Audio. Definitive Guide to. pandoraforbrands.com

Transcription

1 Audio Definitive Guide to 2017 pandoraforbrands.com

2 CONTENTS udio 1 2 THE ORIGINAL AUDIO 3 4 Why Audio? THE PROMISE OF AUDIO IN A CONNECTED WORLD...3 AM/FM Radio PLATFORM FACES HEADWINDS...7 Streaming Audio HITTING THE BIG TIME IN Podcasting A FEW HURDLES AWAY FROM MAINSTREAM ACCEPTANCE Audio Insights FROM PANDORA SVP, LIZZIE WIDHELM SOURCES...24 pandoraforbrands.com

3 1 Why Audio? THE PROMISE OF AUDIO IN A CONNECTED WORLD EACH AND EVERY DAY WE FIND A WAY TO CELEBRATE THE POWER OF AUDIO. Whether it s to music or news, via smartphones or computers, at home or on the go, we reach for audio as a necessary accessory to our increasingly kinetic and multitasking lives. It s why we spend four hours a day with audio, on average. 2 Today, over half of daily listening time among people in prime advertising demos (A18-54) is to newer forms of audio 2 much of which features a personal and personalized experience that barely existed 15 years ago. As a culture, we are entering an earbud era where audio personalization is key to achieving resonance. These are the hallmarks of an Audio Renaissance, as we like to call it. An elevated level of user engagement with content and brand messages paves the way for advertisers to cultivate close and accountable relationships with people through audio. WHY AUDIO? 3

4 Share Of Daily Time Spent Listening To Audio POPULATION Of the four hours a day that listeners spend with audio, half of that time is to digital sources % 50.9 % AM/FM RADIO DIGITAL AUDIO IN THIS REPORT With our inaugural Definitive Guide to Audio report, you ll gain a complete understanding of audio and the complex audio advertising landscape. Some key learnings you ll walk away with from this year s report include: 18.0 % Streaming Audio 15.8 % Owned Music AM/FM Radio still commands big reach, despite declines in time spent listening over the last decade as listeners seek out other options. Radio ratings in some markets improved over the last year, but those increases were largely due to a massive methodology change. We expect the platform to continue losing market share as advertisers put more dollars toward mobile and digital. Streaming Audio popularity soars and will continue to grow as over half the U.S. population streams weekly and smartphone ownership approaches near-universal penetration among people under 50 years old. While on-demand streaming gathers momentum, adsupported streaming will continue to thrive thanks to superior targeting and advanced audience metrics. Podcasting is a fast-growing platform that now attracts millions of regular visitors, even though a jumble of apps and usability issues hamper faster growth. But it s a lack of quantitative and advanced metrics that keeps advertisers skeptical of podcasts for now. Also in this report, Starcom Executive Vice President, Kevin Gallagher, who oversees close to a billion dollars in annual audio ad spend, offers his insightful perspective on the Power of Audio and how his team works to harness its benefits for their suite of brands, and Pandora SVP Lizzie Widhelm, an industry authority on online ad products, discusses why audio remains an important ad format in a digital era. 7.3 % SiriusXM 4.6 % TV Music Channels 3.0 % Podcasts 2.2 % Other Together as marketers, we ll master this ever-changing industry, one insight at a time. We hope you enjoy our guide to everything audio we certainly enjoyed compiling it for you. Cheers! The Pandora Team TIME SPENT LISTENING TO AUDIO WHY AUDIO? 4

5 Starcom Weighs In On T H E P O W E R O F A U D I O KEVIN GALLAGHER is Executive Vice President and Director of Local Markets for agency giant, Starcom. He and his 70-member team allocate a billion dollars annually to local media including TV, audio, newspaper, digital and out-of-home on behalf of a top-flight roster of clients like Allstate, Bank of America, ESPN, Samsung and Visa. He took the time to talk to us about the Power of Audio, the transition toward digital audio, podcasting and the challenge of too much choice. What opportunity does streaming audio provide you and your clients? Our job is to find audiences, target them and spend our clients dollars efficiently. When we started looking at streaming, the data became intriguing. We ve always used data whether it was Nielsen broadcast ratings or something else but the fact that streaming audio allowed our clients to more precisely target based on behaviors, rather than traditional demographics, meant we could be more efficient. That s the advantage of digital. You still spend on broadcast. What keeps you on that platform? There s some strengths that broadcast continues to live on: the advantage of reach, localization and personalities who create content unique to an individual market. On the other hand, broadcast needs to be more data-driven. In my role, I ve encouraged broadcasters to figure out ways to use data for better targeting. That s how they ll compete in the digital world. What have your attribution models said about audio? With regard to radio, it s rare that we run it alone. Radio s always part of a mix, so it s hard to point to the efficacy of just radio. We can do things like dial up the amount of radio as part of the overall mix, which can get us to: We think it s working and the sales results suggest that it s working. But digital has the more unique ability to say: We targeted this ad to these customers, they clicked on the ad, it brought them over to the client s website, then they bought something. How does your team handle platforms that offer multiple media options, such as audio, display and video on Pandora? That s something we ve had to work through. Does the radio team buy display or does the digital team buy it? Today we re buying it out of our audio team in most cases, but we re tagging the ad in the same way the digital team would, so we can get metrics and look at attribution and ROI. How have roles at your agency changed with digital? There s been a lot of talk about getting more involved in the creative process. Social media and online media have brought that on, making the media departments almost like content creators like a creative agency used to be. Is that the result of a more immediate need for creative? Right. Another popular buzz phrase is real-time marketing. And it presents a huge opportunity in the audio space. We can get on air quickly with a customized message that s relevant to what just happened with a client s brand. What s happening in the ad industry that s getting your attention these days? As agency media planners, we re always paying attention to what s going on with measurement. At one point, we believe we re targeting perfectly then suddenly we aren t. We now pay close attention to transparency and viewability, including having conversations about viewability standards for display, online video and streamed audio. WHY AUDIO? 5

