B r o a d c a s t i n g Di v e r s i t y : H o w In t e r n e t R a d i o B r o a d c a s t e r s M e a s u r e U p by Emma L. Smith B.A.H. Communications, Culture & Society (1993) Queen’s University Submitted to the Department of Technology and Policy In Partial Fulfillment of the Requirements for the Degree of Master of Science in Technology and Policy at the

Massachusetts Institute of Technology June 2001  2001 Massachusetts Institute of Technology. All Rights Reserved. Signature of Author………………………………………………………….………………………. MIT Technology and Policy Program April 11, 2001 Certified By………...……………………………….……………………….……………………….. Ben Compaine Research Affiliate, Center for Technology, Policy and Industrial Development Thesis Supervisor Certified By……………...………………………………………………..………………………….. Sharon Gillett Research Associate, Center for Technology, Policy and Industrial Development Thesis Supervisor Certified By……………...………………………………………………..………………………….. Dr. William Lehr Research Associate, Center for Technology, Policy and Industrial Development Thesis Reader Accepted By………………...……………………………………………………………………….. Daniel Hastings Director, Technology and Policy Program

B r o a d c a s t i n g Di v e r s i t y : H o w In t e r n e t R a d i o B r o a d c a s t e r s M e a s u r e U p by

Emma L. Smith Submitted to the Department of Technology and Policy on April 11, 2001 In Partial Fulfillment of the Requirements for the Degree of Master of Science in Technology and Policy

ABSTRACT While AM and FM radio stations in the U.S. are subject to extensive FCC regulations intended to protect diversity in broadcasting, Internet radio stations remain largely unregulated. As Internet radio usage has increased, however, certain stakeholders have begun to argue that these Internet radio broadcasters are providing significant and diverse programming to American audiences and that, as a result of this new source of diversity, government regulation of AM and FM radio station ownership should be further relaxed. This thesis hypothesizes that Internet radio broadcasting does add diversity to the radio broadcasting industry and that, once it is available to a significant segment of American audiences, Internet radio should be considered as relevant by regulators. Using preliminary data from Arbitron, Measurecast and Real Networks, this thesis seeks to evaluate Internet radio broadcasters according to six criteria intended to gauge the level of diversity being delivered to listeners online. By measuring the levels of format, channel, ownership, location, language, and distributor diversity among Internet radio stations, it is possible to draw preliminary lessons about the new medium’s ability to provide Americans with diverse broadcasting options. This thesis finds that Internet radio broadcasters are adding diversity to the radio broadcasting industry. Internet broadcasters are providing audiences with access to an increasing number of stations, owners, formats, and language choices, and it is likely that mobility and broadband evolutions will reinforce these findings. There may be legitimate cause for concern about the early concentration of ownership, both among Internet radio station owners and content distributors, however at this time the net effect of Internet radio broadcasting has been to increase the diversity available to audiences. Thesis Supervisor: Ben Compaine Title: Research Affiliate, Center for Technology, Policy and Industrial Development Thesis Supervisor: Sharon Gillett Title: Research Associate, Center for Technology, Policy and Industrial Development

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ACKNOWLEDGEMENTS This thesis was written thanks to the generous contributions of time, advice, patient guidance and support of many people, most importantly Ben Compaine, my thesis advisor, who embraced my ideas and led me carefully towards the creation of a final piece of work. I thank Ben for his care and ideas, and for working around my chaotic schedule.

I also want to acknowledge the extensive contributions of Sharon Gillett, Bill Lehr, Dave Clark, Jean Camp and the entire team at MIT’s Internet & Telecoms Convergence Consortium. Sharon and Bill, in particular, took me on board even though my research was in an area that was new to them, and trusted me to explore Internet broadcasting policy from within their research consortium. I would also like to acknowledge the support and considerable brainpower shared with me by Emy Tseng and Sohil Parekh, two of my fellow students at the ITC.

Additional support for this thesis came from Fabrizio Perretti of Bocconi University and Professor Nolan Bowie of the Harvard Information Infrastructure Project (HIIP). I thank them for sharing their ideas and wisdom.

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Table of Contents

ABSTRACT ...................................................................................................................2 ACKNOWLEDGEMENTS ..........................................................................................3 A. INTRODUCTION ............................................................................................6 B. DIVERSITY: A COMMON GOAL...................................................................8 C. THE HISTORY OF RADIO BROADCASTING POLICY ........................... 10 1 MEETING THE PUBLIC INTEREST .......................................................................................10 2 OWNERSHIP RESTRICTIONS ................................................................................................14 D. THE SITUATION TODAY............................................................................ 15 1 TELECOMMUNICATIONS ACT OF 1996 – LOCAL RADIO DIVERSITY ............................16 2 AFTERMATH OF THE TELECOMMUNICATIONS ACT ........................................................17 i. Ownership Consolidation ......................................................................................................17 ii. Format Diversity ..................................................................................................................20 iii. Minority and Female Broadcast Station Ownership...............................................................20 iv. Viewpoint Diversity .............................................................................................................21 v. Advertising and Market Power.............................................................................................22 E. THE STAKEHOLDERS................................................................................. 25 1 THE FCC................................................................................................................................25 2 BROADCASTERS .....................................................................................................................26 3 ADVOCACY GROUPS.............................................................................................................29 F. THE INTERNET ........................................................................................... 30 1 INTERNET & RADIO BROADCASTING: THE SITUATION TODAY...................................30 2 THE INTERNET’S ROLE IN REGULATION ..........................................................................32 i. Federal Communications Commission (FCC) .......................................................................33 ii. Broadcasters .........................................................................................................................35 iii. Advocacy Groups .................................................................................................................37 G. TECHNOLOGY EVOLUTIONS................................................................... 38 1 MOBILITY ...............................................................................................................................38 i. The Impact of Television .......................................................................................................39 ii. Drive Time...........................................................................................................................41 iii. Point of Purchase..................................................................................................................42 iv. New Mobile alternatives .......................................................................................................44 2 BROADBAND..........................................................................................................................45 i. Media Usage ........................................................................................................................46 ii. Audio and Video Content....................................................................................................47 H. METHODOLOGY .......................................................................................... 47 1 DATA SOURCES .....................................................................................................................49

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i. ii. iii.

Arbitron and Server Log File Analysis.................................................................................50 MeasureCast and Active Event Monitoring ..........................................................................52 Realguide.com.......................................................................................................................56 2 DATA CATEGORIES ..............................................................................................................57 i. Format.................................................................................................................................57 ii. Internet Only vs. Traditional broadcaster...............................................................................58 iii. Owner ..................................................................................................................................58 iv. Location of Target Market ...................................................................................................59 v. Language..............................................................................................................................59 vi. Distribution..........................................................................................................................59 3 ASSUMPTIONS ........................................................................................................................62 i. Internet Access Requirements ................................................................................................62 ii. Internet Radio Broadcasting: A Definition............................................................................64 iii. Market Share.......................................................................................................................65 iv. Measurement Bias ................................................................................................................66 I. RESULTS ............................................................................................................. 68 1 FORMAT..................................................................................................................................68 i. News and Information..........................................................................................................70 2 INTERNET ONLY VS. TRADITIONAL BROADCASTER .......................................................72 3 OWNERSHIP ...........................................................................................................................73 4 LOCATION OF TARGET MARKET........................................................................................75 5 LANGUAGE ............................................................................................................................78 6 DISTRIBUTION .......................................................................................................................81 J. FINDINGS & ANALYSIS ................................................................................... 84 1 FORMAT..................................................................................................................................85 2 INTERNET ONLY VS. TRADITIONAL BROADCASTER........................................................85 3 OWNERSHIP ...........................................................................................................................86 4 LOCATION OF TARGET MARKET........................................................................................87 5 LANGUAGE ............................................................................................................................88 6 DISTRIBUTION .......................................................................................................................88 K. IMPLICATIONS ............................................................................................. 89 1 COMPETITION .......................................................................................................................90 2 CONCENTRATION .................................................................................................................91 3 BARRIERS TO ENTRY ............................................................................................................92 4 COMPETITIVE ADVANTAGE ................................................................................................92 5 LOCAL PROGRAMMING ........................................................................................................93 6 VERTICAL INTEGRATION ....................................................................................................94 7 UN-REGULATED RADIO BROADCASTING .........................................................................94 8 SUMMARY ...............................................................................................................................95 L. CONCLUSION ............................................................................................... 96

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Broadcasting Diversity: How Internet Radio Broadcasters Measure Up

A. INTRODUCTION

American AM and FM radio broadcasters are governed by policies and regulations created by Congress and implemented by the Federal Communications Commission (FCC). These regulations are rooted in the FCC’s commitment to protecting diversity in broadcasting and continue to lead to heated debate among stakeholders who agree that diversity in broadcasting is a worthy goal, but who harbor different ideas about whether regulations can help to ensure such diversity.

Today radio broadcasters are able to deliver their programming over the Internet. Traditional broadcasters can stream their content over this new channel, and brand new broadcasters can reach online audiences without requiring any FCC approval. As millions of American households gain Internet connections, stakeholders such as the National Association of Broadcasters (NAB) are arguing that diversity requirements are being met more effectively than ever before. They assert that, with thousands of new broadcasters delivering radio content, online audiences are gaining access to new sources of diverse programming, and so government regulation of traditional broadcasters should be relaxed.

The hypothesis of this study is that Internet radio has added diversity to the traditional overthe-air broadcast structure. To that end, this thesis measures the level of diversity being

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presented by Internet radio broadcasters (i.e. companies delivering entertainment and/or news and information content as an audio stream via the Internet). Stakeholders on both sides of this debate have asserted that the rise of Internet broadcasting has the potential to provide audiences with increased access to diverse programming; however, these assertions have been based on anecdotal evidence rather than on gathered data.

This thesis aims to gather and analyze empirical evidence to support the argument that Internet broadcasters are adding diversity to the radio broadcasting industry. It seeks to demonstrate that, by delivering diverse programming to a significant portion of the market, Internet radio broadcasters complement traditional radio and provide more overall diversity to audiences. If this is found to be the case, and assuming technological and industry developments make Internet radio programming available to a significant segment of the U.S. population, the FCC should consider the Internet in their analysis of the radio broadcasting industry. If the Internet is adding significant diversity to the radio broadcasting universe, regulators should begin to relax the ownership rules that currently govern the radio industry.

The ability of Internet radio broadcasters to deliver diverse programming to a significant proportion of the population has policy implications for a second reason. Throughout the history of radio broadcasting regulation it has been the position of the FCC that an unregulated marketplace would lead to industry consolidation and that the reduction in the number of radio sources would in turn lead to a reduction in the viewpoints available to

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radio listeners. With the advent of Internet radio broadcasting, it is now possible to examine diversity in a broadcasting environment that is free from regulation.

