is far from typical. It is Internet radio’s superstar.

To see whether Internet radio has peaked, we have to look beyond Pandora. We need to look at a service that isn’t the favorite of mainstream media.

AccuRadio is a 430 channel Internet-only service in operation since 2002. It bills itself as the next generation of radio.

It is one of the few services that consistently shows up on Ando Media’s top 20 online services, so we can track its performance.

The graph shown to the left is AccuRadio’s performance going back to May 2009. It trends the service’s global performance in  session starts, average sessions, and TSL. We have indexed each trend to the service’s May 2009 numbers to see all three trends on one graph.

AccuRadio offers Christmas programming during the holiday season, which explains the spike in December as well as a bump in November. To understand the underlying trend, one has to look at the pattern outside the holiday season.

Session starts are up 10.5% over the period. However, average sessions are down 6.8%, and time spent listening is down over 20%.

These are world-wide numbers because Ando Media has only recently begun breaking out domestic numbers. Domestically, AccuRadio is down 6% in session starts in 2010. Average sessions are down 2%.

These are not estimates subject to wobbles. Ando Media counts IP addresses at the services’ servers, so any change is real, and not due to sampling error.

This is only one service, but by Internet standards, it is a large service. It is also one that we can trend. And it certainly raises questions about the long term potential for Internet radio.

Interestingly, the performances of the top terrestrial streams are up for the year. Excluding CBS (which includes AOL and Yahoo LaunchCast in its numbers), the top terrestrial streams are up over 5% in average streams.

Additional evidence comes from the latest Nielsen Web numbers.

Nielsen tracks monthly sessions, web sites and pages visited, and the time spend on line. All the numbers have flat-lined or declined.

People spend about two hours a day online, about the same as last year, and a slight decline from 2008. The number of web sessions and domains they visit are essentially unchanged.

The web has matured. It is no longer a source of fascination. It is no longer a novelty.

How is this possible given the meteoric rise of services like Twitter and Hulu? Despite new services, people still spend the same amount of time online. They are simply redistributing their online time to accommodate new services.

On the computer, Internet radio is really competing with other online services, not local radio stations. And it isn’t gaining any ground.

Internet radio understands this. It’s why there’s a rush to get on smartphones and in automobiles. Less competition.

 

Is Pandora Musak for the 21st Century?

The history of innovation is the history of failure. When asked about the difficulty of inventing the light bulb, Thomas Edison said, I have not failed. I’ve just found ten thousand ways that don’t work.

The growth of local radio has been fueled by programming innovation. Unfortunately, local radio today seems to be in the grip of fear. Whether it is consolidation, the recession, or new media threats, terrestrial radio seems to have entered a period of inordinate caution. There is little programming innovation going on.

Not so with Internet radio. Operators are looking for a hook, a way to differentiate their products from local terrestrial stations and other Internet stations.

Two services that are taking diametrically opposed approaches are Jelli using crowd sourcing,  and Pandora using their Music Genome Project. In this post, we’ll take a look at Pandora. In the next, we’ll look at Jelli.

Pandora’s centerpiece is the Music Genome Project (MGP). According to Pandora, MGP:

Is the most sophisticated taxonomy of musical information ever collected....Each song in the Music Genome Project is analyzed using up to 400 distinct musical characteristics by a trained music analyst. These attributes capture not only the musical identity of a song, but also the many significant qualities that are relevant to understanding the musical preferences of listeners.

Their claim is that:

By utilizing the wealth of musicological information stored in the Music Genome Project, Pandora recognizes and responds to each individual's tastes. The result is a much more personalized radio experience - stations that play music you'll love - and nothing else.

Pandora believes that listeners prefer songs with similar objective characteristics. Once a listener has picked a few songs, the service can create a unique radio station that plays songs coded similarly in the 400 characteristics.

While the approach might seem novel and unique, Pandora is actually following in the footsteps of an earlier programming pioneer, Jim Schulke. Schulke believed that listeners prefer naturally flowing similarly textured music.

He loaded 14 inch magnetic tape reels with hours of songs sequenced with great care to make sure everything blended together well. He called his approach Match-Flow. His Beautiful Music format dominated the ratings for many years.

Another Pandora antecedent is Musak. To many, Musak is synonymous with elevator music, but it is much more than that. The company programs a wide range of formats, all designed to use music to manipulate mood and emotion. Here’s how Musak describes their products:

We call our creation Audio Imaging. It is the convergence of art and science, of methodology and intuition. Emotion by design.