6 Agencies have long spoken about the difficulty of buying audio. How does the entry of digital audio complicate that issue? The challenge for audio buyers is that the medium is evolving so fast that it s becoming harder to buy. We try to think about it in terms of an all-audio landscape. Whether it s broadcast, broadcast streams, pureplays or podcasting, there s an audio spectrum where we can find our client s audience. But logistically, while it s great to think about and plan audio holistically, we still have to execute through a variety of partners to make it happen. That s a challenge. Will audio programmatic solve for that challenge? If you define programmatic as some blend of automation and data, I think programmatic will be important for audio. Agencies have to automate and execute all these different forms of audio over the fewest number of buying platforms. I m not defining programmatic right now as a real-time bidding model; I think the automation and the data are more important than going real-time. "In the digital space whether it s streaming or podcasts audio has opened up a lot of innovation and opportunity" We at Pandora evangelize on the Power of Audio. How does that power work for you and your clients? From a listener standpoint, the Power of Audio was always about a one-to-one connection. Granted, some audio, such as broadcast, is transmitted to a bunch of people at the same time but when you re in your car listening, you feel like it s a one-to-one connection. For years the broadcast medium was static, but in the digital space whether it s streaming or podcasts audio has opened up a lot of innovation and opportunity. KEVIN GALLAGHER STARCOM WHY AUDIO? 6

7 2 AM/FM Radio THE ORIGINAL AUDIO PLATFORM FACES HEADWINDS IN ITS RANKING OF 20 TH CENTURY TECHNOLOGIES, Time put radio at No. 2 only behind the personal automobile. 8 As the first electronic mass medium, radio delivered the Power of Audio directly into millions of homes. Originally invented nearly a century ago, radio remains widely used today thanks to its ease of use, broad availability and free content. But like all traditional media, radio faces numerous headwinds: young listeners accustomed to streaming media, advertisers who value the data-driven targeting of digital, and an evolving array of connected devices that deliver more personalized audio options. Will radio survive this digital revolution? While nobody recommends betting against the medium, it would be foolish to ignore the difficult environment that traditional media has endured in the last decade. AM/FM RADIO 7

8 AM/FM Listening Trends, AVERAGE AUDIENCE Radio's steepest ratings declines occurred in the last 10 years, as consumers have found other audio options, including satellite radio and streaming audio on their smartphones. RADIO S LATEST TECH STILL SEEKING ADVERTISER ATTENTION 16 % Average Audience (% of population) 14 % 12 % 10 % 8 % 6 % 4 % 2 % % 15.1 % 14.9 % 14.6 % 14.4 % 14.2 % 14.0 % 13.8 % 13.2 % % 10.4 % 9.7 % LISTENING PROFILE AND TRENDS Radio currently accounts for nearly half of the four hours of audio that Americans consume each day 2 not bad for a 100-year-old medium! Broadcasters routinely tout its most impressive stat that AM/FM s industry-wide, weekly reach is 93%. However, reach is only part of audience measurement. Time spent listening is a reliable indicator of radio s health. As the above ratings chart infers, radio ratings have declined by 45% over the last decade. 9.2 % 8.5 % 7.9 % 7.7 % 7.7 % SATELLITE RADIO: A Growing Force in Cars Since its debut in 2001, satellite radio has built a significant presence in the car. Today, more than 30 million SiriusXM subscribers pay an average of $13.04 per month 19 to receive about 100 commercial-free music channels and about 100 ad-supported news, talk, traffic and weather channels. SiriusXM makes radio devices for use inside and outside the car, but in-vehicle listening makes up more than twothirds of its total listening time. 2 SiriusXM s 2015 ad revenues total $122 million representing just 2.79% of its revenue. 19 Overall only 17% of its listening time goes to ad-supported channels (news, talk and sports). 2 More significantly, SiriusXM s audience is not currently measured by any third-party research agencies. HD RADIO: Still Looking for a Market In the mid-2000s, radio began offering HD Radio with the promise of better quality sound and additional multicast channels of AM/FM RADIO 8

