Ad sales veteran Tim Castelli left AOL last month for an arguably even tougher assignment: finding a way to bring advertising to Clear Channel's digital custom radio stations without alienating listeners.
Mr. Castelli joins the company this week as exec VP-digital sales, a new role, responsible for creating an ad platform for Clear Channel's IHeartRadio custom stations, which are currently commercial-free. But Mr. Castelli, who most recently headed AOL's Eastern U.S. region, faces several hurdles even before he gets started.
"Custom radio stations have become an upgraded version of iPod shuffles or the mixed tape," said Mary Beth Garber, exec VP-radio analysis and insights at Katz Radio Group. "In this type of experience, listeners do not want or expect commercials. They just want uninterrupted music."
Radio advertisers, meanwhile, haven't followed consumers to custom radio stations. "Many advertisers are convinced people aren't listening to commercials in this medium," said Wedbush analyst Michael Pachter.
That's part of the reason why Pandora, for example, has plenty of listeners but plenty of unsold ad inventory. "They have spent just 2% of their effort on trying to monetize the service and 98% on getting more users," Mr. Wedbush said.
Pandora is now trying to convince advertisers that it competes with terrestrial radio in big markets and is simultaneously pushing to get inside cars, where advertisers believe consumers are more engaged.
Mr. Castelli knows that he will have to contend with the same headwinds at Clear Channel. "We are working to figure out the right way to incorporate ads into the customer experience and see what resonates," he said. "I am looking for innovative and creative ways that are natural and make sense, and are not disruptive to the consumer."
He said he hopes to use Clear Channel's massive reach in traditional radio (it owns more than 850 stations in 150 cities) to create cross-platform opportunities for advertisers as well as recruit new listeners for IHeartRadio.
"Tim can take the connection consumers have with specific channels on mass radio and apply that to iHeart," Ms. Garber said. "Kiss FM can talk about IHeartRadio and direct listeners to the digital stations and create an emotional attachment with a built-in audience. Pandora has no on-air advocates."
The combination of terrestrial radio and online radio will be one of the biggest areas of growth in the next few years, said Kim Vasey, GroupM managing partner and director of radio. "This gives us the flexibility to be with the consumer as they move through their day," she said. "We want to stay connected to them through radio."
Online music services are also looking beyond traditional radio ads and display for revenue. Brands have already utilized Pandora and Spotify to create their own playlists, for example, to make an emotional connection with consumers.
"We are advising our clients to take advantage of a call to action and tell people to click on a link to get a coupon or engage in another type of experience," Ms. Vasey said.But those deals are happening on a much smaller scale than Clear Channel, or even AOL for that matter, are accustomed to.
"I am not seeing anyone do this well at a massive scale," said Mr. Castelli, who has also held positions at Google, Rolling Stone and Ziff Davis. "There are people doing pieces of it, but nowhere near the power of the platform we have available. Since custom is just one part of the business, we have the luxury of taking our time before we introduce an ad platform."