Both Pandora and Musak assert their programming is based on science. Unfortunately, there is more pseudo-science than real science in their claims.

There is no scientific evidence that links the Music Genome Project’s 400 distinct musical characteristics to a song’s appeal. Furthermore, there is no research that proves that if a listener likes one song with a certain genome, that she will like others similarly coded.

The MGP helps convey the impression that Pandora has something special, something that other Internet services lack. In that regard, the MGP is a great marketing tool. It does not appear, however, to have given the service a programming advantage.

If programming by musical genomes created a better more personal experience, one would expect users to listen longer than users of less personal services. Not so with Pandora.

Rather than higher time spent listening (TSL), Pandora has below average TSL. According to Ando Media, Pandora has considerably lower TSL than the majority of services measured. AccuRadio, a more traditionally programmed Internet service has three times the TSL as Pandora.

If the Music Genome Project really creates the perfect personal station, why don’t people listen longer?

It turns out that science can explain the problem. Research has shown that people when exposed to similarly sounding songs develop listening fatigue. Listeners need a change of pace from time to time. That’s why formats that sound too predictable generate less TSL than formats that throw in a surprise now and then.

Despite Pandora’s apparent confidence in the MGP, they appear to recognize the problem. Notice the screen capture from Pandora’s home page on the left. Pandora gives you the option to add more variety by clicking a button.
 
What does that say about the Music Genone Project? The MGP is supposed to create, "stations that play music you'll love-and nothing else." Why would you need a variety button?

Every new format is an experiment. Pandora is an interesting experiment, new in some respects, but with roots in Musak and Beautiful Music.

Next time we’ll examine crowd sourcing as a programming tool.

 

Research: Listeners Choose Local over Internet

The fury of an attack is inversely related to the strength of an argument. The more that facts back you up, the less worked up you have to get.

On the other and, if you don’t have a very good case, then use intimidation to win. Argue methodology, competency, intelligence, or terminology. Anything but the facts.

These basic tenets of debate were on display in a challenge to a recent Inside Radio story. 

Inside Radio took note of the fact that according to research, more people use AM/FM streams than use Internet-only services. In other words, listeners are using the Internet as just another way to listen to local radio.

We believe the story was a sincere effort to add balance to the debate over the future of radio.

However, to a pundit who preaches the inevitable demise of local terrestrial radio, this is sacrilege. New-media advocates are convinced that local radio is walking dead. The future belongs to visionary internet music services that will profoundly change radio as we know it.

That Internet listeners might prefer local radio over national Internet services could not go unchallenged.

The attack began by dismissing the results because they were contrary to Ando Media statistics:

Those data (Ando Media) routinely show that the usage of Pandora outstrips usage of terrestrial radio streams, even when you aggregate some of the top radio groups together.

True, but beside the point.

Ando Media does not release unique visitor data. If it did, we would see how anemic Internet listening really is. Instead it publishes numbers on sessions, a useless metric for this discussion.

Even with Pandora’s apparent lead in the Ando Media ranker, it is quite possible (we believe likely) that even Ando Media statistics would show that more people listen to local stations online than listen to national services like Pandora.

The criticism then takes an odd turn, making an argument that inadvertently adds further credence to the Inside Radio conclusion. Ignoring the very Ando Media statistics he cited earlier that show tremendous usage of local radio streams, he writes:

The fact is the majority of terrestrial radio streams are redundant to what’s already over the air....So I should go to your stream....why, exactly?

Perhaps because people like what they hear on their local radio stations, but find it more convenient to listen to the streams. The very fact that people spend hours listening to redundant local streams supports the research.

According to Ando Media, listeners spend nearly ten hours listening to the streams of just the top five broadcast groups. That compares to less than an hour for Pandora.

The critic then moves to the defense of Pandora comparing it to local radio streams:

Pandora, on the other hand, is redundant to nothing and complimentary to everything. No wonder it is “better” than the local radio station. If you could tailor a station to your own personal music tastes, isn’t it likely to be “better?”

Actually no. Pandora is a spectacularly successful PR effort, but a terribly flawed product. How can a service specifically tailored to one’s own personal music tastes have the lowest time spent listening of any Internet service? Doesn’t that raise questions?

How can something be “better” when no one spends any time listening to it?

