Radio Big Makes a Grab for Internet Listeners
By JEFF LEEDS Published: June 12, 2007 2007 The New York Times, Inc. Last week a radio D.J. known as Vibegrrl, who works the midday shift on Hot 99.5, a Washington pop station, offered her listeners the chance to receive tickets to see the rock band Hinder. But to win, they had to do more than dial in at the right moment. They first had to visit Hot 99.5's Web site and identify the woman wearing a thong, as shown from behind, and then call the studio. (Unsurprisingly the answer was Britney Spears.) "Everybody's on the Internet all day," said Vibegrrl, whose real name is Lara Dua. "It would be just kind of not smart if we weren't making that part of what we do." Interaction with listeners used to be "very limited," she added. Now, though, "I'm chatting and blogging and doing research and answering phones all at the same time." After ceding ground (and potential advertising dollars) for years to an army of autonomous Internet radio stations, some of which are run from basements and spare bedrooms, the nation's biggest broadcasters are now marching online, determined to corral the next generation of listeners. The result may be a showdown to define the future of the medium. Confronted by a slow erosion of listeners who are turning to iPods, podcasts and other sources for entertainment, the radio corporations are trying to merge their over-the-air music and D.J. chatter with the Web, adding online streams of their broadcasts and features already found on many independent Web-based stations. These include live chat rooms, blogs and MySpace-style social networking features. Late last month, CBS said it had paid $280 million to acquire Last FM (last.fm), a popular Web radio service where listeners can customize stations based on their personal taste, and also explore other users' playlists. And Clear Channel, the biggest radio corporation, with a stable of more than 800 stations, has built miniature social networks into the Web sites of Hot 99.5 (hot995.com) and 7 other pop-music stations in major markets in the latest step in an ambitious digital initiative. All of this comes at an inopportune moment for small, Internet-based radio stations, which are facing a sharp increase in the royalties they must pay to record labels (and artists) for playing their music. The online stations had previously paid a percentage of their revenue for music streamed to United States listeners, -- in effect ensuring that their costs would not exceed whatever sales they received. But a federal panel, the Copyright
Royalty Board, has set new rates effective July 15 that alter that structure so the Internet radio stations are charged a fee each time a user listens to a song. Soma FM (somafm.com), a San Francisco-based Web site housing 11 stations specializing in genres like rootsy Americana and spy-movie themes, owed about $20,000 for 2006 under the previous rate structure, said the site's founder, Rusty Hodge. But Mr. Hodge, who said the stations combined generally attracted a peak audience of 12,000 at any given moment, figures that the rates would translate to a bill of $600,000 for the same year. Broadcasters of various sizes have been rallying support in Congress to supersede the panel's decision. "If it stands, then we're all done for," said Ted Leibowitz, a software engineer and founder of BAGeL Radio (bagelradio.com), an online service specializing in indie rock that he runs from a bedroom in his San Francisco apartment. For listeners, he said, the loss of potential choices would be akin to what satellite TV subscribers would face if their satellite crashed. "What people will be offered will be one one-thousandth of what they're offered today," he said. The cost of playing music online could become a deterrent for the traditional radio broadcasters too as more of them stream music on the Web. But it's a price they may not be able to avoid; advertisers are flocking For online. the first time marketers are spending more money to advertise online than on the radio, according to TNS Media Intelligence, which tracks ad spending. Internet sites accounted for 7.7 percent of ad spending for the first quarter of the year, compared with radio's 6.6 percent, TNS said. Broadcast radio still commands a massive audience: An estimated 230 million people tune in each week. The trick for the big radio corporations, though, is that pursuing listeners online may mean developing a wholly different approach to programming. Many Internet-based stations say their medium allows them to offer an abundance of genres far outside the boundaries of traditional over-the-air music stations, often with playlists that can be tailored to the taste of the individual listener. Pandora (pandora.com), one of the most popular Internet radio services with roughly seven million users, creates personalized stations based on the characteristics of users' favorite songs. Live 365 (live365.com), which says it has four million listeners a month, is a searchable portal to thousands of tiny stations playing genres ranging from neo-soul to Christian blues. Given the proliferation of wireless Internet access, many of the fledgling radio services hope that fans will soon be able to flip on an online radio stream while driving to work instead of tuning into the local morning radio D.J. "It's just a matter of time before you can get Internet streams wherever you are," said Tim Westergren, a co-founder of Pandora. How far the traditional radio broadcasters will, or can, go to match the diversity of music found on independent Internet stations is far from clear. One effort at Clear Channel
involves letting fans choose to hear songs posted by unsigned or other emerging artists, and company executives say some will be considered for on-air exposure. The bigger focus is on developing features that can be rapidly promoted using the chains' mass and reach. Clear Channel's Hot 99.5 in Washington has said it would distribute $10,000 to listeners when its nascent social network (the "Hot Spot") reached 10,000 members. On the company's Z100 in New York, tickets to see a performance by Beyonc were recently being given away in the station's chat room. Fans could also join the pop station's social network, the "Z-Zone." In the works are similar networks for rock and sports stations, said Evan Harrison, a former America Online executive who has overseen Clear Channel's digital efforts since 2004. "If we weren't offering our listeners an opportunity to interact, they would simply choose somewhere else to go for it," Mr. Harrison said. The next battlefront may open in the mobile world: Clear Channel and Pandora have each begun to offer interactive features though cellular phones. Listeners of certain Clear Channel stations can receive notices alerting them before a specific song plays, for example, while users of Sprint phones can go online and build a unique Pandora station around their personal taste. Nonetheless there is still a sense among some Internet broadcasters that the untamed online frontier where they have cultivated listeners is coming to a close -- or at least becoming more crowded. Mr. Hodge of Soma FM had been musing about creating a new online station catering to fans of laid-back 1970's oldies, featuring artists like Crosby, Stills & Nash and the Doobie Brothers. But then a couple of weeks ago he heard that the same mellow music would be broadcast on a radio station in San Francisco, KFRC-FM, which is owned by CBS, and streamed on the station's Web site. Mr. Hodge said he decided to shelve his idea for the moment, figuring that CBS would grab many of his potential listeners. Still, "I don't think most of us are intimidated" by the big radio companies' push online, he said. "If you ask me again in two years, am I going to be worried, that's probably going to be a different answer."