Streaming music service Pandora is tweaking its business model to appeal to more listeners and to local marketers. These changes appear to be paying off as the company reported a 44% jump in ad revenue in its most recent quarter. While the company is still challenged by profitability problems, traditional radio and TV stations should pay attention to Pandora's growth.
Pandora's senior managers note that they are putting more ads into each listening hour. For now, the use of longer pods allows them to run 5 ads for a total of 3 minutes per hour. Not all listeners will be overjoyed to hear this news and some analysts are concerned that the increase in ads could be impacting the growth in the user base. That number rose only 1.6% in the most recent quarter. The company counts 71.2 million active users.
It’s this high number of users that interests marketers. When discussing the company’s prospects during an earnings call, officials noted that marketers are paying “low-to-single digits” per CPM for a national account in digital. Local marketers are paying in the high-teens per CPM. The company is also expanding its local sales force in key markets like Minneapolis.
Pandora claims to have 20%-25% penetration in the 29 markets where it currently operates. Top executives say they are winning local business from radio and TV stations by going after the major categories of auto dealers, health care and education. Because the company requires users to register with a zip code, it can tell local advertisers exactly who they are reaching.
Traditional radio and TV companies can compete by ramping up the digital side of their business. Once they capture user information through these channels, they'll be able to give advertisers more data about their audiences.
If you're selling media in a Pandora market, have you noticed increased competition? Have you found a way to maintain business relationships with your existing customers as the market changes?[Sources: Vomhof, John. Why Pandora has employees in Minnesota. Bizjournals.com. 13 Aug. 2013. Web. 28 Aug. 2013; Q2 2014 Pandora Media Financial Results Conference Call. 22 Aug. 2013. Web. 28 Aug. 2013]