THE DIFFERENCES BETWEEN
TRADITIONAL TERRESTRIAL
BROADCAST RADIO AND
INTERNET RADIO
by
GRANT GODDARD

www.grantgoddard.co.u...
1. Introduction
Internet radio broadcasts divide into several types:






Streaming of existing terrestrial AM/FM ra...
The “location” that a radio station serves can be part of a city (Radio Jackie
serving Kinston-upon-Thames), a whole city ...
different countries, but they also have different language requirements and
timezone existences. A breakfast show on inter...
In the UK, research has highlighted that, in the London market, competing
stations have overlapped each other’s format mor...
Shoutcast Internet Stations
genre

form at

no. stations % stations

non-music talk
comedy
spoken word
non-music total =
m...
other internet-only stations with similar formats, but also with simulcast
streams from rock-formatted terrestrial station...
time
06:00
07:00
08:00
09:00
10:00
11:00
12:00
13:00
14:00
15:00
16:00
17:00
18:00
Total day

music %
of progs
48
47
47
75...
be achieved simultaneously with other tasks (particularly driving). Radio’s
longevity, in the face of competition from tel...








Although not an internet radio receiver itself, the launch of Sky’s “Gnome”
radio last winter in the UK offer...
6. The Business Model
6.1 Terrestrial Radio
The business model of commercial terrestrial radio has always been the selling...
6.2 Internet Radio
The business model for internet radio is very different. Because radio has
always been viewed by listen...
costs of internet stations owned by Yahoo! or MSN undoubtedly run to many
thousands of dollars, it is nevertheless perfect...
The costs of streaming content vary widely according to the station format
selected. Most internet stations employ no dedi...
encourages major record companies to sign them to deals, knowing that a fan
base has already been established by online ac...
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'The Differences Between Traditional Terrestrial Broadcast Radio And Internet Radio' by Grant Goddard

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An analysis of the differences between traditional terrestrial broadcast radio and internet / online radio, written by Grant Goddard in April 2006.

'The Differences Between Traditional Terrestrial Broadcast Radio And Internet Radio' by Grant Goddard

  1. 1. THE DIFFERENCES BETWEEN TRADITIONAL TERRESTRIAL BROADCAST RADIO AND INTERNET RADIO by GRANT GODDARD www.grantgoddard.co.uk April 2006
  2. 2. 1. Introduction Internet radio broadcasts divide into several types:      Streaming of existing terrestrial AM/FM radio stations by media groups with current broadcast licences (“simulcasting”) Streaming of existing terrestrial radio plus enhancements, such as the ability to listen to or download archived broadcasts of specific programmes (such as offered by the BBC) Streaming of internet-only broadcasts where programme content is determined solely by the supplier (“push” technology) Customised streaming of internet-only broadcasts where the consumer is offered some interactivity in determining the programme content (“pull” technology) Podcasts, where the consumer downloads a specific pre-recorded radio programme via the internet for listening at a time of their choice This paper addresses the differences between traditional AM/FM broadcasts (which shall be referred to as “terrestrial” radio) and the latter three types of dedicated internet radio in the preceding list. 2. The Market 2.1 Terrestrial Radio Traditional terrestrial radio has always been bounded by the technology used to transmit radio waves, which has altered little since the invention of the radio medium. The signal from a transmitter, mounted on a mast or a tall building, can only be heard by the population within an almost perfect circle around that transmission point. This is the essence of “broadcasting”, by which means a radio signal is propagated throughout a specific geographical area, whether or not a particular resident of that area chooses to listen to it or not. In the most basic radio markets, it is this geographical limitation of broadcasting radio waves that has led directly to stations producing programming aimed to appeal specifically to the population of that area. Stations serve a “community of location” who are provided with local news, weather reports, travel information and audience interaction, all closely related to that station’s specific broadcast area: Community of location The Differences Between Traditional Terrestrial Broadcast Radio And Internet Radio ©2006 Grant Goddard page 2
