Radio industry observers have been predicting the death of Pandora for several years now. Through all this, the company has managed to increase its listening base, generate revenue and roll out an IPO. To achieve profitability, the firm has a new goal, pitching itself to local advertisers.
Pandora, the online radio service, now boasts 125 million registered users. The company’s revenue for last year came in at $274 million. But, Pandora still has a profit problem. It needs more revenue to cover its high cost structure. One of the firm’s biggest expenses is royalty payments as its members listen to music.
According Jordan Rohan, an analyst at Stifel Nicolau, “Local advertising dollars are the key component of Pandora’s future success.” A recent New York Times report notes that the firm is aggressively targeting local advertisers like car dealerships and restaurants. The company believes it can sell local ads based on the strength of the data it has on its subscribers. These ads include both audio and online – localized ads can appear on the firm’s website.
Competing media shops say the Pandora effort does not concern them and note that the company does not offer localized content of interest such as sports and weather which is often pointed out as a key strength for radio operators. In addition, analysts note that marketers are not growing their radio ad budgets so Pandora will either have to steal existing business from the competition or find a way to plug into funds that marketers are allocating for online advertising.
It’s too soon to tell if Pandora’s strategy will work, but radio sales reps are likely visiting their best clients and emphasizing the value of the service they provide in order to maintain existing business.[Source: Sisario, Ben and Vega, Tanzina. Pandora Courts Local Advertisers. NYTimes.com. 15 Apr. 2012. Web. 25 Apr. 2012]