The Internet Radio Marketplace: Who Listens, Where They Listen and Why You Should Care

Authors: Steve Sherfy, Insights Jesse Wolfersberger, Director, Consumer Insights

June 2013

On August 28, 1922, WEAF in New York received $50 for 10 minutes of airtime from Hawthorne Court Apartments and, from there, radio advertising was born. In the 90 years since, the medium has grown and evolved, but the basic premise remains the same—an advertiser pays for time, plays a message and hopes the right audience is listening. Internet radio is changing the game. For the first time in radio history, brands can show pictures and videos in tandem with an audio ad, target listeners at incredible granularity, and allow the customer to directly respond to the ad.
GroupM Next conducted a survey of 1,000 radio listeners in the United States to research the growth of radio, dissect how Internet and broadcast work in tandem, and examine behaviors specific to Internet radio. The results reveal that the Internet radio audience is an incredibly attractive and obtainable audience for brands. Highlights from our research include:

» Internet radio users are young and affluent » Internet radio listeners are less likely to try and avoid an advertisement » Internet radio listeners are twice as likely to purchase something they heard in an ad » Moving beyond the car and the home, new marketplaces are emerging for audio advertising
that were rarely penetrated by traditional radio

The Internet Radio Listener
The survey respondents were split into two groups:

» High Internet Radio Listeners
Those who are avid Internet radio listeners (more than 21% of listening happens on Internet services).

» High Broadcast Radio Listeners
Those who listen to primarily traditional, broadcast-style radio (defined as 80-100% of their total radio time).

The Internet Radio Marketplace: Who Listens, Where They Listen and Why You Should Care June 2013

1

High Internet Radio Listeners trend slightly to be a more male and less Caucasian audience than the High Broadcast Radio Listener segment, though these segments have similar average incomes. Where they differ the most, unsurprisingly, is age. The average age of the High Internet segment is 34, where as the average age of the High Broadcast Listener segment is 47. This paints the income result in a different light. The High Internet segment achieves the same average income 13 years earlier than the High Broadcast segment. Those who listen to Internet radio listen to it everywhere. When asked about locations in which they listen to radio, High Internet Radio Listeners said that they primarily listen at home (91%), but more than 40% of respondents say they listen to Internet radio at every location listed in the study (home, work, car, gym and/or while running errands). Our research reveals when it comes to smartphones and smart TVs, desktops and laptops, tablets and other connected electronics, all devices are used to access Internet radio. According to Pandora, its listeners overlap across almost all of these categories, with the largest portion of listening hours accessed through non-tablet, mobile devices (easily translated to likely mean smartphones). The key is that with Pandora or other Internet radio services, accounts and user information are portable across devices and across locations. No longer are marketers bound by geographic territories for targeting and reach. A brand can target the same consumer through the same channel, regardless of where in the country—or in the world—that person is.

Advertising and Purchase Behavior
Internet radio listeners are more engaged with their services and more receptive to advertising, making the platforms much more valuable to marketers. Most Internet radio services are free, ad-based platforms that consumers seem to prefer. In fact 86% of listeners surveyed have never paid for an Internet radio service. When asked why they did not subscribe, more than one-third of respondents report they do not mind the advertising. Not only are Internet radio listeners more open to receiving advertising, they are also less likely to take steps to avoid advertising. Seventeen percent of Internet radio listeners are less likely to try to avoid an advertisement on Internet radio than on broadcast (for example, change the dial, close the browser, etc.).

High Internet Radio Listeners are twice as likely to have purchased a product they heard advertised on the radio in the past 30 days compared to High Broadcast Radio Listeners.

The Internet Radio Marketplace: Who Listens, Where They Listen and Why You Should Care June 2013

2

Our research also shows that Internet ads. High Internet Radio Listeners are twice as likely to have purchased a product they heard advertised on the 55% 41%

radio listeners are more responsive to The Earbud Market

In the past 30 days, have you purchased something you heard advertised on Broadcast or Internet radio?

Radio Type Internet

Work

Gym

High Internet Radio Listeners

High Broadcast Radio Listeners

in the past25% 30 days compared to Broadcast radio29% High Broadcast Radio Listeners.

Yes

29%

14%

M Next 2013

Source: The Internet Radio Marketplace, GroupM Next 2013

Adding it all together, an ad on Internet radio is likely to be heard by a young, affluent consumer with little desire to avoid the ad, who has a high likelihood to purchase the product in the ad. This combination is a perfect scenario for audio

m Shipments Worldwide advertisers. & 2016

39.5

The “Earbud Markets”
Traditionally, there are two primary locations people listen to the radio—in the car and at home. The rise of Internet radio has not changed this part of the equation much. More than 90% of the High Internet Radio Listener segment listens to broadcast radio in their car, and 76% listen to broadcast radio at home. While those traditional radio locations are unchallenged for now, two new markets are
2016 emerging

for the Internet radio generation. The workplace and the gym are new “earbud markets”

where advertisers can target consumers with audio ads at a higher rate than ever before. There was a time, not long ago, when listening to the radio meant having to make sure those around you didn’t mind your choice in station or genre, especially in the crowded workplace. Radio at the gym meant having to buy a portable radio, remembering to bring it with you and making sure it had fresh batteries. Today, every smartphone and tablet device has a headphone jack, making for a portable, rechargeable radio that is always with you. Smartphones are freeing consumers to listen to Internet radio in more locations, with greater privacy and less distraction. The chart at right shows listening behavior differences between the two segments while at work and at the gym. A High Internet Radio Listener is almost twice as likely to listen to Internet radio at work or the gym than a High
Source: The Internet Radio Marketplace, GroupM Next 2013

er Data, Global” as cited in press release, May 1, 2012

Usage In The Earbud Market
Group High Internet Radio High Broadcast Radio Radio Type Internet Broadcast Work 55% 29% Gym 41% 25%

