IQ News Chat: Executives Look At Web Radio's Present˜and Future.

Tune in to Internet Radio Radio being transmitted over the Internet has grown from a geeky sideshow to a booming industry, aided by the ubiquity of RealNetworks' streaming technologies, including RealPlayer for audio and video, with Microsoft's Windows MediaPlayer contending for penetration. Thus, to get a fix on some of the major issues in this market, IQ senior reporter Susan Kuchinskas brought together Jan Anderson, senior vice president, global sales and marketing of NetRadio, Minneapolis; Mark Cuban, chairman and president of broadcast.com, Dallas; Mark Mooradian, practice director of the consumer content group at Jupiter Communications, New York; and Shelley Morrison, vice president of advertising, RealNetworks, Seattle, in a roundtable discussion, presented below, that took place in February. Since that time, the Internet radio category has continued to demonstrate that it is as deep as it is wide; the best evidence of its possibilities has been the acquisition activity since this group sat down to chat. In February, Viacom, owner of mighty MTV Networks, purchased Brisbane, Calif.-based Imagine Radio, which lets listeners choose among song titles. And, of course, Yahoo! announced its intent to purchase broadcast.com for an eye-popping $5.7 billion. Even with those signs of consolidation, the panel showed that this market is nowhere close to settling down. It is relatively undiscovered as an advertising medium and some of its players, no pun intended, are examining divergent, potentially competing, revenue streams. RealNetworks, for instance, is currently in the business of not only providing its streaming media technology to hundreds of sites whose visitors can download it; it is also distributing its own content, potentially competing with the sites to which it provides its technology. And the content models themselves vary widely. While broadcast.com makes it possible for users to receive real-time and archived audio and video over the Internet, other sites offer different Net radio models. Spinner.com in San Francisco and NetRadio offer pre-programmed music channels, while Imagine allows listeners to pick individual songs. Mooradian: I'd argue that the most promising component of Internet radio remains untapped at this point, which is audio advertising. When will we start to see the percentages of audio ads to banner ads increase? Cuban: We're not 100 percent banner. They're a declining part of our business. But I'd qualify it and say, just because it's Internet radio doesn't mean you have to do radio-like things. The value of the Internet is that it's not radio and you can integrate audio and video. Advertising doesn't have to be a spot that a DJ voices-over a commercial that's run. IQ: Should we even be calling this category Internet radio? Will it cease to exist as soon as it converges with television? Morrison: Yes, it could be called streaming media. The interesting thing, from a programming standpoint, is that a lot of it is [content from] radio and some of it is original audio. I don't know that we'll rename the industry at this point and we certainly don't want to lose all the positive associations of radio just by naming it something new. But as Mark said, the expansiveness of the advertising opportunities with radio and audio content is tremendous. It's taken a while to get agencies to adapt and get excited. We do a tremendous amount of our own [advertising] production for clients. Anderson: It could develop into a whole new medium that integrates things that have never been integrated before. It changes the fundamental nature of traditional advertising which has always depended on delayed gratification. Billions are spent in the hope that someone does something later. Cuban: We don't call this period [the] streaming media [period]; we don't call it Internet radio or Internet TV. We call it digital media. Anderson: I believe this is a mass medium in the making. Just look--in four years we've gone from, where no one ever thought of it, to the point where the three of us aggregate probably well over 10 million unique listeners a month. And it's growing faster then I think anyone can accommodate. Morrison: Lady Di's death did a ton for audio and video on the Web. Everybody's grateful to Monica [Lewinsky] for a lot that's happened with this industry. It's the on-demand nature of the Internet which is so amazing, and its [ability for] globalization or nationalization. So, if I'm a Sonics fan, and I'm in D.C., and I want to listen to the Sonics game from KJR in Seattle, I can do that.Mooradian: In the new model of Internet radio, how many minutes of advertising per hour makes sense for you guys? Anderson: Again, we have the ability to actually integrate all your ads within the spin. So it's slightly different. We don't know for sure yet what the magic mix is. We would rather, at this time, go a little too low vs. too much. So