Music on the Net - Napster, MP3 - is big news lately. It seems like everyone
is suing everyone else. The music industry is becoming aware that there is a sea
change and they had better start figuring out what to do. Traditional, terrestrial
radio isn't doing a great job of approaching the new world of Internet music.
They are making a strategic mistake that will come back to haunt them soon. It
should come as no surprise that greed has something to do with it.
July 25, 2000
While most of the music industry is in a panic about digital downloads, MP3,
Napster and others who have been in the middle of the MP3 download controversy
are well along in their plans to dump MP3 downloads and move to a streaming music
model. Streaming music over the Internet is a business that is very similar to
traditional, terrestrial radio. You set up a play list of songs, put in ads, jingles,
etc. and stream it out for people to listen to. You make money from ads or subscriptions.
The more people who listen to your station the more you can charge for those ads.
Sounds very familiar, no? The big difference is Net radio multiplexes - Internet
radio sites with hundreds of individual stations.
In case there is any doubt about the future viability of Internet radio, just
realise that all the major automobile manufacturers are including Internet radios
in next year's models. Most of the big hifi equipment manufacturers are including
Internet radio in their new tuners. Phones and other portable devices are doing
it too. Streamed Internet music will soon be available in all the same places
as terrestrial radio is now. Music over the Internet has arrived and will explode
over the next year. Drive-time Internet radio is almost here.
But there are several very big differences between traditional radio and Net
radio that terrestrial radio companies seem to be overlooking. Internet radio
is international radio. There are no geographic boundaries, but Net broadcasters
can target Internet radio ads geographically. There is no need to get an expensive,
government-regulated license to set up a Web radio station. My brother set one
up last week all by himself. And he plans to set up a couple of dozen more in
the next month or so. You heard right. Within the space of a month or two he'll
have 30 or 40 Internet radio stations and will pay nothing for a license, transmitters,
DJs, or office space and he will probably have more listeners than most radio
stations have within a few months of his launch. He can survive with very little
advertising. The other big difference is that my brother will have to pay more
to copyright and content owners than terrestrial radio currently does - a lot
more.
So what's the big deal? Any reasonably hip radio station now has a Web site
where they stream their regular programming, sell CDs, etc. They think they are
now doing Internet radio. But if you've noticed, the radio sites only have the
one station on the Web - they only netcast the same material that is going out
over the air already. The pure Net radio sites all have dozens, if not hundreds
of Net radio 'stations' or play lists they are netcasting. On netcaster WWW.COM's
site for example, a listener can choose from over 230 different stations to listen
to. Most of the stations are arranged by genre so there are, for instance, over
ten different flavours of jazz to listen to. If I'm a jazz fan living in London
I listen to JazzFM or I don't listen to jazz on the radio at all. And I have to
listen to whatever JazzFM thinks I want to hear. If I am a strict bop fan I'm
not going to get much satisfaction from JazzFM - they rarely play any bop. On
the WWW.COM site however, I can choose between bop,
hard bop, post bop, neo bop, fusion and a couple of other jazz genres of similar
ilk. This is waaay cool.
Obviously the terrestrial radio stations could do this also. They could easily
add a bunch more play lists just for streaming on their Web sites. They already
have DJs, they know the labels and know how to promote this sort of thing, so
you think they would be the favourites for success in Net radio. But here's where
greed comes in. And it's particularly shortsighted greed at that.
One of the main reasons that Web radio hasn't blasted off like a rocket ship
but has only exploded gently so far is the complicated issue surrounding music
copyrights. Currently only a few Net radio companies have agreements with the
RIAA to stream music in the US. Almost nobody has the rights to stream music in
Europe. Many sites get around this by featuring unsigned bands - a business that
has a limited chance for big-time success because the mass listening public wants
Britany Spears, Madonna and Ricky Martin. The RIAA agreements mean that US Net
radio businesses have to pay strong royalties to labels and artists - much more
than terrestrial radio has to pay. Terrestrial radio stations netcast their output
without paying anything extra since they are simply 'rebroadcasting' their output.
This, they figure, gives them a big advantage over pure Net radio businesses since
they can operate much more cheaply. They are smugly hoping this situation won't
change and they can go along very much like they have for years and, by the way,
end up on top of the new Net radio phenomena.
They are wrong. They are blinded by greed. They think they are being clever
but they are being shortsighted. The main reason to listen to Net radio at all
is the vast choice of music types available. Unless a listener just happens to
be a huge fan of some particular terrestrial station and the play lists they usually
have, they are going to choose an Internet radio channel or 'station' instead,
one that offers their favourite type of music - and only the type of music they
are interested in. Instead of smugly thinking that pure Net radio companies will
not survive because of the fees they have to pay, the terrestrial stations with
their one Net streaming station should be quickly setting up as many stations
as they possibly can. Net radio companies have it right and the terrestrials have
it wrong. If they don't get out of this mode of thinking, my brother, working
out of his bedroom, is going to kick their butts.
