BY KURT HANSON
Listenership to Internet radio

is growing at a much slower pace than conventional wisdom would have had it, according to RAIN's exclusive analysis of the new Arbitron Webcast Ratings data released yesterday morning. (See 9/18 RAIN here.)

Comparing audience ratings from July 2000 to the comparable February 2000 numbers for the 36 channels that appeared in both reports, it appears that listenership to those 36 channels of Internet radio grew at the rate of only 1% per month -- a far slower growth rate than most observers (including this one) would have predicted.

In fact, about 1/3 of those channels -- including all five of the NetRadio.com channels measured in February -- actually lost listeners between February and July. (On the other hand, NetRadio channels did claim 31 of the top 75 positions in the July report. Many of NetRadio's 120 music channels seem to have much larger audiences than most terrestrial broadcasters' webcasts have.)

As shown by RAIN's chart comparing the two reports (here or below), the big gainers in the number of hours tuned included Enigma Digital's KNAC.com and GrooveRadio.com (with increases of 72,300 and 60,800 hours, respectively), followed closely by London's VirginRadio.co.uk, ABC-owned WABC/New York City, and the webcaster that probably got the most press this summer, KPIG/Salinas-Monterey, each of which gained about 50,000 hours of listening.

The following chart shows the percentage gains (or losses) for the 36 channels that appeared in both the February and July reports. (Remember, of course, that Arbitron is not measuring all webcasters -- just those who signed up to participate in their service.)

Note that the 5% gain in Internet radio listening to these 36 channels occured over a five-month period -- i.e., a gain of about 1% per month.

(It is probably worth noting that if you subtract out the five NetRadio channels shown above, the remaining 36 stations showed a 19% gain over the five-month period -- i.e., a gain of about 4% per month. Within that figure, the 15 ABC-owned terrestrial station webcasts that made both reports showed a 11% gain for the five-month period.)

On the other hand, the analysis as shown above is not quite accurate -- it ignores audience losses for any stations that may have dropped out of Arbitron's top 75 channels for July. The following four channels all had more than 27,500 hours of listening in February but apparently did not make the cutoff to appear in the July report (that cutoff being 27,500 hours of listening):

...

... Several additional points are worth your consideration: (1) The above analysis is all about same-station growth. (In fact, Internet radio listening as a whole would also be increasing as new entrants come onto the scene, and that's not reflected in this analysis.) (2) It's also possible that listening to Internet radio is increasing by leaps and bounds, but only to stations and channels that aren't participating in the Arbitron study. (For all we officially know, maybe the webcast audiences of webcasters like Spinner and Sonicnet and CyberRadio2000 and DiscJockey.com and of stations owned by broadcasters like Emmis and Bonneville and Greater Media and Entercom are growing like gangbusters.) (3) Although NetRadio's top five channels may have shown some decline between February and July, it's interesting to note that their other channels are much stronger than one might have suspected. (Even their Celtic channel is beating most major-market broadcast stations' webcasts!) (4) On the other other hand, these all continue to be small audience sizes by comparison to those of broadcast radio (i.e., AM and FM). (As a rough rule of thumb, if you want to know a webcast's Mon-Sun 6AM-12M AQH audience size, use what I hereby dub "Hanson's Formula:" Take their monthly ATH, cut off the last three zeroes, and multiply by two. For example, Beta Lounge, with 31,000 hours of listening per month (ATH), would have about 62 people listening at the average moment between 6AM and Midnight (AQH).) (By comparison, a major New York City radio station might have as many as 100,000 people listening to it simultaneously.) (5) Of course, the numbers get reasonably large if you aggregate them. If Katz or Interep or Hiwire or MediaAmerica can bundle together 100 stations simultaneously, that's an audience size worthy of an advertiser's consideration. (5) But WHY are these numbers so relatively low, especially considering that music is allegedly the "killer app" of the Internet right now? The standard line -- "The numbers are small right now...but they're growing like crazy!" -- no longer seems to be correct, based on this new information. We'll discuss this more in upcoming issues of RAIN -- and, of course, in person at this week's conventions in San Francisco. ...

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BY KURT HANSON
Yesterday in RAIN: RAIN pulled off one of its first major journalistic coups at the Digital Coast 2000 conference in Los Angeles last Friday, scoring an exclusive interview with keynote speaker and RIAA Executive Director Hilary Rosen in which she shared new insights regarding her views about webcast music licensing and her organization's lawsuit against Napster.

In Part 1 of the interview (see second story here), Rosen revealed to RAIN that she doesn't think the arbitration process to determine what fees webcasters will have to pay the record companies will be settled any time soon and that the RIAA has already cut more licensing deals with webcasters than have been formally announced.