  3. 3. The “location” that a radio station serves can be part of a city (Radio Jackie serving Kinston-upon-Thames), a whole city (Capital Radio serving London), a county (BBC Radio Cornwall) or a country (BBC Radio Four). Even on the largest scale, the “location” plays the most important part in determining a station’s programming. For example, a comparative content analysis of the same day’s morning shows on BBC Radio 4 (serving the UK) and on National Public Radio (serving the US) would likely show that there were very few similarities in editorial content between the two. In more developed markets, the number of radio stations becomes sufficient to encourage owners to differentiate their channels from each other by adding a second audience determinant to their programming. Stations start to serve a specific “community of interest” within their “community of location”. This gives rise to, for example, a dance music radio station in London, a sports station in New York City, or an African music station in Paris. Community of interest Community of location The extent to which different communities of interest are served by radio stations in developed markets is determined by:     The regulatory regime (in the UK, station formats are prescribed by Ofcom) Frequency planning thresholds that limit the number of stations that can be broadcast on AM and FM in any one local market The tastes and interests of the population in a specific market The economics of serving a particular “community of interest” The combined effects of these factors can mitigate against substantial communities of interest being served by a terrestrial radio station. For example, the huge African community in London has no radio station. 2.2 Internet Radio The most significant difference between terrestrial radio and internet radio is the market each of them serves. The very nature of the worldwide web excludes internet radio from having a “community of location”. The ability to receive internet radio anywhere in the world is determined solely by the availability of the relevant technology (computer, internet connection, soundcard, etc). At a stroke, it becomes impossible for internet radio stations to include in their programming the very “local” content that is the bread-andbutter of most terrestrial stations. Not only are listeners tuning in within The Differences Between Traditional Terrestrial Broadcast Radio And Internet Radio ©2006 Grant Goddard page 3
  4. 4. different countries, but they also have different language requirements and timezone existences. A breakfast show on internet radio is likely to be unsuccessful, because one listener’s breakfast time is the middle of the night for another listener elsewhere in the world. This lack of a “community of location” has led to most internet radio stations focusing almost entirely on the secondary factor that pre-occupies terrestrial stations – “communities of interest”: Community of interest The vast majority of internet radio stations completely ignore their “community of location”. Indeed, for many stations, it is impossible for a listener to determine from their web site which country, let alone city, they are broadcasting from, because such information is in no way a determinant of whether listeners will be interested in their programming. There does exist a tiny minority of stations that serve a location (most notably, those that serve national audiences in the US). And there is a noteworthy exception in MSN’s 1,444 “Local Sounds” internet-only stations, which clone the music playlists of the most popular terrestrial stations in major US markets, but without their DJ talk or commercials (or station identifications).1 3. The Content 3.1 Terrestrial Radio Despite the steady increases in the number of terrestrial radio stations available in developed markets such as the UK, the US and Canada, some sources of evidence show that there has not been an accompanying increase in programming diversity. Consolidation of radio ownership as a result of legislative change has coincided with a situation where terrestrial stations have:      1 Adopted similar formats in each market Centralised music playlists with little or no local variation Selected music from a smaller library of artists and songs Incorporated less new music into their output Overlapped each other’s formats significantly http://radio.msn.com/ The Differences Between Traditional Terrestrial Broadcast Radio And Internet Radio ©2006 Grant Goddard page 4
  5. 5. In the UK, research has highlighted that, in the London market, competing stations have overlapped each other’s format more substantially in recent years, a phenomenon that has been labelled “format creep”.2 For the listener, this can result in a growing lack of differentiation between stations and sometimes a perceived lack of choice in a radio market such as London that, on first impressions, would seem to offer a range of different listening options. In terrestrial radio, the listener can be faced with a choice of stations that might often sound too similar to each other, and which play a relatively limited selection of songs, including some with a high rate of repetition. 3.2 Internet Radio The growing popularity of internet radio can be seen not simply as a response to the wider ownership of computers and internet connections, but as a possible reaction to the terrestrial radio industry’s recent inability to satisfy the changing tastes and interests of available audiences.3 Internet radio has filled the gap in demand for more specific radio formats that terrestrial broadcasters have seemed unable to supply. 2 Goddard G., Tools For Radio Content Regulation #1: Playlist Diversity Analysis, private paper, London, January 2003. 3 Evidenced by the declining share of listening of commercial radio since 2001 in RAJAR audience data The Differences Between Traditional Terrestrial Broadcast Radio And Internet Radio ©2006 Grant Goddard page 5