Pandora is tracing out a well traveled arc of novelty. It has reached the apogee of its popularity for reasons we’ll explain in a future post.

The critic concludes by trivializing the whole discussion as pointless:

Our job is not to compare what we bench press with Pandora’s Tim Westegren. Let’s get over it, and get on with business.

So derisively dismiss the Inside Radio observations using irrelevant data and unsupported personal beliefs, and then urge everyone to move on. A predictable response.

Westegren has declared war on radio. He has created a massive public relations effort to discredit local radio and to distort the strength of Pandora. And he has enlisted new-media pundits to do exactly what was done in this case, attack local radio and promote Pandora as local radio’s successor.

Radio owes a thanks to Inside Radio for setting the record straight.

Let's Kill the Quarter-Hour

A radio broadcaster from the 1930s or 40s would hardly recognize radio today. No more Lone Ranger, Mercury Theater, or Benny Goodman.

The one thing our broadcaster from the 1940s would recognize is radio ratings. That’s because radio ratings haven’t really changed since the 1940s.

The quarter-hour, a ratings metric developed in the days of Amos and Andy, is still with us today. In an era when radio programs were in fifteen minute blocks, measuring radio listenership in quarter-hours made sense. It told radio time buyers how many people were listening to Jack Benny or Arthur Godfrey.

Today it is as anachronistic as the shows it was designed to measure. It penalizes local radio stations, and hurts radio revenues.

It is time to bury this obsolete throwback. Today the quarter-hour makes no sense. Radio long ago abandoned the fifteen minute program. Why should the metric designed to measure it live on?

Arbitron’s People Meter (hopefully) records radio exposure every minute. The PPM shows that listeners begin and end their listening at seemingly random minutes within the hour. A panelist can start listening at any moment, and stop listening just as randomly.

So why does Arbitron continue to report listening in quarter-hours?

Under current Arbitron rules, a person who listens to a radio station from 9:11 to 9:19, actually didn’t listen at all. To be counted, there has to be at least five minutes of listening within a standard quarter-hour. Because her listening wasn’t long enough in either the first or second quarter-hour of the nine o’clock hour, the station receives no credit at all.

That’s true whether the market is measured by diary or PPM. But things are even more complicated than that.

Let’s say our listener listens from 9:00 to 9:01, again from 9:11 to 9:19, and then again from 9:28 to 9:29. If she is filling out a diary, then the station gets no credit. Zero. To be counted towards diary credit, a person has to listen at least five continuous minutes within a quarter-hour to count.

On the other hand, if the listener is carrying a meter, the station gets two quarter-hours of listening. In PPM, a listener still has to listen at least five minutes in a quarter-hour, but those minutes need not be continuous.

This is how crazy things have become. With PPM, a person can listen for a single minute in alternate minutes (for example at :01, :03, :05, :07, and :09) and the station will receive credit for one quarter-hour. However, the same pattern across quarter-hours (:11, :13, :15, :17, :19) nets the station nothing.

(You may be asking yourself why Arbitron accepts such fractured listening with PPM. The encoded audio must be “heard” to be counted. Like a distant AM signal that fades in and out, the encoded audio can fade in and out. By accepting fractured quarter-hours, Arbitron compensates for the meter’s aural limitations.)

Isn’t it time that radio abandon this convoluted counting of minutes within quarter-hours? Shouldn’t Arbitron adopt a metric that reflects the way people listen today?

At least before the Internet, all radio stations were measured using the same metric. Today we have a situation where local radio stations are measured using a 70 year old metric, while Internet radio is measured using a much more lenient metric that gives Internet services a clear advantage.

Ando Media once reported Internet listening in the same way Arbitron reports local radio listening. Then in May of last year, it eliminated Arbitron’s antiquated five minute rule. It began counting any listening over one minute.

The ratings of Ando Media’s clients exploded. Listening appeared to increase two and even three times. By counting listening less than five minutes, and counting listening across quarter-hours, TSL (time spent listening) dramatically increased.

Were Arbitron to take Ando Media’s lead and switch from a five minute rule to a one minute rule, we believe local radio would see similar increases. Radio stations would finally get credit for all the discarded minutes of listening that currently disappear.

It is time for broadcasters to demand that Arbitron move into the 21st century. It is all well and good that the company has developed a new electronic way of gathering listening information. Why does the company insist on reporting the results as if we were still in the 1940s?

Pandora: Damned with Faint Praise.

