INTERVIEW: Steven Kritzman of Pandora on Internet radio adoption in the U.S.

Steven Kritzman, SVP of Sales for Pandora, was on this week’s Advertising Week panel which presented new survey research titled “The New MainStream,” a study measuring adoption of Internet radio among Americans who are online. (As a side point, see the new Pew study examining the portion of the American population which does not use the Internet.)

Pandora, along with TuneIn and Spotify, comprise the Streaming Media Task Force, which co-presented the Edison study.

RAIN spoke with Steven Kritzman about the Task Force, the reduction of AM/FM listening implied in the new research, car listening, and aspects of Pandora’s general advertising strategy. Following are excerpts of the conversation, lightly edited for readability.

RAIN: Can you talk a bit about the Task Force?

SK: We got into a conversation 6 or 8 months ago, in which we thought, “Wouldn’t it be great if we could do a deeper dive, and start to show people the behavior and document trends that are happening in the internet radio space, and to some degree paint a picture on the consumer shift that’s happening. While people understand that something is happening, they don’t really know to what degree. As you know from the results, it’s pretty dramatic. Half the [online] people in the United States are listening now. So it’s not only a niche thing; it’s a reach play as well as a frequency opportunity. That was the baseline for the discussion six months ago. Then we really wanted to say, Hey, we’d love to create something that we could push out as an industry, without a specific publisher agenda, on an annual basis, to show the incremental moves in time spent, and the behavioral changes.

RAIN: The headline point of the research package is the 53 percent. But another interesting research point is the extent to which new listening is displacing broadcast listening, and the extent to which it represents added listening during the day. The survey indicates that 44% of internet listening is replacing AM/FM. Do you have a perspective on how much displacement is part of what’s going on?

SK: I think a ton. The terrestrial radio industry has done a great job to mask the time-spent migration. Radio has always been a frequency medium — at least, when I sold it for 15 years. [Kritzman is the former Director of Sales for Clear Channel Radio.] And now, over the last five years it has been re-packaged as a reach medium, that 92 percent of all Americans listen to radio every week. That is true, and radio is still incredibly relevant, and marketers should be planning for it. But, if you go to the RAB website, and you look at time spent with radio since 2007, it’s down 25 percent. That’s the number that is captured in that 44% [metric]. I think that’s where the majority of listening to Internet radio is coming from. I think there is a 1+1=3 [aspect]. I think people are spending a lot more time with audio, because of the portability — you can listen to it in so many more places than you ever could [before smartphones]. However, there’s going to be some cannibalization.

RAIN: The car is one place where there is still a big disparity. Do you agree that internet radio has a long way to go before catching up to AM/FM in the car?

SK: I do and I don’t. 50% of our mobile listeners say that they listen in the car. We’ve got over 50M mobile listeners, and they say they listen in the car. As we look to the future, we see the car as one of our biggest opportunities for growth moving forward. One in three cars sold this year will have Pandora in it. That will increase over time. Over the next three or four years, I expect you’ll see our place in the car rise tremendously.

RAIN: Tim Westergren said this week that Pandora’s commercial load will never approach that of broadcast radio. Free users of Pandora see many display ads, and hear 2-4 minutes of audio commercials per hour. Will that increase, and if so, where do you think it will land in the future?

SK: It’s really hard to say what the ideal mix is. Our users will determine that. We’re always testing, and we’re always sensitive to the user experience. A lot of that will come from what our users’ palate is for the ads, and what types of ads they are. Because of the size of our platform, we can take a small percent of our audience, and test different ad types, so users will help us determine what’s most effective. That, in turn, becomes the most effective for our advertisers.

RAIN: When it comes to the balance of local and national advertising. How do you deploy sales resources between national and local?

SK: Both are important pieces of our business. With the scale we have now, north of 70M people nationally every month, we are a national branding opportunity. It’s a huge piece of our business. In the last two years, our scale has gotten to a point at the local level where we are, from an audience perspective, as large as many of the biggest radio stations in any individual market. We’ve been deploying resources in the top 28 market this year, and we’ll build that out next year. We’re getting as exciting responses locally as we did nationally. Looking a couple of years down the road, our local/national advertising mix will look pretty similar to most major media companies.

RAIN: Do you break out that revenue mix now?

SK: No.

RAIN: What about Australia and New Zealand? [Pandora’s only non-U.S. countries.]

SK: We’re not live with advertising [now], and are growing the audience. I’m not directly involved, but the audience growth has been terrific, and we’re going to look to get ad support in the next year.

RAIN: Pandora is well represented on measurement systems along with broadcast. Does this research about internet radio help you gain presence for the sales effort generally, or are you past that point?

SK: I think anytime you provide research that is educational, it’s going to be helpful. The [internet radio] space is at a tipping point. We’ve got to do our job in the industry to educate on how much it should be allocated. Six percent of all time-spent on media is spent on print, and they still get 23 percent of the ad budget. Mobile represents 12% of time spent, and they get three percent of the budget. Radio represents 14% of time spent, and they get 10% of the budget. From my perspective there’s a huge paradigm shift that has to happen via education to marketers, to say that things have changed dramatically over the last five years. Studies like “The New MainStream” are one step in that direction.

Brad Hill