Internet Music Does a Number on Traditional Listening Habits

Changing trends in music listening habits favor Internet radio and on-demand music services.
Changing trends in music listening habits finds Internet radio and on-demand music services growing at the expense of CDs and AM/FM radio.  Pandora radio users reflect the broader trend.

I’ve suspected for some time that the rise in popularity of on-demand music services as well as Internet radio are fundamentally changing how consumers consume music.

And now we have quantification showing the extent of those changes.

Marketing research firm NPD Group has just released results from a survey it conducted among American Internet users age 13 and older. It found that half of Internet users have listened to music on Internet radio or an on-demand music service at least once over the past three months.

User activity is split equally between Internet radio services such as Pandora, and on-demand services like Spotify and Rhapsody (about 37% each).

Internet radio appears to be growing in popularity significantly faster than the on-demand music audience. Internet radio audience increased ~27% over the past year, while the on-demand music audience grew by just ~18%.

By contrast, the audience fell in other categories – most dramatically in listening to CDs:

• Digital downloads: ~2% decline
• AM/FM radio: ~4% decline
• Music CDs: ~16% decline

Since finally breaking into the mainstream about three years ago, the Pandora Internet radio service has really taken a bite out of the conventional ways of listening to music. Moreover, about one-third of all Pandora users are now listening to music via the service in their cars. As a result, since 2009 the percentage of Pandora users who also listen to AM/FM radio has declined by ~10%. Even more dramatic has been the drop in Pandora users also listening to CDs on non-computer devices and/or on portable music players (-21%).

An intriguing  finding of the survey is that using Internet radio and on-demand music services has increased audience engagement with new music:  More than half of the respondents reported that these services have aided in their discovery of music that is new to them. 

Clearly, innovations such as Pandora’s “music genome” have made it easier and more fulfilling for listeners to broaden their musical horizons, branching out from musical styles that are familiar and most pleasing to them.

But an even more interesting finding may be this one: Two-thirds of respondents have used these services to rediscover older music – the music of their youth.

In this case at least, “what’s old is new again.”

Radio Revolution: Pandora’s Box of Musical Delights

Pandora Internet RadioPandora® Internet radio is one of the more interesting concepts to hit the web. Built on a powerful music recommendation engine known as the Music Genome Project®, it enables a listener to hear streaming music selections chosen on the basis of the musical styles of their favorite bands, performers or songwriters.

If you enjoy the jazz piano style of Marian McPartland, for example, Pandora will stream performances in a similar vein – such as the songs of Beegie Adair and Joe Bushkin. And you can create numerous personalized channels (also called “custom radio stations”) focusing on different styles of music to suit whatever mood or occasion you wish.

It’s an approach to listening remindful of Tom Hanks’ famous quote about that box of chocolates in the movie Forrest Gump: “You never know what you’re going to get.”

… Except with Pandora, you do “kinda-sorta” know what you’re going to get. I’ve been a Pandora listener for over a year now, and I’ve been introduced to musical artists I didn’t know before and probably wouldn’t have stumbled upon otherwise … and I’m the richer for it.

Pandora may be an Internet star today, but it sure didn’t start out that way. The brainchild of Tim Westergren, Pandora labored under difficult circumstances for the better part of a decade. The Music Genome Project took years to build and calibrate, during which time Pandora’s yeomen developers were obliged to work for large stretches at a time without pay.

Also, as with many Internet sites, figuring out an effective business model was challenging — and a barrier to obtaining funding.

Then in 2007, just as Pandora seemed on the verge of breaking out, an action by the Copyright Royalty Board raised Internet radio royalty fees to prohibitive heights, resulting in a court action that was finally settled in July 2009 in a compromise ruling.

Through it all, Pandora managed to survive, and now is close to having 60 million registered users. The Internet site is attracting sufficient advertising dollars to bring in profitable quarters. Revenues topped $50 million in 2009 (~60% goes to paying music royalties), and revenues are on track to double this year.

Always innovating, Pandora is now expanding into TV sets and automobiles as well, although the majority of activity currently comes from computers and a significant minority from mobile phones.

Long-term, Pandora believes the biggest potential rests in automotive. Consider this: Once listeners realize they can simply skip over a song on Pandora they don’t like, it should change forever the way people interact with radio.