If you were called average, would you feel pleased? Special? What if you called your significant other average? Would you expect your comment to be well received?

To be average is...nothing special.

So a recent blog post by a new-media pundit calling Pandora average, and then going to great lengths to prove it, caught our attention. Here’s what he wrote:

Don't let ill-informed yahoos convince you that Pandora and its like are somehow less "sticky" than the average music radio experience.

For someone who has devoted a lot of space praising Pandora and portraying it as a serious threat to radio, reducing it to an average music radio experience is clearly damning with faint praise.

The problem is that the blogger inadvertently proved that Pandora isn’t average. Pandora is worse than average.

His conclusions were based on a comparison between Ando Media estimates for Pandora and local radio numbers provided by Arbitron “informed sources.” Read the entire post here.

The post may have been motivated by the fact that Pandora has the lowest TSL (time spent listening) of any service rated by Ando Media, a little less than an hour per session. The TSL of most broadcast group streams is two to three times as great. This is a subject we covered last fall here.

So rather than compare Pandora to the other Ando Media measured streams, the author chose to compare the service to Arbitron rated radio stations.

The unnamed source at Arbitron advised the author that the average person listens to a music station two hours a day. According to the author, the average Pandora user spends an hour with Pandora twice a day, or two hours a day.

In other words, the Pandora user spends as much time online as a radio listener listens! Wow! Pandora is just as sticky as radio!

What the author fails to understand is that Ando Media and Arbitron do not measure TSL in the same way. Ando counts any listening over a minute. Arbitron only counts quarter-hours of five minutes or more of listening. It does not credit minutes 1-4 that Ando does.

While that may seem like a trivial difference, when Ando switched from Arbitron’s five minute requirement to their new much more lenient one minute rule last year, the difference boosted TSL of streams we checked by an average of 167%, and as much as 250%!

The only reason Pandora has an hour of TSL is because Ando Media lowered the bar to arbitrarily boost its clients’ TSL. Were Pandora measured like broadcast radio stations are measured, its TSL would be considerably less than an hour a session.

This is in line with an estimate we made a few weeks ago here that an average session on the service is about eight songs. Some stickiness!

But let’s assume that the author made an honest mistake. Perhaps he just doesn’t understand the differences between the way Ando Media measures usage (by counting IP addresses) and the way Arbitron measures listenership.

For the sake of discussion, let’s accept his numbers and ponder the implications of Pandora users spending no more time with the service than the average music listener spends with a local radio station.

Think about it: Pandora is a carefully crafted service that creates customized playlists based on the unique music tastes of its users. Its goal is to create the perfect listening experience:

Pandora recognizes and responds to each individual’s tastes. The result is a much more personalized radio experience-stations that play music you’ll love-and nothing else.

How can it be that listeners spend as much or more time with local radio stations that program to millions of people? How can that be?

Pandora apologists have a lot of explaining to do.

What Niche AM Stations & Pandora Have In Common

Hide the women and children (and your client list). Pandora is rolling into your town. Pandora has cut a deal with AdReady to begin selling local banner ads to steal your clients and your dollars.

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.

The Pandora Circle Jerk

by R. Harker

The buzz surrounding Pandora will someday become a case study on how venture capitalists make millions of dollars by recruiting self-serving pundits and exploiting the naivete of deluded digital true-believers.

The scam begins with a founder that seems to have no other motive than to make a better world. In that regard, Tim Westergren seems out of central casting. Secure a number of interviews where the earnest founder can calmly explain why Pandora is the future of radio. See some examples here. Then nurture the Pandora is the future of radio meme in a steady stream of upbeat announcements.

That’s where it starts, but success depends on today’s brain-dead viral digital reporting.

Original critical reporting about anything digital is essentially dead. Most who write about new-media can’t tell the difference between fantasy and fact, reality and dreams. They accept press release spin without question.

That’s bad enough, but there is often self-serving ulterior motives behind the upbeat reporting about digital media. Consultants and digital vendors have a vested interest in helping maintain a high level of buzz. So they help spread the news.

The way this works is that a blog or web site rewrites an upbeat press release into a story. Then other blogs and web sites link to the original story. The story virally spreads while the self-serving press release transmogrifies into something resembling a real news story.

The latest example of this is an insignificant story about Pandora signing a deal with AdReady to sell space for them. As we write this, Google lists over 3,000 links to the story.

