Internet radio business model
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Two questions are consistently asked of Pandora’s business model: Can it sell more advertisements, and will it generate more revenue? The music industry sees a company that has placed market share ahead of revenue growth. People often wonder if Pandora could put more emphasis on growing revenue as it seeks lower royalties.
The short answer to both questions is yes, Pandora will sell more ads and generate more revenue. Although its business model has been widely criticized, the Oakland, Calif.-based company is well-positioned to turn its massive listening audience into profits.
The U.S. radio market is immense. Broadcast radio advertising totaled $14.2 billion in 2012, according to the Radio Advertising Bureau. About 242 million Americans listen to radio every week, according to Arbitron. Listenership is heavy across age groups: 90.9% of 12- to 17-year-olds, 90.8% of 18- to 24-year-olds and 94.5% of 25- to 54-year-olds. But only a handful of eventual Internet radio winners will be rewarded handsomely for their efforts.