9 Radio s ongoing decline in time spent listening can be attributed to: Shift to personalized audio: Where radio was once the only source of free music, listeners of all ages can now access music content that s not only free, but personalized. People aged now consume more audio from the internet than they do from traditional radio. As a result, 40% of all radio time is now dominated by people 55 years and older. 2 Smartphone adoption: Radio s steep declines in time spent listening align exactly with smartphone adoption. Almost all of the younger age groups and a majority of adults aged 55+ own a smartphone including all the apps that make the device a center for media and information. 12 We ve seen that heavier smartphone use equates to more streaming. What s more, adults spanning ages now spend more time with their smartphones than with AM/FM. 13 Home (not so) sweet home: Gone are the days of listening to radio as a family. People now spend more time with TV and mobile in the home than with radio. In fact, in-home listening accounts for 25% of all radio listening vs. 44% in About 20% of the population and a third of Millennials don t even own a radio at home. 12 Popularity of satellite radio: The first broadcast radio disruptor, satellite radio continues to be especially popular among higher-income, middleaged male commuters. Consuming nearly 7% of listening time, this is an attractive alternative to traditional radio for many. With these trends contributing to an overall decrease in radio consumption, the vast majority of commuters still turn to radio during drive time. As a result, overall radio listenership rises on workdays and falls on weekends and holidays. Still, drivers are gravitating to alternate sources of audio thanks to faster mobile data, ease of Bluetooth connections and the rising popularity of connected car technologies (See Chapter 3's On The Rise section for more about in-car audio listening). Growth In Streaming Aligns with Smartphone Adoption 12 POPULATION % 80 % 60 % 40 % 20 % 31 % 34 % 44 % 39 % 53 % 45 % 61 % 47 % 76% SMARTPHONE 71 % OWNERSHIP 53 % 57 % content beyond what s available on a standard AM/FM radio. The content on these additional channels features niche music genres, out-of-town sports broadcasts or foreign language programming. 20 To hear HD Radio, listeners need a specially equipped portable or in-dash radio, as well as reception from a commercial or public station that broadcasts in HD. The service is commonly available in the nation s largest markets, but not all major market stations broadcast in HD, and even fewer smaller market stations use the technology at all. After a decade of service, consumer confusion about HD Radio abounds, 21 and based on Nielsen Audio ratings, HD Radio usage is low. NEXTRADIO APP: Putting FM Radio on Smartphones Many broadcasters believe that radio would be more popular if listeners could hear stations on their smartphones. In addition to the fact that many stations can already be streamed on mobile, most phones also have a built-in (but frequently-inactive) FM receiver chip that can tune in FM stations via the NextRadio app. At this time, only a few Android phone models have the FM receiver activated. Sprint began enabling FM reception on some of its phones in 2013, but AT&T and Verizon only recently agreed to do the same. iphone owners are out of luck; Apple has chosen not to activate its FM chips. Further, the technology requires the use of a corded headphone, which serves double-duty as an antenna. The newly released iphone 7 rides the growing popularity of wireless Bluetooth MONTHLY ONLINE RADIO LISTENING AM/FM RADIO 9

10 AD TRENDS AND REVENUE PROFILES In 2016, broadcast radio didn t undergo any fundamental changes in ad products, ad length or ad loads nor is there evidence of such changes in the coming year. While most AM/FM ad revenues still come from 15-, 30- and 60-second local, national or network audio spots, advertisers also must rely on audience targeting based on a station s format and day/daypart. In its ongoing survey of advertising agencies, the ad data firm STRATA found that 53% of agency execs reported that client interest in radio was the same as the prior year, with 33% of clients having less interest and 14% having more interest. 14 Broadcast radio s share of total media ad spend is forecast to decline from 7.8% in 2015 to just 5.9% in Despite projected growth in total ad spend between 2015 and 2020, radio isn t expected to grow at all in the same period. However, digital revenue which includes audio, display and video on broadcast and pureplay streaming platforms is expected to grow substantially through 2020 (see chart on Page 15). 15 ACCOUNTABILITY AND AUDIENCE MEASUREMENT As with TV, broadcast radio depends on sampled research for audience metrics. Radio stations in most of the Top 50 markets are measured with the Nielsen Portable People Meter (PPM). In 2015 Nielsen implemented a technical change to its PPM encoding methodology that made it easier for a station to receive listening credit. This change was made after many radio stations had installed thirdparty audio processing technology that claimed to accomplish the same thing. 16 In 2016, following Nielsen s implementation, Nielsen claimed credit for a 13% YOY increase in radio AQH ratings in the PPM markets. 17 Prior to headsets and does not include a traditional headphone jack at all. Even still, just 505,000 unique visitors used the NextRadio app that s less than 1% of AM/FM s audience and only a fraction of the millions of visitors to streaming audio sites. 22 SATELLITE RADIO, HD RADIO, FM SMARTPHONE OUTLOOK Industry analysts expect SiriusXM to grow as more new cars with advanced dashboards are sold. But top-line advertisers will largely bypass the platform until they see accountable listening metrics. A lack of compelling content on HD Radio channels has led to low listener growth. There are also no ratings available to advertisers who are interested in the medium. Furthermore, there aren t any pending developments in 2017 that might change this. The radio industry s attempts to enable FM reception on smartphones is hampered by spotty device availability. While FM is getting activated on more phones, it will take years before the feature will be available on most Android devices. There s currently no indication that iphone users will ever have the feature. Far more mobile users continue to listen to FM via streaming. AM/FM RADIO 10

