Internet radio broadcasters earned their place in the
music marketplace by serving and cultivating active listeners and using
interactive digital technology to build up new niche music markets and
communities around them. They tapped into their listeners not only for listening
time, but for talent and content as well.
It is both simpler and more complicated, easier and more
difficult to make it in the music business these days.
Take the Internet radio market, for instance. Digital recording and
music broadcasting once required making rather large investments of capital for
systems that could only be operated by experienced, well-trained
technicians.
Today the necessary components can be bought much more cheaply
off-the-shelf from digital audio technology vendors or from Internet
broadcasters who can provide digital broadcasting channels and services directly
to a mass market-sized army of amateur and professional Web DJs and musicians.
Lower Barriers to Entry, More Competition
Rapid advances in the development of digital music technology have led
to an explosion in the amount and variety of music available to listeners
worldwide, as well as to new opportunities to break into the music business as a DJ, musician or
Internet radio broadcaster.
According to the International Federation of the Phonographic
Industry's, "IFPI Digital Music Report 2006," the number of songs available
online from major service providers doubled to surpass the two million track
mark, while the number of legitimate online service providers grew to 335 --
that's up from 230 in 2004 and 50 as of year-end 2003.
The flip side is that the music market is becoming less and less
homogenous. Instead, it is evolving into a market of masses -- masses of narrow,
and to varying degrees deep, market niches. Consequently, it's more difficult
for broadcasters and DJs, as well as musicians, to tap major, commercially
viable veins.
Also contributing to the business conundrum is the fact that lowering
barriers to entry, as economists tell us, leads to more competition --
competition for music listeners/consumers, competition for content providers and
more competition for dollars.
There's plenty more competition today, in what has always been a
fiercely competitive market, than has been the case at any time in the recent
past.
"The market is in a real state of flux right now," said Betty Ray,
senior editor and director of community at Live365.com, the largest independent
Internet radio broadcaster in the U.S. -- and probably the world.
"The old model of bringing up the next big pop star is harder to come
by, but there are lots of people out there making music, selling CDs and
creating their own networks and communities," she notes. "It's easier to be
entrepreneurial. Overall, it [Internet radio and digital audio technology] is
enabling musicians to succeed and make a living in music. It enables artists to
direct their own fate to a much greater degree than was true in the past, and
with a lot less in the way of resources."
The Bygone Days: Free Internet Radio
It's a Saturday night, and I'm burning the midnight oil writing a
paper in an Internet cafe in the small southeastern Polish city of Czestochowa.
I have my MS Word doc up in one window and in another, I'm listening free of
charge to my favorite Internet radio program. Mr. PoBoy's Jambalaya Jam is
digitally streamed by Live365.com, a company that now boasts 4 million unique
listeners a month -- the biggest listener base it has ever had.
I've lived and worked in several countries during the past few years.
Wherever I've gone, Mr. PoBoy and Jambalaya Jam have been there. Being able to
tap into this program and has made me very appreciative of, even grateful to
Live365.com and Steve Polatnick, the man behind PoBoy Creations and Jambalaya
Jam.
It also sparked my journalistic interest in the Internet radio
phenomenon and, specifically, how the people making it work make it work -- as
well as whether they are making any money doing it.
Steve Polatnick got into the Internet radio business as a Web DJ back
in its infancy, in 1999, when everything you needed to get up and running was
free.
"I got turned on to Internet radio by a childhood buddy [The Jester] who was doing a
two hour nightly show to no one from his basement in suburbia. He was playing
all his favorite tunes and having a therapy session because he couldn't afford a
shrink," Steve recalls.
"He turned me on to Shoutcast.com, but I wasn't technically inclined, and I
noticed that many broadcasts were coming from Live365.com, so I checked them out
and discovered that they did everything for you. All I had to do was sign up for
free and upload my MP3s and they would take care of the rest . . . and it was
all free!"
That Was Then . . .
Times have changed since those heady early days. Web DJs like Mr.
PoBoy now are charged to make use of Live365's Internet music broadcasting and
systems services platform. It includes access to a sideload music library
containing songs and other audio materail from Live365's roster of 10,000-plus
content providers, many of whom are listeners as well.
Polatnick's and Jambalaya Jam's audience has grown substantially
since 1999. Today, he's attracting more than 1,500 listeners a day who tune in
for an average 40 minutes at a time. Ironically, his programming activities have
gone from an economic break-even point to costing him money to keep them
going.