  6. 6. Shoutcast Internet Stations genre form at no. stations % stations non-music talk comedy spoken word non-music total = music rock pop trance house techno alternative 80s metal gospel acid jazz top 40 country latin classic eclectic college reggae ambient folk funk drum & bass blues punk hardcore urban industrial downtempo breakbeat contemporary smooth asian ska new school old school african middle easter western swing instrumental big band bluegrass swing symphonic film/show opera european turntablism non-music total = 273 58 41 372 5% 1338 1070 469 467 415 374 305 259 245 243 203 182 154 142 135 130 118 107 105 94 91 90 89 86 83 66 55 47 46 35 34 26 25 24 24 20 19 19 16 16 14 14 11 9 7 5 7526 95% The above table shows the formats of internet radio stations streaming in the MP3 format that are listed on the Shoutcast aggregator web site.4 It is not a complete list of internet streaming services, but includes a substantial number of independent stations based in many countries. Analysing the format descriptions that are provided by the stations themselves, it appears that 95% of the listed stations are music-based, while only 5% are speech-based. Although rock and pop music are the most numerous genres, there exist significant numbers of internet radio stations dedicated to more specialised formats such as trance, techno and house, for which there are no equivalent terrestrial radio stations. A new entrant to internet radio could choose to open a station playing “classic rock hits”, but would have to compete not only with more than a thousand 4 http://www.shoutcast.com on 10 April 2006 The Differences Between Traditional Terrestrial Broadcast Radio And Internet Radio ©2006 Grant Goddard page 6
  7. 7. other internet-only stations with similar formats, but also with simulcast streams from rock-formatted terrestrial stations. As a result, this new entrant is likely to attract less than one-thousandth of the available audience, even if the playing field were level. In contrast, a station that launched with a tight niche format, such as taarab music from East Africa, would likely find it is the only station playing that particular genre on the whole of the internet. Although the numbers interested in that format in each country would be very small, the total audience is likely to be greater and significantly more loyal than for one more rock station that merely adds to several thousand extant rock music stations. This is precisely what makes internet radio a significant form of “narrowcasting” that can reach out and touch isolated numbers of people who may only make up a small proportion of the population in their localities, but are sufficiently significant in number globally to support a dedicated radio station. These audiences can never be served satisfactorily by terrestrial radio, which remains bound by “broadcasting” technology and the need to serve primarily its community of location. This is why internet radio is considered to represent an entirely complementary sector to terrestrial radio. Each medium delivers appropriate content to satisfy different aspects of the human identity, represented by geographic location for terrestrial stations; and by personal interests (reggae music or drama) or personal characteristics (ethnicity or language) for internet stations. 4. The Regulatory Environment 4.1 Terrestrial Radio The formats of UK commercial radio stations are regulated by Ofcom, including their music genres and their average speech to music ratios. For example, in London, these stations’ licences include the following requirements:5      Capital FM – contemporary/chart music – speech >15% daytime weekdays Heart FM – adult contemporary music – speech <25% Magic FM – easy listening music – speech <20% daytime Kiss FM – dance music – no speech quota Xfm – alternative rock music – no speech quota There can exist a “reality gap” between the prescribed music genres and quotas contained in these licences and the programme content observed onair. For example, recent content analysis of a heritage FM radio station located in the south of England demonstrated that its average speech content during weekday daytime programmes was more than double the minimum mandated in its licence:6 5 http://www.ofcom.org.uk Goddard, G., 2005. The convention of the regulator is to calculate the proportion of speech or music as a percentage of the output once commercial minutage has been subtracted. 6 The Differences Between Traditional Terrestrial Broadcast Radio And Internet Radio ©2006 Grant Goddard page 7
