Is it Time for an Internet Radio Shake-Out?

Have you noticed how many different services offer music on the Internet? The logos at the left give you some idea.

The list doesn’t include broadcast apps, or Sirius, but it lists most of the Internet pure-plays and music sources, both past and present.

Scroll down to see how many you recognize, how many have disappeared, and how many you actually use. To download the entire list as a JPG, click here.

Technological innovations follow a predictable cycle. At first there are just a few innovators. Then, as the technology takes off, the number of providers explodes.

As the technology matures, the numbers begin to dwindle. Companies merge and consolidate. The struggling companies quietly disappear.

IBM created the first desktop PC in 1981. Twenty years later, dozens of companies were manufacturing 125 million computers each year.

But the business has matured, and it has become difficult to make money selling desktop computers. Hewlett Packard, still one of the top producing computer manufacturers has already decided to get out of the business. More companies will follow.

Today we have fewer auto manufacturers, fewer Internet providers, fewer airlines, fewer record companies, fewer soft drinks, fewer banks, and fewer radio groups.

Regardless of the business, if it has been around for a while, there are fewer companies in it.

Internet music streaming is approaching two decades. Most technologies begin to go through some sort of shake-out about two decades into the business.

So the question is, where are we in the Internet music business cycle? Will Internet radio continue to grow? Will more companies join the dozens already providing audio products?

Or are we near a peak?

Venture capitalists are still pouring money into music services and Internet radio providers. Pandora’s successful IPO seems to have fueled even greater interest in the space.

VC money doesn’t continue indefinitely, however. At some point, investors want to see a return on their investment, generally through an IPO. And there aren’t any more Internet music IPOs in the pipeline.

That means these services are going to have to become profitable soon. That may be difficult.

Pandora’s tremendous publicly funded lead is going to make it hard for other advertising-based services to gain much traction.

There’s also a limit to the number of companies that can offer essentially the same $10 a month “all you can eat” subscription music plan.

Both business approaches face serious hurdles, with too many companies chasing a small (but growing) body of users.

Then there’s the two gorillas in the room, Google and Apple, both exploring cloud-based music options.

Taken all together, it means we may be reaching an inflection point, a thinning of the herd.

If there is a shake-out, radio will benefit in one regard, but also face greater pressure.

Fewer Internet competitors helps clarify the playing field. Radio will be able to deploy its resources more selectively.

On the other hand, fewer competitors means they will have greater resources. Subscription and advertising dollars will not be as thinly spread.

The bottom line is that radio needs to continue to develop music discovery strategies while at the same time watch to see which way Internet radio is breaking, if consolidation begins.

Comments

[Richard Harker]

DJ, not including Live365 was just an oversight, since corrected. Thanks for bringing it to our attention.

[DJ Twain]

How come you didn't include Live365's logo? The internet radio service that's been around the longest at least deserves a mention.

[Wm_Tucker]

The Internet radio industry is still in an early stage of development for most webcasters -- including Pandora -- haven't quite figured out yet how to make a profit. Others don't have a clear business model. But I understand your logic.

I anticipate major media companies will eventually come to dominate the market for Internet radio and digital music, just as cable operators and regional telcos consumed the ISP industry. I doubt we'll see the same degree of consolidation occur, however, because of technology and the regulatory environment. The market for media itself is so vast, webcasters and innovative entrepreneurs should be able to find spaces to operate. And the faces of the players are likely to change. 15 years ago, no one anticipated Apple as the 800-lb gorilla of the music industry.