Internet radio broadcasters are not subject to any ownership restrictions by the FCC and so it will be of interest to both sides of the debate to gain access to information about the levels of source and format diversity that are dominant online. What is taking place in an unregulated environment may provide some clues about what might happen if the FCC’s ownership restrictions were further relaxed offline.

B. DIVERSITY: A COMMON GOAL

Historically, regulators in the sphere of radio broadcasting have been driven by three goals: promoting diversity of content, supporting localism of ownership and content, and creating competition within markets. Supporting localism and creating competition are, at their root, tactics that aim to further diversity by adding to the number of radio broadcasters in the marketplace. It is therefore appropriate that diversity is the focus of current policy debate. While there are varying opinions about the measures used to protect this diversity, there has always been significant agreement about the goal itself.

The Federal Communications Commission (FCC) has dedicated years of research and broadcasting policy to the protection of diversity. According to past FCC Chairman William E. Kennard, “broadcast remains the way that most Americans get vital information

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about their local community … (and so) retaining diversity of ownership of broadcast outlets is … vital to the democratic process.” 1

FCC Commissioner Gloria Tristani stated “diversity promotes democratic values by ensuring that people are exposed to a range of views on issues of public concern, ” 2 and support for diversity in broadcasting also comes from sources as high as the United States Supreme Court. In 1945, the Supreme Court counseled that the First Amendment "rests on the assumption that the widest possible dissemination of information from diverse and antagonistic sources is essential to the welfare of the public." 3

The two principles underlying the FCC’s efforts to regulate radio broadcasters stem from their belief that diversity is a commonly desired objective shared, or at least cited by, almost all players in the industry. The principles that support the need for ownership regulations are as follows:

“First, in a system of broadcasting based upon free competition, it is more reasonable to assume that stations owned by different people will compete with each other, for the same audience and advertisers, than stations under the control of a single person or group. Second, the greater the diversity of ownership in a particular area, the less chance there is a

Press statement of FCC Chairman William E. Kennard regarding launch of biennial review of broadcast ownership rules. March 12, 1998. 2 Press statement of FCC Commissioner Gloria Tristani regarding launch of biennial review of broadcast ownership rules. March 12, 1998. 3 Associated Press v. United States, 326 U.S. 1, 20 (1945) 1

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single person or group can have an inordinate effect, in a political, editorial, or similar programming sense, on public opinion.”4

Since the beginnings of radio broadcast regulation the interest in protecting diversity has guided regulators and courts who have struggled to establish fair tactics but remained unanimous about the goal.

C. THE HISTORY OF RADIO BROADCASTING POLICY

1

Meeting the Public Interest

The history of radio has been one filled with government regulation. It’s a history of how the creation of a new technology created the possibility of broadcasting and how that service was hijacked by hackers, fought over by corporations, and regulated by government in an attempt to protect the public good. 5

Radio, much like the Internet, has its roots in U.S. military technologies and the need to create communication channels for maritime and business users. With the Radio Act of 1912 access to the electromagnetic spectrum was made a privilege, subject to government approval, but it was really the communication common carriers that were the target of the regulation. Broadcasters were a secondary concern.

1998 Biennial Regulatory Review – Review of the Commission’s Broadcast Ownership Rules and Other Rules Adopted Pursuant to Section 202 of the Telecommunications Act of 1996. MM Docket No. 98-35. Section B. p39. 5 Law of Mass Communications, Freedom and Control of Print and Broadcast Media. 6th Edition. Westbury, New York. The Foundation Press, Inc. 1989. p.83. 4

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It was the outbreak of World War I that moved radio from a maritime communication tool to a household word. Thousands of radios were manufactured during the war and so the other essential ingredient in the emergence of radio – the audience – was created.

GE, Westinghouse and RCA saw the increasing popularity of radio as an in home device and recognized that it could be a viable business for them. The three companies formed a patent pool and, still believing that the business opportunity lay in the selling of radio receivers, decided to begin providing regular broadcast services simply as a strategy to encourage more people to buy them. The three companies delivered broadcasts so that people would have something to listen to once they bought their new GE, Westinghouse or RCA radios. The strategy worked. By 1928, just seven years after the beginning of commercial radio broadcasting, there were 8 million radio receivers in the United States, or one for every 4 households. 6

In response to this business proposition the U.S. Department of Commerce started issuing broadcast licenses. In the early days the Department of Commerce issued licenses “solely on the basis of engineering criteria; deciding in each case whether the broadcast license application could be granted without creating an unacceptable level of interference with other existing radio services." 7

Law of Mass Communications : Freedom and Control of Print and Broadcast Media by Dwight L. Teeter et al. June, 1998. p.83. 7 Law of Mass Communications : Freedom and Control of Print and Broadcast Media by Dwight L. Teeter et al. June, 1998. p.83. 6

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By 1926 the number of broadcast licenses being issued was getting out of hand. The number of radio stations continued to grow and interference over radio frequencies was becoming intolerable. Recognizing that this interference was reducing the quality of service, and probably also with an eye towards limiting the ability of new incumbents to continue to clutter the market place, it was the industry leaders who approached the federal government requesting broadcast regulation. Broadcasters asked the Department of Commerce to establish regulations that would prevent one radio station’s transmissions from interfering with those of other stations on the same or even an adjacent frequency channel.

In response to these requests Congress passed the Radio Act of 1927 and created the Federal Radio Commission (FRC) to administer it. Significantly the FRC was given power over the public interest qualities of broadcast programming as well as over the engineering aspects that had previously been considered requirements for the granting of licenses. The FRC was suddenly in a position to deny licenses, not because of issues related to interference between frequencies, but on the basis of what it deemed to be programming not in the public interest. Senator Wallace H. White, one of the Radio Act’s co-authors, stated “the right of the public is superior to the right of any individual to use the airwaves.” 8

With the passing of the Communications Act of 1934, the Federal Radio Commission became the Federal Communications Commission or FCC. The FCC continued to work to ensure that broadcasters delivered programming in the public interest, a concept that

8

Quoted by Commissioner Robert T. Bartley in FCC mimeo. 1336 (January 29, 1934).

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remains only loosely defined, and in fact the 1934 Act stated that broadcast stations would be licensed to serve the "public convenience, interest, and necessity." Applicants for radio licenses were required to demonstrate that they were legally, technically, and financially qualified, and also had to show that their proposed operation would be in the public interest. The 1934 Act, therefore, gave the FCC the power to monitor broadcast station licensees to assure that their programming was serving the public interest the needs of their particular communities.

Since that time radio broadcasters have continued to be regulated, not just for technical efficiency but also to ensure that their programming meets the public interest. Today AM and FM broadcasters rely on the FCC to determine whether their proposed stations will serve the public good and should therefore be granted broadcast licenses or license renewals. Once licensed, radio stations are subject to regulatory intervention and can have their licenses revoked if they air obscene or indecent language, solicit money from their listeners under false pretenses, or broadcast certainly types of lottery information. Furthermore, while the Communications Act stipulates that the FCC may not censor a radio station’s content, stations are expected to be aware of the issues that are important in their local communities and to foster public understanding about these issues.9

The Public and Broadcasting. June 1999. Prepared by: Mass Media Bureau, Federal Communications Commission. Washington, DC. http://www.fcc.gov/mmb/prd/docs/manual.html#REGULATION.

9

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2

Ownership Restrictions

In addition to being required to serve the public interest, radio broadcasters have also been subject to an evolving set of regulations that govern ownership. These ownership restrictions were meant to protect the public interest by ensuring diversity among owners and therefore, it was believed, diversity in programming. In granting radio licenses, one of the criteria considered by regulators was the notion of giving preference to local owners.

Before the formation of the FCC, there were no limits on the number of broadcast licenses that could be granted to a particular company. Facilities were monitored by state according to census data, 10 in an attempt to ensure that radio was available to all Americans in at least a roughly equitable manner, but there were no explicit provisions limiting the number of stations a single company could own. In the early 1940’s, however, the FCC adopted rules that governed commercial FM service and prohibited the licensing of two AM stations in the same area to a single network. 11 These rules, according to the Commission, sought to promote diversity of viewpoints through station-ownership diversity.

In 1968 the Commission relaxed these ownership restrictions somewhat by establishing a standard that prohibited combinations of 2 AM or 2 FM stations in the same “principal city” but permitted AM/FM combinations within the same community. 12 While the goals of promoting diversity and programming and viewpoints through local ownership diversity

Fifth Annual Report of the Federal Radio Commission, 1931. Federal Communications Commission, Sixth Annual Report Fiscal Year 1940 (1941) at 68; and 6FR 2282 (Tuesday, May 6, 1941) 12 First Report and Order in MM Docket No.87-7, 4 FCC Rdc 1723 (1989) 10 11

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remained, the Commission recognized that the market place was changing and that new technologies, as well as an abundance of competition, made it reasonable to relax the regulations.

Ownership rules were further relaxed in 1992 when the Commission permitted combinations of up to (i) 3 AM and 3FM in markets with 40 or more stations, (ii) 3 AM and 2 FM in markets with 30-39 stations, (iii) 2 AM and 2FM in markets with 15 to 29 stations and (iv) 3 stations (with no more than 2 in the same service) in markets with 14 or fewer stations. At the same time the Commission also ruled for the first time that licensees could own radio stations in the same service area with overlapping contours. With this ruling, one owner could now own any number of stations within a broad metropolitan area as long as the principal contours of the stations didn’t overlap. 13 These regulations continued to govern radio broadcasters until President Bill Clinton signed the Telecommunications Act of 1996 into law in February of that year. The Telecommunications Act represented the first major overhaul of the Communications Act of 1934 and created increased opportunities for competition among broadcasters.

D. THE SITUATION TODAY

The 1996 Telecom Act included provisions intended to promote increased competition among radio broadcasters. Firstly, all provisions to limit the number of AM or FM stations

13

2.03(4) Communications Law and Practice. Local Ownership Rule. See Madden, "Market Definition and Audience Share Issues Under the FCC's Radio Duopoly Rules," NAB Broadcasters' Law and Regulation Conference Papers 1994 at 3 (1994).

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which could be owned or controlled by one entity nationally were eliminated. 14 Suddenly single organizations could own an unlimited number of stations across the United States, provided they did not violate the rules put in place to protect local radio diversity.

