Internet Radio to Outstrip HD Radio

AUGUST 10, 2007

Internet radio legal squabbles won't stop growth.

Internet radio's modest success has brought unwelcome attention from the music industry, which is moving to collect more revenue when Webcasters play copyrighted music. But the online stations are still growing, and some sources suggest that they will outpace other types of new radio, including HD radio.

Internet radio will generate ad revenues of $19.7 billion in 2020, equal to those of terrestrial radio in 2006, according to a Bridge Ratings press release issued in August 2007.

Bridge Ratings made the projections as part of a study comparing Internet radio adoption with HD radio. Bridge Ratings surveyed consumers ages 12 and older in June and July 2007.

"It is worth noting what Bridge Ratings includes in its estimates of Internet radio ad revenue," said eMarketer senior analyst Ben Macklin. "The total includes both in-stream audio ads as well as online ads, banners and buttons on Radio Web sites and media players."

"There has been some confusion in the sector about various Internet radio advertising estimates," he said. "It is important because Sound Exchange has seized upon estimates in arguing that their royalty rates are fair and affordable."

Another estimate by analyst John Blackledge of JP Morgan projected $500 million in Internet radio advertising for 2007.

These aggressive forecasts for Internet radio could be threatened by the ongoing dispute between record companies and Internet broadcasters over performance royalties to labels and artists for music streamed over the Web.

"Content owners are squeezed for revenue, and will fight anything that chips away at that revenue," said Paul Verna, eMarketer Senior Analyst. "At the same time, if there are no Webcasters, there's no revenue for anyone. Getting the revenue issues resolved could involve ongoing battles."

Bridge Ratings estimates that Internet radio will have 180 million listeners by 2020. Terrestrial radio will have 250 million listeners. But HD will have less than 10 million.

Kagan Research forecast in 2005 that US terrestrial radio broadcasters would be earning 4%, or $805.2 million, of their total revenues from HD radio, mainly due to multicasting abilities. They also thought that ad-supported "now" channels offering local information would bring in a large chunk of revenue. So far, it has not happened.

"The value proposition for HD radio is less clear than with Internet radio, which gave people something they didn't have before — a larger range of music types and a greater quantity of music overall," eMarketer's Mr. Verna said.

"HD is a quality play, which is tough," he said. "Look at MP3s and SACD and other high quality disc formats: People are not clamoring for better-sounding radio, just as they weren't clamoring for better-sounding CDs. As a result, HD is growing more slowly than Internet radio."

eMarketer estimates that total music industry revenues from consumers, broadcasters, advertisers, video game publishers, film studios and other "outside" sources will reach $26.5 billion in 2011.