Subject: [DMW] Special Net Radio Report; More BMG Resignations Date: 10 Jan 2001 10:40:18 -0500 From: "Digital Music Weekly" To: "kratz@rockspot.com" Special Report [Image] [previous article] Internet Radio 2001: The Long and Winding Stream by Joseph McCombs It certainly hasn't taken long [Image] [Special Reportlogo] for Internet radio to grow from infancy to near-adulthood. Webcasting--the broadcasting of streaming digital-music files--first made waves through its DIY usage: With the advent of MP3 streaming capabilities, bedroom broadcasters and closet connoisseurs suddenly had the ability to impose their tastes and talents on, theoretically, the world. Tools and services such as Shoutcast and Live365, along with a thriving developers' community, made the process even easier. For a while, it seemed as though these webcasters carried with them the potential for a revolution against FM hegemony. Now that bottom lines are more crucial for the digital-music industry, Internet radio is taking a rather different shape. It's no secret that FM radio has undergone considerable condensation in recent years. Where one might, in 1973, have heard Led Zeppelin and Barry White back to back, programming today is undeniably format driven. Urban, Adult Top 40, Rap/Hip-Hop, Country, and Oldies all have their own neighborhoods, and it's rare for anyone to cross a street. Many of the early adopters came to Internet radio in response to this: Webcasters, not being beholden to any corporate interest, could play whatever they wanted regardless of genre, and did so. And traditional radio was slow to catch on to this growing population of online listeners. Now, they have. A significant number of traditional radio stations now simulcast on the Web, reaching a global audience. And with ad revenues, higher budgets for bandwidth, and quality-of-service assurance, they're arguably in a position to outlive the indie 'casters. Advertisements, initially, were anathema to Net radio. Broadcasters, not being in it for the money, saw little reason to include them; many people believed that one of the motives of listening to online radio was to avoid those frequent interruptions. Not so, if the recent developments in the industry and the attitudes expressed at the recent Streaming Media West 2000 conference are any indication. Live365.com, a company that hosts approximately 23,000 online radio stations, made the decision to start inserting ads into people's playlists; objections were minimal. LightningCast even built its business model on the idea of inserting targeted ads into streaming media. Other Net-radio companies have also mirrored the sentiment that people are willing to sit through ads if the radio content is compelling enough; original programmers at TheDial.com are so sure of this that they devote some of their creative talents to writing and performing their ads. It's a necessary refocusing on monetization for an industry that has thus far created scant revenues. Content Isn't Always King The demise of CMGI-backed property iCast confirmed just how difficult it can be to build a network of original programming (including streaming media), drive people to it, and make money from it. The inability of iCast, DEN, and other streaming-media companies to extract revenue from their programming was cause for pessimism for some; more accurately, it simply showcases the growing pains of the Net. As Jeff Stern, CEO of Lineup Technologies, told Digital Music Weekly, "You have to create content that is economically appropriate for your modes of distribution. It's inappropriate to create a million-dollar piece of content and expect to recoup that cost over the Internet." Along with the refocusing on moneymaking, there has been a widespread refocusing of scope within the Internet-radio field. Gone are companies, such as iCast, who hoped to be all-things-to-all-people destinations and portals; today's Net-radio companies are finding a niche and sticking with it. Radio-station creator RadioWave.com and streaming-media search engine SingingFish.com, for instance, have contented themselves with being purely back-end solutions with little need for extensive branding. Their futures lie in their strategic partnerships. Akoo.com, whose Kima device allows Internet audio to play through your stereo, is staking its future on that piece of hardware and gradually extricating itself from the content space. Similarly, Internet-radio search tool RadioSpy.com eliminated its editorial content and original webcast programming, opting to focus solely on its software. -------------------------------------------------------------- "You have to create content that is economically appropriate for your modes of distribution. It's inappropriate to create a million-dollar piece of content and expect to recoup that cost over the Internet." -Jeff Stern, CEO of Lineup Technologies -------------------------------------------------------------- The result has been, seemingly, a new cast of characters for the entire Internet-radio space--but one with encouraging prospects. Audiences for streaming audio have gone up dramatically in the past year, as perhaps best evidenced by the 9 million people who tuned in to Madonna's live webcast late last year. Most encouragingly, Inside.com recently cited a projection from market-research firm Paul Kagan Associates that suggests webcasting could become a $4.6 billion industry by 2008. The statistics cited by Arbitron in its recent study, "Internet V: Startling New Insights About the Internet and Streaming," also confirm the growth of webcasting--noting, for instance, that the number of Americans who have listened to radio stations online has shot from 6 percent to 20 percent in just two years. The Wireless and Broadband Revolutions Continued growth hinges to a considerable degree on the adaptation of Internet radio to wireless devices. Traditional radio still thrives to a great degree on drive-time listeners, an audience heretofore untapped by Net-locked stations. That may be changing soon, though, with several companies rushing to bring Internet radio to people's cars, tabletops, and wireless devices. Kerbango has grabbed attention with its standalone Internet-radio device, which has been widely reviewed but is still not available for public consumption. Meanwhile, a very unlikely competitor entered the fray when Net-radio service provider Live365.com announced the development of its own wireless streaming-MP3 player for the Windows CE platform. Lastly, iM Networks (formerly SonicBox) is doing direct battle with Akoo's Kima device with its own iM remote tuner, which plays streaming audio through any stereo. The successful implementation of these products will result in a plethora of listening choices for people in their homes, at their offices, and eventually in their cars. [Image]One of the factors that has limited Net radio's adoption so [Image] far has been broadband: Most quality