More Ads Coming To Webcasting? SNL Kagan Says Yes

Can Webcasters Survive Without More Ads?

A new report from SNL KAGAN says it's going to be difficult for free Internet radio to last without adding a lot more ads. The report notes the weekly online radio audience has grown from 5% of U.S. total radio listeners in 2001 to 22% in 2011. FORBES reports, "during that time online ad spending has also increased. Ad revenue at digital radio stations has grown from $328 million in 2007 to $713 million in 2011."

"But the biggest problem for companies like PANDORA is that ad revenue isn't increasing fast enough to to keep up with the cost of playing music," continues FORBES. "Every time PANDORA adds another listener, its costs go up because it has to pay royalties every time a song is played and those royalty costs keep going up. According to SNL, right now it costs .00180 cents for each play but that price is expected to climb to .00240 by 2015."

While those increases hit webcasters hard, the report notes it affects traditional broadcasters with a web presence less so. Because CLEAR CHANNEL's iHEARTRADIO and CBS' RADIO.COM are still small parts of their overall business, a royalty increase on the internet portion hurts less.

SNL KAGAN finds more advertising is ahead for all wbcasters. "But all of these services, unless they can convince people to subscribe, are going to have to offer a lot more advertising in the coming years if they are going to become profitable," adds FORBES. "SNL analyst JUSTIN NIELSON says that with Internet radio services migrating to mobile devices and in-car systems, companies will soon start pushing local and targeted ads. Those should help push up the cost of advertising from current CPM levels of $5 to $7 to the $10 to $20 range. That might not be enough for Internet-only radio to survive."

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