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FM Broadcasters Are Freaking Out About Pandora

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If you run an FM radio station, you already have plenty to worry about: MP3 players, satellite radio, CDs, tapes, audiobooks, silent meditation, and anything else that might tempt listeners to look beyond the FM dial.

However, the smartphone threat is in a class by itself. A recent study by the Consumer Electronics Association, which represents the makers of all sorts of gear (i.e. FM radios and smartphones), found that most drivers these days prefer connecting a smartphone to their dashboards to both FM radio and satellite radio --  because of the breadth of programming available on smartphone apps.

The FM broadcasting trade magazine Radio Ink carried the following all-caps warningto FM stations:

"WARNING! WARNING! PANDORA TARGETING RADIO'S ADVERTISERS AND STATION CLUTTER."

The article cites all sorts of scary (to broadcasters) statistics about Pandora, like its double-digit revenue growth over the past eight quarters, and that one out of every two American smartphones has the Pandora app installed on it, giving millions of people an easy alternative to FM.

The article quotes Joe Kennedy on Pandora's allure to advertisers who are sick of having their ad crammed in with a bunch of others in large blocks on FM channels. He's talking about Pandora here, but really, he could be talking about the difference between FM and smartphone-delivered radio in general:

... Our ads are targeted, interactive and measurable, which is not the case for radio. And it's such a superior environment, less cluttered. If you are the advertiser on broadcast radio, you are one of 13 minutes of advertising in an hour. It's much less valuable to an advertiser to be stuck in the middle of a 6-minute pod.

Ad-supported FM radio is still big business in this country -- and unlike Pandora or satellite radio, it owes no royalties to SoundExchange or any other agency. The U.S., North Korea, Iran, Rwanda, and China let radio stations play music without paying performance royalties to songwriters and musicians, possibly because that airplay is supposed to lead to ticket and album sales.

FM radio stations claim $37 billion per year from advertisers -- a number of which the now-public Pandora is all too aware, with worrisome implications for FM broadcasters.

"While that [$37 billion] pie is not growing, we see it as an opportunity," said Pandora chief revenue officer Joe Trimble to investors. Clearly, Pandora eager to please its new investors, as well as its competitors, will be doing all they can in the coming years to woo advertisers away from FM and onto the smartphone, where smaller, sparser ads can deliver equivalent revenue through more accurate demographic and locational targeting than FM could ever manage -- not to mention the fact that it is now a social network, too.

(Oddly, as I wrote that last sentence, an audio ad played on Javelin's Pandora station; I hit the mute button.)

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