"I guess it was self-supporting in the early days when Live365 was
free and Napster made up for the holes in my collection," Polatnick explained.
"Then Live365 started charging for their services and the record companies got
the government to pass laws about how many songs per hour or per day you could
play from a single artist or album," he said.
Subscription sales and advertising are
two big revenue streams, both for Live365 and its Web DJs. Live365 runs its own
streaming advertising on all free-listener
programming. This isn't the case for preferred members or on programs whose Web
DJs hold a Live365 PRO license, which are ad-free.
Web DJs and music programmers who have a PRO license can sell and
stream their own advertising on their programs,
however, and all music programmers can promote their own Web sites and ancillary
businesses, including merchandise sales.
Polatnick is selling Mr. PoBoy branded merchandise via his own Web
site, which listeners can get to via a hyperlink on Live365. He has considered
upgrading his license to Live365's PRO level, which would enable him to sell his
own advertising and stream it on his programming,
but hasn't done so yet.
"It's really tough to make it in Internet radio right now," Live365's
Ray acknowledged. The bursting of the Internet stock market bubble in 2000 and
the ensuing economic downturn hurt fledgling Internet radio broadcasters, but
the real blow came in 2002 -- in the form of new industry royalty rate
regulations handed down from CARP, the Copyright Arbitration Royalty Panel.
"Royalties are paid on a per-performance basis rather than as a
percentage of revenues, as is true for satellite radio," explained Ray.
Furthermore, both Internet and satellite have been put at a disadvantage
compared to traditional AM/FM radio broadcasters who pay no royalties -- either
performance-based or percentage of revenues -- at all, she pointed out.
Building Communities Around Deep Niches
Internet radio broadcasters earned their place in the music
marketplace by serving and cultivating active listeners and using interactive
digital technology to build up new niche music markets and communities around
them, Ray said. They tapped into their listeners not only for listening time,
but for talent and content as well.
Those Internet radio broadcasting services that survived the bubble's
burst, the flagging economy and the imposition of the record company royalty
rates had to find and forge new e-commerce-based business models.
For those that wanted to preserve and build on their unique ability
to develop large numbers of "deep niche" markets by tapping into their listener
base, it meant finding a way for new, aspiring talent -- Web DJs, musicians or
other traditional broadcasters -- "to grow and become big. So, yes, the lower
end [of the market] is very valuable to us," Betty Ray said.
Live365 shares revenues with its Web DJs and music programmers in two
ways: by paying "bounties" for attracting preferred member subscriptions and by
passing on part of subscription fees based on the number of preferred member, as
opposed to free listener, hours they attract on a monthly basis.
Live365's WebDJs can also sell their own advertising and promote their own ancillary businesses,
Ray emphasized. She pointed to the success of Rock.com, a Live365 channel that has succeeded in building up
a large audience and selling branded merchandise.
"They've built a big brand and grown into a big rock n' roll network," she said. "They've built
a business on Internet radio. I think that will be less of a rarity as more
listeners come online, but there will also be more competition."
In order to keep its Internet start-up and alternative indie music
roots alive and growing, Live365 continues to add to its content by signing
deals with record labels, as well as with high-tech industry giants such as Microsoft (Nasdaq: MSFT) and
Apple (Nasdaq: AAPL).
The company also continues to find and work out ways of helping its
communities of small, individualistic broadcasting "hobbyists" to grow their
businesses. As the Internet radio market grows, it is attracting interest from
non-music companies such as Bacardi. The rum and spirits producer has developed
a Live365 radio channel and is using it to promote and advertise its own core
business, Ray said.
With the idea of adding to the technological toolkit of all its
broadcasters small and large, Live365 was among the first to introduce software,
dubbed "Studio365-Live," that enables its Web broadcasters to stream music live
from pubs, clubs and music halls.
It is partnering with a wide range of companies in the digital music
business to continue building its listener base and keep abreast of
technological innovations. It has partnered with Apple's iTunes service and
recently began podcasting its programming. Also, it has partnered with digital
audio equipment manufacturers such as Philips (NYSE: PHG) and D-Link to
sell new stand-alone, wireless Internet radios and other equipment through the
Live365 Web site.
"Our edge is user-created content and community built around that,
and you'll never find that on satellite," Ray observed. "We've been a
user-created community since the beginning. We've always been proud of our
ability to facilitate the promotion and discovery of new and seldom heard music,
as well as more popular forms."