11 this so-called enhancement, radio listening levels had been declining by an average of 5% per year over the last five years. 9 While the Nielsen radio diary is MRC-accredited in all 50 states, the PPM system remains unaccredited in 20 major markets, including New York, Boston, Washington, DC and Seattle. As over-the-air broadcasters struggle to provide the detailed audience metrics that online publishers do, they will also struggle to offer advertisers the depth of data and visibility they demand. OUTLOOK Like all traditional media, AM/FM may have been a solid bet for advertisers in the past. But personalized audio with hyper-targeting and detailed audience metrics now offers more of what marketers need to make smart buying decisions. While radio does possess great characteristics, advertisers have started questioning the audibility of audio ads that are part of a 10-spot pod. There are now more efficient ways to reach listeners, especially younger generations who are more inclined towards digital audio. Broadcast radio s share of total media ad spend is forecast to decline from 7.8% in 2015 to just 5.9% in 2020 AM/FM RADIO 11

12 3 Streaming Audio HITTING THE BIG TIME IN 2016 SINCE THE EARLY DAYS OF STREAMING, USERS HAVE ENJOYED the opportunity to listen digitally. When Pandora launched in 2005, throngs of enthusiastic listeners flocked to the service eager to create their own personalized radio stations. This was promising behavior, but it wasn t until Pandora debuted on the iphone in 2008 that listenership skyrocketed. The pervasiveness and mobility of smartphones allowed listeners to stream wherever they went, and whenever they wanted. You could say that the smartphone is today s version of the transistor radio of past generations. But unlike traditional radio, streaming listeners are liberated from one-size-fits-all playlists and long commercial breaks, allowed to enjoy content they choose for themselves. Chad Stoller, EVP, Global Information Director for IPG Mediabrands observed, We are in the midst of an unprecedented era of consumer control. With every trip to the app store, consumers discover new ways to connect with friends, content and services. 23 STREAMING AUDIO 12

13 THE LISTENING PIE IS EXPANDING Listeners take advantage of new audio choices that are delivered digitally into their smartphones, cars and homes. For that reason, streaming audio listening time is projected to double between , lifting overall audio time. 23 Streaming audio comes in many flavors from free, streamed simulcasts of broadcast radio to paid, on-demand listening experiences. These services broadly fit into three buckets: "We are in the midst of an unprecedented era of consumer control. With every trip to the app store, consumers discover new ways to connect with friends, content and services." CHAD STOLLE IPG MEDIABRANDS Linear: Pre-programmed content where the listener has little or no control. Includes simulcasts of AM/FM commercial and public stations in the U.S. and abroad, and preprogrammed celebrity music playlists. Most of these services, such as iheartradio, are both free and ad-supported. Custom: Personalized stations that listeners create around a song, artist or genre. The stations can be further customized based on user interactions like song skips, thumbs, human curation or data-driven recommendations. Many of these services offer both free and ad-supported products. Several have introduced midtier services to offer additional features and commercial-free listening for a monthly fee. On-Demand: This format offers listeners near-complete control over their experience, including the ability to play specific songs, build custom playlists and download music for offline playback. Most on-demand services are ad-free with a paid subscription although Spotify does offer an ad-supported, on-demand product for desktop computer users. With More Choices, People Will Listen to More Audio 23 HOURS OF LISTENING PER WEEK Streaming Owned Music AM/FM Satellite Radio Podcasts Other TOTAL STREAMING AUDIO 13

14 LISTENING PROFILE AND TRENDS Aside from the mass adoption of smartphones, streaming audio hit another major milestone in 2016 when we learned that half of the U.S. population 136 million persons 12 years and older stream music weekly. 12 This figure is nearly triple where it stood in 2010, demonstrating a flourishing habituation with the medium. Streaming is most popular among people aged 35 and younger, and particularly so among those between the ages This Young Adult demo became the first to spend as much of their listening time with streaming as with AM/FM radio, indicating that younger demos are pushing this trend mainstream. 2 But streaming s popularity is not only restricted to the young; 56% of adults aged listen online weekly too. 12 As we've noted, streaming audio maps closely to smartphone usage. Researchers have tracked an impressive 67% jump in smartphone app and web usage in just the last year, across all age groups. Adults aged are now spending more time on their smartphones than they do with traditional radio. Likewise, adults are quickly closing the gap between time on smartphone and time with radio. 13 While smartphones remain popular, listening on connected car and connected home devices constitute the fastest-growing segment of streaming audio (See page 17, On The Rise: New Places to Stream Audio for more on this topic). Weekly Time Spent with Smartphones and Radio 13 IN HOURS AND MINUTES PHONE RADIO AGE :46 15:45 10:05 10: :31 13:46 11:30 11: :06 14:48 13:33 13: :29 13:10 14:56 15:15 Internet Radio is a Lifestyle Activity for Half the U.S. 12 % OF 12+ PERSONS WHO LISTENED TO INTERNET RADIO IN LAST WEEK 2 % 5 % 6 % 8 % 8 % 8 % 12 % 12 % % 17 % 17 % 22 % 29 % 33 % 36 % 44 % % The percentage of the U.S. 12+ population that listens to internet radio each week reached 50% in The streaming growth spurt began in earnest in 2008, when Pandora became available on iphones and later on Android phones. 136M ESTIMATED STREAMING AUDIO 14