The story appeared in eWEEK.com, a Ziff Davis website that appears devoted to (poorly) rewriting press releases for the sole reason of selling display ads. The article inarticularly gushed:

Hoping to build on its strategy of capitalizing on revenue growth opportunities by expanding into new markets, Pandora, the personalized Internet radio service, announced a new initiative aimed at small and midsize businesses offering them the advertising tools larger corporations currently have access to.

Kurt Hanson’s Radio and Internet Newsletter then picked up the story in not one, but two stories. (Note that Pandora is one of RAIN’s platinum sponsors, although that certainly wouldn’t influence the newsletter’s story selection.)

The newsletter writes:

Yesterday came news that the invaders may now be scaling the castle walls. Internet radio's biggest pureplay, Pandora, announced its partnership with AdReady to target small- and medium-sized local businesses - that is, traditional radio's local customers, its bread and butter. (It's display ads only for now, but the technology for geo-targeted local audio ads is there, no doubt.)

Gerson Lehrman Group advisor Alan Albarran fears that radio has lost of (sic) a generation of listeners, many of whom migrated to more "forward" media like personalizable online radio. And with them, radio's lost selling opportunities. "The demographic. 20-24. no longer uses radio. But they use Pandora, and they use it a lot," he writes. "Once these businesses realize the awareness of Pandora and where the younger market is, they should jump on this opportunity."

So the newsletter adds weight to the story by quoting one Dr. Alan Albarran (with link). Who is Dr. Albarran? A PhD trolling for consulting work. He’s sign on with the Gerson Lehrman Group as a consultant, perhaps to supplement his university pay.

A professor in the Department of Radio, Television, and Film at the University of North Texas (gasp), he writes:

I'm a college professor in the media area.  I'm teaching a management course this term, and recently I asked my class how many had heard of HD radio.  One student raised their hand out of 24.  When I asked how many had heard of Pandora, all but two students raised their hand.  The demographic is roughly 20-24.  This group no longer uses radio unless they are in a car with no alternatives.  But they use Pandora, and they use it a lot.

If this is the level of intellectual discourse in college media departments, we now know why so many college graduates are stupid. They are being taught by clueless professors.

Drawing conclusions about the health of radio and the future of Pandora based on a show of hands of 24 media students allows Albarran to appear a media expert to be cited by RAIN to reinforce the notion that Pandora is scaling radio’s castle walls.

Pandora may be the future of radio. It may just be a curious footnote in the future of radio, but either way you have to give them credit. While medieval alchemists might not have turned lead into gold, Pandora has found a way to turn BS into gold.

Pandora: The Next Dot.Con?

It has been a pretty good couple of weeks for Pandora. The internet streamer showed up at the top of Ando Media’s latest Internet radio ranker. Then a study came out raising questions regarding Pandora listener fatigue, and the service's fans (or perhaps hopeful vendors) rushed to their defense declaring:

I worry about studies like this, because they tempt the broadcaster to lean back and say "look, see--Pandora's a fad." Nothing could be further from the truth, as Clear Channel, CBS and other webcasters can attest, since Pandora is cleaning their clocks right now online.

Soon after the ratings were released, a number of companies used this year’s Consumer Electronics Show (CES) to announce deals to offer Pandora enabled mobile entertainment systems.

This is how the Wall Street Journal reported the news:

Pandora Inc. has struck a deal with electronics maker Pioneer Corp. that promises to make it easier for drivers to listen to its personalized radio service in cars-bringing Internet radio one step closer to snagging a built-in spot on dashboards. The development represents a direct challenge to broadcasters of satellite and traditional radio, who have long dreaded the arrival of Internet radio in cars.

Back in November we noted that venture capitalists Crosslink Capital, Labrador Venture Partners, Selby Venture Partners and WaldenVC had thus far poured $56.3 million into the company. They must have been very pleased with all the coverage.

The deals Pandora cut with Ford, Pioneer, and Alpine might seem major breakthroughs for a company touted as the future of radio, one that is “cleaning the clocks of Clear Channel and CBS.” You might be tempted to agree with the Wall Street Journal that with Pandora on the dashboard, radio’s dominance in the car is over, but hold on a minute. 

Take a look at this press release from 1998:

XM Satellite Radio today announced agreements with leading radio manufacturers bringing satellite radio a giant step closer to American consumers....Hugh Panero, President and CEO of XM, announced that the company has signed agreements with Alpine Electronics, Pioneer Electronics, and Sharp Corporation to manufacture and distribute XM-capable radios and audio systems.