1

Telecommunications Act of 1996 – Local Radio Diversity

While national ownership rules were eliminated, regulations to protect local diversity remained in place. In Title 2, Section 202 b, of the Telecommunications Act the following regulations were enacted by Congress as a mechanism for safeguarding radio diversity at the local level:

(A) in a radio market with 45 or more commercial radio stations, a party may own, operate, or control up to 8 commercial radio stations, not more than 5 of which are in the same service (AM or FM);

(B) in a radio market with between 30 and 44 (inclusive) commercial radio stations, a party may own, operate, or control up to 7 commercial radio stations, not more than 4 of which are in the same service (AM or FM);

(C) in a radio market with between 15 and 29 (inclusive) commercial radio stations, a party may own, operate, or control up to 6 commercial radio stations, not more than 4 of which are in the same service (AM or FM); and

Telecommunications Act of 1996. Title 2, Section 202. Broadcast Ownership. (a) NATIONAL RADIO STATION OWNERSHIP RULE CHANGES REQUIRED - The Commission shall modify section 73.3555 of its regulations (47 C.F.R. 73.3555)

14

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(D) in a radio market with 14 or fewer commercial radio stations, a party may own, operate, or control up to 5 commercial radio stations, not more than 3 of which are in the same service (AM or FM), except that a party may not own, operate, or control more than 50 percent of the stations in such market. 15

2

Aftermath of the Telecommunications Act

Following the implementation of the Telecom Act, the FCC conducted a review of the radio industry to study the impact of the Telecommunications Act on diversity. The review found that there had been significant changes in the radio broadcasting industry subsequent to the Act. For example, whereas only 988 radio stations changed owners in the 12 months prior to the Act, 2066 changed owners in the first year after the Act. While this meant that the number of radio station owners declined, the number of commercial radio stations increased. This increase in acquisitions, however, was not found to have led to a decrease in format diversity.16

i.

Ownership Consolidation

In the year following the Telecom Act, 2066 radio stations changed owners (about 20 percent of the total number of stations). While the total number of radio stations increased nationally, the number of radio station owners declined by 11.7 percent 17 and the trend continued.

By the close of 1999 the number of radio station owners

Telecommunications Act of 1996. Title 2, Section 202. Broadcast Ownership. (b) Local Radio Diversity. Review of the Radio Industry, 1997. FCC MM Docket No. 98-35. March 13, 1998. 17 Review of the Radio Industry, 1997. FCC MM Docket No. 98-35. March 13, 1998. 15 16

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had declined 24% from 5,222 to 3,989 since the passing of the Telecommunications Act.18

Table 1. A Summary of Changes in the Number of Stations and Owners, Mar-96 to Nov-97 Source: BIA Financial Network. State of the Radio Industry. June 01, 1998. www.biacompanies.com May-96 All Stations Number of Stations Number of Owners Top 10 Markets Number of Stations Number of Owners Top 25 Markets Number of Stations Number of Owners Top 50 Markets Number of Stations Number of Owners Markets 51-100 Number of Stations Number of Owners Markets 101 and above Number of Stations Number of Owners Stations in a Market Number of Stations Number of Owners Stations not in a Market Number of Stations Number of Owners

Nov-97

Change

% Change

10,222 5,105

10,475 4,507

253 -598

2.5 -11.7

489 199

512 177

23 -22

4.7 -11.1

1,043 405

1,084 362

41 -43

3.9 -10.6

1,791 713

1,863 623

41 -90

3.9 -12.6

1,253 637

1,263 509

10 -128

0.8 -20.1

2,412 1,226

2,533 1,053

121 -173

5.0 -14.1

5,456 2,342

5,659 1,998

203 -344

3.7 -14.7

4,766 3,050

4,816 2,826

50 -244

1.0 -7.3

It is significant to recognize that it is not just nationally that the number of owners has decreased, even as the number of stations has increased. Looking just at the top ten markets in the U.S., we can see that while the number of stations available in

18

Roster of Radio Station Owners Falling Rapidly. BIA. Vol. 10 Iss. 36 Pg. 10

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those markets increased by 4.7% between March 1996 and November 1997, the number of owners decreased by 11.7%.

The following figure from the FCC’s Review of the Radio Industry in 1997 illustrates the same trend.

Figure 1. Changes in Ownership Diversity.

Source: FCC. Review of the Radio Industry.

As we can see here, “the number of radio owners nationally reflects a general trend across Metro markets, and is not simply the result of consolidation in a few large or small markets.”19

19

Federal Communications Commission. Review of the Radio Industry, 1997. MM Docket No. 98-35.

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ii.

Format Diversity

The FCC measures program diversity by looking at the number of distinct radio formats available. While diversity in ownership was shown to be dropping, the FCC found that there was no change in the program diversity available to consumers. Smaller markets continued to have less program diversity than their large market counterparts.20

iii.

Minority and Female Broadcast Station Ownership

The National Telecommunications and Information Administration (NTIA)’s 1997 annual report on minorities and broadcasting showed that there had been a drop in the number of minority-owned broadcast stations following the implementation of the Telecom Act. 21 Also, in a 1997 Commerce Department survey found that minorities owned 322 of 11,475 commercial broadcast stations, representing 2.8 percent of total commercial ownership (down from 3.1% in 1996). Of this total, Black ownership represents 1.7%, Hispanic ownership represents 1.05%, Asian ownership represents .03%, and Native American ownership represents .04%22 Concerned about the low numbers of minority owners, the FCC sought comment on the issue of minority and female broadcast ownership in their 1998 biennial review.

Review of the Radio Industry, 1997. FCC MM Docket No. 98-35. March 13, 1998. FCC Biennial Review Report. Adopted May 26, 2000. 22 NTIA Press Release. “Commerce Department Survey Reveals Minority Ownership of Radio and Television Stations Remains Dismally Low.” September 16, 1007. 20 21

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iv.

Viewpoint Diversity

Another suggested impact of the Telecom Act has been diminished viewpoint diversity. This measurement is hard to define but includes estimates of such things as the range of political viewpoints available on the radio or the number of hosts who are women or visible minorities. Owners of multiple radio stations do, on the one hand have greater resources available to them, which they argue can be used to invest in enhanced programming. Groups like Greater Media Inc., the Center for Media Education (CME) and Americans for Radio Diversity (ARD), however, suggest that “the scale economies from concentrated radio ownership arise in part from a homogenization of news reporting.” 23 They believe, although there is little statistical evidence to support this, that economies of scale are inherently likely to homogenize programming and so limit viewpoint diversity.

Due in part to the difficulties measuring viewpoints, there is very little data regarding the views being espoused by radio stations in America. One of the measurements that is available, however, is political affiliation. A Time Magazine report stated that 80% of radio talk show hosts are male and about 70% of hosts boast about their conservative points of view.24 Unfortunately it is unclear whether these political affiliations reflect those of the radio station owners. Given regulators’ assumptions regarding the relationship between ownership and content, it would be valuable to learn whether radio station owners’ political viewpoints are affecting the content

FCC Biennial Review Report. Adopted May 26, 2000. Talk, Talk, Talk; Opinion or Fact. (Video) Films for the Humanities and Sciences, Box 2053, Princeton NJ. 1995.

23 24

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being broadcast by their stations, or whether it is their hosts who are responding to market demand. If data was available, for instance, that demonstrated talk show hosts to be more conservative than the station owners; this would suggest that ratings are more important to owners than ideology.

Given that talk radio listeners voted 3:1 Republican in the 1994 election25 it is at least valuable to ponder whether the political leanings of radio listeners define the choices stations make in their hosts, or if the viewpoints of the hosts are being transferred to talk radio listeners. In the absence of data, one might assume that, at least to some degree, radio talk show audiences are self -selective and therefore tend to mimic their hosts.

v.

Advertising and Market Power

The Commission found that, after the implementation of the Telecom Act, control by the top four radio group owners over total radio advertising dollars in markets across the country has gone from 80 percent in 1996 to 90 percent in 1997. 26 Using the Herfindahl-Hirschmann Index (HHI), a method for measuring the concentration of firms within a particular industry, the Center for Media Education (CME) found that all top-250 radio markets were above 1800 on the Index that, they suggested, implies substantial market concentration.27

Talk, Talk, Talk; Opinion or Fact. (Video) Films for the Humanities and Sciences, Box 2053, Princeton NJ. 1995. 26 Separate Statement of Commissioner Susan Ness. March 12, 1998. 27 FCC Biennial Review Report. Adopted May 26, 2000. 25

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A traditional way of measuring market power is to assess whether any substitute exists in a particular market. In the case of radio we can consider whether, from the perspective of the advertiser, there are any viable alternatives to radio advertising. Assuming it were possible to measure the direct effects of an advertisement, could a prospective advertiser place his/her ad in the local newspaper, for instance, and expect the same results that they receive with a radio ad, and pay a comparable amount for that coverage? If there is no substitute for radio advertising, then newspapers and radio stations should not be considered to be in the same product market.

The Department of Justice (DOJ) examined the question of whether radio advertising should be considered as a distinct market from that of television and newspaper advertising, in their case against Jacor Communications and Citicasters in 1996, as well as more recently when they ruled on the proposed merger between Clear Channel Communications and AMFM Inc. in August, 2000.

In their comments regarding Jacor Communications and Citicasters, the DOJ argued that “1) radio advertising is unique in reaching a mobile broadcast audience; 2) radio has a greater ability to target particular audience segments and 3) radio can be more cost effective and more flexible in responding to changes in local advertising.28

United States of America v. Jacor Communications, Inc. and Citicasters, Inc. (C-1-96-757) (S.D. Ohio, August 5, 1996), Competitive Impact Statement at 4-5.

28

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In their consideration of the Clear Channel/AMFM Inc. merger the DOJ examined HHI concentrations and substitutability in select U.S. cities, before finding that “many local and national advertisers purchase radio advertising time … because they find such advertising preferable to advertising in other media to meet their specific needs. Reasons for this include the fact that radio advertising time may be more costefficient than other media at reaching the advertiser's target audience, … radio may also reach certain target audiences that cannot be reached as effectively through other media, (and) radio stations render certain services or promotional opportunities to advertisers that they cannot exploit as effectively using other media.29

Advertising in radio broadcasting is particularly interesting because of radio’s local focus. In his analysis of media ownership, Gomery examined the ability of local radio stations to control disproportionate percentages of the advertising dollars available in their city. He found that, “in 1997, CBS controlled more than one third of all advertising dollars poured into radio in Boston, half in Philadelphia, one fifth in Washington/Baltimore, one quarter in St. Louis and Los Angeles and one third in Dallas/Fort Worth and Detroit.” 30

United States Department of Justice Antitrust Division v. Clear Channel Communications and AMFM Inc. Complaint for Injunctive Relief, Section III Radio Advertising Time. August 29, 2000. 30 Who Owns the Media, Who Owns the Media? Competition and Concentration in the Mass Media Industry. Benjamin M. Compaine and Douglas Gomery. Lawrence Erlbaum Assoc. 2000. page 521. 29

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E. THE STAKEHOLDERS

As might be expected there are many companies and organizations with a stake in the debate over radio broadcasting regulations. Governments, broadcasters, private citizens and advocacy groups all have different views about whether radio broadcasters should be regulated at all and, if so, what these regulations should look like.