15 ADVERTISERS ARE GOING MOBILE It s projected that advertisers will increase ad spend by nearly $60 billion over the next five years, 3 with much of it going to mobile. Traditional AM/FM spot advertising spend will stay flat over that period despite the broadcast industry seeing some gains in digital spend. For pureplay streaming services, however, advertising spend is expected to nearly triple over the next five years. Successful marketers will be primed and ready to capitalize on this growth. As a culture, we are entering an earbud era where audio personalization is key to achieving resonance U.S. Total Media Ad Spending, CAGR* 5 AM/FM Spot Broadcast Digital 6 Pureplay Digital 7 Mobile $14.32 $14.18 $14.20 $14.25 $14.28 $14.30 $1.02 $1.07 $1.12 $1.18 $1.24 $1.30 $1.58 $2.08 $2.62 $3.65 $4.25 $4.66 $31.69 $45.95 $57.44 $68.93 $77.89 $ % % % % TOTAL U.S. AD SPEND** $ $ $ $ $ $ CAGR* % *Compound Annual Growth Rate **Total also includes digital, TV, print, out-of-home and directories spend. Broadcast digital and PurePlay digital revenues include non-audio digital revenue. WHY AUDIO? 15

16 AD TRENDS AND REVENUE PROFILE Streaming audio is the only platform to offer the advanced planning and performance metrics that advertisers need in today s competitive environment. Unlike broadcast, where targeting capabilities are based on listener characteristics by format (or through third-party qualitative research), streaming provides additional segmentation based on multiple, detailed sources of data: DECLARED: First-party data supplied directly to the streaming service and used for demo and geo targeting, including age, gender and zip code. While some services such as Pandora only use first-party registration data, other services don t require registration and depend on second-party sources, like Facebook registrations or game console accounts. BEHAVIORAL: Includes information on listener interactions such as music/genre selections, time of day, devices used, skips and thumbs. For example, Pandora collects a billion such data signals each day. 82M U.S. Free PANDORA SPOTIFY 40M U.S. Free When combined with declared registration info, behavioral data helps predict a listener s ethnicity, language, even political preference. THIRD-PARTY: Consumer profiles made up of online interactions, purchase transactions and other data further refines declared and behavioral sources for more in-depth targeting. Pandora uses a combination of declared, behavioral and thirdparty data leads to create over 1,300 audience targeting segments, including categories as broad as auto intenders and as specific as Hispanic Mom Pizza Enthusiasts. Advertisers continue to move dollars to streaming for this level of granular targeting, plus guaranteed digital ad-serving technology and post-campaign delivery metrics, including actual reach and frequency reports. In a recent survey of ad agencies, 55% said they are more interested in streaming audio than they were last year compared to just 14% who said they were more interested in broadcast spot radio. 14 Pandora vs Spotify Addressable Audience 24 17M U.S. Paid POPULATION M Outside U.S. 4M U.S. Paid In the U.S. Pandora s advertiser-addressable audience is twice the size of Spotify s estimated addressable audience. Adults aged are now spending more time on their smartphones than they do with traditional radio AUDIENCE ADDRESSABILITY As streaming audio grows, advertisers are increasingly challenged with differentiating between users and platforms that are addressable by advertisers, and those that are not. For example, brands can place their messages on Pandora s free, ad-supported service but not Spotify s on-demand, ad-free service. It s a slight but important delineation. In the media, Spotify often touts the size of its worldwide audience which is estimated at 115 million unique visitors. However, this number represents listeners in 59 countries, all of which are not addressable by U.S. advertisers. Based on company declarations and press reports, their Fall 2016 U.S. addressable audience is closer to 40 million monthly unique visitors. The graph at left shows the breakdown of streaming listeners by addressable vs. non-addressable. Similar to the comparison of Pandora and Spotify, each streaming service described in this chapter includes both addressable and nonaddressable portions of their user base. Media buyers are encouraged to dig a little deeper to determine the actual audience their message can reach. Triton Webcast Metrics Local has been one beneficial tool in this regard. STREAMING AUDIO 16

