According to speakers at Radio And Internet Newsletter's RAIN Summit West 2012, Internet radio and digital audio advertising is on track for a strong ad year in 2012 with solid CPMs and a growing local revenue base.
However, since only about 15% of listeners have shown a willingness to opt for a subscription model, online music providers are experimenting with various registration programs to increase the amount of information available to advertisers and help boost ad revenues.
Panelists said advertisers are beginning to more consciously make digital audio a part of ad campaigns. Part of the new interest stems from the rapidly growing listener numbers and listening hours, as well as the fact that listeners tend to fall in the coveted 18-to-34 demographic and that listening in the high-growth Hispanic demographic is strong. In addition, Internet radio tends to over-deliver in the upper-income demographics.
The mobile component is also quickly growing, with smartphone users in the U.S. set to grow from 93.1 million in 2011 to 137.5 million by 2013, according to the report. Nine of the top 10 retailers, nine of the top 10 restaurant marketers, and eight of the top 10 financial advertisers are already advertising with digital audio.
Panelists agreed that while digital audio is one of the fastest-growing ad segments, listeners are not currently well-monetized, but advertisers are eager to capitalize on the personalization of music that Internet radio offers in order to more effectively target listeners.
Alexis van de Wyer, president of AdsWizz, says "Currently, Internet radio CPMs are in the range of $3 to $6 for nontargeted ads and higher for geo-targeted ads..." going on to note that prevailing rates of $20 CPM for ads that involve video, with banner ads much lower.
As for costs to local advertisers to advertise on Internet music platforms, speakers said that costs vary from a couple hundred dollars in small markets to $5,000 to $10,000 per week in a large market such as New York City.
Steven Kritzman, senior vice president of advertising sales for Pandora commented that "... local CPMs at $8 to $10 are tastier than the $3 to $5 network CPMs for online platforms..."
Given that 70% of Pandora's listeners listen on a mobile device, Kritzman said, the company's RPM, or revenue per 1,000 listening hours, are $60 to $70 for its desktop Internet business versus $20 for the mobile side, but mobile is expected to catch up.
Panelists agreed that online ads should be 15 seconds or 30 seconds, and that 60-second spots are much too long for digital audio. Streamers cannot run close to a broadcast-like 10 to 12 units per hour, but are closer to 1.5 minutes to 2 minutes per hour.
Some digital audio players are getting above the 15% threshold of subscription versus ad-supported listeners. William Sanchez, director and executive producer of Web operations for FOX News Radio, said 30% of the unit's revenue is from subscription versus advertising, with the revenue coming from such things as personalized podcasts of leading talk radio shows.
Despite the upsurge in listeners and ad revenues, the economics of Internet and streaming radio are challenging due to the high level of copyright fees, which speakers called "egregious and imbalanced."
The report concludes by noting that areas such as mobile, the developing area of the in-auto connected dashboard, and Internet radio-dedicated listening devices such as Sonos are all increasing the level of interest in digital audio. As audiences continue to grow and ad revenues increase, the focus will continue to shift to business models, ad revenues and profitability.
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