  8. 8. time 06:00 07:00 08:00 09:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 Total day music % of progs 48 47 47 75 72 79 78 80 78 76 70 63 74 69 speech % of progs 52 53 53 25 28 21 22 20 22 24 30 37 26 31 Market research in local radio markets across the UK continues to produce results that show one of the main points of dissatisfaction with local commercial radio stations is that their presenters talk more than desired by listeners. 4.2 Internet Radio Early in its existence, Ofcom indicated that it had no wish to licence or regulate internet radio stations because there was no scarcity of spectrum on the internet.7 Listening to internet radio has provided many UK citizens with their first experience of radio that is wholly unregulated by their government. The vast majority of internet radio stations have no presenters or DJs within their content, as a pre-requisite to maximising the global appeal of their programming. The very fact that internet radio is unregulated renders it impossible to quantify the medium’s speech to music ratios or to be precise about how many stations are predominantly music. Undoubtedly, it is the internet’s ability to deliver stations that are music-centred that provides much of their appeal, particularly to young people. 5. The Listening Environment 5.1 Terrestrial Radio One of the perceived consumer advantages of terrestrial radio has always been its portability. A household is likely to have more radio receivers than television sets, most of which are battery operated, offering the ability to listen to a station while in the bathroom or kitchen, or relaxing in the garden. Coupled with this is the ability of radio to be a secondary activity, so that listening can 7 Richard Hooper, Chair of the Radio Authority, Regulating Communications In The Age Of Convergence, speech to the Institute of Economic Affairs, 14 February 2001 The Differences Between Traditional Terrestrial Broadcast Radio And Internet Radio ©2006 Grant Goddard page 8
  9. 9. be achieved simultaneously with other tasks (particularly driving). Radio’s longevity, in the face of competition from television, computer games and mobile phones, can be directly accredited to this combination of portability and secondary activity. Another reason for terrestrial radio’s durability has been its consistent technology. Until the recent introduction of digital radio, radio receivers have not changed since the mass production of the first transistors. With no obsolescence, radios that may be several decades old can still receive the same stations as a brand new set. Indeed, this is one reason that the final switchover from analogue to digital radio has no projected date, because the industry is aware that current listening levels are enhanced by consumers’ continued use of very dated hardware. 5.2 Internet Radio Until quite recently, listening to internet radio was an activity confined to sitting in front of a computer. There was a necessity to use a web browser to locate the URL of a particular radio station, whilst ensuring that the appropriate audio player (Windows Media Player, Real Audio Player, or an MP3 player such as Winamp) was already installed on the computer. Initially, this restricted internet radio to those who were sufficiently computer-savvy to execute the prerequisites. Home internet connections were also mainly dial-up and proved insufficiently robust to prevent annoying buffering of audio. Additionally, firewalls installed in office servers often prevented workers from accessing any external audio or video streams. This situation has changed significantly in recent years, because of the following factors:      8 Internet connections have generally become more robust since the huge expansion of capacity during the early 2000s Broadband connections now represent 57% of all internet connections in the UK8 Windows Media Player version 7.1 (bundled with Windows operating systems) incorporated the ability to listen to MP3 streams for the first time. Before that, a dedicated MP3 player was necessary Wireless networks are becoming more prevalent in homes, particularly as they are offered and installed by cable providers as part of an initial TV/phone/broadband introductory package Standalone internet radios (that connect to a wireless network) are more competitively priced (below £200) and are more widely available. These radio receivers look like ordinary radios but offer reception of a wide range of internet stations via a simple interface. (The failure of the prototype Kerbango internet radio in 2000 had temporarily stalled such developments) Ofcom, The Communications Market, Interim Report, London, February 2006. The Differences Between Traditional Terrestrial Broadcast Radio And Internet Radio ©2006 Grant Goddard page 9
