October 2012, F&I and Showroom - Cover Story
Bill Feinstein has never been a fan of advertising on terrestrial radio, especially since the New Jersey dealer is forced to pay for ad spots on five or six local radio stations to cover his geographic layout in the Metropolitan New York area. That’s why he’s spending $10,000 to $15,000 per month on Internet radio’s most popular service: Pandora.
"The cost was just prohibitive if you have a decent schedule on all of those stations," says Feinstein, the president and co-owner of New Jersey’s Planet Honda. "The population of this area is eight million, and I really only need to reach about 800,000 of them. With Pandora, it’s so much more targeted, and it’s far less expensive."
Internet radio has spent the last decade fighting for relevancy with listeners and advertisers. The emergence of mobile devices helped, unplugging Internet radio from desktop computers and allowing a service like Pandora to attract more than 150 million registered users — 56.2 million of those accounts active as of August — in a seven-year span.
But to win over more dealers like Feinstein, Internet radio needs to be heard where the Pew Research Center says most radio listening is done: in the car. And that’s exactly how things are playing out, with more vehicle models slated to roll out in 2013 with the ability to connect to services like Pandora. That’s why Feinstein didn’t hesitate when Pandora began wooing small businesses to advertise earlier this year. And so far, he likes what he sees.
"I really like the accountability and the measurability," said Feinstein, who expects Planet Honda to sell about 4,800 new vehicles and another 2,000 used units this year. "With radio, I’ve always found it’s so nebulous that it was just hard [to measure]."
Nineteen vehicle manufacturers have integrated Pandora’s service in about 50 vehicle models. Honda was the fourteenth automaker to do so, announcing last November at the Los Angeles Auto Show that the 2012 CR-V would offer a Pandora connection as a standard feature.
Opening Pandora’s Box
Pandora launched in 2005 on the belief that music fans enjoy the variety served up by traditional radio, but wanted a little more say in which songs are selected. Development of the engine that would drive that customization began in 2000, when Pandora’s founder, Tim Westergren, launched what is called the Music Genome Project. The experiment brought together music experts to catalog songs by up to 450 distinct musical characteristics.
The project continues today, with Pandora’s musicologists analyzing about 10,000 songs per month to feed Pandora’s music engine. It allows listeners to create a customized station by simply typing in a song title. Pandora’s technology then locates similar songs from a variety of artists based on the initial song’s melody, harmony, rhythm and other characteristics.
Steve Kritzman, senior vice president of advertising at Pandora, believes that customization delivers a better connection between listeners and advertisers than AM/FM radio can offer. "Everybody’s station is a little bit different, which creates an interesting opportunity for advertisers to engage with listeners when they’re doing something they’re really passionate about and they love, which is music," he says.
But that customization does come at a price. Pandora paid more than 60 percent of its first-half revenue, a sum of about $116.3 million, to artists for use of their music, according to filings with the Securities and Exchange Commission (SEC). That’s why Pandora is hoping marketers will cash in on its captive audience. According to the same SEC report, advertising accounted for 88 percent, or approximately $160 million, of the company’s reported revenue of about $182 million.
The push now is to attract more ad dollars from small businesses. Kritzman believes the service has the audience and the listening hours to make a serious impact on a dealer’s local market. In August, for instance, listening totaled 1.16 billion hours, giving the advertising-supported service a 6.3 percent share of total U.S. radio listening hours.
"There’s a big change taking place in how and where people consume entertainment," said Paul Palumbo, founder and research director for AccuStream, a media research firm based in Seaside, Calif. "Pandora has been very successful in terms of establishing a real footprint in the mobile segment. It’s just a terrific platform to deliver messages of all types."
And Internet radio listeners don’t seem to mind the ads, at least according to New York-based TargetSpot. Conducted in January, the firm’s "2012 Digital Audio Benchmark and Trend Study" found that 50 percent of survey respondents recalled having seen or heard an Internet radio ad within a 30-day span, compared to 52 percent in 2011. Forty-four percent of those listeners actually acted on the promotion, up 10 percent from last year.