right now we have between two and three minutes of commercial time per hour. Cuban: It's not just about 16 spots, if you're overselling. It's about the fact that it is interactive--we can't do this in Real--but on our Windows MediaPlayer side, you can do real-time triggers. So, I know if Mark and Shelley are listening to the same thing, well, you know what? Mark and Shelley get different ads in the same program. That's two ads in one spot. So, a spot isn't a spot isn't a spot anymore. It's not Internet radio. Anderson: And so often the content is the commercial or the commercial message. In the case of music, you're hearing the content but in effect you're also hearing a pitch to buy it while you're listening. The whole mechanism of what you promote and how you promote it and when you ask people to act has been completely rewritten. Mooradian: So what is going to get [the big mass advertisers] comfortable? Do you think it will have anything to do with some of the ratings players that are out there? Morrison: I think it's going to be a better understanding of the integration of the medium. A lot of large clients have very different interactive shops and there isn't necessarily the coordination. What a lot of people have thought was integration was putting the URL on the TV spot. So much more can be done. Anderson: I think there is an issue of measurement, as well. The great irony is that we can measure; every [other medium] estimates. All of us could tell you exactly how many people heard what ad, at what point in time, with fairly strong demographic numbers. Yet, there is no [measurement company] who [has] stepped forward yet to really qualify media streaming. Cuban: We never share our numbers with [the measurement firms]. I'll share them with my customers all day long but I couldn't care less about standard monetary metrics. Morrison: I could call every agency in the country; some will get it, some won't. It's a "we try harder" business. You are going to go after those who want to be on the cutting edge. I think the measurement will help but that you can't necessarily wait for measurement to bump the industry. Mooradian: When we talk to broadcasters, they tell us having Tom Brokaw say, "For more information, check it out on msnbc.com," is way more effective than commercial advertising time. You guys are arguing that the same kind of programming is going to be far more effective in radio. Cuban: Yes and no. There are no hits on the Net. Look what's happening to network television, right? They're losing their audience by the second. On the Net, it's already fragmented, yet there is no limit to the amount of content that can be supported. People go to the Net for their passions. We try to leverage people's passions and we go for that impulse buy. There's never going to be a Tom Brokaw on the Internet. Anderson: We love fragmentation, because we have one infrastructure for all of it. Nothing is better for us than to have somebody listen for 41 minutes to vintage rock, 17 minutes to Gregorian chants and then 20 minutes to acid jazz. IQ: Let's talk a bit about the different Internet radio business models. For instance, Shelley, how would you describe what RealNetworks is right now? You started out as a technology company and now you're a publisher. You launched Rolling Stone Radio, which certainly might compete with NetRadio or broadcast.com. You're starting to sell advertising. Are you competing with the partners who pay you for the right to distribute your technology? Morrison: We've always sold advertising on Real.com. We've always been a media publishing firm. We don't compete with you guys, we're all partners here. But, as a company, RealNetworks sells servers, Real has a consulting firm, Real does a lot of hosting and Real is a media publishing firm. Mooradian: If you had to ballpark a breakdown of revenues for RealNetworks as a company, how much is Real banking on itself as a technology company that's selling server and client software vs. the aggregation business, the media business? Morrison: I couldn't even guess. Cuban: I could tell you. We're public companies--it's all right there, so there's no mysteries. Morrison: But that's all historical. Cuban: Well, yeah, obviously things transition. Obviously, now they have brought you in [to sell] advertising, revenues are skyrocketing and Anderson: As someone who spends money with Real and thinks they have been instrumental, there are certain things that make absolute sense and Real should be doing [those things]. There are some areas of concern, though. When it goes to sort of playing favorites, I think that's when, possibly, one would sit down and talk about [it]. But, in terms of competing for advertising, let's not worry about it. Especially as we move into streaming media-based advertising, there's got to be a lot more demand than the three of us, or the four or five of us, could ever supply. IQ: Is that forever though? Right now you're talking about a