Broadcast and Internet Radio

1
Broadcast and Internet Radio

• Dan Shaver
• The University of Central Florida

2
What Happens When...

• New Technologies and Old Industries Collide?
• What competitive advantages do broadcast and
  streaming audio have that may influence consumer
  behavior?
• What factors are likely to shape industry
  evolution?

3
A Little History...

• Streaming Audio in the 1990s
• Simulcasting Without a Business Plan
• Small Audiences
• Sound Quality
• Bandwidth Issues
• Limited Accessibility
• Resistance to Subscription Fees

4
By the End of the 1990s...

• Product Enhancements
• Quality Reaches FM Standard
• Dedicated Streaming Audio Devices Introduced
• Wireless Delivery of Content to Cars
• AOL, Yahoo! and Viacom See Opportunities and
  Begin Purchasing Services

5
By the End of the 1990s...

• Arbitron and MeasureCast (Now Nielsen) Begin
  Measuring Traffic for Advertisers
• Technology Available to Insert Customized
  Information (Advertising, News, Weather, etc.) to
  Individual Listeners

6
Then In 2002...

• The Recording Industry Strikes
• Demands Royalties for Broadcast Music
• Seeks Record-Keeping Requirements to Support
  Royalty Payments
• Wins in the Courts and the Matter Goes to the
  Librarian of Congress
• AOL and Yahoo! Reach Quick, Big Buck Settlements
• Many Stations Go Off-Line.

7
By August 2002...

• 20 of Americans Age 12 or Older Were Using
  Streaming Audio or Video
• 21 Had Residential Broadband
• Aggregate Streaming Hours Were Projected to Hit
  275 Million Per Month by 2005.
• 5 of Radio Advertising Dollars Were Projected
  for Streaming Audio by 2005.

8
Trends...

• Top 50 Streaming Audio Sites (1/01 to 8/02)
• Steady Growth in Hours Streamed Despite Declining
  Numbers of Stations
• Differences Significant
• (t-5.166, df52.67, p

9
Trends...

• Stead Growth in the Number of Unique Listeners
• (t5.470, df52.053, p

10
Trends...

• Rapid Change in Top 50 Stations
• Only 3 from January 2001 made the August 2002
  list
• Formats in Top 50 diversified
• 12 to 17 Formats
• Significantly fewer college stations (t2.245,
  df64.542, p.02)
• Significantly more Internet-only stations
  (t3.456, df94.83, p

11
Critical Broadcast/Streaming Competitive Issues

• Audience Adoption
• Barriers to entry
• Regulation
• Interactivity
• Market structure
• Programming strategies

12
Adoption

• Rogers
• Relative advantage
• Compatibility
• Complexity
• Requires
• Access to simple, devoted streaming audio
  appliances
• Delivery systems

13
Barriers To Entry

• Streaming Audio
• Minimum Investment
• Transmitters and Towers
• Engineering Staff
• No Spectrum Limits

14
Regulation

• Streaming Audio
• No Licenses/Fees
• No Compliance Requirements
• Royalty Fees for Recorded Music

15
Interactivity

• Potential differentiating characteristic
• Dependent on bandwidth
• Enable video, chat and commercial applications

16
Market Structure

• Broadcast
• Geographic and demographic
• Largely dependent on local advertisers
• Streaming Audio
• Demographic and psychographic
• Can assemble larger, world-wide audience
• Unclear who the advertisers might be

17
Programming Strategy

• Broadcast
• Ownership consolidation has fostered clustering
  and format rationalization
• Streaming Audio
• Potential for large, even more segmented audience
  development
• Economies of scale from originating multiple
  world-wide formats from a single location

18
Implications

• Adoption issues imply that the potential for
  direct competition between broadcast and Internet
  streamers for audience and advertisers is not in
  the immediate future but may become possible.
  Meanwhile, they may serve complementary
  audiences.
• Reduced barriers to entry mean the streaming
  audio market could become extremely competitive.

19
Implications

• Royalty issues mean music formats are likely to
  be dominated by music producers (e.g., Virgin
  Radio) or by deep pockets (e.g., AOL).
• The lack of licensing and regulatory requirements
  opens the door for innovative programming/content
  strategies by online broadcasters.

20
Implications

• Although in its infancy, streaming audio is
  already dominated by a small collection of
  broadcasters. Five companies owned for 45 of the
  top 50 sites in August 2002.
• AOL (29 sites)
• MusicMatch (9 sites)
• Virgin Radio (3 sites)
• ABC Radio (2 sites)
• Educational Media (2 sites)

21
Implications

• If direct competition emerges--direct or through
  simulcasting--the ability to leverage the
  capabilities for interaction and customization
  will likely be the key determinants of
  competitive advantage.