Research indicates 42 percent of Americans are listening to digital radio, and monthly Internet radio listeners is slated to grow from 116 million listeners to 186.3 million listeners by 2015.
As a result, companies are getting in on the ground floor of what is expected to be an advertising bonanza.
A study presented at Radio and Internet News Summit West 2012 in Las Vegas stated that nine out of ten top retailers, nine out of ten top restaurant marketers and eight out of ten financial advertisers have already started to air spots on Internet radio.
Internet radio listeners comprise the coveted 18- to 34-year-old demographic bracket, and listening has increasing in the growing Hispanic market. The upper income bracket also over-delivers on Internet radio in terms of revenue.
Another trend affecting advertisers is the growth of listening to Internet radio on mobile devices. About 70 percent of those listening in the medium listen on a smartphone or tablet, and companies like Pandora are working hard to monetize those listeners. Some companies, like FOX News Radio, have successfully persuaded listeners to adopt a subscription model.
Music stations like Pandora and Spotify, however, state that only 15 percent of their subscribers would be willing to accept a subscription model.
Panelists at the summit agreed that effective Internet radio ads should be between 15 and 30 seconds long; Spotify does not even accept 60-minute spots. Also, panelists noted that while broadcast stations run 10 to 12 units per hour, online radio runs approximately 1.5 to two minutes of advertising per hour. Pandora, for instance, runs ads every 20 minutes, which equals three commercials per hour.
Rates are different depending on the type of ad. Banner ads are generally the cheapest, while geo-targeted video ads are most expensive. In small markets, CPMs for local advertisers can be a couple hundred dollars, while spend in cities like New York will cost $5,000 to $10,000 per week.
Internet radio CPMs are in the $4- to $6-per-hour range, while geo-targeting with video costs $10 to $12.
Internet radio stations also need to do a better job of registering users. Stitcher Radio, for instance, actually found that forced registration resulted in better listener retention as well as enabling the station to offer better segmentation to advertisers. Revenues per 1,000 listening hours are $60 to $70 while revenue for mobile listeners is about $20. But mobile is expected to catch up in a big way.
If trends continue as they are, companies from all industries will need to develop a plan for advertising on Internet radio. "We are in the second inning of a nine-inning ball game," said Steven Kritzman, senior vice president of advertising sales for Pandora Media, Inc.
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