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Commercialradio stations under siege

May 1, 2005

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http://www.orlandosentinel.com/business/custom/technology/orl-subizradio01050105may01,1,7304489.story?coll=orl-technology-headlines&ctrack=1&cset=true

Commercial radio stations under siege

Satellite services and podcasters are among the competitors luring listeners away from the FM and AM dials

By Christopher Boyd
Sentinel Staff Writer

May 1, 2005

Radio's nearly century-long run as a closed-door club for insiders with broadcast licenses is coming to an end as digital technology opens the door to homegrown disc jockeys with broadband connections.

The challenge is in its infancy, but the industry is preparing for ever expanding competition. It's coming from many directions, including satellite radio, cable television, wireless phone companies and Internet radio services.

Each year, it seems, new alternatives to traditional radio arrive. One of the most recent, called podcasting, has already attracted about 3,000 entrepreneurs who produce programming for downloading onto wildly popular iPod digital music players.

In response, Infinity Broadcasting Co., one of the nation's largest terrestrial radio groups, last week announced that it would convert an underperforming AM talk radio station in San Francisco to an all-podcast format.

Podcasts are essentially audio files that people make on their own and upload to Internet sites like iPodder.net. From there, the files can be downloaded and stored on digital devices for playing. The technology allows anyone with a computer to create what amounts to a homemade radio show.

Infinity calls the new programming an experiment, and the company hasn't said how long it would try it before deciding whether to keep it. The station won't pay or charge for the podcasts, which will be submitted by listeners and screened to assure the content is suitable for the airwaves.

To be sure, terrestrial radio remains highly profitable. But the companies that dominate the medium worry about any alternative that steals listeners.

Among their rivals are a pair of satellite radio broadcasters, XM and Sirius Satellite Radio, which are gaining thousands of subscribers each month for their pay-to-listen services. Sirius, the smaller of the two, has signed celebrated shock jock Howard Stern and home-décor diva Martha Stewart to do shows with the potential to lure still greater numbers of subscribers.

But radio industry experts say the real challenge to terrestrial broadcasters will come from online programmers who will use quickly evolving wireless broadband services to move content to listeners.

That competition has arrived and is beginning to capture an audience. Peter Simons, a Jacksonville Web site developer, subscribes to two online services and says that ever faster broadband connection speeds are vastly improving the audio quality of online music.

"Internet radio opens you up to all kinds of music that you never heard before," the 37-year-old Simons said. "It isn't nearly as commercial as regular radio, so you can pick the style of music you want to hear and you're not forced to listen to the same artists over and over."

And Simons said he likes the interactive features of Internet radio that allow listeners to learn more about featured musicians and then buy their songs online. As improvements keep coming, and wireless broadband becomes more widely available, industry analysts say broadband's audience will grow.

"Everything is heading to the same place, which is broadband," said Robert Unmacht, a media consultant with IN3 Partners Inc. in Nashville, Tenn. "Ultimately, wireless broadband will be the future of the industry. It just will take awhile."

Though conventional radio remains huge compared to the alternative media, the industry has reason for concern. Improvements in technology now allow cell phones to play streaming audio and car receivers to tap into ground-based wireless broadband transmissions.

Start-up businesses leading the charge are cocky about their ability to unseat, or at least greatly humble, the grandfather of all broadcasting media.

"I think radio broadcasters are in serious trouble," said Mike Roe, founder of Radioio, a Jacksonville Internet radio group that programs 15 music channels for transmission over the Web. "It's like the railroads not understanding they were in the transportation business and not in the rail business. Radio station owners need to realize that they are in the broadcasting business, not the transmitter business."

Since the 1920s, radio has thrived on a seemingly inviolable model. The Federal Communications Commission regulated a limited number of radio licenses, giving the broadcasters that owned them the right to cover geographical regions with programming. Radios were designed to receive broadcasts from regulated frequencies, and those without broadcasting licenses were locked out of the business.

The model worked for generations.

Over the years, it went through shifts and refinements. The arrival of television in the middle of the 20th century stole some of the medium's thunder, forcing stations to replace radio dramas with talk and music programming. Stereo FM undermined the value of monophonic AM stations in the 1960s, creating a shift in where people tuned in.

The transformation to digital distribution is the next wave, and for the industry, this one could be a tsunami.

According to a newly released study from Arbitron and Edison Media Research, eight in 10 Americans have Internet access and 37 million of them already listen to Internet radio at least once a month.

Broadband access, a requisite for high-quality Internet audio, is available to about half of all Internet users. The Arbitron survey found 40 percent of all broadband users say they love it, though just 8 percent said they love Internet radio.

Fred Jacobs, a radio industry expert who is president of Jacobs Media in Southfield, Mich., said Internet radio is very new technology that should gain listeners quickly.

"Internet radio is really the biggest issue in the industry right now," Jacobs said. "So many people are getting entertainment from Internet sources that it is bound to grow."

Radioio's Roe said his company is one of the few Internet music sources that has actively worked on a business model. His 15 channels, each aimed at a different listener group, have DJs that pick songs. The company is also cultivating advertising, which is broadcast as commercials and displays on its Web site, www.radioio.com.

Despite the inroads made by Roe and others, terrestrial broadcasters still dominate radio advertising and will continue to do so, said Larry Rosin, president of Edison Media Research, the author of the Arbitron survey.

"Satellite and Internet radio don't have the mass appeal for advertisers, at least not the local ones," Rosin said. He said local radio advertisers will continue to rely on local terrestrial stations to push cars, food and events. He said that will continue, even if local radio stations lose market share to their new competitors.

"As mass audiences become harder and harder to reach, the channels that reach the biggest chunk of the audience will continue to get the advertising dollars," Rosin said.

Even as they continue to dominate local markets, terrestrial broadcasters are adopting new technology themselves. Within a decade, most radio stations will broadcast digital signals as consumers begin buying digital receivers. The equipment will bring CD quality sound to FM and stereo broadcasting to AM.

At the National Association of Broadcasters Show in Las Vegas last month, companies including Panasonic, Polk Audio, and Sanyo announced plans to release an array of new digital receivers, and the industry group said receiver prices would fall dramatically this year.

Terrestrial broadcasting's digital play could prove challenging for Sirius and XM, which cover the nation with digital radio signals from satellite transmitters. The companies charge monthly fees and their service requires special receivers. Each offers more than 100 channels of programming.

Satellite's biggest advantages, its crystal clear sound and eclectic mix of programs, has drawn a growing number of subscribers. But the several million listeners are still insignificant compared with the more than 200 million people who tune in to terrestrial stations.

Radio analysts said that Clear Channel, Infinity, Cox and other chains that control huge numbers of local radio stations will have to adapt quickly, putting their own content online as people begin to think of radio as a broadband service.

"For a number of years, terrestrial radio really thought with a Wall Street-first, rather than a listeners-first, mentality," said analyst Jacobs. "But with all this change, everyone inside radio is questioning their assumptions."

Information from The Associated Press was used in this report. Christopher Boyd can be reached at 407-420-5723 or cboyd@orlandosentinel.com.

Copyright © 2005, Orlando Sentinel

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