Web radio woes could be ad firms' boon

Major radio corporations Tuesday, including Clear Channel Communications and Emmis Communications, temporarily halted their Web streams because of unresolved online advertising issues. Although that decision was a temporary setback for nascent Web radio stations, analysts said it could help ignite demand for so-called ad insertion technology, which can be used to get around disputed Internet advertising rules.

"Ad insertion is a good bet because of the promise of one-to-one marketing," said Jarvis Mak, a senior analyst at Nielsen/NetRatings. "Radio is a good start and provides a segmented audience with the different genres of music."

With ad streaming, people who listen to online broadcasts can hear a commercial between the songs being played. Unlike banner ads, the commercials are streamed via audio and can be targeted to groups based on age, location, gender and personal interests.

Ad streaming technology has been available through major companies such as RealNetworks and Microsoft for some time, but analysts say advertisers have been slow to adopt it. By 2005, Jupiter Media Metrix projects that just 9 percent of all online advertising revenue will come from streaming media, both audio and video, for a total of $1.5 billion.

Hurdles facing ad insertion companies include its tendency to attract a fragmented audience, making it less attractive in some ways to advertisers than mass media such as offline radio. Analysts also said a lack of technical standards in streaming advertising has slowed adoption.

"The same problems we faced with online advertising a few years ago, we face with streaming advertising," said Marissa Gluck, senior analyst at Jupiter Media Metrix. "Consumers definitely have access, but in terms of trying to reach a large number of consumers in one place, it's very difficult to do that."

Tuesday's dispute among actors, advertisers and broadcasters over royalty payments could make streaming ads more attractive. Since advertising agencies have agreed to pay radio voice actors a higher fee if their commercials are used online as well as on air, they will likely seek alternatives such as ad insertion to control their costs.

Ad insertion is already making some headway.

RealNetworks' Real Broadcast Network said Thursday it has begun offering live ad insertion technology that lets broadcasters stream an on-air advertisement or replace it with an Internet-only ad. The technology also has a permission-based opt-in registration for listeners.

Other, smaller companies in this arena include Hiwire and Lightningcast, which work with Net radio companies to place targeted ads into any audio stream sent over the Web.

Founded in 1997, Hiwire uses a technology with an anonymous opt-in program that identifies demographic information about listeners. Last year, the company attracted heavy investors Grey Advertising and venture capital firm New Enterprise Associates. It has been inking deals with companies including NetRadio and Classic FM, the radio station of the United Kingdom's GWR Group, to provide in-stream advertising.

In January, Hiwire landed a deal with World Class Rock, the Internet-only radio station of Clear Channel Internet Group, which owns or operates approximately 1,170 radio stations and 19 TV stations in the United States. The company said it will target, deliver and sell ad spots for World Class Rock.

Hiwire Chief Executive Warren Schlichting said that despite the advertising doldrums, he is confident that his company is working in a "very well-established industry." Schlichting is betting that although record labels may succeed in their attempts to get people to subscribe to online music, only a low percentage of people will actually pay.

"People who are used to having radio be free and music for free...they're not going to subscribe--I'm so confident of that," Schlichting said. "Why on earth would they subscribe? They can get music a hundred different ways. The only reason you subscribe to something is because they offer you unique content that you can't get nowhere else."

Lightningcast is another company that has the potential to benefit from the recent dispute over royalty payments. Founded in 1999, Lightningcast inserts audio and video messages via streaming and uses a technology that enables commercials to be targeted and played simultaneously to specific listeners based on their personal interests, gender, age and other profile factors. Lightningcast also provides real-time auditing of commercials.

In January, the Alexandria, Va.-based company raised $15.5 million from a group of investors, including Nokia Venture Partners, Redleaf Group and Birchmere Ventures. In December, it signed an agreement with Scott Studios, which creates digital audio systems for radio operators, to offer Webcasters a radio operating system that provides ad insertion capabilities.

As some companies focus on delivering ads over Web streams, others are going after the market of free music by delivering banner ads with music downloads. EverAd, founded in Israel, has been aggressively pushing to expand its business by signing deals with record labels--such as Priority Records, Clive Davis' J Records, Artemis Records and Spitfire Records--as well as technology heavyweights, including software giant Microsoft.

EverAd Chief Executive Angela Pumo said the company is in the process of signing a deal with two of the Big Five record companies, a group composed of BMG Entertainment, EMI Recorded Music, Sony Music Entertainment, Universal Music Group and Warner Music Group. Pumo declined to name the labels but said EverAd hopes to announce them within the next three to four weeks. One deal, she said, will give EverAd access to every music release going to the radio; the other will let the company select a group of artists to work with.

"There's a lot of music out there, and the fact of the matter is there's room for all of us," Pumo said.