Responding to a question about generating other revenue streams, at the 2018 Citi Global TMT West Conference, Wednesday, SiriusXM CFO David Frear said part of the rational behind taking a 16% stake in Pandora was to tap into radio’s free ad market. Frear said your revenue is definitely on their radar screen. “I mean part of the rationale for the investment in Pandora is that we think that Pandora has a real opportunity to go after the terrestrial radio ad dollars.” He also shared another way to go after your dollars.
Frear said they could also tap into radio advertising dollars, perhaps, to invest in radio companies. “Although we’ve said for years that growth companies and non-growth companies tend not to be efficiently valued by the marketplace, and so while there might be some industrial logic to doing it, terrestrial radio does not look like a long-term growth business. The hit you take to the multiple in a combined entity may be greater than the synergies that you achieve.”
Then Frear went into the debt several radio companies are facing. “We’ve got three guys in AM/FM radio, two guys going through restructurings and one guy that’s got a lot of debt and needs to grow a way out, and they all have the same business plan. They acknowledge that terrestrial radio overall is not going to grow, but each one of them are individually going to grow because they’re going to take market share from the other guy. One of them is probably going to be right and two of them are probably going to be wrong.”
Frear also said that Pandora has 70 million ad-based listeners. “I think that with the kind of investments they’re talking about making and their product, and their ad delivery capability, they have a great shot and continuing to follow advertisers as they go to more ROI-based products.”
The problem with this is the recording industry doesn’t like ad-supported free streaming. That’s why Pandora has been actively promoting their subscription service. The bad news about their subscription service is it’s half the price of what Sirius charges. At the same time, all of the Sirius music channels are ad free. Pandora will have to get out of the ad-based business at some point if it wants to keep the music industry happy. As it is, more than half of their revenue is going to pay music royalties, and that’s what’s killing their business model. The only way Pandora can hope to fix that situation is to eliminate free streaming, and get out of the ad sales business.
To wayne’s comment:
While some in radio sales are making attempts to generate more knowledgeable and sophisticated approaches to potential advertisers, radio remains stalwart in its refusal to provide better programming and, more importantly, more effective locally-produced ads.
What has always impressed me is how so many are missing the point.
Sad but true. The age old problem of stations fighting for their share of radio dollars, rather than fighting for radio’s share of ad dollars continues to keep our revenues far below what radio deserves.
It’s time for a wake up call! Other radio stations or audio media platforms are not the enemy.
To quote Eric Rhoades, “A rising tide floats ALL ships” and we need to work to capture larger share of ad dollars for radio.