Converged radio and internet ad models still open to suggestions

The synergy between commercial radio and the Internet has long been acknowledged by both sides. After all, radio is a complementary media that people can listen to while doing other activities, such as surfing the Internet. Here we revisit the subject of radio a year on, to see what developments have been made.

Through the Radio Advertising Bureau and the Internet Advertising Bureau, there has been research showing that combining radio and online advertising “enhances” consumer response. One report, from 2005, showed that 59% of people said they had researched products online after hearing ads on the radio.

But the sale of Last.fm, the music-based social networking site, to US-media group CBS for £142m earlier this month, has highlighted a trend that could threaten this cosy alliance.

Sites such as Last.fm and rival Pandora.com offer users the chance to set up personalised radio stations that are based on the user’s music taste. They can request tracks based on their music taste or it can be built using data from the user’s computer. Crucially, the sites only stream music, so users can listen to hours of music without interruptions from DJs or advertising.

Eyebrows were raised at the hefty price tag that CBS paid for Last.fm – others point to its 15 million active worldwide subscribers as a compelling reason. But industry observers do not believe these services can truly compete with commercial radio in terms of advertising or audience. “Personalisation is a really powerful thing and the brands that do it well will go far,” says James Cridland, director of digital development at Virgin Radio. “But radio is about more than music. It’s about companionship. People tune in for more than just the music.”

Rachel Sheridan, business development manager at EMAP, which has carried out research into social networks and online listening, says personalised radio is simply another platform for listening, albeit on demand, and has yet to affect traditional listening. She adds that the commercial model will take time to evolve.

“At the moment it is another platform for online advertising,” she explains. “How it plays out is open to questions about scale and popularity. It also depends on how users’ behaviour evolves, whether they will accept ads and, if so, how they want to receive them.”

Xfm, the GCap Media-owned indie music station, launched its own personalised service – Mi-Xfm – last December. Richard Mintz, Xfm marketing director, says it wanted to launch the service to start an “effective one-to-one dialogue” with listeners. He says there are “subtle” methods of advertising through the channel, but adds that, in many ways, the “standard rules” of monetising online apply. For instance, the station is happy to allow the player to be sponsored and it has been designed to take credits and branding. This includes a ten-second audio ad.

It also divides its music library into different “streams”, such as Loud, which plays more upbeat tracks, and X-List, which plays older, classic indie. These are also available for sponsorship and brands such as Sony Ericsson have already taken up the opportunity. Mintz explains: “Ultimately, it’s all about user experience. If we put commercial messages between songs it ruins that experience. The key driver in this area will be sponsorship.”

Social networking
Although music is the draw for users of internet radio services, existing sites also offer social networking features, such as being able to search for old friends and/or make new ones. Although Sheridan believes the sites are more than just the “generic communication tools” like Facebook. She adds: “Last.fm services a specific need for music lovers. I doubt it will reach the scale of Facebook or MySpace because it isn’t a form of communication, more a large community of people who relate to the same interests.”

Last.fm chief Stefan Glaezner also believes the site has more in common with MySpace, primarily because of the music link, and sees MySpace as more of a rival than Xfm or the commercial radio industry. “We see ourselves as 20% radio related and 80% Web and social network related,” he says.

For that reason, he agrees that “brands need to be more creative to reach users” and “doubts” that it will ever have streamed audio advertising. “It is about delivering the best possible service to users. Imagine loading Google and having to watch a 20-second ad before you could use it.”

The site is now concentrating on developing videos and will offer users a bespoke proposition that will work in the same way to radio services, but could also be based on areas such as music soundtracks or from ads. Clearly with this development there is scope for promotion with film launches or music-led ad campaigns.

Cross-platform
According to the latest figures from Rajar, the radio audience measurement body, 23.4% of adults have listened to the radio over the internet, whereas 32.9% have looked at a station’s website. The figures, for the first quarter of 2007, also show that 4.2% have listened to non-UK services. This shows there is a growing appetite for listening across new platforms and for different services, but as Rob Jones, chairman of radio content specialist USP, points out,”at the moment it is aficionados” who are using internet radio – of any kind – rather than the general public.

He also points out that non-broadcast brands, such as music retailers and record companies, that have content available could easily develop an online presence with personalised services. “It can’t work for all advertisers, but niche brands could use it tactically. I think generic brands such as packaged goods would find it more difficult.”

Even with the “listen live” function on many radio sites there has been a lukewarm reception to targeted ads or localised advertising. Cridland says that Virgin, which is the most popular online radio station, tested it about six years ago, but has since pulled it. “Perhaps media agencies weren’t ready for it then. I don’t think they could work out if it was Internet advertising or radio advertising,” he adds.

John Myers, chief executive of GMG Radio, which owns the Smooth Radio brand, believes the “jury is still out on how you monetise” many areas of the converged world. “People are just buying digital space and taking a chance at the moment. I don’t think the model has been found yet. Personalised radio is nice idea. People should spend some time thinking about the revenue model, which will help it to develop, but the graveyard will be full before there will be success.” 

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