Tuning In to Share Music Online Legally

May 10, 2005 — -- Video may have killed the radio star. But when it comes to the radio itself, could the Internet breathe new life into the century-old broadcast technology?

Online and digital technologies have been challenging traditional means of listening to and discovering new music and other audio programming. Today's tech-savvy listeners are perhaps more accustomed to using Web sites such as Apple's iTunes rather than spinning the radio dial to their local broadcaster in order to hear the latest music.

What's more, new digital audio tools are giving consumers the power to do more than just listen. One powerful example is "podcasting," where audio fans produce their own content -- songs, speeches, narratives -- onto the Net for others to download onto digital music players such as the Apple iPod.

"It was [previously] expensive to get voice [and other audio] out on to the Web," says Mike McGuire, a research director for media at GartnerG2 in Stamford, Conn. "Increasingly, the digital tools on PCs and easy-to-use software today are making it relatively inexpensive. The notion of getting your voice out there and found isn't so difficult anymore."

And thousands of amateurs and online entrepreneurs have jumped at the opportunity to evolve from being mere listeners to creators. The growing popularity has even spawned interest among established media companies -- including ABC News -- to jump on the bandwagon and develop their own podcasts.

From Over the Air, to Over the Web

But with all this audio content now available online, companies are struggling with developing new ways to connect with Net surfers.

"The issue of searching online rich media, digital audio and video is critical, but still primitive," says McGuire. "There's a need to better understand how to find my content -- stuff I'm interested in -- online."

While online giants such as Yahoo!, Google and Microsoft tweak their Web search engines to let users find audio and video, others have taken another approach. Why not just borrow a page from the old-fashioned radio broadcast model?

Web companies such as Live365 in San Jose, Calif., and Mercora in nearby Santa Clara, are offering software tools and building Web sites that are being billed as "Internet radio networks."

The software allows almost any Net surfer to create his or her own online radio station, pumping out music or other audio programming stored on their PCs to anyone else on the Net -- just as a radio station broadcasts over the air for anyone with a receiver to pick up. But since the software automatically catalogs the member's content as it plays online, other members can easily find online music or programming that interest them.

Like Peer-to-Peer, Minus the Pirates

The appeal of such setups, say proponents, is that members have an easy way to share music they love with others online. And since such networks typically have thousands of members around the world, it's much easier for listeners to find music they like or discover new music that is enjoyed by others that share similar genres or styles.

"Peer-to-peer music file sharing was popular because it helped people find music they love," said David Porter, director of business development for Live365. "What we do as a promotion/discover vehicle is reintroduce members to old music, or introduce music that is new to them -- discovering music that they haven't been exposed to before."

Indeed, while Net radio's online music capabilities are similar to pirate "P2P" networks such as KaZaA, Live365 and Mercora avoid legal pitfalls by paying record labels and music producers fees for transmission rights -- just like traditional broadcast radio networks. What's more, both companies' software make it difficult to actually record or copy any music Webcast on their networks.

Show Us the Money

Still, while Net radio setups such as Live365 and Mercora's IM (or "Individually Modulated") Radio have been around for the last few years, the popularity has been mixed among Web users.

Live365, for example, claims its listening software has been downloaded from 3.6 million unique Internet addresses since beginning operations in 1999. Mercora has less than half -- about 1.5 million downloads.

What's more, both companies have to pay significant recurring costs -- mainly the Webcasting rights fees they must pay under the Digital Copyright Management Act -- but with limited revenue generation.

Live365 inserts some radio-like audio advertisements in its Webcasts and graphic pop-up ads in its software. Meanwhile Mercora has -- for now -- eschewed ads in favor of a subscription model. Free IM Radio users are limited to just an hour of Webcasts per week. Premium members who pay the $48 annual fee get unlimited listening privileges as well as up the ability to record -- but not copy -- up to 10 hours of music per month.

Neither company would go into financial particulars. Srivats Sampath, chief executive officer of Mercora, said: "It's not a non-trivial cost to pay the legal fees for copyright and broadcast rights. The checks are big [and] revenues are diminutive. Unlike traditional radio systems, [our] advertising revenue-generating systems don't have hundreds of years to develop."

Will It Play -- And Pay?

Still, Sampath and Porter both believe that the signs are positive for Net radio's growth in the United States. For one, an increasing number of U.S. homes now have access to fast and "always-on" Internet connections. That mean more potential subscribers -- and additional sources of new and different content.

What's more, Sampath also believes that as wireless Net technology expands and becomes as fast as wired connections, Net radio could really take off. In fact, the company is planning on releasing today a "mobile" version of its IM Radio software. With over 20,000 user-programmed channels already on the network, IM Radio mobile already surpass the few hundred stations of digital satellite radio services such as XM Radio and Sirius, said Sampath.

But analysts such as David Card at New York-based Jupiter Research says such ambitions are still pie-in-the sky dreams. For one, high-speed wireless Net service is still spotty in the United States. And while service providers are expanding the networks, they're also leery of adding new services that have unproven records.

"Wireless radio is not a very appealing business for American phone companies unless they can charge them extra for it," said Card. "And when it comes to radio, people don't pay for it."