  10. 10.      Although not an internet radio receiver itself, the launch of Sky’s “Gnome” radio last winter in the UK offers the traditional ease of use of a portable radio combined with reception of audio from all radio/TV stations on the Sky EPG. With an extensive cross-promotion marketing campaign, Sky has introduced non-terrestrial radio to many of its subscribers for the first time An increasing number of mobile devices now include software to receive streaming audio, providing direct competition to car radios and Walkman/radio combos Internet radio aggregators on the worldwide web offer one-stop solutions for consumers seeking internet stations with appropriate formats or music content. Shoutcast alone offers a search facility of more than 14,000 internet stations Dominant internet portal such as AOL, Yahoo! and MSN all have “radio” sections on their homepages where instant access is available to selections of free and subscription-only radio streams. ISPs are increasingly offering links to radio stations on their homepages These developments are significant in improving the ease with which the consumer can find, access and successfully stream internet radio stations of their choice, without being tied to a computer. To some extent, it has been necessary for hardware designers to parse internet radio into a conventional piece of radio receiver hardware in order for consumers to treat it as “radio”, rather than as something associated with “computers”. This development represents the greatest threat to terrestrial radio broadcasters, because as soon as listeners perceive that there is no difference between tuning in to a traditional radio station or an internet station, they open the floodgates to a much wider range of programming choices. The popularity of internet radio could grow considerably faster once it is perceived by consumers as simply “radio” and is no longer associated with computers. This change of perception can be viewed two ways. Either we are moving into an era of “Radio 2.0” (compared to the old-fashioned Radio 1.0) where functionality must be “as intuitive and easy to consume – if not more so – than the current version”.9 Or we are moving into an era when “it stops being radio [altogether] and turns into something else.”10 Whichever description is applied, the important development is that the delivery system (the internet) needs to become transparent to users before non-terrestrial radio can become more accepted. In the same way that terrestrial radio listeners require no understanding of electromagnetic waves or frequency modulation to enjoy radio, it will be essential that listening to internet radio does not require understanding of the internet or computers. 9 Deloitte, TMT Trends; Predictions, 2006, London, 2006 Geoff Taylor, IFPI speaking at MusicTank seminar, London, 29 March 2006 10 The Differences Between Traditional Terrestrial Broadcast Radio And Internet Radio ©2006 Grant Goddard page 10
  11. 11. 6. The Business Model 6.1 Terrestrial Radio The business model of commercial terrestrial radio has always been the selling of listeners to advertisers. Money is paid for the ability to propagate a commercial message to the audience of a station. Listeners have never entered into the economic transaction directly, but are merely the fish on the line, captured by the appeal of the station’s programming. To listeners, the radio experience is free. Research shows that the majority of listeners dislike radio advertising, but accept listening to it as the only price they pay for the station’s content. Radio advertising is generally disliked more than television advertising because it is found to be more obtrusive, less creative and more repetitive. Terrestrial radio is dominated almost entirely by fixed costs. Because of the “broadcast” model the technology uses, a station’s costs are the same whether one listener or one million listeners are tuned to their radio signal. The only cost that is variable is that related to advertising sales, which is usually 20% to 30% of revenues and accounts for commissions and expenses of advertising salespersons and agencies. All other costs – staffing, premises, administration, transmission, engineering, depreciation and marketing – are fixed. The total of these fixed costs varies enormously, dependent more on the size market in which the station is located, rather than on the size of its revenues or audience. Although UK radio industry data is not readily available, recent estimates project that these fixed costs amount to £450,000 for a small local station; £980,000 for a medium local station; £1.85m for a large local station; and £23.4m for a London station. In all cases, these estimates relate to “heritage” stations that were former monopolists in their local markets, rather than recently launched competitors.11 Staff costs are the single largest operating cost of the terrestrial station. The smaller the station, the higher the proportion of the cost base is spent on staff. For a small local station, more than two-thirds of fixed costs can be related to staffing. These factors create a wide range of performances amongst UK local commercial stations. Small stations have an average minus 9% operating margin, while medium stations have an average minus 7% operating margin, with half the stations in both categories reporting losses. Metropolitan stations have an average 30% operating margin, while London stations have an 8% operating margin. Only metropolitan and London stations show an operating profit, with substantial variations in amounts.12 Although some terrestrial stations are now generating additional revenues from online activities, it remains the case that on-air advertisements from local and national advertisers continue to represent the bulk of stations’ income. 11 12 Spectrum Strategy Consultants, Economic Study Of Commercial Radio Licensing, London, 16 December 2003 Ofcom, Radio – Preparing For The Future: Phase 1 – Developing A New Framework, London, 15 December 2004. The Differences Between Traditional Terrestrial Broadcast Radio And Internet Radio ©2006 Grant Goddard page 11
