BY KURT HANSON
According to a new survey produced by Arbitron, the majority of webcasters have fervently embraced an advertising-supported model, as proven by the statistic that 85% have sold at least one schedule of spots to an advertiser.

Talk about setting the bar low!

Given the fact Internet radio has been readily available and getting good press for almost two years now, the question it seems to me should have been, "How many spot schedules do you sell in a typical month?" rather than "Have you ever sold one?" But that's where the industry still is, apparently.

Arbitron's survey, called "Webcasters Speak Out," was presented at an event called "Webcast Advertising Today," hosted by Arbitron Webcast Services and The Digital Media Association (DiMA). The survey (results in Adobe Acrobat format here), conducted by Arbitron Webcast Services, consisted of 62 interviews with executives at Internet-only webcasters, rep firms, content delivery networks, technology companies and broadcasters.

Equally significantly, almost one-third of webcasters believe it will be three years or more before ad revenues cover the costs of streaming. And only 10% believe it that revenues will catch up with costs in the next year.

Another finding was that of those advertisers who did buy schedules, 59% of those advertisers only ran one schedule of advertising. In other words, they didn't renew. Yikes.

What's the problem?
There are several problems slowing the growth of Internet radio as an advertising medium.

Comparatively minuscule audience sizes: Most webcasts have audiences that are so small that they would be unmeasurable using traditional radio ratings methodologies.

In the January webcast ratings that they released about three weeks ago, Arbitron said that it measured "more than 17 million hours of streaming media." (The release goes on to note that Arbitron Webcast Ratings currently measures 2,300 stations and channels that provide Arbitron with access to their server data.)

Sounds pretty impressive, until you realize that KOIT-FM/San Francisco gets more than 20 million hours of listening per month all by itself. So do about 30 or 40 other U.S. radio stations. (The cutoff is any station with a full-week P12+ AQH of 36,000 or more.) Any one of those 30 or 40 major-market radio stations, in other words, has more listeners than all 2,300 Arbitron-measured webcasts put together!

The same dramatic comparison can also be made with individual webcasts:

Some of Arbitron's top webcasts are Beethoven.com, with 727,400 hours of listening per month, WABC/New York City, with 310,700 hours, Groove Radio, with 193,600 hours, and NetRadio.com's "80s Hits" channel, with 187,200 hours.

By comparison, in little Modesto, CA (Arbitron market rank #122), the #10 radio station typically gets about 800,000 hours of listening per month -- which is more listeners than the leading webcast channel in America!

...

... How did I get these numbers? As I write this, I'm looking at an Arbitron radio ratings book in which the #10 station in Salisbury-Ocean City (market rank #152) had an AQH audience size of 1,000 people. (Another way of looking at AQH is that this station delivers 1,000 hours of programming to listeners during the average hour.) 1,000 Listeners per hour x 18 Hours per day (Mon-Sun 6A-12M) x 30 Days per month ------------------------------------------------------- 540,000 Hours of listening per month In other words, if you want to know how many hours of programming you deliver per month (your "ATH" in Arbitron terms or your "TTSL" in Measurecast terms, take your AQH and multiply it by 18 and then multiply again by 30. (Note: This ignores the programming you deliver during overnights, which might add yet another 10% or so to your total hours.) ...

The leading network in the Arbitron ratings, if you add all of their channels together, is NetRadio.com. All 120 of their channels, combined, received about 3 million hours of listening. Sounds pretty good.

By comparison, though, WLW/Cincinnati -- so low-tech that it's an AM radio station! -- gets about 12 million hours of listening per month. That's four times more hours of listening than all 120 channels of NetRadio put together.

StreamAudio, the Seattle company cofounded by programmer Bob Case, provides streaming services to hundreds of radio stations. All together, they delivered about 1.4 million hours of listening in January. Pretty impressive.

By comparison, though, the leading CHR in Spokane, WA (market rank #87) typically gets over 3 million hours of listening.

My point: These are small numbers!

If the NSM of the #10 station in Modesto goes to New York and tries to drum up agency interest in his station - even if he can claim that his audience is growing 2% a week -- he's going to have trouble getting in to see a lot of people. So the leading webcast in America, which has a smaller audience size, is going to have similar problems.