1

The FCC

In its May 2000 Biennial Review of the Commission’s Broadcast Ownership Rules, the FCC concluded that “the local radio ownership rules should not be further relaxed at this time.” 31 Arguing that the industry is still adapting to the considerable changes put in place with the 1996 Act and that continued consolidation is expected as a result of those changes, the FCC chose not to alter the existing radio ownership rules.

In his Statement in the Matter of the 1998 Biennial Regulatory Review, then Chairman William E. Kennard put forward the Commission’s position that “the majority of Americans still get most of their news and public affairs information from broadcast stations. Our structural ownership restrictions, therefore, seek to promote critical First Amendment principles because in a participatory democracy, it is vitally important that we

31

FCC Biennial Review Report. Adopted May 26, 2000.

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encourage the widest possible dissemination of this information from diverse and antagonistic sources.” 32

While the FCC maintained its position regarding the need for diversity in radio broadcasting, there was dissent among the Commissioners regarding how this diversity should be regulated. In his dissenting statement, Commissioner Harold Furchtgott-Roth charges that the Commission’s Report mistakenly asks, “how the rules promote diversity and competition instead of asking how the forces of competition itself produce those results and thus obviate the need for the rules.” 33

2

Broadcasters

The predominant advocate for the radio broadcast industry to the FCC is the National Association of Broadcasters (NAB). While there are clearly differences in opinion among individual broadcasters, particularly between large owners and owners of single stations, NAB’s objective is to present a united front to regulators, based on the input of its members.

The NAB, in their 1998 comments to the FCC, stated that they do not believe that the Commission should make any changes to the radio ownership limits. They believe that the consolidation made possible by the 1996 Telecom Act has had a positive effect on the radio

See Associated Press v. United States 326 U.S. 1, 10 (1945) (noting that the First Amendment “rests on the assumption that the widest possible dissemination of information from diverse and antagonistic sources is essential to the welfare of the public”). 33 Dissenting Statement of Commissioner Harold Furchtgott-Roth. In the Matter of 1998 Biennial Review: Review of the Commission’s Broadcast Ownership Rules. May 26, 2000.

32

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broadcasting industry. The NAB states that, “since the 1970’s when most of the ownership restrictions being commented on in the (FCC) notice were created, the media marketplace has undergone tremendous change and growth.” “The average viewer,” they point out, “has over twelve television stations from which to choose, 84 commercial radio stations, 65 cable channels, 18 newspapers, DBS and the Internet.”34

In their comments the NAB reminds the FCC that it was partly in reaction to the emergence of new media markets that the 1996 Telecom Act relaxed ownership restrictions for broadcasters. More significantly they argue, “there have been beneficial effects of the easing of these restrictions.” “The radio industry, according to the NAB, is the healthiest and strongest it has been since television. The FCC, in the Mass Media Bureau’s Review of the Radio Industry 1997, reported that there were no trends toward a decline in the number or variety of program formats.” 35 Given their belief that the radio industry is stronger than before the Telecom Act, and that diversity does not appear to have been harmed, the NAB’s position is that the relaxation of ownership restrictions has created positive benefits for the industry and that new restrictions are not necessary.

NAB supports the group owners such as ABC, CBS, NBC, Cumulus and Fox, who provided comment to the FCC about the beneficial effects of consolidation. In particular, NAB and these group owners claim that, particularly in small markets, the radio industry has been

Reply Comments of the National Association of Broadcasters. Commission. In the Matter of 1998 Biennial Regulatory Review. 35 Reply Comments of the National Association of Broadcasters. Commission. In the Matter of 1998 Biennial Regulatory Review. 34

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Before the Federal Communications MM Docket No. 98-35. August 21, 1998. Before the Federal Communications MM Docket No. 98-35. August 21, 1998.

revitalized as a result of the relaxation of ownership rules. They disagree with claims by groups like Americans for Radio Diversity who suggest that group owners impose their views on audiences. Instead they point to the joint comments of Fox Television Stations and USA Broadcasting, which state “one must listen to what the local citizens want and give it to them.” The broadcasters, in other words, must respond to the demands of the market, not the whims of their owners, when it comes to determining programming.

While The National Association of Broadcasters speaks for the radio broadcasting industry as a whole, there are some smaller broadcasters who disagree with the Association’s position and present alternative points of view to the FCC for consideration. Some smaller, locally oriented station owners who want to protect themselves from the temptation of high prices being offered for their stations have gone against the NAB line by drawing on the localism objective of the FCC.

Citing the Communications Act of 1934, which mandated that radio stations serve the public “interest, convenience and necessity” of their communities, Paul E. Hemmer, the President of an independent radio station in Indiana, suggests that consolidation may in fact have a negative effect on the ability of small stations to meet the public interest.36 He asks the FCC to be cautious as the debate over ownership rules continue and disagrees with NAB’s assertion that consolidation has not affected diversity.

Reply Comments of Paul. E. Hemmer of Hemmer Broadcasting Co. In the Matter of 1998 Biennial Regulatory Review. MM Docket No. 98-35.

36

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3

Advocacy Groups

There are many advocacy groups who play an ongoing role in the debate over diversity in radio broadcasting. Americans for Radio Diversity (ARD), an organization dedicated to promoting community oriented radio broadcasting, is one such group. Made up primarily of radio listeners and consumers, ARD believes that diversity in radio is not currently being served. Pointing to the few large national owners who control of the majority of the media, ARD issued comments in response to the FCC’s 1998 Biennial Review stating that the 1996 Telecom Act led to a decline in minority-ownership. Pointing to data that demonstrates “the number of minority owners has dropped from an already abysmal 3.1% to 2.8% since the passage of the act,” 37the ARB suggests that the Act has led to the artificial inflation of the price of broadcast properties and so limited ownership to the very wealthy.

In their comments to the FCC, ARD also cited a 1998 report from the Benton Foundation and the Media Access Project that found that only 0.35% of television broadcast hours are devoted to local news and affairs. 38 Given that local news and affairs coverage is illustrative of a station’s focus on its local community, ARD believes that the minimal amount of time dedicated to such programming detracts from the diversity in programming being made available on television and on the radio.

Comments on the Notice of Inquiry in the Matter of 1998 Biennial Review by Americans for Radio Diversity. MM Docket No. 98-35. August 25, 1998. 38 Comments on the Notice of Inquiry in the Matter of 1998 Biennial Review by Americans for Radio Diversity. MM Docket No. 98-35. August 25, 1998. 37

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ARD does not support any increasing relaxation of radio ownership regulations and believes the FCC should continue to protect diversity by limiting ownership consolidation among radio broadcasters.

Another advocacy group that plays a continuing role in the debate over radio ownership and diversity is the Center for Media Education (CME). CME’s position is that the government must continue to protect diversity by regulating broadcasters. The CME favors the continuation of ownership restrictions and the safeguarding against continued consolidation in the radio broadcasting industry.

F. THE INTERNET

The arrival of the Internet has already had a profound effect on radio broadcasting. Radio stations are learning to re-broadcast online, new dotcoms are taking advantage of the Internet as an accessible and regulation-free broadcast environment, and players from both sides of the debate are putting forth arguments about whether or not the Internet should be considered in today’s discussions regarding the regulation of radio.

1

Internet & Radio Broadcasting: The Situation Today

In 1999 nearly half of all radio stations had an Internet Web site. 1100 of those stations (or about 9% of the total number of AM and FM radio stations in the U.S.) were offering their

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audience the option of listening to their programming online. 39 This demonstrates that, although it is now technically possible for radio stations to deliver programming on the Internet, many stations are unwilling or unable to make this move into the online realm.

With most traditional radio stations being slow to start delivering audio programming over the Internet, new companies are springing up and becoming broadcasters in their own right. Today online radio broadcasts are being delivered by everyone from corporations and newspapers to pure Internet broadcasters ranging from NetRadio (www.netradio.com) to home-based operations including Neurofunk (www.neurofunk.com).

Between them these new broadcasters are creating and delivering radio programming to an eager and growing audience of Web-savvy consumers. In 1999 6% of all Americans (or approximately 16 million people) had listened to radio programming over the Internet. 40 Given the low number of radio stations providing online programming it seems probable that many of these 16 million listeners are going to non-traditional broadcasters for their programming.

Clearly there is a large market for Internet radio programming. People are prepared to use the Internet to listen to the radio and are doing so in the millions, even though they can only access Internet audio while seated at their computers. Traditional radio broadcasters have an opportunity to share in this large and growing audience if they ramp up quickly and start

39 40

Radio Marketing Guide and Fact Book for Advertisers, Fall 1999 – Spring 2000. Page. 32. The Arbitron Internet Listening Study: Radio in the New World. Page. 7.

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delivering their programming online, however entirely new broadcasters are moving quickly to fill this growing industry niche.

2

The Internet’s Role in Regulation

One proposed justification for the argument that government regulation of radio broadcasters should be further relaxed is that the Internet, with its thousands of news, information and entertainment sites, provides significant and diverse programming to American audiences. Particularly because of the surge in the Internet’s popularity in the years following the 1996 Telecom Act, the assertion that it should be considered as an alternative and viable source of diverse programming has gained momentum with players including the FCC and the NAB.

Stakeholders and others who point to the Internet as a justification for the further relaxation of ownership restrictions argue that new technologies and broadcast media are increasing the number of outlets available to American audiences. New technologies, they suggest, will ensure that diverse owners, outlets and viewpoints will be increasingly available to audiences in search of diverse programming. In short, the increase in outlets is negating the need for government intervention.

While the FCC has had Commissioners on both sides of this argument, the NAB advocates the use of the Internet to gauge diversity in programming and advocacy groups like the CME vehemently oppose using the Internet as justification for the relaxation of ownership restrictions. While each of these groups has opinions about the Internet, none are able to

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point to any concrete data to support their claim. In order to understand the validity of arguments about the Internet’s role in this debate, it is necessary to assess whether or not Internet broadcasters are, in fact, delivering diversity in ownership and format to the American public.

i.

