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Internet Radio: The End of the Local Market

by Glen Emerson Morris

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The recent development of high quality, reasonably priced, 56 Kbit modems makes the Internet technologically competitive with broadcast radio. Advertisers need to consider what they're going to do when 80% of their local consumers are listening to out of town radio stations.

Radio stations are showing up on the Internet with increasing frequency, not just with a Web page, but with a stereo feed of their audio signal. Anyone with access to the Internet and a copy of Real Audio (an under thirty dollar software application) can listen to stations all over the world.

Stations currently on the Internet include WOR in New York, WINZ in Miami, WMET In Washington D.C., a New Age station in Moscow, Russia, and dozens of others. The sound quality is variable, in part directly related to the quality attempted, the traffic load of the Internet at the time, and the bandwidth limitations of the listener's network connection. Audio feeds can be netcast as AM Mono at 14.4 Kbits, and FM Mono and Stereo at 28.8 Kbits. FM Mono is about the most 28.8 Kbits modems can successfully handle. Many stations offer feeds at both speeds, so listeners can pick the most appropriate speed for their connection. The sound quality appears to be good enough for most listeners, though not quite as good as standard broadcast sound.

An informal poll of Silicon Valley computer industry professionals resulted in some interesting data. Over 80% preferred to listen to music on the Internet instead of local FM stations, despite the difference in sound quality, primarily because the greater selection in formats allowed them to listen to exactly what they wanted to hear at any particular time, and secondarily because they could, if they wanted, listen to stations in their previous hometowns.

The ability of a listener to channel surf on a global scale strikes at the heart of traditional broadcast radio. The principle asset broadcast station owners have is a geographic monopoly, a designated power rating and location for a station which determine the potential audience and revenues. The Internet has effectively ended the geographic monopoly stations enjoyed.

Radio stations are about to find themselves in the position of having to compete with every other station in the country, just for listeners in their local market. In terms of audience numbers, losses to non-local stations will be offset by gains in non-local listeners. In terms of revenue numbers, this will be a disaster. Under the current system, local stations don't have any way to capitalize on the non-local listeners they'll pick up. In time, a way to patch local spots into Internet delivered audio feeds will be possible, but it is several years away. Well before then, millions of people will spend a majority of their listening hours tuned to the Internet, not broadcast radio, and they will largely be the most affluent and lucrative listeners available.

Initially, most of the losses will be from people listening at work in businesses with Internet connections capable of delivering stereo audio. Next year, as improved 56 Kbit modems hit the market in quantity and at lower prices, stations will start losing significant numbers of people listening at home. Even drive time isn't safe. One car manufacturer has already announced Internet service will be offered in their cars soon. In five years, Internet service will be a common option with most new cars.

Local advertisers will be hurt the most, but even national advertisers will be affected. National ad buyers generally buy the top three stations in a market and ignore the rest, an approach based on the assumption that the top three stations will reach a majority of the market. In five years, agencies will have to buy spots on the top ten stations to reach the same numbers they get with the top three now, if they're lucky.

For the next five years at least, Internet radio will have an increasingly negative impact on broadcast radio, and the advertisers who use it. Millions of the best listeners will disappear into a limbo where they are effectively out of the reach of their local advertisers, even though they are listening to radio just as much as ever.

This is coming at an extremely bad time for the broadcast industry. Recent deregulation allowed corporations to go on a buying binge in the attempt to create near monopolies in local markets, just as local monopolies were technologically no longer possible. Broadcast corporations are going to have major problems servicing the massive debt load they've taken on once the audience losses start to add up.

Advertisers will be better off, having the option of simply switching to print ads, and television, if they can afford it, but these will only offer temporary relief; the Internet is hot on the heels of both. In the long term, the Internet will consume print and TV, along with radio, too. Advertisers need to find new ways to reach consumers, and they have about five years to do it. In the year 2002 Teledesic, the global Internet based satellite system, will begin service, and the conventional broadcast industry will be history.

Copyright 1994 - 2010 by Glen Emerson Morris All Rights Reserved

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