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Business

Pandora competing in local radio ad market

Opens sales office in Boston

What Pandora and other Internet stations can offer is highly targeted advertising.

What Pandora and other Internet stations can offer is highly targeted advertising.

Pandora Media Inc. recently opened its first sales office in Boston as the Internet music streaming company is aggressively competing with local radio stations for advertising dollars.

Pandora has 29 sales offices in major markets such as Chicago, New York, and Los Angeles, and plans more this year, in an effort to boost revenue and pay the artist royalties that run into the millions of dollars each year.

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Pandora’s free service lets users create customized channels based on musical tastes. Despite being the largest music streaming service in the United States and adding listeners, Pandora is losing money — a lot of money. Last year, it posted a net loss of $38 million.

Being in Boston could help lower those losses, if the company can convince longtime radio advertisers such as car dealers or furniture sellers that advertising on an Internet station is more effective than marketing over the airwaves.

“When you have 200 million registered users, that creates a whole new opportunity to talk to local advertisers,” said Andy Lipset, Pandora’s vice president of East Coast operations. “We’ve reached the scale now. We’re a top radio station in Boston because we have so many listeners.”

Pandora would not disclose its listener numbers for Boston or other markets. But the service, and others such as Spotify or Rdio, is are still behind traditional radio in terms of overall listenership and reach in local markets, according to industry specialists.

Radio stations “are still offering a demographic that is pretty hard for Pandora to match,” said Scott Fybush, an independent radio industry analyst in Rochester, N.Y.

What Pandora and other Internet stations can offer is highly targeted advertising. Since Pandora users register with their location, age, and sex, the company has a good idea of who is listening at any given time. So advertisers who want to reach say, Boston-area men between the ages of 18 to 45, would be more likely to get the target audience to hear their commercials than running ads on terrestrial radio, Fybush said.

Pandora has signed up major national brands such as General Motors Co. and Sony Corp. and local advertisers Rockland Trust and Boston Volvo Village.

“Pandora is the only major player in this space that is even a challenge to radio on a local level,” said Robert Favre, general manager of data and analytics for Triton Digital, a Los Angeles company that measures digital radio audience.

Favre said Pandora has audience numbers that would likely place it among the top 10 stations in each of the country’s biggest markets.

So far, local radio executives don’t appear to be too worried about Pandora showing up on their turf to compete for a share of the local advertising market valued around $15 billion.

“Pandora doesn’t compete directly with broadcast radio nationally or locally because it’s not radio in the real sense of the word,” said Tim Castelli, president of national sales for Clear Channel Communications Inc., which owns several stations in Boston.

“Pandora is a play-list creator, which means it can’t deliver what makes radio — the rich personal and interactive experience that radio brings its listeners,” he said.

Clear Channel is a giant: It owns 850 stations, has more than 2,700 sales people, and operates Pandora streaming competitor iHeartRadio.

On the financial front, Pandora has been campaigning to reduce its royalty payments, which it must pay every time any song is played over its service. While only a fraction of a penny each, the royalties add up: More than $250 million in 2012, Pandora founder Tim Westergren wrote in a blog post in June.

“If major market FM stations paid the same rates as Pandora, based on audience, some would be paying thousands of dollars for every song they played,” Westergren wrote.

That campaign has sparked a backlash from musicians including members of the rock band Pink Floyd, who say the company is attempting to cheat artists. Last year, Pink Floyd members were among 130 musicians that opposed a congressional bill that Pandora supported to reduce the royalties Internet radio stations pay. The bill did not pass.

Michael B. Farrell can be reached at michael.farrell@globe.com.

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