Pat Higbie, CEO and Co-founder, XAPPmedia shares his insights on ad-supported audio streaming in 2016.
There was a lot of talk in 2015 about subscription-based music streaming models, but most people got the story wrong. They missed that 54% of music streaming revenue is generated by ad-supported listening. Advertising represented $550 million in music royalty payments in just the first six months of 2015.
They also missed comments by Pandora’s CFO stating that contribution margins of ad-supported listening are superior to subscription models that commit 70% of all revenue to royalty rights holders. In other words, advertising revenue can drive higher profit. Additionally, they missed the Nielsen revelation that 95% of Internet radio and streaming service users choose ad supported listening.
3 Trends to Watch
Advertising is critical to the future of streaming audio services. However, in 2016 audio advertising has some catching up to do in regards to digital. At XAPPmedia we track a number of industry trends and expect three things to stand out in streaming audio:
1. Ad-supported listening audiences will continue to grow faster than subscribers and mobile will be king, queen and court jester while desktop fades
2. More advertisers will flock to Internet radio and ad-supported music streaming because of reach and usage intensity that exceeds Facebook in the U.S.
3. Audio streaming services will begin to optimize their content interaction model to address the fact that listeners aren’t looking at their screens 85-90% of the time
Growth in Mobile Audience
Consumers will continue to migrate to Internet radio and increase their monthly usage because the mobile audio content consumption experience is exceptional. Users can consume audio content while walking, driving, exercising or working. Availability through a smartphone makes it convenient and always available. That is why mobile audio audiences exceed Facebook users by more than 10 percent and the services capture twice as much daily usage time in the U.S. according to eMarketer.
Growth in Advertisers Advertisers follow audience. The Internet Radio Ad Load Report revealed that the number of unique advertisers using the channel doubled between the fourth quarter of 2014 and the third quarter 2015. Advertisers will be chasing the 177 million consumers on Internet radio even more aggressively in 2016.
Optimizing the Mobile Audio Content Interaction Model
Unlike analog media, digital channels have an expectation of consumer engagement. In 2016, digital audio will start to address the challenge of the blank screen. The typical mobile advertising engagement model encourages users to touch a tile or banner on the screen. It is assumed that users will be looking at the screen while using their device.
This expectation is misaligned with the audio experience and undermines engagement rates. Data show that 77% of audio listening occurs while the mobile device screen is blank and completely out of view. While users can’t easily interact by touch, they can always interact by voice. More voice-driven interactivity will surface in audio streaming apps in 2016 and deliver higher engagement rates for advertising and the core content offerings.