webcasting: High Frequency

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As the number of Internet radio listeners rises, so does the sales potential for advertisers.

Last summer, eProject.com, a small Internet software provider, was in search of the perfect media to advertise its wares. The company's executives knew their target - 25- to 35-year-old, affluent, Web-savvy business professionals. They knew where to find them - at work and online. But they didn't know how to rise above the din of dot-com advertising. Then Candice Caldwell, marketing director for Seattle-based eProject.com, tuned in to Internet radio.

For six months, eProject.com ran audio ads on King.org, the online streaming version of Seattle's popular classical music station, King FM (98.1). King.org's 272,000 monthly online listeners - mostly young and middle-aged professionals with average incomes of $66,000 - were an ideal demographic match. The campaign drew customers from 35 states and 18 different countries.

EProject.com is at the forefront of a fresh advertising medium: Internet radio. It's a new media channel that has the potential to help marketers target Net-savvy niche audiences that have been traditionally difficult to reach through mainstream radio formats.

Although still in the early stages, Internet radio is starting to register with marketers. Eighty-one percent of advertisers polled by Arbitron agree that Webcasting will get a significantly larger chunk of overall Internet ad dollars over the next three years. (By 2005, total ad spending online is expected to triple to $15 billion.)

Currently, about 5,000 terrestrial and Internet-only radio stations stream content on the Web. According to eBrain Market Research, 63 percent of multimedia PC owners listen to Net radio on their home computer, compared with just 33 percent who did so in early 1999, and 45 percent of 18- to 34-year-olds listen on their work computer.

Technology is key to the medium's future growth. "Streamies," a term coined by Arbitron researchers to describe online radio listeners, need a strong processor, computer speakers, and a powerful modem or a broadband connection. That's probably why Web radio listeners currently make up just 34 percent of all Internet users, or 19 percent of the entire U.S. population, according to Arbitron. By 2005, however, as technology continues to become more accessible, 41 percent of the population - or 118 million people - will be listening to Internet radio or downloaded music files at least once a week, estimates Forrester Research analyst Jeremy Schwartz.

Net radio provides listeners with something that the local FM dial doesn't: a wide variety. The medium opens the door to formats too distinct for traditional radio's finite bandwidth. Online, formats such as classical music can break out into "channels" - opera, symphony, or chamber music, for example - and news or sports from distant locales can be heard everywhere.

"By using both terrestrial radio and specific Internet-only feeds, advertisers will get the breadth of the audience of a particular station format, as well as the targeted audience for different flavors of those formats online," says Bob Lion, executive vice president of new media marketing at Interep, a radio station rep firm.

With all those options to choose from, it's little wonder that streamies spend almost twice as much time online than the average Web user - about 11 hours and 14 minutes weekly. Many listeners are young: 54 percent of 15-to-21-year-olds have tuned in to Internet radio, and 39 percent say they use a PC as much as or more than a stereo, according to eBrain.

Yet, Net radio is hardly a child's toy or an all-male venue. Of multimedia PC owners, 73 percent of 18-to-34-year olds, 67 percent of 35-to-54-year-olds, and 53 percent of people over 54 have listened to a Net radio Webcast. And while 73 percent of men have tuned in, so have 51 percent of women.

Advertising on Web radio comes with some impressive built-in advantages. For one, marketers can lure consumers right at the point-of-purchase. "Not only can advertisers, especially dot-coms, brand themselves on Internet radio," says Joe Pezzillo, founder of Internet-only radio network GoGaGa.com, "But you have a very active and engaged audience right there ready to click." According to Arbitron, 59 percent of streamies have visited a Web site they learned about from radio advertising, compared with 34 percent of non-streamies.

Internet radio also gives advertisers a way to hit a variety of specific targets in one swift blow. Several companies, including Radiowave.com, Hiwire, and Lightningcast, have developed so-called ad-insertion technologies that strip out local radio commercials during online radio streams and replace them with Internet-only ads. So a terrestrial radio station can air one ad on car radios and another on the simultaneous Webcast. They even help stations sell and track the ads. "We like to say we've created the 120-second minute, because now we can sell the same minute more than once," says Bo Overlock, marketing director for Radiowave.com.

