01/08/2012 12:46 BST | Updated 01/10/2012 06:12 BST

Commercial Radio Faces Digital Fight With Internet Music 'Streamers'

Pundits predict that by 2020, the word 'broadcasting' will be foreign to anyone under 40, with listening domination then by the streamers whose revenue includes paid subscriptions, advertisements directed at non-subscribers, and music sales on behalf of labels and retail partners.

Radio has always confused media futurologists. The sound-only medium survived the conquest of TV and the ipod, and has managed to bounce back from recession and technological revolution. But the recently churning ownership of commercial radio signals a less certain future: stations accounting for some 50% of radio listening in the US, UK and Australia have changed hands during the past few years with many longterm investors bailing out.

It is easy to see why.

FM/AM radio looks pretty "flat" in a world of social networks and mobile internet. But the expensive switch to digital will expose the broadcasters to competition for which they may be ill-equipped. Music-based radio stations, after all, don't even own their content. And listeners have plenty of other ways to hear the same music.

But, even while online advertising has ripped out profits from newspapers and magazines, radio has so far seemed to defy the odds and (mostly) maintain its hold on listeners and advertising. US radio (now heavily in private equity ownership), is expecting to grow again in this Presidential election and Olympics year and to increase its world-best 11% share of all advertising. In Australia, the year of sports is boosting audiences, and advertising share is holding steady at 8%. Even in the UK, where commercial radio has to compete for audiences with the BBC, the stations are expecting modest growth in revenues and in their 4% share of all advertising.

The radio industry is full of the wonders of digital in a year when (finally) a decent proportion of new cars across Europe will have DAB radio fitted as standard. Digital radio can give broadcasters the opportunity to transmit (and collect) data for specific customers, provide weather, traffic and even shopping offers: radio can become truly interactive for the first time and perhaps in video too. The UK, which had once hoped to be able to switch most radio broadcasting over to digital by 2013, is talking up DAB. And industry-wide adoption of the nifty "RadioPlayer" app has boosted radio listening on the internet to a record 42m hours weekly. UK radio listening is now 29% digital - via digital radio, internet, cable/satellite TV and, increasingly, by mobile phone. And rival broadcasters, who are asking the OFT effectively to stop the Irish-owned Global Radio from snaffling a dominant 50%+ share of the UK market by acquiring Guardian Media Group's radio stations, are positively purring about this year's increases in listening, with growth across the board. Too soon...

The US market shows the scale of the impending threat from music streaming. There, weekly usage of 'internet radio' (much of it from pure-play music streamers) jumped by 30% which means that 29% of all 12+ Americans are now non-broadcast, internet music listeners. Mobile phone listening to radio increased three-fold in 2011. And 'internet radio' advertising revenues are now equivalent to 40% of those for broadcast radio.

Much of that surge in US music listening comes from the growth of music streaming by 'personalised radio' stations, like Pandora, Rhapsody, Rdio and, more recently, Spotify which offer music listening tailored to a listener's specific requirements, genre, artist or even mood.

On market-leading Pandora, a 'station' is created by a listener specifying an artist or song or multiple items of any kind. Listeners can tune into pre-made genre stations and can also respond with a 'thumbs up' or 'thumbs down' to any or all music tracks as they are played. These are stations that "learn" how to keep individual listeners satisfied. California-based Pandora is the brainchild of Stanford politics graduate and sometime music producer Tim Westergren whom Time magazine described as "one of the 100 most influential people in the world".

Pandora subscribers pay a monthly subscription for unlimited music streaming or the service can be free - with advertising. Although most music streamers are still loss-making, Pandora may soon be profitable. During May, it recorded 1.1bn listener hours - an increase of almost 87% year-on-year. It now has 53.3m active listeners - 52% up on 2011. It claims some 70% of 'online radio', whose key player Sirius XM is now planning to launch into 'personalised radio'. More important, Pandora's May 2012 share of total US radio listening (broadcast and streaming) is now 6% - almost double that in 2011. Crucially, it claims to be the largest "radio" network for 18-49 year olds. Advertisers have started the stampede: ad revenue was up 6% in the first quarter of 2012. With $138m revenue and a $1.8m loss in 2011, Pandora is on course for profits this year.

Pundits predict that by 2020, the word 'broadcasting' will be foreign to anyone under 40, with listening domination then by the streamers whose revenue includes paid subscriptions, advertisements directed at non-subscribers, and music sales on behalf of labels and retail partners.

It is obvious why Spotify wanted to conquer America. With some $900m of revenues (and still loss making), the London-based company was founded six years ago in Sweden where streaming now accounts for 89% of all music sales. It is the world leader among streamers - outside the US - and claims to be the second largest music 'retailer' after iTunes. Across the world, it has some 10m listeners up to 3m of whom are paying subscribers. But, one year in the US, Spotify is not having an easy time. However, you can only imagine how relieved are record companies: Just a few years after digitalisation and music-sharing piracy slashed profits and prospects, recorded music is bouncing back with fast-growing licence revenues from streaming.

And streaming is becoming increasingly international. This month, Pandora launched into no-recession Australia alongside at least five other global services and two local ones. They're starting to scare Aussie commercial radio broadcasters which have traditionally been able to secure 8-10% of all advertising revenue. The UK may be next for Pandora. These streamers clearly compete with iTunes, music retailers - and broadcast radio. Expect hyper-competitive streaming launches too from Apple, Amazon, and Google.

In the UK, where streaming still only accounts for only 4.5% of music sales, broadcasters are abuzz with the promise of digital broadcasting and rising sales of DAB radios. The BBC is testing "RadioTAG", which features: "live pause"; the ability to Tweet a track to a friend on your mobile who can listen to the song and then (if they want) buy it; and listen to a MacDonalds ad while getting a discount coupon (in the form of a QR code) sent to your phone. It is also developing RadioVis with 'sidebar' signalling of images and text messages for broadcast audio services. But radio execs who (just like print publishers before them) love the idea that digitalisation can bring them into the world of moving pictures, may instead find themselves squeezed between 'personalised radio' from the streamers, and hundreds of new web 'channels' from existing TV broadcasters and new operators.

It is only 40 years since the launch of the UK's first legal commercial stations after stormy, romantic years of music piracy courtesy of Radio Caroline in the North Sea and Kiss in a bedsit. Ownership has become heavily consolidated by Global and German-owned magazines giant Bauer. Just as commercial radio pushes on into digital, Ofcom is looking forward to auctioning the vacated FM radio spectrum for smartphones, TV and community radio. Ironically, it is that coming wave of web-based interactive services which could eventually leave many commercial radio networks for dead if the streamers haven't already done it.

Digital broadcast radio may become a smaller, predominantly localised, and (frequently) social network-linked medium. But there's going to be a lot more music, exactly as you want it.

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