Business Matters: Pandora Pauses, But Internet Radio on the Rise

Pandora's growth flattened out in January, but Internet radio will continue to grow in 2013 and beyond.
Pandora, the most popular Internet radio service in the U.S., saw its listener hours remain at 1.39 billion for the second straight month, while its number of active listeners dropped to 65.6 million from 67.1 in December. Pandora's monthly active listener growth had stalled once before -- it fell from 1.1 billion to 1.08 billion in June 2012 but rebounded to 1.16 billion the following month.
The entire Internet radio market got a favorable forecast in a new report by eMarketer. The research house projects U.S. monthly Internet radio listeners will rise from 132.6 million in 2012 to 176.5 in 2016. That will mean by 2016 nearly 54% of the U.S. population and more than 67% of Internet users will be listening to personalized Internet radio or an online simulcast of a broadcast radio station.

  How would U.S. Internet radio add another 40 million listeners in four years? Look to two companies: Pandora and Apple. Pandora added 16 million active listeners in 2012 and could add that many in the U.S. in 2013 alone. Apple should debut its Internet radio service in 2013 and could add millions of new listeners in the coming years. Others, such as iHeartRadio and Sirius XM's upcoming interactive radio service, MyXSM, will contribute additional growth, but most of the growth will come from the most able companies. Right now Pandora drives growth in Internet radio. Apple, with its success in digital music and purchase history of its customers, should be able to put together a winning service.   Another 40 million listeners will mean artists and labels can expect significantly more Internet radio royalties in the coming years. If SoundExchange's 2012 distributions grow at the rate at which eMarketer expects U.S. listeners to grow -- royalties from satellite radio are included in addition to Internet radio -- the annual distributions will be $614 million by 2016. Given the high growth rate of SoundExchange distributions in recent years (they rose 58% in 2012), $614 million by 2016 sounds like a sure bet unless there is a drastic change in the statutory rate.