Web Radio Hits Hard Times

Independent Internet radio outlets have been folding at a rapid clip in recent weeks, despite surging numbers of consumers listening to streamed music on the Web and the sector's increasing attractiveness to corporate behemoths like America Online.

Among the companies to shutter their operations in the last month are NetRadio (Bulletin, Oct. 19), ClickRadio, and RadioWave. Meanwhile, Clear Channel, MTVi, Radio Free Virgin, and Live365 have been laying off staffers and/or restructuring operations of their online radio businesses in recent weeks.

While the moves coincide with a shift into the sector by bigger companies?AOL is raising the profile of its Internet radio application on the newest version of its software?analysts say this is not a case of bigger players taking business from the small. Instead, they attribute the woes of online radio to bandwidth costs, a poor advertising climate, and a lack of venture-capital funding.

"Traffic to a lot of those sites has been pretty high, so it's not a traffic issue," says Jupiter Media Metrix senior analyst Aram Sinnreich. "It's an ROI [return on investment] per listener issue. The question is: Can you create a business model where you can eke out a profit on a per-listener basis? That's something that no one has been able to do yet."

Bandwidth, he notes, is still "wickedly expensive"?even for those who Webcast on a large-scale basis. Advertisers, meanwhile, are loath to experiment with unproven media. "Online radio for a lot of marketers is still an unknown quantity," Sinnreich says. "It's a huge education hurdle, and this isn't the kind of climate where big advertisers are going to be adding a line item to their media budgets and trying out something new."

Still, Zack Zalon, GM of Radio Free Virgin, stresses that the long-term prospects for Internet radio are good. Indeed, MeasureCast, a Portland, Ore.-based research firm that specializes in tracking Internet radio usage, reports that listenership to the stations it follows has more than tripled since January.

However, in the short term, only Webcasters backed by companies with deep pockets are going to have the financial resilience to weather the current environment, Zalon says. He notes that with every independent online radio venture that folds, it becomes decreasingly likely that the next cash-strapped company in the space will secure funding anytime soon.

"The potential for digital radio to convert from a novelty to an industry is at its most sensitive point yet," he says. "However, given the fact that the capital markets are in such a slump, people stop recognizing the inherent value in something like this, and the smaller players are just not able to make it through."