17 OUTLOOK FOR STREAMING AUDIO Streaming audio opened the door to a personalized media revolution, where consumers now expect to get what they want, when they want it, on all of their connected devices. As people devote more attention to smartphones, streaming audio usage is projected to grow 15% annually from its current 3.4 hours per week to 5.8 hours per week in Streaming will surely benefit from increased usage in connected cars and connected home devices in the coming years. This media revolution is undoubtedly led by Young Adults, aged 18-24, who grew up using mobile devices and personalized media. They adopted streaming audio as the primary audio format they listen to and will likely take these characteristics with them as they enter into the workforce, start families and age into older demos. But older listeners are intrigued by the promise of personalization too. As they continue spending more time with their phones and connected devices, their streaming usage will increase accordingly. Thanks to a growing audience, and an ability to execute and account for precise campaigns, advertisers are expected to increase their media spend on streaming by 19% YOY in 2017, and 17% annually through O N T H E R I S E New Places To Stream Audio CONNECTED CARS GO MAINSTREAM For close to 80 years, radio has been a constant and reliable companion for drivers. However, in much the way that technology has transformed media consumption outside the car, drivers are increasingly using digital media inside the car too. According to a recent study of in-car media usage conducted by Edison Research, drivers of newer cars are far more likely to listen to digital audio through the dash than drivers of older cars. 26 The trend toward more in-car digital audio consumption will continue as more people purchase vehicles with advanced dashboards. Carmakers are currently refining their dashboard media interfaces. As of 2015, they ve also began offering interfaces developed by tech leaders like Apple, whose CarPlay interface (continued on next page) AMERICAN S ARE BUYING CONNECTED CARS By next year there will be a total of 35 million connected cars on U.S. roads; about a quarter of those cars will have been sold just in M M 20.6M 26.8M 34.8M 45.2M 58.7M CONNECTED CARS IN U.S. STREAMING AUDIO 17

18 uses a driver s iphone functionality by way of large icons on the center stack display (dashboard) or through Siri voice control. Many models also feature Google s Android Auto, a similar interface but for Android phone owners. Both CarPlay and Android Auto play a vital role in connected car adoption and usage, creating dashboards that look and feel as familiar as their smartphone. Even broadcasters have expressed concerns about connected dashboards because traditional AM/FM controls appear deprioritized, with streaming audio services showing up front and center. 29 Streaming services, like Pandora, understand the importance of in-car audio consumption and have prioritized vehicle integrations. Pandora reports 18 million indash activations across 190 vehicle models. 30 Some 22% of frequent commuters listen to Pandora with a connected dashboard, 26 and the number of drivers with indash access to Pandora has been growing 73% annually over the last four years. 30 Still, driver behavior shows that a connected dash isn t necessary for enjoying streaming audio in the car. Some 40% of commuters instead listen to audio by connecting their smartphones to the car via a USB, AUX jack or Bluetooth connection. 26 HACKING THE COMMUTER CODE Earlier in 2016 Edison Research conducted an extensive study of in-car media usage among daily car commuters. While the vast majority of drivers use AM/ FM, they re also using many other media options including CDs, digital music files and streaming audio. When faced with the choice of having just one audio source in their vehicle, only one in three drivers of cars 2012 and newer chose AM/FM. By comparison, 53% of drivers of cars 2006 and older choose AM/FM. 26 The study also detailed the amount of switching by commuting drivers, and found that those listening to AM/ FM switched significantly more than streaming listeners to avoid long commercial breaks. To learn more about this groundbreaking study, visit the Pandora For Brands site for more about the State of In-Car Audio. CONNECTIVITY AT HOME Nearly all smart TVs, OTT set-top boxes, game consoles and voice-activated Bluetooth speakers offer streaming audio today. This includes Pandora, where the number of monthly listeners on connected home devices has grown 43% annually over the last five years, with over eight million visitors listening each month. 30 On average, this cohort is listening for a substantial three hours, 24 minutes per day 93 minutes more than Pandora s average smartphone listener. 30 The massive time spent with these devices reflects a gravitation toward multi-purpose devices that offer high-quality, personalized content options. 31 Both CarPlay and Android Auto play a vital role in connected car adoption and usage CONNECTED TV HOUSEHOLDS & PENETRATION As of 2016, two-thirds of U.S. homes had at least one TV with internet connectivity (smart TV or TV connected to OTT box, game console or smart STB) M M 56.6 % 80.0M 65.4 % 88.3M 71.7 % 93.5M 97.3M 75.5 % 78.1 % CONNECTED TV HOUSEHOLDS Connected TV Households % STREAMING AUDIO 18

19 4 Podcasting A FEW HURDLES AWAY FROM MAINSTREAM ACCEPTANCE PODCASTING TRANSFORMED INTO A MASS MEDIUM IN 2014, when an investigative team from public radio s This American Life re-examined a 15-year-old murder in a landmark audio series that sparked a nationwide boom in podcast listenership. To date, episodes of Serial have been downloaded more than 130 million times. 32 Pandora began streaming the series in November 2015 and has seen a collective 10 million hours spent with the content.30 Listeners can now choose from more than 200,000 podcast episodes in the itunes store covering every imaginable topic, yet podcasts still occupy a small slice of the audio pie. 33 Difficulty in finding and playing programs is likely to blame. Yet advertisers still show a willingness to advertise with podcasts, even though listening metrics and meaningful user insights are elusive. PODCASTING 19

