Everyone's on the same wavelength now
Saturday, March 10, 2007
TORONTO — When Jonas Woost took the microphone at a gathering of the Canadian music and broadcasting industry in Toronto this week, the manager of last.fm looked more like a rock star than an industry executive. He practically had his own groupies.
The audience, composed of record label representatives, music fans, broadcasters and a smattering of artists, many at least a decade older than Mr. Woost -- were all ears as he described how the London-based Internet broadcaster is amassing millions of listeners around the world each month.
It's all in the name, Mr. Woost explained. "Last.fm is the last radio station you need."
As he stepped off stage, a small crowd of admirers gathered, some to shake hands, others to lob technical queries about last.fm's music recommendation engine. Others just wanted to say they are fans.
The excitement generated by Mr. Woost's appearance is indicative of a growing momentum in the industry. Without facing regulatory restrictions or a need to fight for space on a fixed radio dial, the Internet may just be the biggest threat to the radio industry since the advent of television -- and the established players, faced with a challenge to their business model, have stood up and taken notice.
Just as telling as Mr. Woost's popularity at the conference is the fact that Internet radio has new enemies -- in particular the U.S. recording industry, which this month proposed aggressive royalties many feel could be the death knell for the industry.
For now, there's no question Web radio is taking off. With the proliferation of WiFi as a catalyst, companies have been quietly pumping millions of dollars into developing new technologies. Some of the industry's key players are upstarts, such as last.fm and Oakland-based Pandora. The bigger sites are better-known Web portals, with Yahoo Launchcast and AOL Music topping the global list. Even they started small, but Yahoo Launchcast now draws enough listeners to equal the largest FM stations combined in a major U.S. city like New York.
"If you look at the past 12-18 months, certainly there has been a proliferation of sites that cater to a personalized music experience . . .," said Andy West, manager of Yahoo Music Canada. "People have finally caught on to that."
Its a strange fate for an industry that has been around for more than a decade and was nearly forgotten after the dot-com bubble burst.
In the mid-1990s, Web entrepreneur Mark Cuban started streaming a Dallas AM radio station signal over the Internet to allow sports fans to follow games from other parts of the country. Web companies liked the idea. Yahoo gave Mr. Cuban and his business partner $6-billion in stock for Broadcast.com, crowning him one of the first Internet broadcasting billionaires.
However, as quickly as Web radio took off, people recognized its limitations. The technology of the day resulted in scratchy sound, and listeners were essentially anchored to their computers. When the tech crash hit, the upstarts saw their values plummet. In 2002, Yahoo bought another Web streaming company, Launchcast, for a paltry $8-million.
In the years since, remarkable growth in bandwidth and technology has transformed the industry. Broadband has allowed companies to stream better-quality music files, while music recommendation engines (which stream songs based on a mix of the listener's own picks and suggestions from other users), pioneered by the likes of Pandora, have distinguished the industry from traditional radio. The proof is in the numbers: Yahoo's music service has amassed 3.5 million unique users each month, while smaller operations such as Chicago-based AccuRadio, which started with a few computers and a stack of CDs, claims one million visitors a month.
"Pandora or last.fm, any broadcaster could have built that a couple of years ago, or acquired either of them for the price of a tiny little AM radio station in a small U.S. market," said Kurt Hanson, AccuRadio's CEO. "Some day, a few years from now, the biggest brand of Internet-delivered radio in Canada will have an audience size bigger than all the radio stations in Edmonton or Toronto put together, assuming that somebody establishes a leading brand."
Major hurdles still exist. For instance, despite the industry's huge technological advances, it is still essentially music played through a computer. While companies like AOL, Yahoo and others have been successful at targeting the so-called at-work audience, the industry has yet to encroach on the radio's traditional sweet spot: the car.
If mass wireless Internet access emerges in major cities across the country, it could be a watershed moment for the industry. Portable Internet radio would be available via everything from cellphones to dashboards, attracting more advertisers. As it stands, the advertising industry for Web radio is estimated to be roughly $500-million (U.S.) for North America, but at least 80 per cent of that comes from ads on websites of AM and FM stations. Commercial revenue from music streaming makes up less than one-fifth of that amount.
The biggest hurdle of all could be the looming battle over royalties. "The end-game is that unless the royalties change, webcasting is pretty much done in the U.S. Kaput," Mr. Cuban said. "That's a shame because streaming music to the office is a better opportunity than video. People can -- and will -- listen to music at work."
The Incumbents: Slow and steady wins the race
When Canadian radio giant Standard Broadcasting Corp. Ltd. announced last month that it was negotiating a sale to Astral Media Inc., Standard chief executive officer Gary Slaight cautioned there was still much talking to be done. He didn't go into detail, but those close to the deal suggested the inclusion of Standard's Internet radio operation, Iceberg Radio, was among the points still being discussed.
