Internet radio eyes commute hours for lucrative growth potential

A few years ago, when XM Radio and Sirius first started talking about a merger of their companies, the National Association of Broadcasters started throwing red flags everywhere, crying foul over a monopoly that would harm traditional "free" broadcast radio.

I remember arguing at the time that a combined XM and Sirius would hardly create some sort of evil monopoly that would prompt listeners to dump AM or FM for XM. Listeners, especially those in a car, had plenty of options, the iPod connected to the car being the biggest at the time.

Of course, the merger went through and AM and FM are still around. But now there's another threat looming around out there - Pandora.

A Bloomberg piece today highlighted the company's growth, notably the lure of big-named advertisers and the chase for the lucrative "drive-time" traffic market. Clearly, the commute hours are key times for advertisers to reach a large audience.

Oh sure, many commuters spend their drives gabbing away on the cell phone while they're stuck in traffic. And many have iPods and their customized music playlists. But there are plenty of others who are shifting from one channel to the next in hopes of finding a tune that will make that sea of brake lights a bit less stressful.

In its post, Bloomberg quotes Scott Kelly, digital marketing manager at Ford, which is also advertising on Pandora:

The advantage of Pandora is marketers can target users based on age, gender, home ZIP code and musical taste, letting them deliver more relevant ads than what’s possible on regular radio... It’s very intimate. Because Pandora knows so much about the user and who they are, where they’re listening and what artists they like, it really lets us hone in on that message.

A couple of things to think about:

• Despite recently turning a profit, Pandora still has financial challenges that stem, in part, from the compensation fees that it pays to broadcast music tracks on its service.
• Internet radio is still a much smaller player than traditional radio, with a mere 3 percent of total radio ad sales reaching Web-based companies.
• The streaming music service is still largely dependent on the Internet connections - whether that's a broadband connection on the home PC or a 3G/4G link over a mobile device, such as a smartphone. Commuters streaming Internet radio depend on the mobile data services offered by the wireless carriers, which have been pushing away from unlimited plans and heading more toward tiered usage pricing.
• And then there's the competition. Sure, Pandora is a big name in this growing industry but others, including CBS' Last.fm, Slacker and Spotify, are also in the space. As the services take off and money starts pouring in, you can almost guarantee that others will pop up, as well.