  12. 12. 6.2 Internet Radio The business model for internet radio is very different. Because radio has always been viewed by listeners as a “free” good, it has proven very difficult for internet radio stations to apply a subscription model. Some multi-station operators offer a number of subscription-only services, but these are usually an adjunct to a range of free channels. Because the consumer has such a wide variety of free stations to listen to via the internet, it becomes extremely difficult for a single provider to succeed by charging. Advertising revenue remains only a minor part of stations’ revenue and only has a significant value in the US. Because of the “narrowcast” nature of internet radio, it is unlikely that an advertiser will want to reach a disparate audience of, for example, reggae music enthusiasts scattered across the world who speak different languages. Because the US is not only the dominant source of internet radio stations, but also the dominant market for internet radio listeners, the advertising market has developed there more quickly. Arbitron estimates that, in 2005, 37 million Americans listened to internet radio at least once a month, up from 11 million four years earlier. One US report estimates streaming audio advertising revenues as $4.5m in 2004, a fraction of the total $10.5bn spent on internet advertising. Banner advertising on internet radio web sites is estimated to have generated a further $30m in 2004, though how much of this relates simply to simulcasts of terrestrial stations is unknown. The combined total of streaming commercials and banner advertising is expected to grow tenfold to $320m over the next five years, though the report cautions these estimates with the caveat: “Where this goes is anyone’s guess”.13 The majority of internet radio stations are music intensive, and the most business-minded carry click-through links to Amazon or a comparable retailer to purchase CDs of the music played to the listener. As the above figures demonstrate, this is a far more significant source of revenue for internet broadcasters than on-air advertising. Amazon’s affiliate programme pays from 4% to 8.5% of retail value, according to the total volume of product sold per quarter. One of the most significant US independent multi-stream internet radio providers, AccuRadio, says it sells $40,000 worth of CDs per month from its links to Amazon, which would earn it $3,300 a month. Its 280 stations attract more than 1m unique listeners per month, with a peak of 20,000 simultaneous connections during US business hours (internet radio’s peak time worldwide). Additionally, AccuRadio sells on-air advertising at $14 cost per thousand.14 Whereas terrestrial stations are almost entirely based upon a business model of fixed costs, internet stations are almost wholly based upon variable costs. These businesses benefit immensely from scalability, which explains the growth of tens of thousands of internet stations all over the world. While the 13 Borrell Associates Inc., Here Comes Online Radio – Can Local Broadcasters Tune In To The Opportunity?, Portsmouth VA, December 2004. 14 http://www.accuradio.com/aboutaccuradio/ The Differences Between Traditional Terrestrial Broadcast Radio And Internet Radio ©2006 Grant Goddard page 12
  13. 13. costs of internet stations owned by Yahoo! or MSN undoubtedly run to many thousands of dollars, it is nevertheless perfectly feasible to operate a smallscale internet station for relatively small sums. One US report estimates that an internet station can be established for $2000 per year, though even this could prove to be an overestimate. 15 The fixed costs necessary to establish an internet radio start-up operation are:  A standard computer  A standard broadband internet connection (as low as 128kbps)  Music playout software (free for a basic functional programme or $200 for a more professional system)  Standard web site hosting The variable costs are:  Streaming content (commonly music MP3s ripped from CDs)  Streaming audio server (rental)  Marketing costs  Royalty payments The costs of renting space on a streaming audio server have come down considerably during the last five years because of over-capacity resulting from state-of-the-art hardware installed during the internet boom years. One UK company offers 10 slots on a 32kbps Shoutcast/MP3 server for £2.30 per month.16 This would allow ten people to connect simultaneously to an audio stream. In the case of AccuRadio cited above, its peak audience could be accommodated by renting 20,000 simultaneous connections at a cost of $9,600 per month, according to one US internet company’s rate card.17 In reality, additional volume discounts