January's Top Ten Networks in Arbitron Webcast Ratings:
Network:	Hours Streamed per month:
NetRadio	2,920,500
Live365	2,431,400
Global Media	1,992,100
ABC Radio Networks	1,879,500
StreamAudio	1,387,700
Beethoven.com	727,400
Cablemusic.com	618,800
Corus Entertainment	526,500
Enigma Digital	465,700
DiscJockey.com	371,100

Top Five single stations in April MeasureCast:
Station:	Hours Streamed per month:
MediAmazing	568,772
Virgin Radio (UK)	245,578
Radio Margaritaville	226,136
3WK Underground Radio	178,995
ESPN Radio	163,370

Selected broadcast radio stations (typical ratings book):
Station:	Hours of listening per month:
WLTW/New York	73,710,000
WBBM-FM/Chicago	33,858,000
WMJX/Boston	18,846,000
WJZW/Washington, DC	9,882,000
KPRR/El Paso	7,938,000
KMJ/Visalia-Tulare-Hanford	2,052,000

Problem #1:
Which department buys Internet radio?
In my opinion, it's a no-brainer that advertising agencies should be buying Internet radio.

Think about it: Which would be a more effective advertising vehicle: Flashing a one-inch tall banner ad past someone for a couple of seconds, or an uninterrupted 30-second radio spot? You'd think that the radio spot would be a much better value! (Note: Based on current prices, the radio spot doesn't cost a whole lot more than a targeted banner ad.) You'd think that there must be a few savvy advertisers or ad agencies out there who would feel the same way.

Well, you'd be pretty much mistaken. As far as I know, not a single advertiser or agency in America has seriously embraced this medium.

One problem is that it's unclear which division of an agency buys Internet radio. The radio buyers are focusing on terrestrial radio…and the interactive division doesn't have the proper creative! (They've got banner ads, not audio ads.)

Until this is resolved -- logically, I think, in the direction of the radio buyers -- there's going to be a Catch-22 that prevents many schedules from getting purchased.

Problem #2:
Limited advertising inventory
The Internet-only webcasters are afraid to run commercials, and probably for good reason.

That reason is simple: Their competitors aren't running commercials. If CyberRadio2000 starts running eight spots an hour, won't its listeners switch to one of the webcasters that hasn't gotten around to selling spots at all? It seems possible.

Problem #3:
Lack of aggregation
If there are thousands of webcast channels each with a few dozen to a few hundred listeners, how do they grab the attention of advertisers? Aggregation!

In other words, one firm (e.g., Cybereps or Katz or Hiwire or MediaAmerica or Lightningcast) has to bundle all of those stations together and offer them to an advertiser in one easy-to-buy package.

As noted above, if you aggregated all 2,300 Arbitron Webcast Ratings participants together into a single package, you've still only got the audience of one major-market radio station -- but, you know, the NSM of KOIT can in fact travel to Manhattan and get an audience with advertisers.

Conclusion:
Would it be easier to simply give up and go home?
No, no, no. Absolutely not! Before the AFTRA crisis hit a few weeks ago, a successful radio station webcast -- in other words, a webcast that's a simulcast of a broadcast signal -- had an audience that was about 1% of the size of the audience of its broadcast sister.

Note that in, say, Chicago, radio advertising is about a $500 million business (in terms of annual revenues). If radio stations are increasing their audience size by 1% by streaming on the Internet, and if they could sell those spots for the same price that they sell their broadcast-signal spots, and if everyone was doing it, that could add another $5 million in revenues per year.

And if we guess that an equal number of Web users are listening to Internet-only webcasters, that's another $5 million in potential Internet radio revenues available from Chicagoans, for a total of $10 million

Then, maybe in a couple of years, as more and more people get broadband Internet connections, that 1% may creep up to 3% or 4% of broadcast listening. That's $15 million or $20 million. Add another $10 million or $20 million from the Internet-only stations, bringing the total up to around $25 million per year, and pretty soon you're talking real money.

And that's just Chicago, which only represents about 3.5% of America. If Chicago's potential is $25 million, you're looking at a national potential getting pretty close to $1 billion within the not-too-distant future.

And $1 billion is nothing to sneeze at.

So the short-term best-case plan is clear: If streaming costs you 5 cents an hour per listener, and if you can sell one spot per hour at a $50 CPM -- or ten spots an hour at a $5 CPM -- you should do it.

You'll at least break even -- and you'll be positioning yourself for the future.

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"'Not since the introduction of AM Radio has there been anything with more potential to change the future of radio than the technologies behind Live365...' said Alan Wallace, Senior Vice President of Communications for Live365. 'This is one of the first steps towards making Internet Radio portable. Within 5 years, radio listeners will be able to receive wireless Internet radio in the car and all over the world.'"

Read the entire release here.