Federal Communications Commission (FCC)

The FCC does not yet officially take the Internet into account as an alternative source of radio programming. While the Commissioners have considered arguments about the ability of the Internet and other new broadcast technologies to provide diverse media outlets to audiences, there is yet to be an established consensus regarding the Internet’s role, if any, in radio broadcasting policy.

Although the Commission has not yet included Internet radio broadcasting in its conclusions about ownership restrictions, it is increasingly a topic of debate. In the Biennial Report released in June, 2000 the Internet was clearly an important topic of discussion for the Commissioners. In his separate statement, then Chairman William E. Kennard went to additional lengths to assure stakeholders that new information channels had been considered during the FCC deliberations. Kennard commented, “although new technologies like the Internet and satellite delivery may be fundamentally changing the communications landscape, they do not yet command

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the time and attention of most consumers. The average American still spends seven hours per day watching television, but only eight hours a month on-line.”41

Some Commissioners, however, have suggested that the ability of the Internet to provide audiences with diverse radio programming should impact the FCC’s decision-making in this area. FCC Commissioner Harold Furchtgott-Roth, for instance, used the increasing prominence of the Internet, cable and other technologies to justify his assertion that ownership regulations are no longer needed to ensure diversity. Furchtgott-Roth points out that “today broadcasters face such a fierce array of competitors – from cable operators, … internet service providers, wireless video systems, and direct satellite systems – that their previously supposed ability to influence the content and flow of information is greatly diffused. In sum, over time, as alternative means of communication … have proliferated in the marketplace, the burdens imposed on broadcasters by these restrictions have increased dramatically relative to the benefits that they produce.” 42

FCC Commissioner Susan Ness, on the other hand, cautioned “we must not be lulled into a sense of complacency by having more channels, more formats, and the Internet … we need to insure that there are enough truly independent and

Separate Statement of Chairman William E. Kennard, In the Matter of the 1998 Biennial Regulatory Review. June 20, 2000. 42 Joint Statement of Commissioners Powell and Furchtgott-Roth, In re Personal Attach and Political Editorial Rules, FCC Gen. Docket No. 83-484, at 5 and n.15. 41

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antagonistic providers of information at each level of content development and distribution.” 43

Given these two disparate viewpoints it is clear that, in order to judge whether the Internet justifies the removal of radio station ownership restrictions, the FCC must have access to data about the diversity of information available online.

ii.

Broadcasters

The National Association of Broadcasters believes that the Internet does increase the programming options available to American audiences and uses its surging popularity to support the claims of group owners such as ABC and NBC who believe that consolidation has not damaged the public’s access to diverse programming. The Commission, according to NAB, when looking at diversity in viewpoints should “look at all media, including television, radio, cable … and the Internet.” 44

The NAB acknowledges that no other medium has the almost universal penetration enjoyed by broadcasters. However they point out “the Internet is one of the fastest growing media ever, and is expected to be accessible to over 35 million people by the year 2000.” 45 Citing the Pew Research Center for the People and the Press, NAB argues that more and more people are getting their news from the Internet. Whereas

Press statement of FCC Commissioner Susan Ness regarding launch of biennial review of broadcast ownership rules. March 12, 1998. 44 Reply Comments of the National Association of Broadcasters. Before the Federal Communications Commission. In the Matter of 1998 Biennial Regulatory Review. MM Docket No. 98-35. August 21, 1998. 45 Reply Comments of the National Association of Broadcasters. Before the Federal Communications Commission. In the Matter of 1998 Biennial Regulatory Review. MM Docket No. 98-35. August 21, 1998. 43

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“in 1995, less than 5% of all US adults obtained news via the Internet, by 1998 more than 20% will go to the Internet for headlines at least once a week.” 46 Today studies suggest that this projection was accurate or even conservative. A survey conducted by NFO Worldwide from January to June, 2000 found that 56% of American Internet users have visited newspaper Web sites, 47 which suggests that at least this many are using the Internet as a source of news and information.

The NAB postulates that not only does increasing penetration justify the consideration of the Internet’s role in providing diverse programming, but also its ability to provide local programming is important. The NAB points to national Web sites for MSNBC, ABC, CBS and CNN, among many others, (that) contain links to local affiliates or can be customized by the user to provide local news.” 48 They assert that group owners broadcasting over the Internet are, in fact, creating an additional way in which diverse programming can be delivered to American audiences.

The NAB’s position aligns with the views its largest members. ABC, a unit of the Walt Disney Co., for example asked the FCC to consider all media when making decisions about radio ownership regulations. “ABC proposes using an all-inclusive

“Internet News Takes Off,” The Pew Research Center for the People and the Press. June 8, 1998. Hometown Media Takes on the Web. September 14, 2000. http://cyberatlas.internet.com/big_picture/traffic_patterns/article/0,,5931_460411,00.html 48 Reply Comments of the National Association of Broadcasters. Before the Federal Communications Commission. In the Matter of 1998 Biennial Regulatory Review. MM Docket No. 98-35. August 21, 1998. 46 47

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measure that includes television, radio, cable, DBS, newspapers, video cassettes, yellow pages, direct mail and the Internet, and would substitute antitrust enforcement for the Commission’s current local ownership regulation.”49

iii.

Advocacy Groups

One of the most outspoken proponents of the idea that the Internet does not provide a justification for the relaxation of ownership restrictions is the Center for Media Education (CME). The CME disagrees with NAB, both in terms of their position regarding penetration, and their assertion that Internet broadcasters are providing additional programming options.

The CME argues, “The Internet cannot be considered when looking at diversity because it does not have the penetration that radio and television have.” 50 The CME also opposes the NAB’s assertion that the Internet allows broadcasters to deliver additional programming options to audiences. They argue “The Internet … contributes little to the diversity of local news outlets because many of the Web sites which provide news are owned by parent newspapers or television networks, and thus do not add an additional source of news and information to the market.”51 Whereas the NAB would appear to be saying that ability of current over the air radio stations to broadcast online adds to the diversity in radio programming available to

ABC Comments to the FCC. FCC 1998 Biennial Regulatory Review. MM Docket No. 98-35 Comments of Center for Media Education in MM Docket No. 98-35 at 8-10 (“CME Comments”), filed July 21, 1998 51 Comments of Center for Media Education in MM Docket No. 98-35 at 10 (“CME Comments”), filed July 21, 10998. 49 50

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audiences, the CME suggests that, given that this is simply the same owner broadcasting over a new channel, there is no added benefit to the listener in search of diverse viewpoints.

G. TECHNOLOGY EVOLUTIONS

The Internet has made it possible for new radio broadcasters to provide listeners with a wider range of stations and increased choice, and this has already impacted regulatory debate as well as the radio broadcasting industry itself. Internet technologies are, however, still in the early stages of development. Whether the Internet can continue to affect the levels of diversity available to American audiences will depend on how the Internet evolves, and how new technologies affect Internet usage.

The two technological evolutions that can be expected to play a particularly significant role in the advancement of Internet radio are mobility and broadband Internet access. Under modest assumptions of the proliferation of mobility and broadband, Internet radio could reach a growing and substantial audience in the near future. Mobility and broadband technologies may, therefore, increase the popularity of Internet radio and are likely to reinforce the findings of this thesis.

1

Mobility

The proliferation of mobile Internet access has the potential to broaden the base of Internet radio. Emerging technologies are enabling new broadcasters to deliver interactive radio

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content to mobile listeners, and this mobility is already creating new opportunities for Internet radio broadcasters to compete with traditional AM and FM stations. Mobile Internet access seems poised to create a world in which consumers can access Internet radio stations without being connected to a computer and are able to listen to online broadcasters anytime and anywhere.

Mobility is a central component of radio. People listen to radio precisely because it’s a medium they can enjoy while continuing on with other activities (i.e. driving, working) and it this same trait that attracts advertisers hoping to capture listeners outside of their homes.

Radio’s emphasis on mobility was a specific reaction to the arrival of television in the mid1940’s and has been a defining part of radio’s identity and success.

In order to understand

why mobility matters to radio it is important to examine the impact that television had on the radio broadcasting industry and to understand radio’s reaction.

i.

The Impact of Television

Before television’s boom in the mid 1940’s radio’s share of advertising spending was increasing steadily, primarily at the expense of newspapers that had previously received almost half of all advertising expenditures. Radio attracted 7% of all ad spending in 1935 and 15% in 1945, a high it has not seen since. 52

52

The Future of Advertising, p.18

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With the arrival of television, however, radio’s popularity with advertisers began to fall. As televisions started to find a place in more and more North American households advertisers started creating commercials that could showcase their products visually as well as with words. Between 1945 and 1955 the radio industry's share of total advertising revenue plummeted 60%, from 14.7% to 5.9%, virtually all of it to television. It recovered to a 7.0% share in the 1970s, where it has remained since then, demonstrating radio's ability to maintain an appeal to advertisers, even in the face of new media challenges over the years.53

In short, television presented a major challenge to radio broadcasters. Advertising revenues dropped significantly but, even in the face of this challenge, the radio industry was able to reestablish itself as a viable media with something unique to offer advertisers.

The radio broadcasting industry reacted to television, and remained attractive to advertisers, by recognizing there were some things radio could provide that television could not. Radio was something you could listen to in the car or at work whereas television was best suited for the home. By virtue of being mobile, radio was able to access a captive and willing audience at a time when other media couldn’t reach them.

Benjamin M. Compaine, The Newspaper Industry in the 1980s (White Plains, NY: Knowledge Industry Publications, Inc., 1980, p. 59.

53

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Reaching users away from the home (particularly in their cars) was the most significant way in which radio reacted to television in the 1950’s and 60’s. By relinquishing the evening entertainment hours to television and focusing instead on reaching audiences in the mornings while they drove to work, radio was able to maintain advertiser appeal and continue to be a viable media.

ii.

Drive Time

One of the most powerful arguments for the importance of mobility to radio listeners can be found in an examination of where people listen to radio. The home is no longer the preferred location for listening to radio - instead the car is where people choose to tune in. To date traditional AM and FM radio broadcasters have had the luxury of being the only broadcast media that can reach consumers while they drive, and this advantage has allowed them to leverage their ability to reach consumers closer to their point of purchase than any other media.

