Online radio hits its stride

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May 23, 2000
Web posted at: 10:24 a.m. EDT (1424 GMT)

by Eve Epstein

(IDG) -- Peddling Internet audio technology to traditional broadcasters used to be a lonely business. Jim Pavilack, president of Hiwire, a Los Angeles-based Internet streaming media company, remembers that only a year and a half ago, the audiences for his presentations at media conferences were tiny, whereas the presenters across the hall -- with banners reading "make more money from your radio stations" -- were packing them in.

Now Internet media sessions are bringing in the crowds.

"You can't get into the conference rooms," Pavilack says. "It's standing room only."

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Just as cable changed broadcast forever, and the Internet changed print, the technical groundwork is being laid for Internet streaming audio to change radio broadcasting.

The big incentive for change: Streaming audio advertising revenue can potentially pull in anywhere from $12 billion to $22 billion by 2005, according to research estimates.

Already, "streamies" -- the early pioneers consuming streaming media online -- are proving to be a unique market.

"These early adopters are a very choice target for advertisers," says Bill Rose, vice president and general manager of Internet Information Service at Arbitron, a media and marketing research firm, in New York. "They make more money and they are more Web-savvy."

Real profitability will come when streaming audio becomes more widely available. To accomplish that, crucial steps must be taken.

First, broadband must become widely accessible. Today about one in four people say it is difficult to listen to or view streaming media; a number of them outright fail when they try to connect, Rose says. Broadband technology alleviates this problem.

Second, for streaming audio to succeed it must follow the revenue model of traditional broadcasting, analysts say. Content has to be provided to consumers freely or very cheaply, not only to compete with traditional broadcasting for listeners but also because it's what consumers are used to. It would be hard to get listeners to pay a significant amount for what they are used to getting for free.

That means the audio content has to pay for itself with advertising dollars, and a number of companies are looking to provide advertising solutions tied to audio streaming.

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Hiwire, for example, has been working on technology to deliver targeted ads for streaming media. Using Windows Media Player as its lead development platform, the company has developed technology that allows local radio broadcasters to target ads to Internet listeners who live outside the local listening area. This ability to strip local ads from content and insert ads that are more appealing to listeners far away makes the Internet stream more lucrative.

"You're no longer paying for wayward children," Pavilack says.

In fact, those wayward children start to pay off, because broadcasters can charge for the ads they use as replacements. Because the Internet offers the capability of reaching out-of-market listeners, the technology opens up new worldwide markets.

Streaming audio is making tentative inroads with office listeners -- people who might otherwise listen to radio but listen on the computer instead -- and some companies are catering to that demand. Cupertino, Calif.-based start-up Kerbango has built a stand-alone Internet radio that resembles the familiar old box but allows listeners to tune in worldwide. The box lets listeners play MP3 files stored on a PC.

Much of what's available online follows the traditional radio format or comes directly from radio broadcasters that stream content. But analysts say that streaming audio's defining promise will be personalization: empowering listeners to tailor their own content.

"Personalization is a real hot button," says Kurt Hanson, publisher and editor of RAIN (Radio And Internet Newsletter). "The technology is there. It's very complex and no one's doing all of that right now. But different people are doing different pieces of it already."

Personalization opens the door to new collaborations, just as the Internet has in other e-commerce arenas. A recording company, for example, could conceivably work with an Internet broadcaster to develop new releases tailored to the tastes of individual consumers.

Another big technological change poised to crack the radio industry wide open is the availability of the Internet in automobiles. Automakers, including General Motors and Ford, are working on technology to deliver the Internet in cars.

"[Automobile technology's] the gold mine," says Jeremy Schwartz, a senior analyst at Forrester Research, in Cambridge, Mass. "That is where people listen to radio."

Schwartz believes it will take several years before wireless Internet audio gets into the car. Satellite radio, which will allow listeners to download audio for a subscription fee -- much the way people pay for cable channels now -- will likely be realized first.

But Schwartz says it's unclear whether a pay-per-listen model will work.

"People aren't used to paying for audio content," Shwartz says. At the moment, many of the big players in the traditional broadcasting arena are taking a cautious approach to the Internet.

"[Traditional broadcasters] break into two camps," Schwartz says. "One sees it as the enemy; the other sees it as an opportunity."

Arbitron's Rose agrees that some traditional radio broadcasters view streaming audio as a threat.

"I think many of them are afraid that this new thing is going to take audience away from what they've invested millions of dollars in," Rose says. But, he adds, they ignore streaming audio at their own peril. "My point is, if they don't [invest in streaming audio], somebody else will."

Peter Kosann, a senior vice president at radio giant Westwood One, in New York, doesn't see the Internet bringing revolutionary change.

"Do I think it's an emerging technology that's interesting? Yes," Kosann says. "Do I think it will do significant harm to terrestrial radio? No."

However, Westwood One is hardly ignoring the Internet. The company recently entered a multiyear agreement with WebRadio.com, a subsidiary of GEO Interactive Media Group, in Woodland Hills, Calif. The agreement gives Westwood a 6 percent stake in WebRadio, which will offer discounted pricing and media sales such as digital downloads, CDs, movies, and video game sales.

According to Kosann, Westwood was intrigued by WebRadio's technology, which allows listeners to hear audio without downloading a browser. That could be crucial at work environments in which employees are not permitted to download software onto a computer.

Although the future of streaming audio is cloudy, the technology -- and its potential for profit -- is garnering some attention.

"People are starting to dip their toes in the water and figure out the models for this," Schwartz says.

Once those business models and the technology necessary to make them a reality are in place, listeners and their potential buying power will be up for grabs.

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