How Pandora, Spotify and TuneIn Can Segment their Market

I am an 80’s baby, which means I know that Leonardo was by far the best Ninja Turtle, I had a middle school crush on Topenga from Boy Meets World, I went through intense D.A.R.E. Training learned how to “just say no”, and I have no idea what life would be like without the home computer or the Internet.  I also remember the beginning of online music, the launch of Napster in 1999 and its famous legal dispute with the band Metallica that led to it’s shut down in July of 2001.

The Digital Transformation of the Music Industry

The way people have listened to music throughout the century has gone through an epic transformation.  From vinyl, to tape, to disc, to digital.  The digital era first began with mp3, and the big-bang was Napster’s debut.  The most recent technology, the CD, has suffered dramatically as a result.  A study by Nielsen Soundscan and Billboard found that CD sales were down 12.8% in 2012, while digital music sales on Amazon and iTunes grew by 9.8%.

After Napster, a number of peer-to-peer (P2P) services played copycat, some being Scour, Gnutella, Freenet, Aimster, Morpheus, AudioGalaxy and KaZaA.   After that, a number of indexing websites that contain “torrents” surfaced.  These websites require programs that can download and unzip the torrents that contain the music files.  The last digital footprint in the music industry has been the creation Internet radio services like Pandora, Spotify and TuneIn, also known as the Streaming Audio Task Force (SATF).  These websites and applications let users stream internet radio and customize their stations based on likes or dislikes, recent activity and history.

Audio Streaming has Arrived

According to a new study by Edison Research, it was found that more than half of Americans listen to Internet radio services.  The study was conducted in July of 2013 and was based on statistics from 3,016 people aged 12 and older.  Information was gathered about Pandora, Spotify and Tune In.  Results showed that 90% of Americans online listen to AM/FM Radio, 53% listen to Internet Radio, 39% listen to Personalized Online Radio, 27% stream live music online and 18% listen to music on-demand.

Chief executive of TuneIN, John Donham, said “this study confirms what we’ve believed for some time:  Audio streaming has arrived.  It’s not just that people are listening differently; more audio streaming means more overall listening”.  More than two-thirds of people surveyed by Edison said that they listen to more online radio than they did a year ago as a result of more Internet connected devices that allow them to connect to and access content more often.

80% of smart phone users say that they listen to some form of Internet Radio on their devices.  Larry Rosin, Edison’s president, stated on Tuesday “the advent of mobile listening and the proliferation of choices for the types of Internet audio have transformed the medium from a niche activity to major media channel in under ten years”.

The research conducted by Edison also showed that Internet radio is the third most popular way for people to discover music, ranking ahead of Amazon, YouTube, Social Media and other sources.  Apple recently said that its new iTunes Radio service brought in 11 million users, which sent Pandora’s shares down 11 percent, putting it at $24.47 per share.  But this doesn’t mean that Pandora and other online radio stations are necessarily in danger.  Even though the share value recently dropped, the Pandora overall share price has more than doubled in one year, and Spotify’s revenue grew from $256.6 million to $577 million.

Opportunities for the SATF to Segment Drivers

The market also has a massive potential to grow.  Still, 9 out of 10 Americans listen to AM/FM radio in their cars as opposed to the 17% who listen to Internet Radio while driving.  But this doesn’t mean that services like Pandora or failing.  They have yet to infiltrate another market that’s been dominated by one style of listening for decades.  It wouldn’t surprise me if Internet Radio directly installed into automobiles would increase dramatically in the next five years.

This would provide massive opportunities for Spotify, Pandora and TuneIn to advertise towards people in a different way.  Simon Sinek says that we need to advertise towards the emotional part of the brain and deliver the stats and features afterwards.  This could be used by the Streaming Audio Task Force during an ad campaign directed towards drivers.

Picture this ad that is designed to target older adults and teens:

A father is raising his daughter from when she was a baby.  In chronological order, the dad is shown using his phone, his tablet and his computer play his daughter her favorite song, using an application for one of these members of the SAFT.  Finally, when the dad is driving his daughter to college, before she hugs him goodbye, he uses his built in the Internet radio system in his car to play her favorite song.

This ad sends the message Pandora isn’t too technologically advanced for older adults to use, and that the radio station can be beneficial for both kids and parents.  In the past, the traditional advertisement may have used a structure that said “we are an Internet Radio Company.  We can provide you with a customized internet radio that is easy to use and free, do you want internet radio?”  Instead, this ad says “we exist because we will make your life better, no matter how you use us.  We provide you with a customized internet radio that is easy to use and free.  We are Internet Radio Company”.  It advertises to the emotions rather than the functionality, which allows people to make a meaningful connection with the brand.

The research conducted by Edison also showed that Internet radio is the third most popular way for people to discover music, ranking ahead of Amazon, YouTube, Social Media and other sources.  Apple recently said that its new iTunes Radio service brought in 11 million users, which sent Pandora’s shares down 11 percent, putting it at $24.47 per share.  But this doesn’t mean that Pandora and other online radio stations are necessarily in danger.  Even though the share value recently dropped, the company’s overall share price has more than doubled in one year.

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