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Stealing advertising and eroding listeners: report warns

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Internet radio outfit Pandora is set to disrupt the Australian radio landscape eroding advertising revenue and asset valuation, according to a new report from Morgan Stanley.

The report suggests that Southern Cross Media (SXL) group, as the largest and most profitable radio business in Australia, has the most to lose from new entrants such as Pandora or local clones but significantly also has the strongest platform from which to launch its own personalized internet radio business and to gain a first mover advantage over new entrants.

“We expect personalized Internet Radio services,such as Pandora, will enter this market at some point over the next 2-3 years," the report states.

Pandora has yet to signal its intention to hit down under but Australia is getting its first wave of digital music streaming upstarts, with the launch of Spotify, the Omnifone backed Rara.com and the music project from the Skype founding crew, Rdio.

"We believe it’s only a matter of time before the internet has a negative impact on traditional radio listenership … and thereafter radio asset values in Australia too,” Morgan Stanley warns.

The report states that as radio accounts for around 60 percent of SXL’s total revenues and TV the other 40 percent, if a new entrant like Pandora were to launch in Australia and capture 2-3 percent of the market within 3 years,“ it would be analogous to the last time the Federal Government auctioned off new FM radio licences, back in year 2000-2003.”

In the wake of the new licences being issued, back then, ASX listed Austereo underperformed for a considerable period as investors tried to quantify the impact on earnings of new licences issued, the analysts point out.

In the US Pandora listeners account for 4-5 percent of all radio listener hours in the US but most significantly is forecast to generate $US364m of advertising revenue in 2012. Morgan Stanley Research forecasts that by 2016, Pandora is forecast to generate $US1.45bn of ad revenue, equating to a 10 percent share of the total US radio market.

Another key factor is that 78 percent of Pandora’s monthly unique visitors are listened from a mobile device, including over 50 percent that listened only from a mobile device, according to Commscore. ®

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