Pandora Beefs Up Its Local Ad Sales Force
The streaming audio provider is building outs its ad sales army as it seeks to capture large portions of both the $1.1 billion online radio ad market and the $17 billion over-the-air radio ad space.
In the two years since Pandora embarked on a local advertising strategy, the streaming music player has gone deeper by hiring more broadcast hands to expand its in-house sales force. The company is forging ties with local businesses and franchises such as Home Depot and Panera Bread.
The decision to hire and train its own salespeople is a departure from the internet radio company’s reliance on “resellers” – independent sales contractors in local areas who sold ads for Pandora when it didn’t have the sales force power to reach out to retailers one-on-one.
“[Our local ad sales strategy] has evolved aggressively,” says Steven Kritzman, SVP of Pandora’s Advertising Sales. “We’re in more than 35 markets with ‘feet on the street.’ That vision is going to continue to expand as we move through time.”
In 2012, local ad sales for “internet radio” were considered something of a gamble. Pandora began testing the waters with a handful of resellers in the few markets where its online music player had sizable audience numbers. It also partnered with a few newspapers that were connected to local businesses so as to compete with established broadcast radio sellers.
“We realized pretty quickly that there was a heavy appetite for the product,” Kritzman says, sitting on the 19th floor of Pandora’s newly opened New York office. “Local marketers were really clamoring for different solutions. We realized the only way it would work was if we moved all sales operations in-house – and we had do it quickly.”
Pandora wound down its existing reseller relationships and started to organize new sales teams and training programs in San Francisco and New York, choosing major metro areas for their larger local businesses as well as national enterprises with thousands of outlets.
By early 2013, Pandora opened sales offices in 10 markets. It ended last year with a total 28 markets covered and is currently in more 35 areas; 33 of those outposts are in the top 50 local ad sales markets.
“It’s suffice to say that we’d like to be as big as we can be wherever there is a desire or a need,” Kritzman says when asked about future market penetration plans. “We haven’t hit a market yet where it didn’t seem like it wouldn’t be a prudent business decision to get a few salespeople on the ground.”
From Broadcast To Broadband
Kritzman is responsible for crafting and overseeing Pandora’s U.S. sales strategy for the company’s digital, network radio and spot radio businesses as well as for managing Pandora’s growing national advertising sales team. The Oakland, CA.-based company has roughly 1,000 staffers. Pandora representatives declined to reveal how large its sales operation is these days, though sources tell GeoMarketing that it has about 100 salespeople, a number that is expected to rise quickly in the latter half of the year.
Before joining Pandora in 2009 as director of sales for the New York and mid-Atlantic region, Kritzman spent more than a decade at broadcast radio giant Clear Channel. His last role there was as sales director of five New York radio stations (Z100, WKTU, WLTW, WWPR, WAXQ), where he was responsible for over $200 million dollars in top line revenue and led a team of more than 100 sales managers and account executives.
In making his hiring decisions, Kritzman has sought out similarly experienced radio salespeople to help Pandora make its mark in local. It makes sense, given how the dollars are divided among streaming media competitors. While Pandora’s near-rival in music streaming, Spotify, has generally relied more on subscriptions to keep its revenue stream flowing, it does have a large ad sales operation. The bottom line is that there is a finite amount of dollars being spent on streaming audio apps. The real money, therefore, remains in the world of traditional radio.
The Numbers: Online vs. Over-The-Air
In 2013, the number of US Internet radio listeners was estimated to have grown by 11.1 percent to 147.3 million, according to digital researcher eMarketer. Expansion should continue for the next several years, but rates are apt to fall to single-digit percentages, the analyst adds.
“Internet radio is monetized primarily by advertising, but the industry is a small player within the digital advertising ecosystem,” which commands about $35 billion in the US, eMarketer notes. “Growth forecasts for internet radio advertising, though positive, are more modest than for other categories of digital ad spending.”
Nevertheless, advertisers are enthusiastic about the value internet radio and other music-streaming offerings hold. For one thing, most internet radio providers, Pandora included, allow listeners to create stations around particular artists.
Therefore, an advertiser who wants to reach a more upscale, artistic mindset might choose to support a station belonging to an indie band like The National, while another brand aiming for more mainstream appeal could sponsor a more a Top 40 act like Maroon 5.
In being able to associate a brand with a particular genre or artist, digital radio has another advantage with its in-steam audio ads: listeners of a channel they helped create and program are less likely to avoid or skip ad breaks. That’s an enormous difference from other kinds of interactive advertising, which is constantly trying to catch up the latest attempts to block an ad.
Lastly, though most of the local ads Pandora runs are audio-based, it also touts standard desktop and mobile display options on its music player app and site. Video advertising too, is part of its offering — yet another way Internet radio can challenge terrestrial radio.
Of course, for all its varied features and ability to package carefully targeted advertising to specific consumer types and locations, a big question looms for Pandora and other digital publishers: Does it scale?
Can Pandora compose large enough slices of its audience to make the price of its targeting worth it to advertisers? According to a Mediapost piece from late last year, Pandora’s display CPMs generally go for between $5- to $7, while audio ads attract $8- to $12 per CPM; video ad CPMs sell for $15-$25 and mobile ads tend to be priced in the low $30 range. (Pandora representatives say they do not comment on pricing.)
As internet ad observers like to say, these are “the early days” for platforms like mobile music streaming. The ad spending reflects that; eMarketer estimates that $1.1 billion is spent in the online radio ad market, while traditional broadcast audio stations command $17 billion a year from marketers.
Kritzman asserts that Pandora has the “right kind of scale” by dint of the nearly 80 million average monthly listeners it brings in from a pool of 250 million registered users.
“We’re able to serve the right message to the right person at the right place at the right time,” Kritzman says. “That’s what we mean when we say ‘Every impression on Pandora is a smart impression.’ When someone runs an ad on a traditional radio station, it’s much more of a ‘pray and spray’ type model. Our model is richer than regular radio and it contains much less waste and much greater certainty that marketers’ ads are getting to the best possible audience.”