The Truth About Internet Radio

With the public offering of Pandora and the recent U.S. launch of European music darling Spotify, as well as the emergence of other startups in the "streaming music" market, a great deal of media attention is focused on the online radio space.

All of these music services are readily clumped together as "Internet radio." Streaming radio, is also sometimes called “Internet radio,” and they are essentially interchangeable. They involve delivering music (and/or other audio content) to a device via the Internet as a live stream. Internet radio is the opposite of a download.

However, there are different types of services in the Internet radio basket, and many who speak or write about them end up comparing apples and oranges.

Driving Demand

Within the scope of Internet Radio there are two categories of service, "non-interactive" and "on demand." These terms are imposed by music licensing structures under the Digital Millennium Copyright Act (DMCA). With a non-interactive music service that is DMCA-compliant, the listener cannot dictate exactly which songs to play or in what order. You can choose the type of music to listen to, but not a specific song. Pandora, among others, are free, non-interactive services. As long as a music service complies with the DMCA rules governing non-interactive listening, it does not have to make a direct deal with record labels and instead can pay a statutory royalty determined by the Copyright Royalty Board.

As the name implies, "on demand" services allow listeners access to a library of songs in which they can play any song, in any order they choose. Rhapsody, Spotify, MOG and RDIO are all on-demand services. On-demand services must negotiate licenses directly with the record labels so the music-licensing costs for on-demand are substantially more than the statutory licensing fees for non-interactive. That’s why on-demand services are usually supported by paid consumer subscription models, even if some level of limited free access is offered in the spirit of “try before you buy.”

Terrestrialvs. Pure Play

Non-interactive services also offer "terrestrial simulcast” streams and "pure-play Internet only" streams. Terrestrial simulcast refers to the Internet streaming of actual broadcast radio stations. "IHeartRadio" (owned by Clear Channel Communications, which owns numerous terrestrial radio stations) and RadioTime/Tune-in Radio are examples of popular terrestrial simulcast services. “Pure-play Internet” services provide streaming audio from the Internet and are not re-purposing existing broadcast signals. Pandora and Slacker are examples of pure-play services

In the early days of Internet Radio, terrestrial simulcast was very popular because listeners could play their favorite radio stations from all over the country over the Internet. Meanwhile, non-interactive services have made it very easy to personalize and customize stations, so the notion of just listening to "regular" radio over the Internet, complete with the frequent interruptions of DJ's and advertisements, has become less popular. Therefore, pure-play services have grown dramatically in overall usage.

According to Ando Media, the Internet Pure Play segment grew from 35% in November 2009 to 49% in June 2010.  Clearly, pure play is where the listening growth is, which may also explain why iHeartRadio recently updated its service to add "Pandora-like" station creation in addition to broadcast radio programming.

You’ve Got A Friend

"Social radio" is a relatively new term that refers to Internet radio layered with social capabilities usually through integration with social networks such as Facebook and Twitter. In simple executions, social radio lets listeners share songs, stations and playlists with friends and see what music and playlists their friends have been listening to. More recently, services such as have included real-time group listening and live chatting with friends in listening rooms.

The nature of streaming radio in real-time lends itself well to wrapping a social experience around music listening, and you can expect a lot of innovation from companies, which are leveraging mobile, social and streaming to change the way we listen to and experience music with our friends.

Mike Carson is CMO of Myxer, an ad-supported provider of free entertainment content on the Web.

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