Better yet, by collecting age, gender and ZIP code data from Web listeners, streaming stations can slice the thin demographics even thinner and resell the same spot to an infinite number of advertisers online. Thus, during a Webcast, for example, an 18-year-old girl in Philadelphia might hear an ad for The Gap at her local mall while a 25-year-old man in Boston hears a pitch for a J. Crew store down his block.

Each of the three Web ad companies has taken a different approach: Hiwire funnels highly targeted ads to listeners of terrestrial Webcasts outside the home market; Radiowave.com focuses on connecting advertisers' audio ads with Web site visuals to illicit calls to action; and Lightningcast concentrates on inserting ads into Internet-only streams. Just out of the testing phase, all three are now trying to get advertisers and radio stations on board. The hope: To compile enough stations to give advertisers the ears they are looking for by year's end, if not sooner.

The Internet could certainly use another ad medium. In a recent Association of National Advertisers (ANA) study, 35 percent of top ad execs cited low banner clickthrough rates - now at less than 1 percent, according to Nielsen//NetRatings - as a major concern, while 29 percent said the online ad formats currently available do not impact consumers. "There's a lot of pent-up demand for online advertising beyond banners," says Warren Schlichting, Hiwire's president and CEO. "Media people are open to the idea, but right now it doesn't fit into the boxes they're used to."

Despite Internet radio's advantages, Schlichting and his counterparts are finding the sell to advertisers harder than they anticipated. Lack of accurate audience measurement is a main hold-up. Forty-nine percent of advertisers say that no proof of return on investment is the number one barrier to their participation online, according to the ANA. But, an Arbitron study found that 84 percent of advertisers would likely spend more money on Webcasting if an objective third-party measurement system was available.

Bryan Lowe, director of Internet operations at Seattle's King.org, admits he's frustrated with the reception he's received from ad buyers. "If it's an agency that's used to buying radio, the Internet befuddles them and they say the numbers aren't large enough. If it's a dot-com agency, they are only interested in banner clicks," he says.

Since most Internet radio stations are too small to have full-time sales staff, gathering a critical mass of ads has proved tough. "As a start-up, we don't have enough sales people to do the educational effort with media buyers and advertisers that is required for this to really take off," says GoGaGa.com's Pezzillo. In fact, only 41 percent of marketers say they've been approached by Webcasters, according to Arbitron. And Forrester's Schwartz says that only 15 percent of radio stations currently offer ads embedded in stream.

"The whole radio paradigm is changing," says Schlichting. "Advertisers are so used to buying drive times and formats. They look at the demographics of a show and hope they will match the demographics of their product. But because we are separating advertising from content and daypart, we don't have to hope. We can reach whatever demographic an advertiser wants, because we know exactly what and how many people are going to hear your ad."

As broadband access and other technologies become more widely available, interest in Internet radio will rise, as will the medium's penetration among all demographics, Schwartz says. Since gaining broadband access, 64 percent of today's nearly 3 million U.S. broadband households listen to streaming audio more often than they did with dial-up connections. And by 2004, broadband will reach 36 million households.

New Internet-ready radio appliances will also help push additional listeners and advertisers into the stream. Kerbango, for example, has created a stand-alone Internet-radio, and SonicBox's software converts conventional stereos into Internet streaming machines. By 2005, 50 percent of all new vehicles sold in the U.S. will come Internet-audio-ready, according to Forrester.

Interep's Bob Lion has high hopes for the medium. "Internet radio will target individual listeners in a way that will have a huge impact on their lives. Advertisers will get responsive, involved consumers because people believe ad messages that are appropriate to them," he says. "This technology allows listeners and broadcasters and advertisers to finally fulfill the promise of one-to-one-to-one marketing."

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