Broadcast Radio Listener is to listen to broadcast radio.
The Internet Radio Marketplace: Who Listens, Where They Listen Why You Should Care Shipments and Worldwide June 2013

Connected-Car System 2012 & 2016

39.5

3

These “earbud markets” are an exciting development for brands that have historically avoided audio advertisements. Health and fitness brands can get their message in front of people who are at the gym, working out as they listen. Increased listening in the workplace opens up the possibility of audio ads for B2B brands. The workplace is a great opportunity for B2C brands as well because customers are likely listening to Internet radio while using their computer or a mobile or tablet device, and the right ad can lead to an immediate search for a brand.

Apple: The Sleeping Giant of Digital Radio
Following months of swirling rumors about Apple joining the streaming audio game, the company announced a much-anticipated Internet radio service, iTunes Radio, at its Worldwide Developers Conference (WWDC) 2013. Already dominating the download market with iTunes, this service is poised to be a challenger to other key players in the space, such as Pandora and Spotify, when it hits the market in Fall 2013 with both a free, ad-supported offering or an ad-free, paid subscription offering, called iTunes Match. When Apple launches this product, our research suggests it would be an instant hit. Based on the Apple brand name alone, 49% of respondents said they would be interested in an Internet radio product from Apple, with 34% of Internet radio listeners stating they would switch from their current provider. This could be a disaster for Pandora. Of those in the survey who use Pandora, 46% said they would switch to the Apple product.

The Future of Internet Radio
The future of Internet radio is all about making it easier to listen everywhere. Headphones are great while you are at work, but no one wants to wear headphones in the car or while making dinner. Ford, Chevy, Audi, BMW, KIA, GM, Nissan, Toyota, Hyundai, Jaguar and Mercedes all have deals with Internet audio makers for in-dash Internet radio interfaces. A report recently released by eMarketer states that the number of connected-car systems will increase fivefold in the next four years. Our research included an experiment in which we gave respondents a description of a car and asked if they were interested in purchasing the vehicle. Half of the respondents were given a description of an average car, with four doors, power windows and locks, and other average features. The

The Internet Radio Marketplace: Who Listens, Where They Listen and Why You Should Care June 2013

4

other half received the exact

Connected-Car System Shipments Worldwide 2012 & 2016

same description, with the addition of an in-dash Internet radio. Those who saw the indash Internet radio are 14% more likely to be interested in

39.5

Millions

purchasing the vehicle. With

8.2
2012 2016

that degree of lift for a change in the on-board interface, it is not surprising how quickly automakers are adopting Internet radio.

Note: OEM systems installed by car manufacturer Source: ABI Research, “Connected Car Market Data, Global” as cited in press release, May 1, 2012 www.eMarketer.com

Smart TVs and connected devices have increased in popularity and adoption throughout the world, with the greatest penetration in Asian markets. However, North America is starting to climb aboard the bandwagon in greater numbers (it is estimated that over 100 million households in North America will have smart or connected TVs by 2016). One of the main features of these devices is pre-installed Internet radio software. At this year’s CES in Las Vegas, both Samsung and LG showcased connected devices, including refrigerators that can have Internet radio apps as part of their operating systems. There is also the possibility of these same functionalities being part of the soon-to-come connected dishwashers, washer/dryers and microwaves. Device targeting is already a reality for Internet radio, so it is not hard to imagine a future where advertisers will have campaigns for phones, tablets, computers, cars and appliances, and have the ability to use data from one device to help target consumers on the others.

Putting It All Together
For thousands of years music has been interwoven into the human experience. Audio has continuously evolved—from the format of music itself to the format in which we receive it. Make no mistake—we are in the middle of a major shift in how music is delivered. Unlike video rentals, handwritten letters and payphones, audio will thrive in the digital age.

The Internet Radio Marketplace: Who Listens, Where They Listen and Why You Should Care June 2013

5

While digital audio and Internet radio are not the only audio formats available online, the vast majority of digital audio growth has been contained in—and the greatest opportunities for brands lie in—the Internet radio streaming services such as Pandora and iHeartRadio. A continuously growing user base, a swell of compatible devices and a consumer that is both receptive and responsive to advertising makes Internet radio a compelling marketplace to reach consumers.
Source: The Internet Radio Marketplace, GroupM Next 2013

Understanding the Internet Radio Marketplace

The Internet Radio Marketplace: Who Listens, Where They Listen and Why You Should Care June 2013

6

GroupM Next is the forward-looking, innovation unit of GroupM, the world’s largest global media investment management group that is the parent company to WPP media service agencies Maxus, MEC, MediaCom and Mindshare, as well as Catalyst and Xaxis. Together with GroupM agencies, GroupM Next focuses on the curation and application of insight-focused solutions across online, social, mobile and addressable channels. Through thought leadership, technology, research and education, GroupM Next delivers data-driven, actionable insights and a clear path to action to help GroupM agencies and their clients harness the right opportunities made possible in the digital technology and new media industry environments with speed and relevance. Access our work and discover our perspective at www.groupmnext.com. Contact us with questions or comments: cindy.spellman@groupm.com

A WPP Company

GroupM Next 111 Westport Plaza Suite 350 Saint Louis, MO 63146 www.groupmnext.com