We know how that turned out. The company merged with Sirius, needed Liberty Satellite to bail it out, is losing subscribers, and the stock sells for less than 70 cents.  

But in the short term the announcement gave the new company a PR boost, temporarily helped the stock price, and made Pioneer and Alpine a few bucks. Did it have any lasting impact on the success of XM and its impact on radio? No.

Today’s deals signed with Ford, Pioneer, and Alpine will ultimately have less impact on Pandora than the XM deals had. But it may help the company’s backers get their money back.

To understand why Pandora, Slacker, and the other pure Internet radio companies seem to attract so much attention, one has to go back to the Internet bubble of the late 1990s when venture capitalists threw money at any half baked idea having to do with the Internet. A good place to start is John Cassidy’s dot.con. Subtitled How America lost its mind and money in the internet era, The book explains:

Depending on which Wall Street or Silicon Valley guru you listened to, the Internet was the most revolutionary development since the electric dynomo, the printing press, or the wheel. The most striking manifestation of this thinking was the extrodinary prices that people were willing to pay to invest in Internet companies.

The dot-com bubble burst for most types of businesses, but not for media. There is still the belief among many that while the Internet may not have transformed groceries (think Webvan) or pet food (think Pets.com), it will still transform media. Given what has happened to newspapers, that might seem reasonable. However, the fate of one medium like newspaper does not necessarily mean that radio will follow in it's path.

But that is what the backers of Internet radio want you to believe. Their success depends on it.

That’s why money continues to pour into Internet radio in staggering amounts, $56 Million into Pandora,  $70 Million into Slacker,  $30 Million to Imeem, and $16 Million to Goom . That’s just the players that are still playing. Add the investments in music services and already failed companies like Spirilfrog and we’re talking about some real money.

Venture capitalists are not patient people. They want to see a healthy return on their investment, and they want to see it fast. The key to making money is an IPO, Initial Public Offering. The investors issue themselves a bunch of stock, the company goes public, and the insiders sell their stock.

Unfortunately, this recession has hurt the IPO business. Not the same confidence in new companies that one found during the Internet bubble. On top of that, Imeem just sold for a million in cash, pennies on the dollar, raising questions about what a pure Internet radio company is worth.

To protect their investment, the only option for a venture capital company is to keep pumping money into their company, subsidizing manufacturers to create specialized products and paying public relation companies to keep the company in the spotlight. All the while hoping that the public's appetite for high flying IPOs returns.

The irony of this past week's events is that while Pandora got the headlines at CES this week, the real hero was Apple’s iPhone. The new products work only through an iPhone. Unless you have an iPhone in the car, the interface with Pandora is worthless.

The penetration of Apple's iPhone is less than 5% and has probably peaked. The real buzz at CES was about all the iPhone competitors that are coming to market. 

In our November post we explained why we thought Pandora would fail. This month’s good news for the company hasn’t changed our view.

Pandora: Radio's Future? Or Radio's Past

In the markets it serves, Arbitron measures listening to all stations, regardless of whether they are clients of Arbitron (assuming they are encoding in PPM markets).

In contrast, Ando Media, the Arbitron of Internet radio, measures listenership only of its clients. This means that Ando’s ratings provide a foggy incomplete picture of what is happening with online radio.

The fog cleared a little this month when Ando released September ratings with Pandora included. Pandora is one of online radio’s superstars. New-media pundits have declared it’s ability to create unique playlists for each subscriber the future of radio.

We wonder whether Pandora is more about radio’s past.

Decades ago before research transformed radio, many Program Directors thought it was their job to educate listeners. Songs were chosen not because people liked them, but because people were supposed to like them.

Even after research started showing us that few listeners liked more than a couple hundred songs, “old school” PDs insisted on playing thousands of songs–for variety.

Gradually the overwhelming evidence started sinking in and radio evolved from playing what Program Directors liked to playing what listeners liked.

Pandora is a step backwards. But don’t take our word for it. Look at Pandora’s ratings.

The headlines have focused on Pandora’s top line number: 81,328,769. This is the number of times people (or more correctly IP addresses) tuned to Pandora in a week, what Ando calls Session Starts. It certainly is impressive, but given the buzz, it is understandable that people are checking it out.

More interesting is a metric that has gotten little attention, Average Time Spend Listening. In Ando’s terms, it is the average length of each session in hours. The accompanying graph at the left is a ranker of ATSL. Note that Pandora is dead last at one hour.

