World is waking up to Net radio

In the compressed evolution of the Internet, digital radio is entering a key stage in the development of its short life. The two factors driving this rapid maturation are mergers and popularity.

The number of U.S. Net users listening to online radio has more than doubled over the last six months, according to a new study by media research firms the Arbitron Company and Edison Media Research. The study found that 13 percent of users say they have tuned in to Net radio, whereas only 6 percent of the survey's "diary keepers" had done so six months ago.

As it acquires audience popularity, Internet radio is likewise attracting the attention of large media, technology, and investment firms. Net radio company Spinner on Monday said it had received $12 million in financing from heavy hitters including Sony Music Entertainment, Intel, and Amerindo Investment Advisors.

Sources told CNET News.com last month that MTV was in talks to buy the Burlingame, California-based company, but the negotiations broke down over price. An announcement about MTV and another Net radio firm is expected in the coming weeks.

Another player, Imagine Radio, which was spun off from Imagine Media and merged with music technology firm Silver Island in July 1998, could be MTV's concession prize, according to a report today in The Industry Standard, a trade publication, which cites sources close to Imagine. Rotem Perelmuter, chief executive of Imagine Radio, said today that the company "does not comment on rumors." MTV representatives did not return calls seeking comment.

As all the momentum builds among media companies and the listening public, the issue of protecting copyrights still looms. A little-known provision in the Digital Millennium Copyright Act, which was signed into law in October 1998, requires Net radio firms to pay a statutory license fee to the record companies for the sound recording--a fee they didn't have to pay before and one that traditional radio stations don't owe. The fee itself is being negotiated now.

Surprisingly absent from all the acquisition activity, however, are the traditional radio companies, such as Chancellor Media and the CBS Group.

"I'm surprised television properties like MTV are scooping these companies up," said Mark Hardie, senior analyst with Forrester Research. "I would have expected one of the big radio groups to buy [Imagine Radio]."

Mark Mooradian, senior analyst with Jupiter Communications, echoed that opinion. He noted that MTV's entrance into Net radio "totally makes sense" but said it is "a huge missed opportunity for traditional radio. I'm surprised they're not in the bidding here."

According to the study, Internet radio and general Net use stand to cut into the traditional radio broadcast business. "Clearly, the Internet is changing consumers' media habits, and it may erode radio listenership in the future," Edison Media Research says on its site.

If the MTV-Imagine Radio deal becomes a reality, Hardie said, "others are sure to follow" in being bought out, among them NetRadio. "MTV is just trying to hedge its bets," he said, adding that the Viacom subsidiary is "looking at alternative channels for their programming" since it has moved away from simply broadcasting music videos and has taken up game shows, news, and other programming.

And if traditional radio companies refuse to buy Net firms, they might find themselves on the opposite end of the acquisition food chain.

According to a report today in Inside Radio, Chancellor is being eyed by America Online, as well as by Clear Channel Communications, a media company focusing on radio, outdoor advertising, and television. AOL this week said it plans to buy dial-up movie ticket reservation and listing service MovieFone for $388 million.

Regardless of who buys whom, it is clear that all these companies are gearing up for increased bandwidth and preparing for further convergence between offline media such as radio and television and the Internet. Television companies in particular have stepped up their interests in both online and PC-TV convergence projects. CBS, for example, said today that it is considering spinning off its Web interests and taking the new company public.

Another company that is stepping up its online efforts and counting on its brand recognition is the Rolling Stone Network. The company acquired multimedia site JamTV in 1997 and launched a beta in November 1998 of its forthcoming Rolling Stone Radio feature, which has attracted 150,000 users in its limited release, according to Jo Sager, vice president of marketing for JamTV. By contrast, Imagine Radio in November 1998 said it had roughly 100,000 registered users.

The Arbitron-Edison Media Research study was released by the research firms today at the Radio Advertising Bureau Marketing Leadership Conference in Atlanta.