would be negotiable for this amount of capacity, given that AccuRadio is one of the most listened to internet radio services in the US. Marketing costs for internet stations commonly involve online advertising programmes such as Google AdWords that can be targeted using “keywords” towards specific web sites and internet searches.18 This is remarkably cost effective as charges are only incurred when a customer clicks through to the web site of the internet radio station. Banner exchange deals are also exploited to drive new customers to the station. Both the streaming and the marketing costs are completely scalable, according to upturns and downturns in a station’s revenues, available resources or popularity. Both can be adjusted on a real time basis, with no contract commitment longer than one month. In this way, internet radio provides the owner with considerable flexibility to adjust the variable costs, a luxury that terrestrial radio cannot enjoy. 15 Borrell Associates Inc., Here Comes Online Radio – Can Local Broadcasters Tune In To The Opportunity?, Portsmouth VA, December 2004. http://www.streamsolutions.co.uk/ 17 http://www.viastreaming.com/ 18 http://www.google.co.uk/ads/ 16 The Differences Between Traditional Terrestrial Broadcast Radio And Internet Radio ©2006 Grant Goddard page 13
  14. 14. The costs of streaming content vary widely according to the station format selected. Most internet stations employ no dedicated staff and run on basic unmanned automation systems. Music can be acquired from promotional departments of record companies, compiled from private record collections, or built from existing MP3 sources. Some stations employ live DJs, but the majority have no on-air staff. All of these costs are considerably lower than the investment in premises, studios and hardware required for a terrestrial station launch. If anything, the costs of starting an internet radio station are considerably closer to that of starting a community radio station. Remarkably, there is no requirement to purchase specialised audio or computing equipment, as standard hardware proves sufficient. 7.0 Benefits 7.1 Consumer benefits Internet radio generally provides consumers with an additional source of content that supplements their listening to terrestrial radio. Internet radio cannot tell you what the weather will be like in your area, cannot warn you of roadworks on your High Street, and cannot inform you that your train to work has been cancelled. It is no coincidence that most listening to internet radio derives from workplaces, where the audio stream is used as background, whereas terrestrial radio is much more of a foreground source of information in the morning before leaving home and again in the evening. In this way, terrestrial radio and internet radio can be viewed as complementary media, providing consumers with different listening experiences. 7.2 Industry benefits While terrestrial radio, for some consumers, has become more predictable and less exciting, internet radio provides the eclectic, interesting outlook that some say is lacking in mainstream radio. This is similar to the role that FM radio stations in the US played in the late 1960s, introducing audiences to new, innovative music artists and experimenting with new styles of broadcast presentation. Already, some terrestrial radio owners in the US have reacted to the new competition by introducing new i-pod type formats on their stations to imitate the new ways that audiences are mixing music styles and genres. In the long term, the radio industry is likely to benefit from the influx of innovation that has arrived with internet radio. At the same time, record companies have benefited from the role of internet radio as an extended A&R Department. More than ever, up-and-coming artists are championed on the internet and achieve a level of visibility that The Differences Between Traditional Terrestrial Broadcast Radio And Internet Radio ©2006 Grant Goddard page 14
  15. 15. encourages major record companies to sign them to deals, knowing that a fan base has already been established by online activity that includes exposure on internet radio. Only then would such artists be granted airplay on terrestrial radio. 8.0 Conclusion Internet radio is able to provide a narrowcast service to consumers that would otherwise remain unavailable within the confines of a terrestrial local radio market. This can be achieved because almost all of an internet radio station’s costs are variable costs that offer complete scalability of the operation, and because the market for the internet station is literally the world (or the wired world, at least). Grant Goddard is a media analyst / radio specialist / radio consultant with thirty years of experience in the broadcasting industry, having held senior management and consultancy roles within the commercial media sector in the United Kingdom, Europe and Asia. Details at http://www.grantgoddard.co.uk The Differences Between Traditional Terrestrial Broadcast Radio And Internet Radio ©2006 Grant Goddard page 15

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