Brief:

• Music streaming site Pandora now lets advertisers buy audio ads programmatically with a new premium marketplace, according to a post by the company. The pilot program will launch with "six or 10" partners, including Volkswagen, and is set to expand to additional advertisers and partners in the coming months.
• Chris Record, Pandora's vice president of revenue operations, told AdAge that about 85% of the company's purchased inventory comes from mobile. Pandora already technically offers programmatic audio ad buying through platforms MediaOcean and Strata, which are mainly used by broadcast buyers. Its recent partnerships with The Trade Desk, MediaMath and AdsWizz aim to appeal to smaller and medium-sized marketers and agencies.
• Meanwhile, Pandora's top competitor Spotify may be ramping up its efforts to develop its own electronics, as indicated by new job listings for its hardware division, per MusicAlly. One job description said the company is "on its way" to creating its first physical products.

Insight:

The digital music streaming market is becoming increasingly crowded as consumers shift away from traditional radio toward digital alternatives like Pandora and Spotify, who are in tight competitioin to gain users and monetize their platforms through ads. Pandora is the last of the three major digital music streaming platforms — Pandora, Spotify and iHeartRadio — to sell audio ads programmatically, according to AdAge, though its audience base is still the largest at 92 million. More than 5 million of those listeners pay a monthly subscription for the ad-free Pandora Plus, while 1 million pay for Pandora Premium to receive fully on-demand music that more directly competes with Spotify and Apple Music.

Rivals Spotify and iHeartRadio began offering audio ads through programmatic late last year. The shift toward programmatic selling for audio content comes after the digital audio ad market grew 42% to $603 million during the first half of 2017 from a year earlier, with $448 million directly from mobile, the Interactive Advertising Bureau found. Pandora will need to enter the programmatic space cautiously as to not flood the market with audio ad inventory, and thus drive down prices. At the same time, its entrance into the space points to the importance of advertising within subscription-based business models such as music streaming. Offering automated buying could attract more advertisers to the site who are looking to reach Pandora's large audience base but were hesitant due to Pandora's lack of a streamlined ad-buying system.

Meanwhile, Spotify's possible entry into hardware will mean the company likely plans to develop a broader strategy for its Internet of Things (IoT) capabilities, though the company hasn't yet mentioned what the products are nor when they'll be available. Most likely, the company is developing its own audio product, such as a smart speaker or wearable device, that enhances people's music consumption experiences.