Web stations make most of their money through spot insertions

Driven primarily by music programming, internet radio is barely 5 years old – having started when Mark Cuban co-founded Broadcast.com and began simulcasting radio stations online. Broadcast.com became the first aggregator – pulling together stations at one portal and handling all their Internet technology needs.

A half-decade later, it’s a much more crowded field. Up in the Pacific Northwest, Stream-Audio.com has become a major streaming force by offering Internet turnkey solutions to broadcasters. More than 400 stations have contracted for services, which are offered at no cost. So how do they make the rent?

Functioning as a private label vehicle, StreamAudio provides stations the bandwidth, Web site design – including a listen-and-surf audio player – and revenue potentials via e-commerce and ‘Net spot insertions. Stations can be accessed by their own URL or via StreamAudio’s B2B master station list.

“It’s a multipart revenue model,” says StreamAudio VP Tom O’Connor. “We can place banner ads, gateway audio ads (the ones played before a regular stream begins) and audio spots inserted during programming. We can sell music product and concert tickets. And we’re looking to other sources as well, such as movie trailers. Except for the banner and gateway ads, we split the revenues with the stations.”

Explosive market

O’Connor’s main competitors are BroadcastAmerica.com and Yahoo! Broadcast Services, the original Broadcast.com entity, which mostly streams over-the-air stations. In all cases, stations utilize either the RealAudio Player, which debuted back at the time of Broadcast.com, and/or the Windows Media Player, with Real Audio claiming the lion’s share – 80% of consumer users – and more than 115 million unique registered users worldwide.

RealAudio’s marketing manager, media systems division, Gregg Makuch calls Webcasting “an incredibly explosive market that has exceeded even our wildest expectations.” His company streams more than 600 stations – 85% of them terrestrial broadcasters.

Prominently positioned on the RealAudio Player “Stations” menu is a leading Web-only entity, NetRadio.com, which offers 120 channels in 15 genres, ranging from jazz, modern rock, New Age, vintage rock and classical. NetRadio, which pays copyright fees directly to ASCAP and BMI, draws from a library of more than 250,000 music titles and 1 million sound samples at its online music store, CD Point.

“We’re enhancing traditional radio and the direct marketing model,” says president Ed Tomechko, who points to a listener’s ability to make impulse purchases of music by clicking on song titles and artists while selections play.

As the sole publicly traded pure play in Web-only radio programming, Tomechko’s company offers the best open book about current online revenue models.

For the quarter ended March 31, total revenues climbed to $564,822, with advertising revenues more than four times higher than the previous year. A year earlier, ad sales had been exceeded by product sales, but while these sales more than doubled, they now are second to advertising, which accounted for 60% of total revenues in the first quarter. Overall, however, the company still reported a net loss.

NetRadio claimed its unique listeners grew by 87% to approximately 2,500,000 per month, with each one spending approximately 1.5 hours per day at the Web site.

Although it has only one-tenth of NetRadio’s audience at present, SpikeRadio.com is carving a niche as an “authority and tastemaker,” in the words of company president Ashley Farr, with a group of ‘Net channels pegged to those he calls “18- to 25-year-old early adopters.”

SpikeRadio takes an approach that is more like terrestrial stations, with live DJs hosting alternative, eclectic rock and electronica. The revenue model relies on banner ads and audio spots, as well as e-commerce purchases by an audience base that Farr calls highly targeted and qualified.

Computer logs tallied by host servers show that SpikeRadio draws 60% of its 250,000 listeners per month from the U.S. The U.K. and Japan represent 15% each, while Australia accounts for nearly 8%. Average listening time is about 20 minutes.

Such detailed audience reporting enables Internet radio services to sell commercial time that is delivered by companies like LightningCast.com, an Alexandria, Va., firm run by Tom Des Jardins. His firm can send targeted spots into Internet feeds of ‘Net-only or terrestrial broadcasters.

“It’s about connecting advertising as directly as possible to listeners,” he adds, with spots sometimes specifically tailored to a single user – if the demographic profile is available.

LightningCast also can aggregate users across a universe of stations and sell spot insertions to national advertisers since it functions as a rep firm as well as a technical shop.

With toys come users

Audio-enabling devices other than the PC are just making their way onto the scene. Freestanding, Web-connecting radio appliances like Kerbango and Sonic Box are expected to go public this summer.

Other devices, from personal digital assistants to cell phones, will further detach ‘Net audio from land-line transmissions. Even Detroit carmakers plan to push the technology forward.

Ford’s chief executive, Jacques Nasser, promised in January that by installing dashboard electronics to access the Internet via cellular means “we will do nothing short of transforming our cars into a portal for the Internet.”

For now, the future of streaming audio is critically linked to broadband development. Cahners In-Stat Group forecasts that 49 million American households will have broadband by 2004.

Bear Stearns Internet analyst Robert Fagin expects audio adoption on the Web to continue to lead video by 12 to 18 months “because it’s just a whole lot easier to get audio streams down the ‘Net.”

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