Webcasters desperate to get content from the major labels are getting help from an unlikely source -- radio broadcasters. A fight between radio stations and advertisers prompted many stations to stop streaming music on the Internet, paving the way for unlikely alliances with webcasters.
Internet radio stations that have struggled to gain listeners are facing the grim reality that name recognition gives traditional radio stations a big advantage in drawing an audience.
Nearly 70 percent of Internet radio listeners tune in to one station most of the time, and a majority of that group chose their favorite local station as their entertainment stop, according to a report released by the Edison Media Research organization.
But earlier this month, large radio conglomerates including Clear Channel Communications and several groups representing a majority of stations nationwide stopped streaming their broadcasts as part of a sparring match with the American Federation of Television and Radio Broadcasters.
The AFTRA Radio Recorded Commercials Contract between performers and radio stations requires compensation based on the "amount of exposure a commercial gets."
The broadcasters' union has demanded that streamed ads be counted as part of that exposure. Radio broadcasters, however, say the marginal revenue gained from streaming their programs doesn't cover the extra fees. Since radio stations don't have the technology to easily cut out the ads and replace them with online-only spots, there's no incentive to continue.
Since few terrestrial stations are now webcasting their programming, Internet radio stations have the opportunity to build an audience from listeners cut off from their online music. Radio stations, which have the licenses webcasters need to broadcast music online, are now working as music middlemen.
"We've been telling radio to co-opt streaming from day one, or watch out for the Ted Turner of Internet radio coming along," said Larry Rosin, president of Edison Media Research. "Mark Cuban did that one time, by getting the radio stations to give him their content, and then repackaging that content."
Cuban eventually sold his company to Yahoo for $5.7 billion, before "retiring" from the webcasting world to pursue his other interest -– running the NBA's Dallas Mavericks.
Cuban got out before there were many listeners logging on to the Internet in search of audio content. In January, 30 million users accessed either audio or video content on the Web according to the Edison report, and the numbers are expected to continue to grow.
The report said that despite the opportunity of projected growth, webcasters will need to establish an identity, as more than three-quarters of the people who listen to audio on the Internet can't remember the station they tuned in to hear.
Radio stations could use their name recognition to create online "side channels" -- niche-oriented programming that matches up with their terrestrial broadcasts -- that would be delivered by webcasters who would provide the technical expertise.
For example, Clear Channel Communications could enlist Listen.com, a digital music directory service that recently began developing its streaming services, to help develop streaming services for each of its affiliates across the country. Houston's KRBE could develop an Internet-only "new country" side channel focused on younger listeners.
"The radio stations have to be ready, they have to see the vision," said Tim Bratton, Listen.com's vice president of subscription services. "If they see that vision, then we can offer that. There are things that radio does very well. For instance, they have personalities. Taking that value and brand and extending it across the Web with different channels makes a lot of sense."
While Bratton said he isn't actively pursuing any deals with radio conglomerates, executives have been busy preparing for a move into the streaming sector.
The company acquired webcasting technology company TuneTo.com on April 10, after buying webcaster WiredPlanet last year.
The TuneTo application stores about an hour's worth of encrypted music on a user's hard drive. When users access their music, TuneTo transmits a code that unlocks the cached data and turns it into a stream that doesn't require bandwidth.
Webcasters haven't conceded the online branding war just yet, according to Jonathan Potter, the executive director of the webcasting trade organization Digital Media Association.
The major radio conglomerates wield substantial power with access to consumers all over the country, but Potter believes that on their turf, branded Internet companies could rival other media companies.
"I'm not ready to sell out our whole industry as a service brand," said Potter. "There are companies that are branded and are leveraging the customer base. Yahoo, MTV and RealNetworks are branded. If you know that you love blues music, you are going to go to the House of Blues because there aren't blues radio stations."
Potter said that what hurts webcasters today -- having an audience spread out around the world -- would some day work to their advantage.
"The real question is that when we have the infrastructure built out -- say in five years when you listen to Net radio you can get anywhere -- that is when the real competition begins," said Potter. "If I love what I hear on Spinner.com and I can call my friend around the world, that is a great thing for the consumer and the brand. It's a global channel."
But analysts say it's tough to get a profit from niche markets, even when the traffic is aggregated across multiple channels.
"The reality is that a lot of these deals aren't going to get done," Rosin said. "Side channels are a great idea, but right now nobody can make any money off that.... Now that the promise of a zillion-dollar valuation (is gone), there is less of an orientation toward throwing money at initiatives."
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