In an early sign that mobile radio is coming of age, Clear Channel Communications in January sold out its inventory of certain mobile ads. The news came as the nation's largest terrestrial radio broadcaster, with more than 800 stations, was crawling out of one of U.S. radio's deepest-ever advertising slumps.
Traction in mobile ads signals a watershed among radio companies this year: Delivery of content to smartphones is emerging as a major audience-and-revenue driver. Clear Channel's mobile effort is already "meaningfully profitable" less than two years since it launched, says Evan Harrison, president of the digital unit at San Antonio-based Clear Channel. "Mobile is a strategic necessity for us."
By 2015, mobile radio apps that can stream programs onto Apple (AAPL) iPhones, Research In Motion (RIMM) BlackBerrys , and Android devices will generate as much ad revenue for traditional radio companies as will streaming on personal computers, according to consultant SNL Kagan. "Most of the growth in the digital space is going to come from mobile," says SNL analyst Justin Nielson. Terrestrial radio ad sales from streaming to PCs and mobile phones should more than double to $1 billion in 2015, from $480 million last year, according to SNL.
The amount of time consumers spend listening to mobile radio is rising. The average user tuned in to Clear Channel's iheartradio application on an iPhone or BlackBerry for 137 minutes a week in July, up from 120 minutes at the end of 2009, Clear Channel said. Usage has increased as the app improves and content increases, Harrison says. By contrast, the amount of time consumers spend listening to traditional radio has tumbled to four hours a week this year, from 10 hours in 2005, according to consultant Forrester Research (FORR).
mobile users: a more focused audience
Advertisers are following the audience. "There's a tremendous amount of interest" in mobile advertising, says David Goodman, president of CBS Interactive Music Group, part of New York-based CBS (CBS), which also powers radio apps for AOL Radio (AOL), Yahoo!'s radio service (YHOO), and Last.fm.
Mobile ads may be even more attractive than online ads to marketers because they're more likely to hold a person's attention and marketers can discern a listener's whereabouts. "When you are on the desktop at work and listening to music, you multitask," says Eyal Goldwerger, chief executive officer of New York-based TargetSpot, in which CBS has invested and which puts audio ads from such corporations as McDonald's (MCD) and Wal-Mart (WMT) into mobile radio apps. "When you are on mobile, you tend to multitask less. Your attention is much more captive. And your location is valuable."
Mobile-subscription and -song sales may boost revenue further. More than half of Slacker's total sales come from payments by users accessing its online radio-streaming service via smartphones. That's up from less than 20 percent at the beginning of the year, says Jonathan Sasse, marketing senior vice-president at the San Diego-based company. By year-end, mobile revenue may account for 75 percent of the total, he says. After years of struggling to make it as a PC streaming service, Slacker expects to be profitable this year.
Radio listeners are more willing to pay a subscription fee for commercial-free service and to buy songs on a smartphone rather than on a PC, Sasse says. If a radio app is preloaded onto a phone and a purchase can be charged to a wireless bill, users are 10 times more likely to upgrade to Slacker's $3.99-a-month premium service via a one-year subscription, Sasse says. Downloaded more than 10 million times, Slacker's apps are preloaded onto select phones, such as BlackBerrys from Verizon Wireless and T-Mobile USA, which is owned by Deutsche Telekom (DT).
mobile use expanding in double digits
Making money from PC advertising that runs amid streaming music "is very, very difficult" Sasse says. "It became clear that phones were going to be the point of consumption for our consumers. That's the path for us. Monetizing mobile is the key. There's no question that mobile is the strongest opportunity for us."
In recent months, mobile apps have emerged as the industry's biggest user-growth engine. While terrestrial, satellite, and PC-based radio services are adding listeners in the single digits percentagewise, mobile use is expanding at a double-digit pace, according to SNL. Mobile listeners now constitute more than half of Slacker's 1.5 million to 2.5 million monthly users, up from about 25 percent of total users at the beginning of the year.
More than 30 million people use Internet radio provider Pandora Media on their mobile phones, out of 58 million total users, says Joe Kennedy, chief executive officer of the Oakland (Calif.)-based company. "It's only this year that mobile has become the majority of Pandora's usage," he says. "Consumers like to listen to the radio when and where they want to." The company expects to become full-year profitable this year.
Mobile radio adoption will grow as more consumers opt for smartphones over basic mobile devices. Smartphones accounted for 34 percent of all phones sold in the U.S. in the first quarter, twice as much as a year earlier, according to consultant NPD Group. The bevy of lower-priced smartphones coming to the market, as well as cheaper data plans from carriers such as AT&T, (T) should fuel growth. While a third of smartphone customers use radio apps today, that number will increase to 50 percent by 2015, says SNL's Nielson.
wireless broadband in cars
Unlike traditional broadcasts, mobile radio ads can run video and be interactive, features for which advertisers pay extra. "We went from primarily being on air, to [selling] rich media video ads," says Harrison, at Clear Channel. Online and through its mobile apps, the company's users view 500 million photos a month. They can access exclusive content that includes performance videos and 50 digital-only channels, such as one hosted by the group, the Eagles.
As wireless broadband becomes more widely available, particularly in cars, Web radio will become a bigger threat to satellite and terrestrial radio providers, grabbing some of their users, says Susan Kevorkian, a program director for consultant IDC.
By the same token, mobile apps can reduce the outflow of listeners to rival services. Releasing mobile apps for Android and BlackBerry devices this year likely helped satellite radio provider Sirius XM Radio (SIRI) curb monthly outflows of self-paying subscribers to an average of 1.8 percent per month in the second quarter, from 2 percent monthly a year earlier, says David Joyce, an analyst at Miller Tabak & Co. in New York who upgraded his recommendation on the stock to "buy," from "neutral," on July 7. The same day, Sirius said it added more than 583,000 net subscribers in the second quarter.