Will Indie Internet Radio Catch On With Clients?

Two specialty media companies—Bid4Spots and SpacialAudio—believe they have found a way to capitalize on a rapidly growing consumer touch point that has been largely untapped by marketers within Internet radio.

With the January 2007 launch of a new ad auction system, advertisers can buy time from a collection of thousands of small, independent radio operators whose music and talk formats are distributed solely on the Web. Until now, few ad dollars have been devoted to the independents, mainly due to the unwieldy nature of the buying process.

Obviously, media auctions aren’t new. Even Bid4Spots, a subsidiary of Newmark Advertising, has conducted weekly auctions for so-called “remnant” ads for terrestrial radio stations, units that broadcasters have left over and are typically used within about a week of their sale.

But it is believed the new system will be the first to cater to the 25,000-plus independent Web radio outlets not affiliated with the mainstream radio groups or the Yahoos and Googles of the world.

“With so much going on in media, it’s easy to see how these [independent] channels” got lost in the shuffle, said Bid4Spots CEO Dave Newmark. “But it’s a treasure trove of customers that will now be reachable in an impactful way.” He cites estimates, based on an Arbitron/Edison Media Research survey conducted earlier this year, that independent Web radio outlets collectively reach more than 40 million listeners per month. Moreover, Internet radio listenership grew by 50 percent last year, according to the study. The rub is that each station in this emerging space only reaches hundreds or in some cases a few thousand listeners, so that individually, the appeal to advertisers is limited.

Newmark said that the stations could collectively offer advertisers about $350 million worth of inventory, based on a model that would limit the outlets to carrying about four 15- or 30-second spots per hour, in addition to “gateway” ads that Web users would encounter upon entering a site. That’s a small fraction of the $21 billion in ads sold by over-the-air radio stations in 2005, according to the Radio Advertising Bureau, but more than the estimated $80 million in ads currently sold annually by established Internet radio players.

The planned auction has drawn curiosity, interest and skepticism from ad agencies. One big concern, said Maribeth Papuga, svp and director of local broadcast for Publicis Groupe’s MediaVest, is metrics. “The biggest problem we have with radio and its various distribution points is that nothing is measured under one umbrella,” she said. “We’re still accountable for delivery. How do you measure the value of an online site versus a terrestrial site?”

Newmark counters that advertisers will have profiles of the stations they buy, including listenership data that will be verified by each station’s streaming host.

Another issue for Papuga: Control over where ads on such small stations are placed. “I think everyone is interested in it as a concept, but the struggle we have with outside bidding is choice of product and what am I getting?” She said it is hard to imagine working value-added components such as promotional tie-ins into an Internet radio buy, which is common with mainstream broadcast radio deals. That said, she added, “It might be the right place to be or might not, depending on the client objectives.”

At Interpublic Group’s Initiative, Janice Finkel Green, evp, local broadcast strategy, is not too concerned with the lack of metrics for the budding medium, at least for now. “If we had all the metrics, it would be traditional media, because that gets developed over time,” she said.

And with an audience of 40 million and growing, Finkel Green said the potential of the fledgling medium should be explored: “This is something we’ve not seen before related to radio.”

Finkel Green noted that the core audience for these stations—men 18-34—are increasingly spending more time with emerging-media platforms and less time with traditional fare like broadcast TV, “and I’d just love to greet them with one of my spots when they show up there.” While she hasn’t briefed clients yet, she’s compiled of list of those who she thinks ought to consider the new Bid4Spots auction. However, she added, “I want to see a live demo before I commit the clients.”

Some advertisers said they like the idea of the new bidding system–which will be set up as a reverse auction where stations compete for ads by offering the lowest possible prices. Those advertisers said that Internet radio ad rates established by mainstream players like Clear Channel and Yahoo Audio are too high.

“This will definitely bring some reality to the pricing in the Internet radio space,” said Michael Guarnieri, marketing manager at software developer Citrix Online. “We’re shifting a fair amount of our budget to streaming on-line radio and we think the reverse-auction model puts advertisers in a position of advantage.”

But there are turnoffs for advertisers as well. One of them is the lack of governmental regulations, which means stations can play songs and say things on the Internet that would be considered indecent on traditional broadcast channels and inappropriate for some advertisers. Rockie Thomas, who heads up new business development for Bid4Spots, said that buyers would have the option to exclude formats from their ad purchases. “There’s absolutely no censorship and some of the formats and songs are explicit,” she said.

If the auction works as planned, that will raise the copyright stakes for the stations, all of which are supposed to be licensed by music rights groups like Broadcast Music Inc. and the SoundExchange, a digital music rights organization. Advertisers will also have the right to exclude stations that are not copyright compliant, Thomas said.

It was Thomas who first brought the idea of the Internet radio auction to Newmark and Bid4Spots. That was earlier this year, when she was still with SpacialAudio, the other partner in the venture, where she was head of marketing. Spacial, based in Ropesville, Texas, supplies software that enables users to create their own online stations. “I would say the majority of these stations are hobbiests and the whole community has a very grass-roots underground feel to it,” he said. “At the same time, they want to monetize their efforts, but the ad agencies just don’t want to deal with hundreds of small stations. So the auction model makes a lot of sense.”