Clear Channel to Offer Music Videos Online

Will video thrill the radio star?

That’s certainly the hope of Clear Channel Communications Inc., the nation’s largest radio station owner, which is about to expand its online entertainment business by letting users watch music videos on its websites.

Seeking to compete with Yahoo Inc., Time Warner Inc.’s America Online and Microsoft Corp., Clear Channel this month will begin offering thousands of videos online from Universal Music Group and Warner Music Group, radio executives said.

Clear Channel will not charge users to watch the clips, but instead will make money by selling advertisements that play before the videos.

As Clear Channel rolls out the program in Los Angeles and four other markets, it has a secret weapon: its local stations, which it will use to drive users not to one central Clear Channel website but to hundreds of branded sites bearing the call letters that music fans already know.

For example, Clear Channel’s Top 40 station KIIS-FM (102.7) in Los Angeles will make videos available on www.kiis.com.

“We own the relationship with local listeners,” said Evan Harrison, whom Clear Channel hired from AOL’s music division in November 2004 to oversee its online strategy. “We’re definitely playing catch-up, there’s no denying that. But we’re not ruling anything out in trying to own the online market.”

In the rapidly growing world of online entertainment, Clear Channel has long lagged behind technology companies. Even among other traditional media companies, it is in some sense behind the curve, given that the music-meets-video revolution dates to MTV’s debut in 1981 (and the cable station’s first clip, the Buggles’ “Video Killed the Radio Star”).

But in the last year, the San Antonio-based radio giant has deployed a team of 60 people to redesign the websites of almost half of its more than 1,200 stations and purchase the technology that would enable it to stream radio broadcasts online.

“Radio has to become more than tall towers in big fields,” said John Hogan, chief executive of Clear Channel Radio. “We have to complement the radio experience with video and online interactivity. We want to become part of every listening experience.”

Internet music and videos have become an increasingly important part of many media companies’ strategies. Online videos and songs have become central to Yahoo and AOL’s plans for attracting new users. Urge, MTV’s new Internet music service that was developed with Microsoft, was a centerpiece of the “digital lifestyle” described by Microsoft Chairman Bill Gates at the International Consumer Electronics Show in Las Vegas on Wednesday.

Clear Channel’s decision to offer videos signals the arrival of a competitor with a thirst for dominance that analysts say has upended the radio industry. And they are willing to pay for it. Under a deal struck with the participating labels, Clear Channel will pay an industry-standard fee to display the clips, Harrison said. Executives at other companies said the average rate was about three-quarters of a cent to 1 cent every time a video is played.

Clear Channel also is considering adding services that would give listeners access to vast libraries of downloadable songs, similar to products offered by AOL and Yahoo, and selling millions of songs a la carte, as with Apple Computer Inc.’s iTunes Music Store, Harrison said.

Clear Channel’s online emphasis comes as its offline revenue is declining. After Congress deregulated parts of the radio industry in 1996, Clear Channel went on a station buying spree, becoming a Wall Street darling and expanding into live concerts and billboard advertising.

But in the last five years, amid an industrywide slowdown in radio advertising, the company’s stock price has fallen more than 40%. Clear Channel saw revenue decline 15% to about $7 billion in the first nine months of last year from the same period in 2004.

The company’s attempt to increase its audience by curtailing the number and length of on-air advertisements has had mixed results, in part because new competitors -- notably satellite radio, Apple iPods and websites offering unlimited songs for dollars a month -- are becoming more popular.

The company has responded by seeking out new distribution methods, such as the Internet, and the strategy is showing results. About 800,000 people a week listen to a Clear Channel station online, according to comScore Arbitron Online Radio Ratings. That figure lags behind AOL and Yahoo’s combined 3.9 million weekly listeners but is ahead of the 581,000 tuning in to Microsoft’s Internet radio.

By comparison, about 200 million Americans tune into traditional broadcast, or terrestrial, radio at least once a week.

Clear Channel is betting that its own vast terrestrial market will set its online offerings apart. The company advertises Internet-only exclusives, such as in-studio videos of rapper Kanye West or sneak peeks of Bon Jovi’s new album, over its many radio stations. Such on-air advertisements would be expensive for AOL, Yahoo and others to replicate because they don’t own radio stations.

Clear Channel’s terrestrial stations also are the foundation for online profitability. The firm already sells advertising on its stations’ websites and as lead-ins to Internet video clips, and strips out advertisements from terrestrial broadcasts when they are streamed online, reselling the airtime.

The vast majority of terrestrial radio advertising is purchased by local businesses, and Clear Channel hopes that the company’s city-specific websites will attract advertisers uninterested in AOL’s and Yahoo’s nationally focused online broadcasts.

But some analysts are skeptical that Clear Channel’s local dominance will translate to the Internet.

“Online radio listeners want intensive, niche music experiences,” said Kurt Hanson, publisher of Radio and Internet Newsletter. “If I love Celtic music, I don’t care it comes from a local source. The most popular online radio stations have little, if any, on-air chatter.”

Others are critical of the company’s strategy because it potentially exposes listeners to new competitors.

“It’s silly to think they can compete with AOL or Yahoo,” said David W. Miller, a media analyst at the Sanders Morris Harris Group. “How many people work in places where they want to listen to music but can’t use a radio? And why does a radio company want to invite people online, where there are thousands of competitors, instead of just the dozens on a radio dial?”

But Clear Channel says its online strategy is from necessity as well as opportunity.

“It’s unreasonable to believe consumers will only listen to terrestrial radio,” said Hogan, the radio division chief. “We have to change. And advertisers are interested in touching consumers in the most personal way possible.”