Clear Channel Communications Inc., the nation's largest radio station owner, which in April shut down most of its Internet operations in the face of growing legal and financial barriers, plans to return 250 stations to the Internet beginning in July.
In a deal to be announced today, Clear Channel will sign an exclusive agreement with Hiwire Inc. to strip out commercials heard by the chain's radio listeners and replace them with new spots designed specifically for the Internet. Hiwire's technology addresses advertising industry concerns over labor union contracts that require additional payments to actors when radio or television ads are streamed online.
"Internet radio is catching on in a big way," said Kevin Mayer, chief executive of Los Angeles-based Clear Channel Interactive. "And Clear Channel has vowed to find a comprehensive approach to streaming that makes both legal and financial sense."
Advertisers have warned that they would hold radio companies liable for fees that unions have negotiated for actors appearing in television and radio ads that migrate onto the Internet. At the same time, the unions are expected to negotiate lower fees for Webcast-only spots because the young industry simply can't command the rates charged by television and radio.
Clear Channel's deal with Los Angeles-based Hiwire represents an important step for the fledgling business of streaming advertisements online. More than a quarter of Americans listen or watch streaming media, and Jupiter Media Metrix predicts that streaming advertising will grow into a $4.8-billion business by 2005.
Considerable barriers remain, however, before major advertisers view the small and fragmented streaming advertising business as attractive.
The technology and software still are evolving, and Webcasters still are learning what kind of content consumers want -- not to mention how much advertising they'll accept. Advertisers are demanding that Webcasters provide audited reports on who's listening and watching. The sector also is caught in the overall advertising industry downdraft that Hiwire Chief Executive Warren Schlichting described as "probably the primary detractor right now."
Webcasters also are at odds with the Recording Industry Assn. of America's demand that online streamers pay a fee for every song played. Radio stations don't pay the fees, but Congress in 1998 mandated that labels be able to collect royalties from Webcasters.
"These are simply issues that need to be sorted out," said Thom Mocarsky, spokesman for media research firm Arbitron, which is marketing a Webcast measurement service for advertisers. "This is a new technology that doesn't fit the existing rules, so new rules need to be established that can accommodate all of the players."
Advertising isn't an issue for online services that charge for their content, but it's clearly the lifeblood of radio stations and Internet-only services that won't be selling subscriptions. Schlichting described the Clear Channel deal as a "quantum leap forward . . . because we're now able to offer advertisers critical mass."
Advertisers like systems that give them broad reach. Hiwire, which also provides advertising inserts for such Webcasters as Net Radio.com and DiscJockey.com, acts as an advertising consolidator. Along with such competitors as RealNetworks Inc. and Coollink Broadcast Network, Hiwire sells advertising, strips out unwanted ads and replaces them with Internet-only spots.
Each time a Web ad runs, it counts as an impression. Hiwire has been promising to deliver about 25 million impressions a month to advertisers. That total will rise to about 1 billion with the addition of Clear Channel's 250 stations, Schlichting said.
Clear Channel recently put its talk, sports and news stations back on the Internet. "Those stations aren't music-intensive, so we're letting them stream as long as they have the technology to strip ads and replace them," Mayer said. And despite the RIAA court case, Mayer said Clear Channel's music-oriented stations will resume Webcasting starting in July.
Clear Channel hopes to gain an advantage over other huge broadcast chains by quickly moving back into the market. Radio stations could play a dominant role in Webcasting because they already have spent heavily to forge strong, real-world brands and showcase popular disc jockeys.
Mayer acknowledged that online advertising rates still are evolving in the young industry. "The marketplace will tell us what pricing can be supported," Mayer said. "Obviously, we'd like to push prices as high as is reasonable. But that's going to be subject to negotiations."
Webcasters maintain that advertisers will move online because the Internet blends the broad reach of radio with the specificity of direct marketing. Hiwire, for example, lets advertisers target individual listeners based on demographic data supplied by partners such as Clear Channel. Listeners will hear the same music, but an 18-year-old male might receive a fast-food commercial while a female listener might get a lingerie ad.
What ads will look and sound like still is up in the air. Some advertisements will be heard and not seen; others will include pop-up banners or buttons that connect directly to the advertisers' Web site.
Unions that represent actors featured in television and radio advertising also have high hopes for Webcasting.
"We're certainly hoping it's a billion-dollar business someday," said Mathis Dunn, national assistant executive director of the American Federation of Television and Radio Artists. "We're hoping the medium will not go away, that it will continue to grow. We want to be part of it."
Unions bristle, however, at the suggestion that organized labor pushed Clear Channel and other big broadcasters out of the Webcast arena earlier this year. "These streaming outfits clearly weren't profitable to begin with for lack of a solid business model," Dunn said. "And in my opinion, the real liability they face is the RIAA issue because broadcasters would have to pay that directly."