20 LISTENING PROFILE AND TRENDS Some 57 million people listened to podcasts monthly in 2016, a 40% boost from two years earlier when Serial debuted. Podcasts are especially popular across ages 12-54, and 71% of podcast listeners on their smartphones. 34 Those that listen to podcasts tend to get hooked. Of the 35 million people that listen to podcasts weekly, the average person listens to five programs per week one per each work day. Of the listeners that consume podcasts daily, these listeners spend an outsized six hours with podcast audio, almost two hours more than average. Still, podcast growth is hampered by inconsistent listening experiences. The challenges in finding and consuming podcasts differ wildly depending on whether a listener is on desktop or mobile, has an itunes account or not, owns an iphone or Android, or streams versus downloads. The difficulties of podcast listening even spurred the respected tech news site Recode to publish a Layman s Guide to Podcast Listening 33 just last year. This only further illustrates the deep interest the industry has in this medium. Since Serial s debut in 2014, the monthly podcast audience has grown by 35% among year-olds, 41% among 25-54s year-olds and 57% among people 55+. Age More Listeners of All Ages Are Consuming Podcasts 12 % LISTENING TO A PODCAST IN LAST MONTH % 20 % 23 % 27 % Some 57 million people listened to podcasts monthly in 2016, a 40% boost from two years earlier when Serial debuted Age Age % 17 % 19 % 24 % 7 % 7 % 10 % 11 % PODCASTING 20

21 AD TRENDS AND REVENUE PROFILE Ad spending on podcasts has hardly moved in recent years and, based on a ZenithOptimedia forecast, are not expected to rise significantly in the future. While some podcasts have top-brand title sponsorships and transactional ads, most podcast ads are performance-based, where the sponsor uses offer codes to track the source of new leads. Yet the ad community is intrigued by the possibility of reaching many different life groups via podcasts. Kevin Gallagher, Starcom EVP of Local Markets, looks forward to putting dollars against podcasts. Although, he acknowledges that the industry needs more numbers: In our targeted and precision-based world, we re looking to quantify the audience, either from a sheer number point or with behavioral data. Once we get that, you ll start seeing marketers jump on pretty quickly because it just makes sense. There s an audience there. Gallagher noted, however, that because there are so many podcasts, it needs to become part of a programmatic buy/sell process perhaps in concert with other audio platforms. Media buyers simply won t have the time or resources to plan around and evaluate thousands of individual podcasts. U.S. Desktop vs. Mobile Podcasting Ad Spending 35 MILLIONS AND % CHANGE Mobile $33.40 $33.80 $34.40 $35.80 $37.30 ACCOUNTABILITY AND AUDIENCE MEASUREMENT Thanks to the wide disparity by which podcasts are served and consumed, they can be difficult to measure. John Rosso, President of Market Development for Triton Digital noted, While a podcaster can obtain a good amount of listening data when the podcast is streamed, downloaded podcasts are a different story. Once the content has been downloaded onto a device, there s no visibility into if, when or how much of that content gets consumed. This limitation extends to progressive downloads podcasts that are being consumed by the listener while being downloaded. Once the podcast industry solves for the number of ways people listen, it will still need the kind of lifestyle and targeting metrics advertisers crave to be successful. OUTLOOK Podcast usage could reach the mainstream if listeners can find and consume content as easily as they can with other streaming formats. User experiences vary widely based on which app and devices are selected, making it difficult for advertisers to understand and measure listenership. Advertisers will almost certainly flock to podcasts when there are quality listening metrics and listener profiles that permit better targeting. Due to the sheer size of the podcast market, they will likely also need a way to analyze and buy programmatically. Until then, podcast audiences will continue to grow substantially but ad revenue will lag. % change 1 % 2 % 4 % 4 % Desktop $0.68 $0.69 $0.70 $0.73 $0.76 % change 1 % 2 % 4 % 4 % Total $34.10 $34.50 $35.10 $36.60 $38.00 % change 1 % 2 % 4 % 4 % PODCASTING 21

22 5 Audio Insights FROM PANDORA SVP, LIZZIE WIDHELM LIZZIE WIDHELM HAS BEEN WITH PANDORA FOR OVER 10 YEARS and is currently the Senior Vice President of Ad Product Sales & Strategy. She and her team are responsible for bringing innovative ad products to market that help advertisers tell their stories and build deeper connections with their audience. But her impact on Pandora started when she joined as the company s very first salesperson, selling digital audio... a product no one had ever heard of. Lizzie sat down with us to discuss Pandora s decision to integrate audio advertising and what she sees as the long-term promise of audio. AUDIO INSIGHTS 22