audio servers thus far have been delivered at bitrates far above the 56k limitations of people using dial-up modems. This has been fine for those accustomed to DSL and T1 lines--there was a recurring sentiment at SMW2000 that broadband is nearing ubiquity--but it's little solace to those still listening to crackly and ever-buffering streams. TuneTo.com illustrates the dismissal of this crowd with its website disclaimer: "If you're a dial-up listener ... you might have to wait upwards of 10-20 minutes before the first song plays." Fortunately, some companies are actively addressing the bandwidth issue in their streaming-media efforts. "We want to serve the masses," emphasized RadioWave.com VP of Marketing Berry Meyerowitz. His company is actively pursuing the narrowband audience, ensuring that the streams his company creates for such clients as ARTISTdirect, Rolling Stone, and the Alligator and Blue Note record labels can be heard by listeners of all connections. Live365.com and Shoutcast.com, both early believers in the potential of Net radio, are also careful to market to their narrowband as well as their broadband listeners. Microsoft has taken a different approach to the bandwidth issue: As it provides tools and technology rather than content, it has sought a remedy through the encoding of the music files themselves. While MP3 remains far and away the dominant format in streaming audio, the latest incarnation of the Windows Media Audio format offers high-quality sound at a fraction of the space taken up by identical MP3 files. If more webcasters adjust their stations to the Windows Media format, broadband might not be so necessary to realize a quality streaming-audio listening experience. A final approach to bandwidth concerns is that taken by ClickRadio, a New York-based company that provides one of very few options for true offline listening. Its software accumulates songs onto your hard drive while you're online, providing you with a decent-sized playlist even when you're logged off. According to Senior VP of Marketing Jim L'Heureux, ClickRadio plans to run on non-PC devices soon as well, giving users nontethered access to a network of stations ranging from Top 40 to "Bell Bottom Soul." Can You Trust The Ratings? There are a number of challenges facing Internet radio in 2001 and beyond. Along with the entrance of traditional radio stations and advertisements to the Net-radio world, there has come an increased perception of the importance of listenership ratings. Measurements thereof have been slow to come by, however, and still are limited in their accuracy and usefulness. Arbitron, MediaMetrix, and Nielsen//NetRatings, all leading names in the traffic-measurement game, have made initial efforts to measure Internet-radio traffic. What limits all of them so far is their reliance on webcasters to self-report, a process that can be rather arduous. A former RadioSpy.com station manager lamented that Arbitron requested files of extensive information such as unique users for each station, and then did nothing with the information received. "All in all, I don't think they were ready to handle Shoutcast stations," he concluded. One CEO at SMW2000 was considerably more brusque about it: "Arbitron is the devil. If you want to help kill Internet radio, sign up with Arbitron." -------------------------------------------------------------- The moneymaking capacity has yet to be proven, as evidenced by the lack of successful ad-based models and the recent Chapter 11 filing of prominent webcast site DiscJockey.com. Listener numbers, while heading upward, are still not high--Live365.com acknowledges that it hosts more stations than it has listeners. -------------------------------------------------------------- For its part, Arbitron is trying to expand its coverage of Internet radio stations. "If it streams, we'll measure it," states client-service representative Dana Burleson. Presently, though, there is little correlation between the findings of Arbitron--whose August 2000 charts were thoroughly dominated by NetRadio stations--and MeasureCast, which placed obscure webcaster MEDIAmazing atop its own Top 25 survey. Further complicating the webcast-measurement issue is that no one is entirely sure what should be measured. Aggregate Tuning Hours has become something of a de facto standard, but it may not prove to be the most accurate reflection of a station's popularity. TheDial.com, for one, declines to give away any audience-measurement statistics until it feels there is a meaningful statistic to be had. The Webcasting Royalty Fracas Continues One more significant issue needs to be hashed out before the future of Internet radio becomes at all clear: webcasting royalty payments. The Digital Millennium Copyright Act, passed in 1998, called for webcasters to pay a royalty each time a song is streamed. The amount of the royalty and the procedure for paying it have been bitterly contested issues for months, and the dispute is still not resolved. A Dec. 8 court ruling confirmed that record companies are indeed entitled to these royalties; while these negotiations continue, such companies as Soundbreak.com, OnAir.com (formerly WWW.com), and On-the-I.com have inked their own royalty agreements with the Recording Industry Association of America. The royalty issue has in part held back the influx of traditional radio stations into the Net space. Radio-station-owning companies like Clear Channel and Infinity do not yet have considerable incentive to take their stations to the Net if, in addition to the challenges in monetizing them, they have to pay extra fees and do extra bookkeeping to keep them online. This may be good news, at least in the short term, for those who look to Internet radio as a bastion of hope against mainstream, format-driven radio. Looking Back, Looking Forward Admittedly, 2000 can hardly be considered a banner year for Internet radio. Condensation and flagging valuations hit this space just as hard as all the other dot-com sectors, CMGI's iCast property being the most visible casualty. The moneymaking capacity has yet to be proven, as evidenced by the lack of successful ad-based models and the recent Chapter 11 filing of prominent webcast site DiscJockey.com. Listener numbers, while heading upward, are still not high--Live365.com acknowledges that it hosts more stations than it has listeners. Furthermore, the shape of Net radio is not yet fully fleshed out: It is too early to tell if it will thrive on community, or if its best attribute is the potential for isolated personalization of music content. Nevertheless, this segment of the digital-music industry has seen impressive growth in the past year, and with a number of companies leading the way with sensible models and compelling content, Internet radio stands to be far less of a novelty and more of a prominent entertainment choice in the coming year. Feedback: letters@digitalmusicweekly.com