Tue, Feb 19, 2002 page19

• Web radio prepares to face the music

  An arbitration panel in the US is to rule this week on the amount that Internet radio stations must pay recording companies for songs played online

  • NY TIMES NEWS SERVICE
  • • 
    • 
    • 

  An arbitration panel is to rule this week on the amount that Internet radio stations must pay recording companies for songs played online. The ruling could clear up one of the more nettlesome issues facing the Internet radio business.

  Recording companies and Internet radio operators were mandated by a 1998 law, the Digital Millennium Copyright Act, to come to terms on royalty fees for artists. The two sides entered arbitration last year worlds apart in their negotiations. The Internet radio operators -- as well as terrestrial stations that stream their broadcast music on the Web -- argued that the recording companies were demanding such high fees that they might kill Internet radio before it developed into a full-fledged business.

  So, Internet radio executives are waiting to learn how much they will have to pay to keep playing music on the Web. "It's probably the most substantial issue" facing Internet broadcasters, said Dave Goldberg, vice president and general manager for music at Yahoo, which operates a Web music service.

  

  Brendon Cassidy, left, and Hilary Wohl of Radio Free Virgin, a Web radio station in Los Angeles, that began running advertisements last week. The station attracts 20,000 listeners at times.

  PHOTO: NY TIMES

  But the royalty issue is far from the only one facing online broadcasters, according to Goldberg and other industry executives. Regulatory bickering, rising costs and the foul mood of advertisers are all casting shadows over the remarkably robust audience growth that Web radio is experiencing.

  The online audience levels of some Internet stations, and some terrestrial stations that also broadcast over the Web, now rival those of modest-size offline broadcasters, with tens of thousands of listeners tuning in at any given moment. (The biggest offline stations, like Clear Channel Communications' KISS-FM in Los Angeles, attract roughly 100,000.)

  Even so, Internet radio "is at the stage where FM was in 1970," said Kurt Hanson, an Internet radio consultant.

  "The audiences are growing," he said, "but they're too small for advertisers to pay attention to."

  There are some exceptions, of course, most notably at the online portals operated by AOL Time Warner, Microsoft's MSN and Yahoo. AOL Time Warner, for instance, is attracting well-known advertisers and making money with its online radio division, which is led by Spinner.com, and Radio@AOL. But AOL, like the other portals, has an advantage over radio-only companies: It can offer music-minded advertisers sponsorship packages that include media beyond online radio.

  For radio broadcasters, though, expanding into the online medium often means looking the other way when picking up the balance sheet. Take KING-FM, a classical radio station in Seattle, which according to MeasureCast, an Internet radio research firm, is one of the 10 most popular on the Web. Peter Newman, who as the station's program manager has led its Internet initiative since 1995, says about 24,000 people log onto the King.org Web site every day, listening for roughly an hour.

  "We've not made money on the Internet -- by a long shot," Newman said. "If you're simply doing this as a business proposition, you'd look at it and say it doesn't make any sense right now."

  But Newman said that KING had stayed the course for two reasons. First, he said, streaming music on the Internet is a defensive move against technologies that are threatening the role of local on-air radio, like cable and satellite radio. Second, he said, "We wanted to be sure that if we're going to be on the Internet, we wanted to be the most popular classical station."

  Fortunately, Newman said, the station is owned by a consortium of nonprofit arts groups that is not as bottom-line oriented as commercial station owners. As a result, the station has been able to endure the most troublesome fiscal aspects of broadcasting on the Web -- at least until the arbitration panel's ruling on royalty fees is handed down.

  Unlike on-air broadcasting, in Web radio the station's costs rise as the audience grows. That is because the station has to pay for additional bandwidth, or network capacity, every time it streams music to another listener. "Bandwidth costs are coming down," Newman said, "but they have to go down by leaps and bounds before this starts making commercial sense."

  As for the other side of the equation, advertising revenue, Newman said that during last year's advertising slump, radio advertising sales representatives were having a hard enough time selling conventional on-air ads without approaching prospective clients about Internet advertising.

  And yet, there are signs that advertisers are starting to pay attention to online radio companies, if only in isolated pockets. The Loudeye Corp, which among other things sells Web broadcasting technologies and advertising, is in the midst of a six-week road show, speaking to advertising agencies and brand advertisers about marketing through Internet radio.

  The initial feedback has been encouraging, according to Joel McConaughy, Loudeye's senior vice president and chief technology officer. Still, McConaughy said that enthusiasm would translate into only modest growth this year because "no one has a significant amount of audience that will be interesting to advertisers."

  Goldberg did say that at least one issue that stunted the growth of online radio last year was less of a problem now: fees for radio advertising actors whose work is broadcast on the Internet. At the urging of the American Federation of Television and Radio Artists, the US Copyright office last year required Internet broadcasters to pay a 300 percent premium to actors in radio commercials also played on the Internet.

  That fee complicated the efforts of all Webcasters. And it helped push many radio broadcasters like Clear Channel Communications, the dominant terrestrial radio company, to halt Internet broadcasting altogether.

  Now, using technology that allows so-called Webcasters to replace offline radio ads with others using nonfederation actors, Clear Channel and others are edging back into the market. Some industry analysts say advertisers may view the re-entry of established broadcasters as adding credence to Internet radio and thus prop up smaller players.

  But Kevin Conroy, a senior vice president at AOL Music, is not convinced that even if marketers warm to the idea of Internet radio advertising, the independent Webcasters will thrive. "It's very hard to make it on a stand-alone basis," Conroy said.

  Because of the scope of the America Online operation, the company can market news, music and sports radio stations in their respective AOL "channels," Conroy said, while working with advertisers on promotions that bridge various media within the AOL Time Warner empire. Such "efficiency," as he put it, is hard to replicate in a stand-alone Internet radio operation.

  But some industry executives, like Zack Zalon, general manager of Radio Free Virgin, a subsidiary of Richard Branson's Virgin Group, disagree. Zalon, whose Web station (RadioFreeVirgin.com) attracts about 20,000 listeners during peak times of the day and employs seven people, began running advertisements last week for the first time. "This is not the kind of business that requires $40 million in cash to make it work," he said.

  "It's true that the biggest advertisers aren't beating down the door," Zalon acknowledged. "But they're also not kicking people to the curb, which I couldn't have said 12 months ago. This is going to work. You have to have some faith, and some patience, but it's going to work."
• Most Popular

  • 1

    Eurovision Song Contest triggers surge in betting interest

  • 2

    Napoli close in on title despite Parma stalemate

  • 3

    Barcelona crowned champions

  • 4

    Sinner cruises past Ruud, Gauff battles into final

  • 5

    ‘Beitou Shilin’ announced as new Nvidia office site