Pandora Sees Opportunity To Tap AM/FM TSL

After being the only game in town for decades, broadcast radio is now battling Internet services that offer better features and vastly different listening experiences. The streaming service Pandora believes the broadcast (AM/FM) market — not in spite of its size, but because of its size — represents an excellent growth opportunity for any streaming service looking for listening hours and advertising revenue.

According to Glenn Peoples, in charge of Music Insights and Analytics for Pandora, the AM/FM radio market has about 176 billion listening hours annually and a value of $15 to $17 billion.
In his piece appearing at Medium.com. he admits radio casts a large shadow on its competitors. Streaming services of any source — Pandora is just one—command an average of 36 minutes of audio listening in a single day. In contrast, AM/FM accounts for about two hours.

Although streaming revenue has grown bountifully in the last decade, it’s still far smaller than broadcast radio, a huge, influential, and valuable market that represents a good chunk of the United States’ $183 billion advertising business.

“The radio advertising market continues to be significant at approximately $15 billion to $17 billion,” noted Naveen Chopra, chief financial officer, and then-interim chief executive officer, in Pandora’s July 31st earnings call.

The U.S. broadcast radio’s value comes from 243 million monthly U.S. listeners 12 and older who listen for about 176 billion hours a year, a Pandora estimate gleaned from Nielsen data from Q4 2016.

Young listeners typify the opportunity at hand. Contrary to popular wisdom, the youth of America still make AM/FM a major source of listening. According to Edison Research, for the 13–17 demo, the young end of Generation Z, radio accounts for 34 percent of audio listening. The 18–24 age group, the older end of Generation Z, puts 27 percent of audio listening to AM/FM. Millennials age 25 to 34 are heavier AM/FM listeners with a 43-percent share. According to Peoples, these numbers aren’t the failure of streaming services as much as the continued attractiveness of AM/FM radio.

To understand AM/FM radio’s place in American culture is to appreciate its staying power., according to Peoples.  It’s size and influence has made it nearly ubiquitous for decades. AM/FM dominated the the airwaves before the advent of television and grew during the post-World War 2 surge in automobile sales. It considerable strengths, including wide reach. But it has signs of weaknesses, too.

Although its future isn’t as bleak as portrayed in last week's white paper by Larry Miller, Director at the Steinhard Music Business Program at New York University, one of AM/FM’s vital metrics has declined over the last decade: average weekly listening has declined 31 percent from 19:46 minutes in 2007 to 13:35 in 2016. On one hand, radio can still boast of a 91-percent penetration rate amongst U.S. adults, a number that has more or less held steady over the years. Such a high penetration rate should be the envy of the audio world. But on the other hand, market penetration isn’t the same as listening time. That is to say, 91 percent of 13:35 is less than 91 percent of 19:46.

Small changes in listening habits will have huge after effects. A million listening hours lost by traditional radio can mean the departure of tens of millions of advertising dollars. Just ten percent of radio’s daily listening time is worth nearly 18 billion listening hours, more than enough to benefit any single streaming service. At current trends, streaming’s share of daily listening will undoubtedly increase from its current 36 minutes per day, taking some of AM/FM’s daily hours and capturing a portion of its $15 to $17 billion revenue.

Peoples believes this value exchange isn’t just inevitable, it’s already happening. He cites Pandora’s advertising revenue has grown to $1.09 billion in the last four quarters (ended June 30).