She also suggested that it may be the publishing of advance playlists by webcasters that would violate the DMCA (click link for definition) -- not simply front-selling with a "Coming Up Next" feature -- and that a "skip" feature on a webcaster's player may also not be what the RIAA believes the DMCA means by an "interactive" service.

Today, she discusses (A) how webcasters can cut a deal for music licensing before arbitration is settled and (B) her organization's thinking behind its lawsuit to shut Napster down.

Hilary Rosen interview, Part 2
KH: Generally speaking, if someone wants to settle now [by cutting a license deal without waiting for arbitration], do they have to propose something to you, or do you have some guidelines – percentage of revenues, or an amount of money per person per song played?  Do you have a way you would like people to come to you?

HR: What they need to do is call Steven Marks at the RIAA, or go to RIAA.com and go to the “Webcasting” section.

KH: I think I’ve been there and I don’t think it says exactly the form in which you would like a proposal…

HR: It doesn’t. What it says is “Contact us, we’ll work it through,” because we can help with sort of model license agreements.  We don’t have one published there because there is no “one size fits all” for the kinds of businesses that come to us.

Some people, for instance, they start their business with a higher cash outflow, so they want to figure out a way where they can have an upfront license scenario, but the ongoing payment structure has to be different.  Some people don’t have any cash, but are expecting, on an ongoing basis, revenues from their site, and so they’d rather have percentages over the course of the play. So we’ve tried to work out flexible models.  

KH: When the arbitration is done, and the compulsory fees are set, that’d be retroactive all the way back to the date of the DMCA?

HR: Yes.

KH: So people had better be keeping track of how much money they brought in, or how many times they played each song?

HR: Yeah, the webcasters are actually incurring obligations right now. 

KH: In personal, separately-negotiated deals, that’s flexible -- how much retroactive stuff…? Maybe that’s a question for Steve?

HR: No, it’s not that it’s flexible to when the law is enforced, what’s flexible is the term.

KH: You must get this question a hundred times…

HR: But you’re going to ask it anyway.

KH: If you don’t mind. The week that the Napster ruling was stayed at the last possible second, my fear was – as was the fear of many other people who have friends who are in the record industry or are artists -- is that Gnutella was going to go crazy, that it was going to be the biggest weekend ever. And many people who like the record industry were glad that the order got stayed.  Do you think that that was a real risk -- that it would have been the hugest Gnutella weekend ever?

HR: Well, it might have been, but Gnutella at the time had, and still has, some capacity restrictions, and there have been a lot of articles recently about security lapses that people have experienced who have used Gnutella, and the system can only hold so many users in a simultaneous way, unlike Napster, which sort of is able to keep adding servers because it’s a more controlled environment.  So I think that Gnutella is probably not the biggest risk in an environment of an injunction against Napster.

KH: And you mean peer-to-peer in general. 

HR: You know, in a more general way, the more Napster-like clones are probably a bigger issue.  The truth is, it does require some management of the traffic and some user intervention on a regular basis to make a good user experience.  And that’s what Napster has done from the start. And that’s where the more successful clones would end up going. 

But I think that the point of an injunction against Napster is not to clamp or shut everything down overnight on the Internet.  I think the point is to set some guidelines about how businesses ought to operate, and in that regard, it’s going to be a transition when Napster shuts down.  And I expect it to be a transition. I don’t expect it to be overnight drama. 

KH: But you think that peer-to-peer won’t work because it’s too disorganized…

HR: Yeah, the thing that creates a good user experience is commercial intervention, and what I think we expect with a favorable Napster decision is that commercial intervention is going to have to come with some recognition of copyright owners’ interests.

KH: Okay. Thanks.

...

... BY RALPH SLEDGE There has been a lot of speculation recently as to how well the RIAA truly understands its enemies, and these comments by RIAA CEO Hilary Rosen about Gnutella seem to confirm that their information might be a little sketchy. Rosen claims that Gnutella doesn't represent a threat because "(it) has… some capacity restrictions… the system can only hold so many users in a simultaneous way, unlike Napster…" This should make someone pay attention. Gnutella is a peer-to-peer file sharing utility: what that means is that one person is connected to another person who is connected to another person, and so on, ad infinitum. It's not clear what Rosen is calling "the system" in this case, but the capacity restriction of Gnutella is little more than the capacity of the Internet itself -- far greater than Napster's centralized server system. It is true that Gnutella networks can "naturally" be divided into segments that max out at around 10,000 users -- but this is hardly the kind of limitation that Rosen seems to be implying, when any given 500 users typically share tens of terabytes of information. She also says "the thing that creates a good user experience is commercial intervention…" This is an arguable point. Napster has had venture capital for some time, but the application itself -- i.e., the user experience -- isn't radically different than it was when Shawn Fanning first developed it as a freshman at Northeastern in January, 1999. It's true, Napster is easier to use than Gnutella, and at the moment, there are likely more people using Napster than Gnutella. Gnutella is also difficult for people who aren't on broadband connections. But users' connections will be faster, and sooner or later (and probably sooner) someone will come out with a Gnutella that's every bit as easy to use as Napster - and that, or something like it, will come as a slap in the face to people who would dismiss it. ...