New-media supporters argue that broadcasting is dead. The future is narrowcasting, offering a different product to each listener. That’s what Pandora does.

If narrowcasting is the future, then TSL should be higher for Pandora than for broadcasters. It isn’t. It is actually lower than TSL for groups streaming their terrestrial signals. Many of the groups have three times the TSL as Pandora.

Pandora apologists will argue that the terrestrial groups have dozens and even hundreds of streams, while Pandora is a single station. But if that explains Pandora’s lower TSL it raises doubts about all the pundits’ predictions about the future of radio.

Maybe Pandora is radio’s past, and today’s broadcasters are radio’s present and future.

Changing the Rules During the Game

Ando Media released its latest webcast audience ratings the other day. It created quite a stir, but unfortunately, the dust-up with media buyers obscured the real story.

Ando Media has changed the rules of the game in the middle of the game. And those rule changes have serious implications for both radio stations and Arbitron.

Ando has abandoned the traditional AQH and Cume metrics carried over from Arbitron, replacing them with three new measures: Average Active Sessions, Session Starts, and Average Time Spent Listening.

At the same time, the company has switched from Arbitron’s five minute requirement to a new, much more lenient, one minute requirement. While this may seem a trivial matter that has nothing to do with radio, read on.

Ando Media’s CEO Robert J. Maccini declared:

The five minute rule was a legacy of terrestrial radio measurement and did not accurately reflect digital consumption habits, particularly with mobile devices.... Terrestrial radio AQH and Cume measurements are not the best metrics for measuring today’s audience delivered via a digital channel and do not accurately pertain to online audio.... The changes were made in response to requests from both the publisher and the agency community.

Perhaps, but we believe there is a little more going on. We think the changes were made to distance Internet radio from terrestrial radio and make Internet radio look stronger.

To understand, we have to look at the new measures and how they differ from traditional AQH and Cume. You probably know what AQH is, and Ando measures it similarly to Arbitron. Ando’s Cume definition is the thing to note. Here’s what they say about Cume:

Cume (is) the number of unique persons (defined as the number of different IP addresses) who listened to a station for a minimum of 5 minutes within a reported time period. Listening period of less than 5 minutes are not included. All 20 listed groups represent multiple channels of programming and CUME for a particular group is the number of unique listeners unduplicated across all the channels reported.

Cume and AQH were replaced by the three new metrics. Here’s how they define them:

Average Active Sessions: The average number of streams of one minute or more that are active within a time period.
Session Starts: The number of streams of one minute or more started with a time period.
Average Time Spent Listening: The average number of hours for each session lasting more than one minute within a time period.

The first big change is reducing the five minute rule to one minute. Maccini speaks of digital consumption habitswhich is really code for low TSL. People don’t listen very long to online media. Shortening the five minute rule captures more of the “drive-by” listening that takes place online.

A second change is the abandonment of Cume. While Ando Media calls it Cume, the company really counts IP addresses, not people. It really doesn’t know how many people are actually listening. It could be no one, it could be an entire college dorm floor.

No longer reporting Cume acknowledges this. Reporting Sessions simply indicates how many devices are “tuned” to a stream. The change is not a trivial one.

The table compares a report from last year to the latest. (Click to enlarge.) The first column is the old AQH. The second is the new Average Active Sessions. The third column is the old Cume, and the fourth column is the new Session starts. Notice that most of the stations have similar AQH and Average Sessions, but the Session Starts numbers are tremendously larger than the old Cume.

What’s going on?

Ando measured Cume as radio did, counting each IP address only once for a group of streams. Now Ando counts each Session within a group so that companies with multiple streams can have the same IP Address counted over and over.

It is like combining the Cumes of WLTW and WHTZ without taking into account that many of the same people listen to both stations. We don’t add Cumes together because it inflates the apparent combined audiences, but apparently, its ok to do it for web stations.

These changes portray online radio as much stronger than the traditional metrics of AQH and Cume did. It also opens online radio ratings up to more manipulation.

Ando Media has applied for MRC accreditation, and they seem confident they will receive it. If they do, MRC will have blessed metrics like Session Starts.

Broadcasters should demand that Arbitron start producing metrics similar to Ando Media’s. Eliminating the five minute requirement and combining station cumes will put radio back on equal footing with online radio, and once again show the relative strength of terrestrial radio.