It is the radio broadcasting industry itself that boasts of radio’s ability to reach consumers outside of the home. In particular radio broadcasters point to the popularity of in-vehicle radio listening stating, as illustrated in Table 2, that “among persons 12 and older, 36.7% of listening takes place at home, 41.6% in cars and 21.7% at work and other places.” 54

54

RAB Report, 1999

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Table 2. Radio Listening by Location. Source: RADAR ® 59, Fall 1998, (C) Copyright Statistical Research, Inc. Demographic

Location

Weekdays

Weekends

Persons 12+

At Home In Car At Work or Other Places

36.5% 42.5% 21.0%

40.0% 48.4% 11.6%

Teens 12-17

At Home In Car At Work or Other Places

41.8% 36.6% 21.6%

45.6% 40.8% 13.6%

Adults 18+

At Home In Car At Work or Other Places

35.8% 43.3% 20.9%

39.2% 49.5% 11.3%

Men 18+

At Home In Car At Work or Other Places

32.9% 44.4% 22.7%

36.4% 51.1% 12.5%

Women 18+

At Home In Car At Work or Other Places

38.5% 42.2% 19.3%

41.7% 48.1% 10.2%

Delivering programming to people while they’re driving has been a unique offering and an important advantage for radio broadcasters. Drivers cannot watch television or read the newspaper while they drive to work, but they can (and do) listen to the radio.

iii.

Point of Purchase

Being able to reach listeners in their cars has created an important additional benefit for AM and FM radio broadcasters over the years. By reaching audiences as they drive, radio advertisements are heard just before consumers get out of their cars and go shopping. Advertising on the radio, the industry boasts, gives you the best chance

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of being the last ad the consumer hears before s/he actually makes a purchase decision.

70% 60% 50% Radio Television Newspapers Magazines

40% 30% 20% 10% 0% Teens 12-17

Adults 18-34

Adults 35-64

Figure 2. Percentage of people exposed to Radio within one hour of making their largest purchase of the day Source: Arbitron/RAB Media Targeting 2000

As illustrated in Figure 2, in any 24-hour period, 63% of adults ages 25 to 54 are exposed to radio within one hour of making their largest purchase of the day.” 55 This ability to reach consumers close to the point of purchase plays a significant role in attracting advertisers to radio. Advertisers accept radio’s assertion that, since upscale consumers listen to the radio in their cars, and because those same consumers are most likely to make a major purchase right after hearing a radio advertisement, radio is an attractive advertising medium worthy of a portion of their overall ad spending.

55

Radio Marketing Guide and Fact Book for Advertisers. Fall 1999 to Spring 2000

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No measurements exist yet for how the Internet would factor in Figure 2. While the radio broadcasting industry diligently measures itself against television, newspapers & magazines, it does not yet consider the Internet’s ability to reach consumers close to the point of purchase. The Internet, as a broadcast medium, has the potential to do much more than get close to the point of purchase. Instead, with a 2-way Internet connection, Internet advertisements can become the point of purchase and so, theoretically, usurp radio’s effectiveness in reaching people about to buy.

iv.

New Mobile alternatives

With cellular phones now offering Internet access to users 56, and in-vehicle satellite radio devices expected to be available by the middle of 2001,57 radio’s control over the mobile media consumer may be coming to an end. New technologies are making it possible for radio programming to be delivered to mobile devices and companies are focusing their attention on the lucrative drive time market.

There are many technologies emerging in the race to deliver radio programming to mobile devices and vehicles, one of the most prominent of which is Satellite Radio. In 1997 the FCC granted broadcast licenses to XM Radio and Sirius Radio who are now delivering radio programming to cars via satellite networks. In addition to cars, cellular phones, Palm Pilots and even video game consoles will increasingly be Web-

56 57

Eg. Nokia offering mobile Internet access. http://www.nokia.com/networks/mobile_internet/why.html XM Radio. http://www.xmradio.com/js/faq/faq.asp

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connected which means that accessing the Internet will no longer be just a PC-based activity.

As these diverse delivery channels compete in the marketplace, research from Arbitron/Edison indicates that, if these new technologies and broadcasters are able to create viable service offerings, consumers are prepared to sign up. Figure 3 demonstrates that 17% of Americans are “very interested” in purchasing a device for their car that can play commercial-free CD-quality music for a monthly fee and 14% are “very interested” in listening to Internet audio in their cars.

18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Service Offerings

Device to play downloaded music on your computer Car device that can play commercialfree music Device for listening to Internet audio in your car

Figure 3. Percentage of Americans “very interested” in purchasing new audio devices. Source: Arbitron/Edison Media Research. Internet Study IV: The Buying Power of “Streamies”

2

Broadband

The second technological evolution that can be expected to expand Internet radio broadcasting in North America is broadband connectivity. Of the 56% of US homes with - 45 -

Internet access, approximately 16% have broadband connectivity today. Predictions are that this may reach 46% by 2003.58 This proliferation is significant because it changes the way consumers use the Internet and also because it makes audio and video accessible online.

i.

Media Usage

Media consumption is affected by Internet use, particularly in broadband households. “The average American spends 33% of his or her electronic media time each day with television, versus 28% with radio and 11% with the Internet. In the households of early broadband adopters, the Internet’s share of media time surges to 21%, comparable to television and radio at 24% and 21% respectively.” 59 In other words, based on what we see with early adopters, as broadband spreads, people’s time spent with television and traditional radio may decrease.

Broadband access is particularly important to radio broadcasters because broadband Internet users are also radio listeners. Radio is second only to the Internet in terms of satisfaction ratings among broadband users 60 which means that radio broadcasters, particularly those who already have a following among Internet users, are well positioned to stay high on the list of consumer’s media priorities. As it turns out, listening to Internet-only audio is not necessarily growing out of a widespread

eMarketer: Security risks lie beneath broadband hype. December 13, 2000. Percentage of online households with broadband connectivity. 59 The Broadband Revolution: How Superfast Internet Access Changes Media Habits in American Households. Arbitron/Coleman. 2000. New York. Page 3. http://www.arbitron.com/radio_stations/home.htm 60 The Broadband Revolution: How Superfast Internet Access Changes Media Habits in American Households. Arbitron/Coleman. 2000. New York. Page 14. http://www.arbitron.com/radio_stations/home.htm 58

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dissatisfaction with radio, but due to a desire for a greater variety of music than local radio is offering.61

Broadband also changes the geographical boundaries of media usage. Broadband users are far more likely to search out and use audio and video content from around the world. The “sheltered garden” of a local broadcast market will transform in a broadband world. 62 This means that broadband Internet users are increasingly likely to use the Internet as their source of international news and entertainment programming.

ii.

Audio and Video Content

In addition to the fact that broadband Internet users are radio listeners, the increase in broadband penetration is significant because it represents a direct increase in the number of North American homes able to easily access streaming audio and video files. Content providers can now expect a larger percentage of their audience to be able to listen to audio files as easily as they could access text a few years ago.

H. METHODOLOGY

Internet radio broadcasting is clearly a very young market. The limited availability of data regarding Internet radio broadcasting means that, to date, only a small amount of analysis

The Broadband Revolution: How Superfast Internet Access Changes Media Habits in American Households. Arbitron/Coleman. 2000. New York. Page 3. http://www.arbitron.com/radio_stations/home.htm 62 The Broadband Revolution: How Superfast Internet Access Changes Media Habits in American Households. Arbitron/Coleman. 2000. New York. Page 19. http://www.arbitron.com/radio_stations/home.htm 61

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has been conducted in this area. With few established measurement bodies to draw from, this thesis attempts to provide at least a preliminary snapshot of the Internet radio broadcasting industry, pulling early data from the sources available.

Data for this thesis was gathered from Arbitron, Measurecast, Realguide.com, each of which will be discussed in more detail below, as well as from the individual radio station Web sites. Arbitron was used as a source of data about the Internet radio stations garnering the greatest listenership in the United States. In order to support the validity of the Arbitron findings, data from Measurecast was extracted and used as a benchmark against those results. Given that Arbiton and Measurecast only provide data on the most listened to of their own primarily North American subscribers, a third data source, Realguide.com, was used as a source of information about the broader range of radio broadcasting available on the Internet.

In addition to the data extracted from Realguide.com, Measurecast and Arbiton some additional data was gathered from the individual station Web sites. Data regarding language, target market and corresponding AM/FM channels for each of the top 75 Internet radio stations ranked by Arbitron was gathered from the radio station Web sites and integrated with the Arbitron data according to the six diversity criteria being used to measure diversity in this study.

In summary, this thesis used data from Arbitron as its primary source of data. Statistics on Internet radio station listenership, format and technology platform was gathered from

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Arbitron’s September 2000 rankings and entered into a spreadsheet for analysis. Each radio station site ranked by Arbitron was then visited online. Data about each station’s target market and programming language was added to the Arbitron data, as well as an assessment of whether the station was also broadcasting via an AM or FM channel.

Rankings from MeasureCast were used as a point of comparison to the data being gathered from Arbitron and online. While the data was not complete enough to serve as the sole data source, it did serve to demonstrate that the Arbitron data was at least relatively stable and worthy of analysis. Lastly, because the Arbitron and MeasureCast rankings measure only the 75 most listened to Internet radio stations, detailed data was also gathered from Realguide.com in an attempt to understand the levels of format and language diversity available from the stations not securing highest Aggregate Tuning Hours (ATH). These results provided a useful addition to the developed spreadsheets and helped to paint a picture of the wider Internet radio universe. More detailed information about the three data sources and six data categories is provided below.

1

Data Sources

The three primary sources of data on Internet radio broadcasters used in this thesis are Arbitron, Measurecast and Realguide.com. Realguide.com is an online database of approximately 2500 Internet radio stations from around the world. Arbitron and Measurecast provide subscribers with Internet radio measurement services. Arbitron provides more complete data in this area, while the Measurecast data is limited to subscribers using the Real Networks platform and is useful only as a point of comparison for the

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Arbitron data. Measurecast is also interesting because of the work that they are doing in the realm of measurement techniques.

i.

Arbitron and Server Log File Analysis

Arbitron measures radio audiences in local markets across the United States and has recently begun providing Internet information services for the advertising and commerce-supported Webcasting and online media markets, and the advertisers and agencies that support it. 63 For the purposes of this thesis data gathered by Arbitron in September 2000 was used as the foundation of this study. The results were compared, however, to the August 2000 results, which highlighted the way in which the results can shift from month-to-month as new subscribers join Arbitron and have their radio streaming measured.

It is worth nothing that, because Arbitron only measures the streaming conducted by their subscribers, it is possible for a company that wasn’t ranked at all in one month to receive a high ranking the following month. This is simply because their log files weren’t submitted in the first month and so weren’t considered. For example, CFNY-FM held the number 13 spot in Arbitron’s September, 2000 rankings. CFNY-FM didn’t appear at all in the August 2000 results because they didn’t have their log files submitted and so weren’t measured. This highlights an inherent problem with the Arbitron rankings; namely that, even if there are Internet radio

63

Arbitron Internet Information Services corporate Web site. www.internet.arbitron.com

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stations receiving a high enough listenership to place in Arbitron’s top 75, if they are not Arbitron subscribers, they do not appear in the data.

