Online radio sounds good

Young listeners flock to Web, but few are willing to pay

In a trend that could impact the music biz, Internet radio listening is growing fast. According to market research company NPD Group’s most recent study of the music market, 43% of U.S. web users listened to online radio last year, up 9% from 2010. Part of the reason for the increase was the 2011 U.S. launch of Spotify.

As might be expected, free online radio is most popular among young people, but the survey also revealed significant use by the 36-to-50 age group. The bad news for online radio providers is that the vast majority of people choose the ad-supported versions; only 3% of listeners paid for service.

Experts say that may have to change, since the cost of infrastructure and content licensing makes it difficult for these services to be very profitable without support from a larger group of paying customers. Expect some nudging to a pay model as services begin to restrict the amount of free music offered — a template might be satellite radio’s deals to provide free trials of its service in new cars.

Despite the growth of online radio, the survey of 5,799 U.S. consumers indicated that listening to conventional AM/FM broadcasts hasn’t suffered. Some 84% of respondents tune in to traditional radio, in line with last year’s results.

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