As a hands-on Internet radio operator, things seem to be looking real bad for Internet radio in spring 2001. Consider this:

1. The prospect of [being liable for additional] royalties from AFTRA has caused the biggest U.S. radio groups to pull their streaming audio off the Net.

2. The darling of the Internet radio appliance industry, the 3Com-owned Kerbango.com, is [closing] its operations, putting an end to the emergence of free-standing radios that make it as easy to tune to Internet radio as it is to terrestrial radio.

3. NetRadio.com and the . . . AOL Time Warner-owned Spinner.com are the two industry leaders. NetRadio is facing Nasdaq de-listing, and the latest numbers show continuing losses of millions of dollars every quarter.

4. Many innovative radio-only sites . . . are either in Chapter 11, off the air, or about to shutter their doors.

5. Advertisers are insisting upon a difficult-to-implement technological foundation that requires simultaneous display of banner advertising with an audio spot. This standard ignores a basic principle that people listen to radio, not watch it.

6. Nearly all Internet radio is dependent in some way upon advertiser support; the pay-per-listen model not being sustainable. The advertising industry itself is experiencing its worst slowdown in nearly 10 years. The Katz Media Group, one of the two biggies in the national radio advertising industry, closed its streaming division.

7. The record industry lurks in the background with its own royalty claims under the [Digital Millennium Copyright Act], seeking to extract enormous sums from an infant industry already reeling from more body slams than a WWF Battle Royale.

Not a lot of joy here.

Why has this happened?

The easy-money environment of the last three years has made bad management the norm. The guiding principle seems to have been, "Build it and they will come . . . with money in hand." This has allowed people to ignore the three essentials of [any] broadcast media: good signal reception, good sales, and good programming.

So what's the good news? For all three of the essentials, progress is being made.

Signal Reception

Online radio has to be as good as terrestrial radio. The RealPlayer software has gotten better. Although the Windows Media Player (WMP) has made inroads, RealPlayer remains the standard, and the standard keeps getting better. There is less Net congestion and resulting signal loss. I get far less e-mail these days complaining about signal loss and the difficulties of downloading and installing the basic free RealPlayer . . .

The latest version of RealPlayer has the quality edge. No doubt the next version of WMP will raise the stakes. Everybody wins.

The steady takeup of broadband connections improves the quality of reception even further.

The result?my own stations have experienced enormous growth in the last few months in both [TSL] and the total number of people tuning in.

Sales

Radio has always been handicapped by a perceived lack of effectiveness amongst advertisers. However, compared with [selling] banners, this handicap is minimal. Radio advertising has been in place for more than 70 years, and it works. The Internet is no more than another means of transmission of radio signals.

As the audience that listens to Internet radio achieves a critical mass, placement of audio spots following the accepted standards of reach and frequency will work too, especially if the ad creative is orientated toward direct response. After all, with well-designed e-commerce, the online listening is occurring while the listener is already "in store"?no need to get out of the car to make a purchase.

Standards for qualifying demographics and measuring audience size are still in the toddler stage. The competitive distribution and refinement of the services offered by MeasureCast and Arbitron will ultimately provide advertisers with consistent measurement standards capable of independent audit. That these services measure actual traffic and do not require listeners to join a panel to be surveyed gives online radio a tremendous edge in accuracy.

The emergence of such competing sales representation organizations as MediaAmerica, Lightningcast, Interep, and HiWire, as well as streaming purchasing divisions in advertising agencies, will ultimately raise the standards of marketing and buying of this advertising inventory.

Programming and the marketing thereof

I've got to admit?it's getting better all the time. Recent efforts by MTV show promise as it focuses on classic positioning, as well as building an expectation and then fulfilling that expectation along the lines of [traditionally] focused commercial radio programming.

The big payoff will occur when it is professionally recognized that listening occurs in an "at-work" environment and stations are tailor-made to work within that environment. This can [lead] to formats as divergent as [hard rockin'] knac.com or my own [adult standards] WABY.com.

So, keep low, stay in the trenches, and hang in there. Good times will come.

Paul Bendat

Albany, N.Y.



The author is a former station owner who now operates Web-only radio station WABY.com and programs the online station for Nerve.com. He wrote this open letter in response to streaming radio's recent crises.