Arbitron ranks Internet audio providers according to a metric they call Aggregate Tuning Hours (ATH). ATH is based on a server-side measurement that captures all tuning to participating streamed media channels by compiling what Arbitron calls a near census of Internet tuning sessions.

Server Log File Analysis is one of the most common methods for measuring Web site traffic. Every time an event occurs on a server (e.g. a request is made or granted) the server writes a record of the event in a “log file.” These log files can be analyzed to produce reports on the activity that occurred on that server during a specified time period.64

For example, a log file that reads : 192.168.1.55 - - [14/Jun/2000:13:48:10 -0700] "GET encoder/live05.rm RTSP/1.0" 200 146835 [WinNT_4.0_6.0.6.94_play32_RN6C_en-US_686][d928cb60-3694-11d4-9071-0001023f3be2]

says that a user running the WinNT 4.0 operating system at IP address 192.168.1.55 successfully (code 200) requested the file encoder/live05.rm with

64

An Analysis of Streaming Audience Measurement Methods. ©2000 MeasureCast, Inc. Aug. 14, 2000

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146835 bytes on June 14, 2000 at 1:48 and 10 seconds PM PST using the RTSP/1.0 protocol. The user had the unique identifier [d928cb60-3694-11d4-9071 0001023f3be2] turned on in their media player. 65

Server log file analysis does provide analysts with accurate stream counts; however it is not able to generate the demographic information about individual users that many advertisers are interested in. Also, because it is possible to alter log files relatively easily, this measurement technique does make it possible for people to “cheat” the system and bolster their server ratings. A third issue associated with server log file analysis is the likelihood that Cumulative (i.e. unique user) numbers may be skewed due to the use of dynamic IP addresses or people sharing computers. This analysis does not provide an absolute measurement of individual users, but rather a measurement of individual IP addresses accessing the server.

In short, while Arbitron’s server side analysis does a good job of measuring the number of streams being delivered by a particular Internet radio provider, and provides the data necessary for this research, it does not provide the additional demographic and unique user information that many advertisers seek.

ii.

MeasureCast and Active Event Monitoring

MeasureCast is a new company that is attempting to provide Internet broadcasters, advertisers and media buyers with demographic information, as well as statistical

65

An Analysis of Streaming Audience Measurement Methods. ©2000 MeasureCast, Inc. Aug. 14, 2000

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analysis, regarding their Internet radio broadcasts. MeasureCast measures fewer companies than Arbitron but generates more in-depth information for their customers.

MeasureCast’s methodology, called Active Event Monitoring, combines server log file analysis with a second technique called panel survey analysis, intended to add value-added demographic information to the data. Panelists share demographic information about themselves, participate in a series of exercises, and this data is then extrapolated to the demographics of the total audience.

The Active Event Monitoring system requires those broadcasters who want to receive measurement data to install a plug-in application onto their streaming server that runs in the background of the server’s regular functions. This plug-in “records data about each listening event from the server’s broadcasts, and transmits that data using an encrypted channel to MeasureCast’s centralized database server, where it is processed and stored. This data is then combined with demographic information from a statistically valid panel, representative of the known universe of streaming media users.”66

While the Active Event Monitoring system may, in the future, provide valuable demographic information that could be used to further understand the Internet radio audience, at this time the data most valuable is their measurement of Total Time 66

An Analysis of Streaming Audience Measurement Methods. ©2000 MeasureCast, Inc. Aug. 14, 2000

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Spent Listening (TSL) and Cume. TSL is the total number of hours streamed by the broadcaster in the reported time period, and is the sum of the length of all listening events in that time period. Cume makes an assessment of the actual number of unique individuals who accessed a broadcaster’s radio streams.

Measurecast’s data is too limited to be considered as a complete data source for this thesis as the company only measures those stations that subscribe to their service. Their development of a more in-depth measurement technique, however, does make their results useful as a point of comparison for the Arbitron results.

Each company measured by Arbitron, and who also uses Real Networks as their technology platform, was extracted from the Arbitron top 75 listing. Table 3 compares a list of only those Arbitron-measured companies who also use the Real Networks platform to the relative position of the Real Networks stations ranked by Measurecast to the same stations as Arbitron ranked them.

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Table 3. Comparison of Measurecast and Arbirton rankings of those stations using the Real Networks technology platform Source: Arbitron and Measurecast, 2000.

Measurecast Top 10

Measurecast Ranking

Arbitron Top 10 Stations using Real Networks Platform

Arbitron Ranking

MediaAmazing WABC-AM WPLJ-FM Radio Margaritaville KSFO-AM KQRS-FM WLS-AM The Beat LA Hard Radio WBAP-AM

1 2 3 4 5 6 7 8 9 10

WABC-AM WPLJ-FM Tom Joyner Morning Show Radio Margaritaville KQRS-FM WRQX-FM KLOS-FM WJZW-FM WLS-AM WBAP-AM

10 14 19 23 27 37 39 40 43 45

Table 3 clearly illustrates the limitations of relying on the MeasureCast rankings as the sole means of gauging Internet radio station usage. The top nine stations according to Arbitron do not appear at all in the MeasureCast rankings because they are not MeasureCast subscribers. The MeasureCast data is, however, still valuable as a point of comparison. As illustrated in Table 3, there is a relationship between the results provided by Measurecast and those provided by Arbitron. Six of the 10 stations in Measurecast’s ranking also appear in Arbitron’s top 10 when only the Real Networks stations are examined. KSFO-AM, ranked number 5 by Measurecast, is 11th in Arbitron’s listing. The few remaining discrepancies can be accounted for by the fact that they are stations not measured by Arbitron. Within this limited data, the

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fact that the Measurecast and Arbitron results are quite similar does lend support to the validity of the Arbitron data.

iii.

Realguide.com

Realguide is an online service provided by RealNetworks that provides searchable access to approximately 2500 67 Internet radio broadcasters. While Arbitron and Measurecast provide valuable data regarding some of the most popular Internet radio stations in the U.S., Realguide.com provides access to a broader listing of radio stations currently available online. Functioning primarily as an aggregator of Internet radio stations, Realguide.com provides direct links to station sites and allows prospective listeners to search the stations by language, format and location.

The stations listed by Realguide.com are important even if they individually garner only small audiences. This is because every one of the 2500 stations accessible from Realguide.com, as well as all the other small Internet radio stations available online, do provide consumers with access to new radio owners and programming. For the purposes of this thesis the 2500 stations listed at Realguide.com represent a broader range of what is available than is measured by Arbitron. The Realguide.com listings include many of the Netradio and Globalmedia stations measured by Arbitron and Measurecast, but also provide access to an additional 2000+ stations and their programming.

The actual number of stations varies slightly as broadcasters join and leave Realguide.com. Also, there may be some stations that do not fit into each of the categories chosen for this research.

67

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2

Data Categories

In order to provide meaningful and replicable results, it was important to find accessible data points that could provide valid measurements of the diversity in programming being delivered by Internet audio providers.

The data categories gathered from Arbitron, Measurecast and the Web are as follows: !

Format

!

Internet Only vs. Traditional broadcaster

!

Owner

!

Location of Primary Target Market

!

Language

!

Distribution

i.

Format

Format diversity, in this study, is considered to be the variety of radio program types being delivered by online radio broadcasters. Format definitions are taken from the standard Arbitron guide used to delineate types of radio programming. By examining the range of formats being delivered online it may be possible to provide a sense of the programming diversity available online.

News and Information. Of particular interest within this measurement category is the provision of music programming versus news, talk and information programming. Given that much of the concern around diversity is focused on news and

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information, it is useful to understand what proportion of Internet radio broadcasting is news and information versus music or other entertainment programming.

ii.

Internet Only vs. Traditional broadcaster

There are two kinds of Internet radio broadcasters: those who create programming solely for distribution over the Internet, and those who already distribute programming via traditional broadcast media and are now also delivering that content online. This distinction is important because it speaks to the ability of new broadcasters to compete with large incumbent broadcasters by taking advantage of the Internet as a lower cost broadcast medium.

iii.

Owner

Diversity in source, or corporate affiliation, has long been an important measurement for regulators attempting to measure market power. Some advocacy groups such as the CME, as we have seen, believe that fewer owners will lead to less diversity in programming and so this measurement is considered particularly important.

Here we measure source diversity as the number of owners. This criterion remains very much the same as when defined by the FCC. This thesis will document the ownership of the Internet’s most listened to audio broadcasters.

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iv.

Location of Target Market

One of the new categories available for study with the arrival of Internet radio is the location of the target market. Anyone with Internet access can listen to an Internet radio station, and so broadcasters are no longer able only to reach consumers in their network or local station footprint.

While an Internet broadcaster can, at least in theory, reach listeners anywhere in the world, many still focus their online efforts on a local audience. This is significant because it speaks to the diversity of programming being offered online. The intent of the broadcaster, in terms of the audience it believes it is reaching, will affect the content being provided (i.e. New York weather vs. national weather), and so the objective of this data category is to quantify the geographical focus on the Internet radio programming being broadcast online.

v.

Language

Another data category that can provide interesting insights into the diversity offered by Internet radio broadcasters is language. This thesis will gather data on the primary language used by Internet radio broadcasters.

vi.

Distribution

While this thesis focuses on the diversity being offered by content creators, it is worthwhile to also analyze the early data available about the role that content distributors are playing in the young Internet radio broadcasting industry. Unlike in the television industry where some content creators also own the means of - 59 -

distribution, Internet radio content creators must work with companies who encode, stream and optimize audio content in order to reach their audiences. This is similar to the print publishing industry in which companies like Hearst create content and then turn it over to a host of other companies who print, bind and distribute that content to the end consumer.

For the purposes of this research, the term distribution refers to the set of services provided to content creators who want to reach audiences by delivering radio programming via the Internet. Distribution companies are in the business of helping content creators to distribute their programming to listeners and can be divided into three categories:

1) General Internet The distribution of Internet radio, like the distribution of all Internet content, requires the services of the general Internet providers. This includes the carrier networks (i.e. Worldcom), the ISPs (i.e. AOL) and also the Web site hosting services who run servers on behalf of the content providers (i.e. Exodus).

2) Optimization (or Edge) Services. Streaming real-time audio programming over the Internet creates special challenges for distributors. This is because real time programming, such as Internet radio, suffers a degradation of quality when the delivery of packets of data is delayed.

