Internet Radio Finally Has a Future

I was recently thrilled to see that SoundExchange, the music industry licensing body, finally agreed to lower its royalty rates for pureplay streaming music services (i.e. for the Pandoras, not broadcast radio simulcasts). It seems that the music industry finally realized that the current royalty rates, which they had lobbied hard to put in place, were, in fact, going to put many pure play Internet radio companies out of business and that Internet radio might, actually, promote digital music sales. The impact of the royalty rate reduction settlement was clear from Pandora’s $35 million financing round announced within days, thereafter.

Well, that was the first step toward securing a future for innovative, personalized, interactive music services, such as Pandora, LastFM, Slacker and others. The second shot in the arm for such services has been their new-found popularity on mobile devices, thanks to 3G networks and, of course, the iPhone (and, to a lesser extent, the auxiliary input  jacks now commonplace in cars, through which Internet radio makes for a pretty darn good experience).

Internet radio’s most recent move toward longevity is exemplified by Pandora’s recent agreement to let broadcast radio conglomerate Clear Channel sell audio ads on Pandora. Although this move will surely be controversial among listeners (after all, who prefers interstitial audio ads to commercial free music), Internet radio services must find a way to tap into local advertising, which dominates the broadcast radio advertising market. Local ad sales requires local sales teams, however, which Internet radio companies cannot afford. Therefore, deals such as Pandora’s with Clear Channel are likely the best path for profitability and, hence, survival, for Internet radio players (AOL and Yahoo figured this out a couple of years ago and each partnered with CBS Radio on their respective Internet radio services).

I hate to see interstitial audio advertising on Internet radio but, as long as it’s “short, tasteful and infrequent,” as Pandora Co-Founder Tim Westergren has stated as Pandora’s ad sales strategy, it is much preferable to those services going away – and besides, advertising will surely become more personalized/relevant and less interruptive/obtrusive over time and low rate, commercial free subscription versions of these Internet radio services are often made available for those willing to pay. Bravo!