AOL Revamps Radio Service With Half the Ads to Rival Pandora

AOL Inc.’s online radio service is restarting today with half the number of audio commercials as it ran before, challenging Pandora Media Inc. for listeners.

The company will insert about 3 minutes of audio ads an hour, Lisa Namerow, general manager of AOL Music and AOL Radio in Dulles, Virginia, said in an interview. Pandora airs three 15-second commercials an hour, Chief Financial Officer Steve Cakebread said at a Sept. 22 investor conference.

AOL Radio, which uses music and advertising from San Diego-based Slacker Inc., joins online services including Oakland, California-based Pandora that rely on display ads and videos to maintain the number of audio spots played between songs. Clear Channel’s iHeart Radio and Rdio Inc. are offering free music services for a limited time.

“The most common complaint we would get from users was the number of audio commercials we ran,” Namerow said. “It’s something they really hated.”

AOL lost 1.9 percent to $14.08 today in New York trading. The shares have dropped 41 percent this year.

The new features, reduction in ads and redesigned music navigation are aimed at reversing a 25 percent drop in AOL Radio users from a year ago, Namerow said. The service averages about 3 million users a month, she said.

AOL Radio, which carries ESPN Radio and ABC News stations, has 230 music channels customized by a team of program directors, while competitors rely on computer algorithms, Namerow said.

“That’s our secret sauce,” Namerow said. “We program our stations individually, while larger competitors might use more of a formula.”

A free AOL Radio application for Apple Inc.’s iPhone will become available in about a week, Namerow said. An app for devices running Google Inc.’s Android software is expected to become available later this year.

In November, AOL will offer a $3.99-a-month radio plus service that excludes audio advertisements, Namerow said. A separate $9.99 plan will compete with Spotify Ltd. by offering ad-free on-demand music and the ability to listen to saved songs without an Internet connection, she said.

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