23 Tell us about Pandora s decision to integrate audio ads into the service. Pandora s early days were so exciting. We were growing only by word-of-mouth, ultimately attracting millions of passionate music fans who wanted a better radio experience. The iphone was the catalyst that created the right moment for us to launch audio ads. The app experience was new, but Pandora quickly became a must-have for anyone buying a smartphone. This shift created a dramatic increase in listenership for us and soon our audience reached the size of many of the top radio stations around the country. But our product was different, in that we knew who was listening. The ability to target, combined with our commitment to less interruptions, allowed us to create excitement and interest. What led Pandora to take a drastically different approach to advertising than other audio platforms? We defined a purpose, which was to service our audience first. We then built a monetization model that worked for our clients and our listeners, under the mantra What is good for the listener is good for the advertiser. So, the total time we run ads compared to the total time we play content was and still is our primary concern. Our interruptions would be short and include messages relevant to each listener, and we wouldn't run longer-form ads to ensure our listeners know what to expect. This philosophy created a behavior that runs counter to what radio experiences: Our listeners were not tuning out or changing stations because of the ads. What kinds of innovation do you see with audio ads? As we look to the years ahead, we are thinking about variable spot length and creative best practices to develop an even better listening experience. I am thinking quite a bit these days about the equation of ad length plus creative plus listener behaviors equaling advertiser attention and interest. Today we sit on more data and better technology to play with that equation to find the most enjoyable experience for every individual listener. Audio can be a very personal medium. In today s earbud era, where people are constantly plugged into earbuds or headphones, audio messages are quite literally delivered directly into the ears of a desired audience. How does this impact creative development? Every Pandora listener is an individual to us, and we work hard to make their music as personal as possible. So, why can t we strive to do that with advertising too? The key is to align with data, so you know exactly who you re talking to. Using audio that references a known behavior can make a great impact. Audio ads that call out the fact that we know you re on the road or your home is a special place will draw attention from a listener because it feels personal just like their music. Transactional ads aside, can you tell us more about the intersection of music, advertising and data and what this looks like when done well? Many brands set out to engage consumers on a deeper level. Driving that connection through music and experiences is extremely effective. Today, Pandora sits on more data and better technology than ever to help us bring bands, brands and fans together in impactful ways. My favorite example is the YG Call of Duty Station we built for the launch of Call of Duty: Infinite Warfare. We worked closely with Activision to define their audience target and the type of artist that would resonate with them. That led us to rapper YG, who is very popular among Call of Duty fans, and a huge fan of the game himself! The outcome was a station that captured attention and attracted engagement among the brand s ideal audience. Nothing can do this quite like music especially when combined with the Power of Audio and the personal touch only smart data can provide. Are there any ad technologies that are getting your attention? I am very interested in how technology can combine with user behavior to deliver better and more interesting advertising. For example, what if I m the type of person who just loves a southern accent? Maybe all the audio ads I hear should be in a voice that I prefer. Or what if I m listening to the AC/DC station and then switch to Steve Aoki? Shouldn t the music bed in my next ad also reflect that change? There is a future for scalable, data-driven creative tied to frictionless programmatic pipes. I m really excited to see how that plays out. "We then built a monetization model that worked for our clients and our listeners, under the mantra 'What is good for the listener is good for the advertiser ' LIZZIE WIDHELM, PANDORA AUDIO INSIGHTS 23

24 SOURCES 1 95% of Persons 13+ use some form of audio daily; Edison Research, Share of Ear Study, Q Edison Research, Share of Ear Study, Q emarketer, U.S. Total Media Ad Spending by Media, September emarketer, September Figures in billions. Radio figures do not include off-air revenues Magna Global, Media Economy Report, Capturing Consumer Attention in an On Demand World, June Compound annual growth rate 6 Cowen and Company, Music Industry Poised to Get Its Groove Back, June emarketer data net of Cowan and Company Broadcast Digital revenue estimates 8 Time Magazine, 20th Century Technologies 9 Radio insights blog, Shocker! Radio is Growing!, August : calculated using Arbitron Radio Today reports; 2013: calculated using Nielsen Cross Platform Report, Q4 (12+ persons); : Nielsen Comparable Metrics Reports (18+ persons). 11 Edison Research, Share of Ear Study, Q Edison Research, Infinite Dial Study, Nielsen Total Audience Report, Q2 2016, which notes that some of the annual smartphone increase was inorganic due to a methodology change; usage would have risen 42% without the methodology change. 14 Inside Radio, Audio Industry Growth Attracts More Ad Agency Interest, September emarketer, U.S. Radio Ad Spending, by Segment, , March Inside Radio, Ratings-Boosting Box Sweeps PPM Markets, April Nielsen, Audio s Growing Ratings and Enhanced Encoding, March SiriusXM Q earnings report; FY2015 earnings report 20 HD Radio station guide 21 Crutchfield.com, customer comments about HD Radio, May comscore Mobile Metrix (NextRadio), Media Metrix (iheart, Pandora), July Magna Global, Media Economy Report Capturing Consumer Attention in an On Demand World, June Spotify global and U.S. paid numbers from Spotify news reports, January, June Total U.S. audiences for both services, comscore Multi Platform Top Properties, September Media Rating Council website 26 Edison Research, Hacking the Commuter Code, April Automotive News, Forecasters see U.S. Sales Up This Year, But Softer emarketer, Connected Cars in the U.S., , May Jacobs Media blog, You d Better Worry About Connected Cars, August Pandora Internal Metrics, July emarketer, Connected TV Households and Penetration, The Wrap, Adnan Syed Case Lands ID Special Based on New Evidence, May 31, All data from this section, except where noted, from Edison Research, The Podcast Consumer, emarketer, U.S. Desktop vs. Mobile Podcasting Ad Spending Quoting ZenithOptimedia report, December Cumulus 2Q 2016 Earnings Release Presentation pandoraforbrands.com