Radio broadcasting companies have witnessed changes in customer preferences, as many now prefer Internet radio. Currently, there are around 970 million Internet radio listeners in the U.S. However, the large listener base contributes only 10% to the total revenue of the radio companies, and more than 70% of the revenue is generated from advertisements. As Internet advertising is cheaper than any other form of marketing, more and more companies are focusing on this area.
In this article, I have picked three broadcasting companies, Cumulus Media Inc (NASDAQ:CMLS), Pandora Media Inc (NYSE:P), and Sirius XM Radio Inc (NASDAQ:SIRI), that have shown impressive growth in the past few years with effective strategies and are expected to perform well in the future. Let’s explore the strategies adopted by these three companies in order to gain higher market share.
Focus on building network
Cumulus Media Inc (NASDAQ:CMLS) has entered into a joint venture with the iHeartRadio platform to improve its sales and radio broadcasting network. In the first quarter of 2013, the company’s revenue declined by 1.3% year over year, amounting to $232.9 million. Cumulus reported that this downtrend was due to its weaker sales and broadcasting network. Cumulus, with this JV, will offer Clear Channel’s best technology in the U.S. with the support of iHeartRadio. The company is planning to run its “570 radio station” on the iHeartRadio platform and will add 800 broadcasting channels in 150 U.S. cities to Cumulus’ network, which originally belonged to iHeartRadio. Additionally, Cumulus will also have the benefit of the iHeartRadio mobile app, supported on Android and Apple phones. IHeartRadio has a record of 44 million downloads of its mobile app and 65 million digital user hours, which will help Cumulus boost revenue. The company expects total revenue of $1.07 billion in 2013 and $1.41 billion in 2014.
On the other hand, Cumulus Media Inc (NASDAQ:CMLS) took new initiatives in January 2013 to improve its network by purchasing CBS Sports and SweetJack. CBS remained a challenge in the first quarter of 2013 but is expected to improve in the second quarter. This improvement is expected because CBS has launched a 24-hour broadcasting network service. With this, it is expected that CBS will generate revenue of $9 million in 2013 and $36 million in 2014.
Cumulus invested $2.5 million for the purchase of SweetJack, which is a daily advertising deal platform currently working in 200 markets. Cumulus Media Inc (NASDAQ:CMLS) plans to efficiently utilize the advertising platform of SweetJack in order to boost its revenue. SweetJack, under this deal, will advertise on approximately 1,400 radio channels and its websites in the country. The revenue expected from SweetJack is $2 million in 2013, but over the long term, revenue of $11.5 million is expected in 2014.
Monetizing from listeners
Pandora Media Inc (NYSE:P) adopted a new strategy in March 2013 by providing mobile listeners with 40 hours per month of free Internet radio service. After 40 hours, the listener is charged $0.99 for the remainder of the month. The company, with this strategy, is targeting 4% of the mobile listeners who are listening for more than 40 hours. In April 2013, 86% of the total listeners from the previous month crossed the Internet radio service limit of 40 hours. The listening hours increased by 35% year over year in the first quarter of 2014, amounting to 4.18 billion hours. With the rise in the listening hours, the company is expecting a rise in revenue, which will show its impact in second-quarter results.
The company’s Internet radio segment has 75% market share in the U.S. This segment contributes 70% of Pandora’s revenue. The Internet segment has almost 200 million registered users, out of which 66 million users listen to music for an average of 21 listening hours per month. It charges Internet radio listeners $4 per month, or $36 per year. Pandora Media Inc (NYSE:P) has recently launched a radio station, ”Pandora Premieres”, which will supply listeners with music from unreleased albums. Music provided will be one week prior to the album release date. This station will not only provide unreleased songs, but will also broadcast interviews of well-known artists.
The company has also entered into a partnership with Facebook Inc (NASDAQ:FB) through its ”Timeline App”. Pandora Premieres will be beneficial, as it will increase the interest and frequency of Facebook users. The charges from listeners will remain the same, as applicable to the Internet radio listeners. The company is also expecting to receive marketing fees from the album producers. This will boost the revenue of Pandora’s Internet segment.
With these initiatives, the company expects total revenue of more than $155 million in the second quarter of 2013, from $128 million in the first quarter of 2013. Further, Pandora Media Inc (NYSE:P) estimates total revenue of more than $615 million for the whole year of 2013.
New products driving revenue
Sirius XM Radio Inc (NASDAQ:SIRI) has launched a cloud-based, personalized Internet radio service with its ”MySXM” app, which is supported on Android and iOS. This service gives an advantage to the listeners over the other radio services because they can start the currently playing song from the beginning. Through this service they can record programs for five hours and play them later. MySXM makes the listener experience personalized, as the listeners can make more than 100 personalized changes from 50 SiriusXM channels. The company earns $14.49 billion per month from Internet radio listeners. By this service, it has added 491,173 new listeners, which generated revenue of $913 million in the first quarter of 2013. This service is an innovation in the radio industry and is expected to attract almost 1.6 million new listeners by the end of 2013.
In the car radio segment, Sirius XM Radio Inc (NASDAQ:SIRI) has connected radio devices in cars with satellites. This segment currently caters to 22% of the total vehicles in the U.S. and has captured approximately 52 million cars in the U.S. in the first quarter of 2013, up from 42 million a year back. The company has adopted a strategy where it will give a free trial period of three months. After the trial period, the company will charge its listeners $17.99 for Internet radio per month. Furthermore, Sirius XM Radio Inc (NASDAQ:SIRI) has a joint venture with almost all vehicle manufacturers in the U.S. and is also in collaboration with 3,000 retail vehicle manufacturers in Canada. Looking at the company’s approach, it is expected that this segment will cater to almost 15.3 million new cars in 2013 and 15.9 million in 2014.
Listen to the sound of increasing revenue
Cumulus Media Inc (NASDAQ:CMLS), with its joint venture with iHeartRadio and by purchasing broadcasting networks, is set to improve its sales and radio broadcasting network.
Pandora Media Inc (NYSE:P) has tried to attract its mobile segment users with changing cost strategies. The company has launched “Pandora Premiere”, which will help in the growth of the Internet radio segment. These innovative initiatives will lead Pandora towards long-term growth.
Sirius XM Radio Inc (NASDAQ:SIRI) has come up with MySXM in the radio industry; this is attracting new listeners. The company has entered into the satellite radio segment, which is an untapped segment. This shows a future uptrend in the revenue of the company.
I recommend a buy on all three stocks.
Shweta Dubey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article 3 Broadcasting Companies With Promising Returns originally appeared on Fool.com.
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