Streaming Music Has a Problem—It's a Huge Success

Pandora, Spotify and others need revenue—and where they want to get it from is ruffling feathers

A rise in streaming audio spots is also muddying the picture. As streaming usage migrates to mobile (70 percent of Pandora’s listening is via smartphones, for example) and vehicles (which utilize smartphones), the ads need to look and feel a lot more like traditional broadcast spots than display ads. While advertisers like the less cluttered feel of a single audio ad on Pandora or Spotify compared with a pod of ads on broadcast, they don’t believe mobile display ads command the attention that a desktop ad might, says Gaye Sussman, president of agency ID Media, which does traditional and digital buys for the likes of Verizon and Nationwide Insurance. Filling that mobile inventory with audio spots, supported by broadcast-allocated ad dollars, requires that streaming services are defined as radio, not digital.

Providing audience data that traditional radio advertisers understand would go a long way in helping to convince advertisers that their traditional ad money is in good hands online. Last fall, Pandora presented audience and listening data in terms similar to those reported by Arbitron, the industry standard for radio metrics. The ostensible move to introduce an “apples-to-apples” comparison of digital to traditional caused a panic among broadcasters (one called the comparison “worse than apples to oranges, more like grapefruits to footballs”), and has left advertisers in the lurch.

Jeff Haley, CEO of the RAB, notes that the streaming services and broadcast stations are measured by two very distinct methodologies. But Pandora isn’t backing down. “Broadcast radio companies are clearly afraid of what an accurate apples-to-apples measurement with Internet radio will show to radio,” a Pandora spokesperson wrote in an email to Adweek.

It’s a prickly situation. “You have to make sure that . . . while you make the traditional market comfortable with how they look at digital media, you don’t end up reverse engineering the measurement of our new market into the old market,” warns Eyal Goldwerger, CEO of digital audio ad platform TargetSpot.

Meanwhile, streaming services continue to rustle up new money from marketers’ digital allocations. Marsey says 30 percent to 40 percent of Digitas’ clients advertise on digital streaming services, and that many of the buys have, in the last year, graduated from the “test budget” into a regular spot on the digital buying plan.

And as with digital publishing, the streaming services are doing their best to make buys attractive to traditional radio marketers, racing to out-innovate each other with even more compelling, engaging and elaborate ad formats. MOG’s free streaming, for instance, is supported by interactive advertising. Users accumulate credit by, say, watching a movie trailer or streaming a playlist created by a brand. Grooveshark, which unlike its peers doesn’t even bother with audio, is betting its future on elaborate display ad packages. Paul Geller, Grooveshark’s senior vice president of external affairs, says these packages boast a clickthrough rate of 1 percent to 1.5 percent, a slight bump from the paltry U.S. average of 0.08 percent. The company makes 70 percent of its revenue through advertising, supplemented by music marketing data it sells to artists, labels and managers. Similar to MOG, users can exchange their time—here in the form of surveys about music—to earn points toward ad-free listening.

Pandora’s menu of ad options includes mobile Tap to Call and Add to Calendar functions, and special content packages like Pepsi’s sponsorship of Grammy-related mixtapes, artist videos and genre stations.

In November, Spotify opened its API to third-party app developers. The launch group consisted of publications like Rolling Stone and music-related services like concert tracker Songkick, but in the future, advertisers will be able to interact with users through the apps as well. “It’s early days, and the possibilities are endless,” a Spotify spokesperson says.

Regardless of how users experience the ads, the rich variety of listening options has certainly made a dent in the time users spend on radio’s onetime listening monopoly. Digital’s ability to displace broadcast radio is unclear; broadcast executives, of course, deny a threat—while simultaneously entering the medium themselves.

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