Pandora’s Choking on Advertising. And It’s Getting Worse

Internet radio keeps surging; it appeals to more people now than ever before in history.

And one of the biggest beneficiaries (and drivers) of this growth has been Pandora, whose listener hours doubled in the last year alone.  Yet Pandora is still profitless, still boxed out of Britain, and a dog on Wall Street.  So what’s wrong with this picture?

Part of the problem is an aggressive-and-rising royalty structure, one that rises with every new listener.  But this format has been broken for a while: Pandora has struggled to get people to pay for premium, ad-free streams, despite lots of attempts.  Which puts even more pressure back onto advertising, and more invasive formats like in-stream spots.

But wait: Pandora’s already turned into Times Square, its app is choked with marketing messages!  Not only that, some listeners have been lashing back against heavy advertising levels, with in-stream ads one target.  Which has caused competitors like Clear Channel’s iHeartRadio to put the brakes on upcoming rollouts.  “There are a lot of negative comments about in-stream ads,”Clear Channel CEO Bob Pitman told the Associated Press, who’s already singling Pandora out as “a cautionary tale.”

The sad part is that Pandora probably has little choice in the matter, and the company is strategizing ways to squeeze even more advertising juice out of its streams.  Part of the solution comes from smartly attacking traditionally ‘terrestrial’ radio advertising locations, and demo-targeting ads within specific regions.  But mood-killing, in-stream audio ads also seem to be a major growth area.  “Prior to 2011, Pandora allocated less than one minute of audio advertising inventory per listening hour,” analysts at Research and Markets shared with Digital Music News.  “[Yet] audio inventory expansion to 6.2 billion avails per month in 2012 is projected, driven in part by Pandora’s increasing focus on the in-stream audio format.”

Which means less music per hour, and more reason for now-spoiled music listeners to switch to something else (free or paid).  But it may also mean survival for Pandora, even if it pisses off lots of listeners along the way.

10 Responses

  1. Ed Ryan

    Where can I find the Twitter page that complaines about the Pandora ads? Thanks
    Ed

  2. Ripp

    Andrew Ripp saying he got $1.09 for 250,000 plays of a song on Pandora is either a liar or has somebody working for him who is stealing all his money.

  3. G

    Let’s be honest here. The freeloaders on Pandora aren’t really worth much, economically speaking. Someone who pirates 80 percent of their music and buys the other 20 percent from iTunes or via CD is probably better for the music industry. Anything that gently encourages the folks on Pandora to get on the premium plan is a good thing. And if they don’t switch, then perhaps the increased ads will at least make the free option profitable enough to be sustainable.

  4. ExLax

    I disagree, Pandora allowing the ads are irrespective of whether the people hearing the ads are consumers or not – obviously it’s worth it to the paying advertisers to pay even though they are aware the consumers hearing the ads are the cheap ones not paying Pandora for the ad-free service. I agree that Pandora doesn’t appear to have a choice, and at this point at least the subscription rates are very low.

    • Just Another Voice

      your reasoning or at least the way you phrased it has me scratching my head.

      I am in radio. We are all consumers. The average person believes radio should be free to listen to, unless they specifically subscribe to a service. Most people would rather put up with ads than subscribe.

    • WILL

      It’s not necessarily a good thing for advertisers. If it’s pissing off a large enough amount of users then it might actually be detrimental to advertisers unless these ads are extremely well targeted to the demographic they’re chasing.

  5. @George Dearing

    Wonder how long Pandora can milk the advertising model.

  6. @Keith Sheldon

    Pandora’s in a catch-22. Users won’t pay for premium ad-free streams, but complain about invasive in-stream spots.