situation where you don't need to rely on ratings to justify your product because there's room for everybody who wants to push it forward. What about two years, three years, four years down the line? Morrison: We're in the Internet business--we can't think past next week. But really, a rising tide lifts all boats. We treat our customers really, really well, but I don't care if they buy [advertising from] me and broadcast.com. Cuban: It's more sensitive for us because we're paying you and you're taking part of our revenue source. Morrison: We created the technology. You're paying us for the technology. Cuban: But we're hoping that as a partner, you're going to help enable us to be successful, just like we say we want to work with [ad] agencies to make them successful. Competition is not unusual in this industry; we accept that. Anderson: Competition vs. favoritism, I think, becomes maybe two different things. Mooradian: Fair enough. Right now, though, you guys are all fighting to get advertisers. Cuban: I wouldn't say we're fighting. Anderson: We're not competing with each other. Mooradian: But I want to go back to this issue. If I'm Mark Cuban--maybe this drama has played itself out a little bit already--and I'm thinking, Real or Microsoft, Microsoft or Real? Maybe because Microsoft is not going to be in my business so much--they're simply working as a technology vendor--that I'm going to prefer to work with them. Morrison: Microsoft has a very big and busy media publishing side. There's nothing different about that. We sell against Microsoft all the time. I have a lot of friends that do what I do at Microsoft. Cuban: They're completely separate groups. I mean there's no one here from Microsoft so I'll take the banner for them only because I know their technology as well as I know Real's. It is an issue. There would be a far better chance of us being 100 percent Real if Real didn't sell advertising or Real didn't have Real Broadcast Network. There's no chance of it happening now because of that. Anderson: Microsoft is a monopoly, Real is not. Mooradian: Right now, in all reality, it is. Anderson: OK, that was tongue-in-cheek. There are some issues that we touch in slightly tender spots where there is a relationship between spending lots of money and helping to directly finance other competitors. That's why I said competition is one thing, conflict or favoritism is another. One cannot have the whole cake and eat it, too. IQ: Can you talk more about that favoritism? Anderson: We'd have preferred that Rolling Stone wasn't so highly favored to create a special relationship [to co-brand Rolling Stone Radio]. Mooradian: The point is there are inherent problems with having a technology that's tied to a media business. Morrison: Microsoft's been one of my best customers and one of our biggest competitors for the last four years [at previous company, Starwave] and you cannot get away from that with Microsoft. What do you call it, "co-opetition"? Cuban: You've got to look at the goals of the company. Real is not a software company anymore. Real would rather be Microsoft. They are a portal and operating system company. [Like Internet Explorer, RealPlayers has] favorites, homepages, search engines and search options built in. They're both browsers. Anderson: In some ways, Real has more of a monopoly position than Microsoft has. Cuban: But at the same time, Real is my most valued partner. It's the husband-wife thing where you kiss and make up and you yell at each other on the same day. Anderson: We love each other. Mooradian: It's good for Internet radio to be on the desktop and it's good to be there all day. When are we going to see portability? Cuban: In a digital world bits are bits, right? The only question is how do you transport them? Are you going to transport bytes over HDTV? Over the air, HDTV is 19.4 megabytes and right now they're only broadcasting HDTV four hours a day. So that means the other 20 hours a day, I have a full 19 1/2 megabytes over the air. So that's wireless digital distribution. There's nothing that says you can't take a digital RealAudio stream and turn it back into analog. It just becomes a channel and then you can multi-cast it out. Do it today. Mooradian: What's the time frame when we're looking at stuff like this? Cuban: We're rolling these things out. Mooradian: You think it's three years? You think it's five years? Cuban: No. I'm talking by the end of this year, every single one of these things that I just talked about, we'll be doing. How large the audience will be for each one of them, I don't know. Anderson: And it is a question of acceptance. You know, it doesn't really matter because, do we care ultimately what device people get us through? No. The more devices that make people stay online longer, the better.

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IQ News Chat: Executives Look At Web Radio's Present˜and Future.

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