Earlier this month, Pandora posted a big win in its battle for traditional radio ad dollars: Triton Digital will lend the company legitimacy by measuring Pandora’s audience. This was significant, especially after market leader Arbitron freaked out when Pandora began releasing its audience statistics in measurements that looked quite similar to their own. “BEWARE OF THE INTERNET!!!” was the message, I believe.
The message on Pandora’s quarterly earnings call today? “No big deal.” Pandora doesn’t need Arbitron to win the battle for traditional radio’s $17 billion worth of ad dollars, CEO Joe Kennedy* said, because Triton will do just fine.
For one, Triton’s digital measurement techniques have been certified by the Media Rating Council. Arbitron’s have not.
That’s partly because (and bear with me, this gets in the weeds), Arbitron’s measurement method struggles to get adequate sample sizes. The company measures audiences by recruiting individuals to wear a Portable People Meter that tracks their audio consumption every waking hour. In the same way that Nielsen derives its measurements for TV audiences, Arbitron then projects out listenership based on those samples.
Triton uses a census approach, which lets its servers know when people actively listen online, and because it’s comprehensive, its methods are certified by The Media Rating Council. Advertisers have fully embraced Triton’s methods, Kennedy said.
“Being out in the local markets in some cases for up to six months, we don’t face a lot of resistance from advertisers who question the size of our audience,” he said. “And with Triton using the measurements they are used to, that is behind us.”
The biggest challenge Pandora now faces is finding a seamless way for old school radio advertisers to buy spots on its network. The company is working “intensively” on tech solutions to that problem, Kennedy said.
The next biggest challenge is building out a local sales force. These are problems with not-too-complex solutions. Make a portal. Hire some people. Pandora, which has struggled to sell ads as fast as its users rack up costly listening hours, might be almost out of the woods on its monetization problem. Maybe.
But then Kennedy said something that gave me pause. Traditional audio ad dollars won by Pandora are incremental to the company’s desktop advertising business. In other words, “Oh, that $17 billion? We don’t need that $17 billion, because our banner ads are doing just fine. Even though only 30 percent of our listeners are on desktop. Even though we are aggressively hiring a local sales force to steal away traditional ad dollars.”
Radio advertising is incremental, a mere accelerator to the company’s overall monetization plan, Kennedy said.
I can only assume that he means Pandora is hardcore pushing its package deals, which include interactive display ads alongside audio ads (that also run on mobile and tablet). Plain old spot radio ads may be “incremental,” but the crux of the challenge stands: Even if new advertisers buy the whole interactive package, it’s going to be with money they would otherwise spend on radio. I’m of the mindset that Pandora won’t hit profitability on spending from display ad budgets alone.
Pandora lost $20.2 million this quarter, much wider than its year-ago loss of $6.8 million.
If Pandora’s licensing costs remotely compared to the traditional guys, it would be a great business. This quarter the cost of royalty payments jumped 91 percent as listening hours were up 92 percent. Advertising also grew — 61 percent — but it was not enough to bring Pandora close to profitability, as it approaches the one-year mark as a public company.