Radio InSights

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.

AOL Stumbles: A Teachable Moment for Radio?

Recent stumbles of two early digital leaders is a reminder that at Internet speed, winners can quickly become losers.

The struggles of AOL and Kodak should be a warning to both broadcast and its challengers that success is far from assured for either.

Millions of Americans discovered email and the Web using an AOL account and software. For years, AOL was synonymous with the Internet, but that was then.

Now AOL is struggling. The company has lost half its value in just the past year, 28% in the past few days. Today, Pandora has a higher market cap than AOL, despite a tenth the revenue.

A two year effort to refocus AOL into a content provider has faltered. Even the purchase of the Huffington Post for $315 million has failed to reverse declines in AOL traffic.

The New York Times reports that AOL's share of US display ad revenue continues to decline from 6.4% in 2009 to 4.2% in 2011. In contrast, Facebook has nearly 18% of display ad revenue, with Yahoo! close behind.

Kodak is most closely associated with film photography, but the company essentially invented digital photography, manufacturing the first commercially available digital camera.

Despite its initial technological lead, it faltered badly as it attempted to both keep film alive while at the same time reinventing itself as a digital photography company.

The company has had only one profitable year in the past six, and has watched as its stock price has fallen from $30 in 2006 to today’s $1.77.

Two pioneering companies with enormous strengths and deep pockets both find themselves struggling.

What are the lessons for radio?

First, there is no First Mover Advantage. In digital, the opposite is more often the case. Early entrants into a space help identify opportunities, but generally the companies that follow are more successful.

Google+ launched in June, years after the leading social networks, but it has already become the fastest growing social network, attracting nearly 30 million members in its first month. Analysts expect it to surpass LinkedIn and Twitter in its first year.

Pandora has shown there is a market for personalized radio, but not even a hundred million registered users is an insurmountable lead. Now it is up to broadcast groups to exploit the opportunity Pandora identified by creating their own brands of personalized radio, refining and expanding the category.

While watching immediate threats, keep an eye on the horizon. Personalized radio may be the future of radio, but it's popularity might fade to be replaced by something else.

Crowd-sourced radio like Jelli hasn’t gotten the attention that Pandora has, but broadcast shouldn’t dismiss it. Even while broadcast develops its own personalized channels, the industry should research alternatives such as crowd-sourced radio.

AOL understands that survival will depend on creating original content. However, failed efforts like Patch show that Internet companies don't understand how to create it.

Radio understands how to create unique content, but radio has to ratchet-up its investment in quality content to remain competitive with new threats.

Worry more about the quality of your product than how people listen to it. If the content is good enough, people will find a way to listen to it.

And radio can’t stop evolving. Radio's competitors will continue to grow and evolve, and broadcast has to adapt to remain competitive.

It all boils down to providing what listeners want. Remember, listeners decide what kind of radio they want to listen to, not radio groups.

Listen to listeners and make sure you offer the type of radio they want.

And understand that what they want will change, and that it can change quickly. Don’t be so committed to one approach that it blinds you to other possibilities.