The fact that Iceberg would play a key role in the talks should come as no surprise: Standard's on-line music operation is the largest of its kind in Canada.
As new-generation Internet radio operations grab the spotlight, Standard and other incumbent radio broadcasters are gearing their strategies toward future expansion, rather than departing from traditional radio. Until ad revenue picks up, the AM and FM players aren't chasing Web audiences as aggressively as the smaller upstarts.
"This is the time to position yourself. . . . But you are still selling something that a lot of people don't understand," said Jean-Marie Heimrath, president of Standard Interactive. "The danger is people who start looking too far out. In the mean time, we need to generate the revenues just to keep this afloat."
Iceberg's tailored music channels draw 250,000 unique visitors a month. When Standard's streaming feed of AM and FM radio stations across the country are added to the mix, that number jumps into the millions, he said.
Rival Corus Entertainment Inc. has also opted for a low-key Web approach. John Hayes, president of Corus Radio, said the company derives only 2 per cent of its radio revenue, or $5-million, from the streaming of its stations.
Mr. Hayes said the company's strategy is to pursue its most reliable income streams, rather than making too big of a gamble on the Internet when royalty battles raging in the United States could hinder future earnings. "We've explored, we've invaded and we've colonized the Internet," Mr. Hayes said. "But the massive bulk of our revenue is going to come from traditional radio stations."
The Innovators: Betting on the wireless revolution
In the late 1990s, Kurt Hanson was the author of a radio industry newsletter aimed at teaching stations how to make the jump from the AM and FM dials to the Internet. He soon tired of writing about it and figured, why not do it himself?
With little more than a stack of CDs and a few computers, Chicago-based AccuRadio was born. It offers more than 300 channels tailored to specific tastes, and has grown to house six full-time and six part-time employees, and a staggering number of listeners considering its size -- roughly one million a month.
Its strategy is to build a brand big enough to attract even more listeners once mass wireless broadband makes Internet access in cars a standard option, and portable devices such as cellphones can double as mini Web portals. "Where you see a GPS [global positioning system] display in cars today is the dashboard real estate that will eventually include the interface to the Web," Mr. Hanson said.
However, young companies carry the extra burden of contending with legal battles over royalties. New rates approved in the United States last week, which would force services to pay a fraction of a cent for each song they play, will put most upstarts out of business, Mr. Hanson says. The matter looks destined to be settled by Congress.
Oakland-based Pandora, largely recognized as one of the original innovators in next-generation Web radio, will face similar challenges. Presently, the company requires listeners to enter a U.S. zip code to log onto the service, which helps it abide by that country's royalty restrictions. Though Pandora has six million registered users, chief executive officer Joe Kennedy knows the vast majority of those who enter the zip code 90210 -- and there are thousands -- don't actually live in Beverly Hills, suggesting they're logging on from countries such as Canada and elsewhere.
The music industry may be forced to develop a global system of compensation, Mr. Kennedy said. "I think in 10 years, Pandora will be listened to in the car, while you're jogging . . . and wherever else people listen to music," he said. "And that will be following the growth of wireless broadband to ubiquitous form."
The New Titans: Looking to bolster the bottom line
Terry Semel's goal when he took over as chief executive officer of Yahoo Inc. in 2001 was to make the Internet more entertaining. A year later, he pulled the trigger on an acquisition that would push Yahoo to the top of the Internet radio pile.
Since buying Launchcast in 2002, Yahoo has emerged as one of the new titans of Internet audio streaming, with rival AOL in the No. 2 spot, and Clear Channel Communications, which owns 1,200 radio stations across the United States, the third-biggest contender.
Unlike standalone companies which are positioning themselves for broadband expansion, Yahoo and AOL have adopted music to bolster their Web community numbers and ad revenue; The longer listeners surf their sites, the more ad dollars can be generated.
"We're in an era of the industry that is in its infancy, and with that there are endless possibilities," said Andy West, manager of Yahoo Music Canada.
Major Web radio players are so far doing little to market their music services, compared to traditional radio.
Instead they are relying on their main sites, such as e-mail and news, to draw people in.
"We have done some marketing, but we're really relying on traffic through the portal," said Rod Lewis, product director for AOL Canada.
AOL created its streaming music site a few years ago, and added a Canadian service in November.
While Yahoo and AOL are now aggressively expanding into streaming music, the industry largely went underground after the tech bubble burst, mostly due to concerns about licensing music, Mr. Lewis said.
Attitudes have changed rapidly in the past two years.
Companies now see themselves as radio brands of the future, when people will wake up to personalized Web channels, rather than the local morning show.
"The more established guys like Clear Channel realized it actually augments their business, it doesn't threaten them. So it's created a mix," he said.