... Note: RAIN's attempts to find the section of the RIAA site dealing with individually-negotiated deals for webcasters- -- the "contact Steven Marks" reference that Rosen referred to -- were unsuccessful. (If you can find it, let us know.) ...

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BY KURT HANSON
Continuing the "winnowing-out" process of the first round of Internet radio-related dotcom startups, the San Mateo, CA-based startup Xenote has announced that they've failed to find financing and are discontinuing operations this week.

Xenote offered a cool-looking, keychain-sized device that allowed consumers to "bookmark" the songs and commercials they heard on their favorite radio station.

Xenote's idea was that consumers would carry the device around with them and press the button on the device when they heard a song or spot they wanted to remember or learn more about. (The device would emit a cool high-pitched little "chirp" when the button was pressed. You could also point it at someone and pretend you were shooting a phaser at them.)

When the consumer got back to their computer, they were supposed to hook up the device, sync it, and be taken to the Xenote website, where song/title information and/or advertiser information would be available for them.

The Xenote home page currently says: "Dear Xenote Customer: We regret to announce that we will discontinue the Xenote.com service for the Xenote iTag. No later than Friday, September 22nd, the service will no longer be available. Current economic conditions are such that we have been unable to procure funding and must therefore cease operations...

"Many of the stations that you've been able to 'Bookmark' also have a 'Now Playing' feature on their website. Where this feature is available, we'd encourage you to use it as an alternative to our service."

Xenote's shutdown follows closely behind that of another firm that also used CD sales as a key part of its business model, GetMedia (see 9/1 RAIN story here), which offered a comprehensive "Now Playing" feature. And now word that former Magnitude Network owner iCast has let go more than 10 percent of its workforce.

In the world of video-streaming-based Internet entertainment sites, firms are dropping like flies right now: Santa Monica-based DEN (Digital Entertainment Network) shut down in May, Dreamworks's Pop.com decided last week not to launch itself, and New York-based Pseudo.com (the East Coast equivalent of DEN) folded yesterday.

Despite Xenote's problems getting launched successfully, Sony has announced plans to launch an almost identical device called an eMarker at this week's NAB. (They were showing a prototype of the device around the R&R convention earlier this year.)

...

Although the Xenote people seemed like a great bunch of guys, this always seemed to me like an engineer-driven idea rather than a consumer-need-driven idea. For a consumer who might already be wearing a watch and carrying around a cell phone, a PDA, and a pager, adding a Xenote might very well be adding one device too many. (Pocket space is at a premium nowadays.) Furthermore, in its current incarnation, the Xenote device was actually doing nothing more than storing a time stamp. When you connected it to your computer, the software would simply check to see what your station (e.g., KKSF/San Francisco) was playing at, say, 2:12PM. When RAIN first wrote about Xenote last February (here), we observed, "It's a cool-looking little device, but this seems like it's technology-driven rather than need-driven, doesn't it? Also, I need to ask them, What's the business model? Who pays for the device? Where's the revenue to anybody?" ...

From CNET: "Campus police confiscated an Oklahoma State University student's computer after the Recording Industry Association of America notified the school that a person on campus was allegedly distributing copyrighted material.

"The 19-year-old's computer system--including monitor, keyboard, two CD burners, scanner and printer--was removed earlier this month from his dorm room after campus police determined he was operating an FTP server site that allowed visitors to download MP3 music files and even several full-length movies.

"A representative for the RIAA confirmed that a letter was sent to university officials notifying them that a student appeared to be distributing copyrighted songs. The RIAA, which is embroiled in a high-profile copyright infringement case against the popular music-swapping site Napster, constantly prowls the Internet for repositories of music files...

"The seized computer gear included 105 gigabytes of hard drive space, of which about 40GB were made available to visitors. Assuming the average music file occupies about 4MB, the student could have had approximately 10,000 songs available for download."

Read the entire story by CNET News.com staff writer Cecily Barnes here.

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