What is a Radio?

A few years ago, it would have been a really stupid sounding question....

More Listeners Enjoying Internet Streaming

More than 42 million people each week listen to Radio streamed over the Internet, more than double the rate from five years ago, according to market-research firms Edison Research Inc. and Arbitron Inc. Many of those are either new listeners or people tuning in at times when they never listened to regular broadcast Radio.

But Radio has been slowest among the media industry to turn its Internet audience into cash. Gordon Borrell, who runs consultancy Borrell Associates Inc., calls Radio the "C" student of the Internet. Radio gets only an estimated 2.4% of its revenue from online, while TV gets 3.4% and newspapers 7%.

One of the big problems is that the market for Internet Radio is bifurcated between listeners who tune in to streamed versions of existing, terrestrial Radio stations and people who listen to Internet-only Radio startups. Of the 42 million people who listen to Internet Radio, 24 million are tuning in to Web-only Radio.

In addition, the number of Web Radio listeners pales next to traditional Radio listeners, who total an estimated 234 million. Stations generally draw only a fraction of their broadcast audience to Web sites -- between 3% and 5%. That hasn't been enough to attract many online advertisers. Online spots end up getting thrown in as a sweetener for advertisers who were buying time on a station's regular broadcast.

"We'd like to meet or exceed the audience of our terrestrial (stations), and charge more to advertise on that," says Mark Preston, new media director at Bonneville International Corp., which owns stations in Chicago, Los Angeles and other markets.

For the clients that do pay for Web commercials, Radio companies haven't been able to command much in the way of rates. Advertisers who buy on streamed Radio typically pay about half the rate per thousand listeners that they do for regular broadcast ads, media buyers and Radio executives say.

Partly, that is because of the newness of the technology. "It was really hard for us to get out and tell our story about streaming," says Michael Jackel, senior vice president for digital sales at Clear Channel Communications Inc., the nation's biggest Radio company. The situation is improving rapidly, with Clear Channel's digital sales growing nearly 28% last year. Mr. Jackel says buyers accustomed to traditional Radio often balked at the unfamiliar concepts involved online, such as relying on impressions rather than the traditional metric known as gross rating points.

Would-be customers concede as much. "I'm not an Internet buyer. We buy Radio and audio," says Jamie Bartholomew, vice president for local broadcast at Interpublic Group's Initiative in Los Angeles, whose clients include big retailers such as Home Depot Inc.

Educating herself on digital-listening statistics and measurement techniques took a while, she says, but now about half of her national Radio clients buy spots on station streams as well as in over-the-airwaves broadcasts. That is up from about a quarter a year ago. Online Radio's biggest potential advantage -- the ability to target listeners based on slicing and dicing ZIP codes and other specific targets -- has proven a tougher sell among her clients. Advertisers already know what they're getting -- say, women 18-54 if they buy streams of soft rock stations, or young men if they buy alternative rock. Buyers say their clients don't yet attach much value to the additional information available from the streams, although that's changing.

Radio executives say they are attempting to interest more advertisers who buy on a local basis, in order to highlight the extra information available about their audiences who listen via the Internet. In Radio, local has long represented the pricier buy, because homing in on particular groups always commands a higher price per listener. As streamed audiences continue to rise, that shift from national to local buying decisions should happen automatically, they say, with big advances in 2010 and 2011.

Many listeners to online audio are tuning in to Internet-only services such as Pandora Inc., which typically play far fewer ads. Pandora offers only a fraction of the ad time on digital streams of regular Radio stations. "They're trying to keep it clean," says Kathy McLaughlin of planning and buying firm Media Spot Inc., which means Pandora can command high prices. In recent research she did for a client who wanted to target Los Angeles listeners, Ms. McLaughlin found that buying spots on Pandora cost 20% more than buying regular over-the-airwaves Radio spots in the city, one of the most expensive ad markets in the U.S.

Tight control on inventory is one of the reasons Pandora is on track to eke out its first quarter of profit in these last three months of this year, says chief operating officer Tim Westergren. He expects full-year revenue of about $40 million.

(Source: The Wall Street Journal, 12/01/09)

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