Business Matters: If Big Radio Had Pandora's Royalty Rate, It Would Owe Billions
Business Matters: If Big Radio Had Pandora's Royalty Rate, It Would Owe Billions

Radio is as popular as ever, but not all radio is the same. A new report by NPD Group says Pandora is encroaching on the listening habits of its users.

NPD says 37% of Internet users listened to Pandora and other Internet radio services in the past three months. The company pegs the number of U.S. Internet users at 96 million, which means NPD believes 35.2 million people have listened to Pandora in the last three months. Pandora claimed to have 59.2 million unique users in September alone.

Pandora is one of those occasional companies that comes along and has the potential to disrupt an existing marketplace. Its great potential will be its ability to take a share of the AM/FM radio market and the roughly $15 billion advertising it generates in the U.S. each year. This potential is why Pandora has hired an advertising sales force with radio experience and adopted the metrics of the radio business (i.e. average quarter hour).

It appears Pandora listeners are showing signs of this disruption. NPD says since 2009 the percentage of Pandora users who also listened to AM/FM radio has declined by 10 percentage points. Listening to digital music files on portable music players dropped 21 points. NPD attributes some of the decline to the fact that 34% of Pandora users are now listening to music on the service in their cars.

The increase in Internet radio listenership is merely a symptom of a larger shift. One-third of people surveyed by NPD also listened to music on an on-demand service such as YouTube, Vevo, Spotify, Mog, Rhapsody or Rdio, according to NPD. It's safe to say the vast majority of those people used YouTube and/or Vevo rather than an on-demand audio subscription service. In September, YouTube had 150.2 million unique U.S. viewers and Vevo had 50.3 million unique U.S. viewers, according to comScore -- although not every viewer tracked by comScore views music videos.

The study did not paint a favorable picture of CD listening. Pandora users experienced a 21-point drop in listening to CDs on non-computer devices since 2009. CD listening in cards dropped 22 points among YouTube and Vevo users -- users of any age -- over the same three-year time span.

Ironically, Disc Makers put out a press release Thursday touting its record-breaking year for CD manufacturing. In October, Disc Makers, manufacturer of CDs for independent artists, manufactured 4.38 million CDs, up 600,000 from the same period a year earlier and better than the previous monthly record of 4.01 million set in 2008.

"Whether it was vinyl and cassettes, or cassettes and CDs, or now CDs and downloads/streams, these numbers show the continued demand for multiple formats simultaneously," Disc Makers CEO Tony van Veen said in a statement.

The CD might not be dead yet, but the overall market is on its way down. Streaming, in all its various formats, is changing how people experience music.

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