Pete On Rails

I have been reading quite a bit lately about the Radio industry. It’s a particularly interesting topic because the business model could potentially change based on technological advancements. Now, more than ever, audio broadcast technology is available to the average person. Podcasting, internet music streaming, and other technologies promise to empower more people to produce content the same way that the printing press and the Internet spread written knowledge.

Invariably, this has people thinking about how to make money under the new paradigm. Heather Green’s Blog and Om Malik’s Blog have an interesting examination of Yahoo Music’s new subscription service. Om Malik postulates that Yahoo Music could make a killing if they turned into an advertising-only service. I think Malik misses one key point, though: the interesting thing about the internet music model, as opposed to the broadcast model, is that the customer is the listener.

In over-the-air broadcasting, the advertiser is the customer, the audience is the product, and the individual listener is a supplier. Broadcast radio is all about giving away content “free” to listeners in order to supply them to advertisers.

Satellite radio, podcasts, and streaming music subscriptions seem to be more about pleasing the listener at an individual level. That is, treating them like a customer.

I haven’t seen any examples yet of a successful business model that merges the two concepts: “listener as customer” vs. “advertiser as customer.” I think that most subscription service listeners join because they want to be a customer instead of an audience to advertisers.

Though I haven’t thought all the way through the subtle differences in the mind of the customer, I think that’s exactly where the answer lies for a successful blend of the two revenue streams. That is, until we understand the psychology of the radio listener a little better, we can’t mix advertising and pay services.

After all, if HBO, Showtime, Cinemax, and other pay TV channels started running commercial advertisements, wouldn’t you rethink your $10 monthly payment for the service? It’s a tough problem to crack.

For what it’s worth, in order to have a profitable advertising business in streaming media you need a lot of listeners. According to David Frerichs, founder of iM Networks: “The reason that many of these stations aren’t profitable is simply because they’re not big enough. To create a profitable streaming radio business, you need about 10 million listener hours per month.” I am betting that the introductory offers Yahoo is putting out there are aimed at building that critical mass.