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The term “packets” refers to the fact that the data stream from a server is broken up into packets of an efficient size for routing (about 200 bytes on average), which are then sent out onto the network. Each packet contains a “header” with information necessary for routing the packet from origination to destination.68 Each of these packets is separately numbered and may travel different routes through the Internet to its destination. When all of the packets have arrived, they are reassembled into the original file.69 Sometimes individual packets may be delayed or even lost, and these packet delivery glitches create special challenges for real-time programming.

Whereas an end user who is downloading an audio file through Napster may not notice a problem if the general Internet is delaying the delivery of certain packets, the real-time streaming audio user will notice a quality degradation if packet deliveries are delayed. One way to minimize these latency problems is to serve the streams from as close to the end user as possible so that content doesn't have to travel through the Internet and suffer packet loss before reaching the viewer or listener. Companies like Akamai and iBEAM do this by optimizing the serving location of media servers around the world. The content is pushed as close as possible to the “edge” of the Internet, or to the location of the user’s ISP.

Jeffrey K. Mackie-Mason and Hal R. Varian. "Economic FAQs About the Internet" p.4. http://www-personal.umich.edu/~jmm/papers/FAQs/econ-faqs-mit96-net.pdf 69 http://whatis.techtarget.com/definition/0,289893,sid9_gci212736,00.html 68

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3) Software. In order for the General Internet and Optimization services to deliver Internet radio programming to listeners, there must first be software tools available that make it possible for audio files to be created and accessed online. Sounds are put into digital form (i.e. MPEG) and then they must also be put into a format that is recognizable to the client software. Quicktime, Realaudio and Microsoft Media Player are all examples of these formats.

Together the general Internet service providers, optimization companies, and software companies are enabling the distribution of Internet radio content. Gathering early data about which distribution companies are being used by Internet radio broadcasters provides an early basis for additional study into the ability of these companies to affect content diversity in the future.

3

Assumptions

i.

Internet Access Requirements

When beginning a discussion of whether Internet radio broadcasters are providing American audiences with access to diverse programming, it is important to first ask what percentage of the American public has access to the technology required to access online audio broadcast at all. Clearly those radio listeners without Internet connections or the necessary hardware to access audio files, cannot benefit from any diversity in programming being offered online.

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As of December 2000, 56 percent of US homes had access to the Internet.70 A report from the Employment Policy Foundation (EPF) predicts that, by November 2002, 62.8% of American households will be able to use the Internet. 71 This suggests that well over half of all Americans already have the capability to listen to Internet radio programming, although admittedly at varying reception qualities. Even with a mid-range computer and dial-up modem it is possible to access Internet radio programming. Users with faster computers and connections, however, benefit from smoother audio streams and easier listening. Of the 56% of US homes with Internet access, approximately 16% have broadband connectivity, usually in the form of Cable or DSL connections. Predictions are that this may reach 46% by 2003.72

If these projections are correct, and assuming that most broadband subscribers own the hardware necessary to access broadband content, it is reasonable to assume that 46% of Americans will have access to online radio broadcasts by 2003, with significantly more having access to lower bandwidth Internet access. Americans without Internet access will continue to be limited to traditional media as their primary sources of information.

NielsenNetRatings: US home Internet access climbs to 56 percent. December 20, 2000 Employment Policy Foundation: Digital divide closing rapidly in US homes. Jan 16 2001 72 eMarketer: Security risks lie beneath broadband hype. December 13, 2000. Percentage of online households with broadband connectivity. 70 71

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While a Report from the National Telecommunications and Information Administration (NTIA) indicates that “ the rapid uptake of new technologies is occurring among most groups of Americans, regardless of income, education, race or ethnicity, location, age, or gender,” and proposes that this means “that digital inclusion is a realizable goal,” 73 the proportion of unconnected households will no doubt be considered by policy-makers in evaluating the role of Internet radio in their analysis of competition. This thesis will focus on the diversity being offered to those Americans who do have access to the tools necessary to access Internet radio programming.

ii.

Internet Radio Broadcasting: A Definition

For the purposes of this thesis, Internet radio broadcasters are defined as any entity that is delivering entertainment and/or news and information content as an audio stream via the Internet. These audio streams may be delivered live or archived to be accessed on demand, but in both cases the audio files were initially created as programming to be delivered to an audience of more than one.

This definition means that the downloading of individual music files using services such as Napster is not being considered in this thesis. It is a distinction intended to recognize the difference between programmed radio and “static” audio and centers on the issue of control. Services that allow users to program their own play lists (i.e.

Falling Through the Net, Toward Digital Inclusion, National Telecommunications and Information Administration. http://www.ntia.doc.gov/ntiahome/digitaldivide. October, 2000.

73

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juke box style services that allow users to select songs and then have them assembled in the chosen order) are not considered radio in this instance. “The term radio … implies that the medium has an audience of more than one and supports a group dynamic with responsive collaborative filtering in which a group’s preferences are automatically reflected in the play-list.” 74

Nonetheless, the availability of downloadable audio files via services like Napster, does provide consumers with access to a new source of audio content. While radio listeners tend to be in search of programming rather than a selection of independent files, some listeners will undoubtedly view downloadable audio as a direct competitor to Internet radio and will use downloadable audio as a source of increased diversity. Static, downloadable audio files that are not part of a larger programming schedule but are simply available for users hoping to create their own programming may lead to new models and new diversity options that could become part of this debate. Adding these services to the range of Internet radio sites being examined here would only add to the number of format, owners, channel and language options available to Internet users.

iii.

Market Share

For the purposes of this thesis, Internet audio broadcasters delivering content online are all considered to be in the same geographic market because listeners anywhere can access them. Offline the market is defined according to Arbitron’s geographic

74

Interactive Internet Radio: Provide Incentives for User Input, Billy Pidgeon. Jupiter Research. July 12, 2000

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regions that, essentially, determine that a broadcaster is in the same market as another radio broadcaster if the same listener can access both sources. In other words, there are geographic boundaries. Online, the question of geography is different, because people are not limited to accessing online broadcasters located in their area. Broadly speaking, anyone delivering online radio programming over the Internet is therefore considered to be in the same geographic market, competing for the same audiences.

That said, gathering data about the location of the primary target audience for each of these Internet broadcasters should offer some indication of whether or not the majority of Internet radio programming is being accessed nationally, internationally, or primarily in a local market (i.e. a metropolitan area).

iv.

Measurement Bias

It is important to note that the data provided by Arbitron and Measurecast is not complete and that, because each only measures the audio streaming being conducted by their own subscribers, the results have inherent limitations. Arbitron has approximately 900 subscribers, including radio broadcasters and service providers. Each of these subscribers pays a fee so that Arbitron will track their audio streaming. Arbitron generates a monthly report that ranks their subscribers and provides data on the top 75 performers. It is the data on these top 75 performers, each one an Arbitron subscriber, that is available for analysis. The subscribers monitored by Arbitron are identified in Table 4.

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Table 4. Arbitron Subscribers, September 2000 Source: Arbitron Webcast Ratings, September 2000. Top 75 Aggregate Tuning Hours (ATH) www.arbitron.com

ABC Radio ABC Radio Networks Accelernet Activate Akamai BetaLounge BroadcastAmerica The Broadcastweb Network

ControlRoom Technologies Enigma Digital Evoke eYada.com Ginger Online Global Media GUS Networks House of Blues iBEAM Broadcasting

Interland NetRadio NRJ Energy Radio Sweden One-on-One Sports RealBroadcast Networks Rivals.com Stellar Networks ZD Inc.

Measurecast also limits its measurement to those companies who subscribe to their service. Measurecast subscribers, with the exception of a few independently streamed stations, all stream through Real Broadcast Networks. This means that many large stations being streamed by Akamai, iBEAM Broadcasting or Activate, for instance, are not considered in their rankings.

To supplement the limited range of Internet radio stations measured by Arbitron and Measurecast, this thesis also measures the language and format diversity provided by the Internet radio stations listed at Realguide.com, an online service from Real Networks. While Arbitron and Measurecast provide valuable data on the Internet radio stations that are their subscribers and that generate high listenership numbers, Realguide.com provides broader access to stations with a smaller local listenership but who are, nonetheless, providing diverse options to consumers.

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I. RESULTS

1

Format

An analysis of the 75 Internet radio stations Arbitron ranked as having the highest Aggregate Tuning Hours, demonstrates that there are a wide variety of formats being made available to Internet radio listeners. News, Talk and Information stations represent 19% of the stations measured, 11% Contemporary Hit Radio, 8% Country, 7% Classical and 5% Jazz stations. These five formats account for almost half the total number of stations measured by Arbitron. However, the remaining 38 stations account for an additional different 21 format options.

Whereas 19% of online stations deliver News, Talk and Information programming, 16% of traditional AM and FM radio stations deliver these radio formats. 3.2% of the AM and FM stations in the U.S. play Contemporary Hit Radio, 14.7% play Country, 2.9% play Classical and 2.5% play Jazz. With the exception of Country, these are smaller percentages than those delivered by online broadcasters. These five formats together account for 39.3% of the total number of stations in the United States and there are 48 other formats available to AM and FM listeners.75

Table 5 illustrates the number of radio stations delivering each of the most popular Internet radio broadcasting formats. It also shows the number of stations as a percentage of the total

75

Broadcast and Cable Yearbook. A Broadcasting & Cable/R.R. Bowker Publication. 1999.

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number of stations measured and each station’s aggregate tuning hours as a percentage of the total.

Table 5. Format Diversity among Arbitron’s Top 75 stations. Source: Arbitron Webcast Ratings, September, 2000. Top 75 Aggregate Tuning Hours (ATH) www.arbitron.com Format

# of Stations

% of Stations

% of total ATH

News Talk Information Contemporary Hit Radio Country Classical Jazz Album Oriented Rock Alternative New AC/Smooth Jazz Classic Rock Adult Contemporary Hot Adult Contemporary New Age Oldies/Classic Hits New Rock Album Adult Alternative Electronica Rhythm & Blues Urban Contemporary Easy Listening Religious All Sports Contemporary Christian Variety Ethnic Modern Adult Contemporary Spanish Contemporary

14 8 6 5 4 3 3 2 2 3 2 2 3 2 2 1 3 2 1 1 1 1 1 1 1 1

18.7 10.7 8.0 6.7 5.3 4.0 4.0 2.7 2.7 4.0 2.7 2.7 4.0 2.7 2.7 1.3 4.0 2.7 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3

16.7 11.5 8.5 7.0 5.3 4.7 4.4 4.4 4.2 3.3 3.1 2.8 2.7 2.7 2.6 2.6 2.0 2.0 1.8 1.6 1.3 1.3 1.2 1.0 0.9 0.7

Table 5 demonstrates that there is a relationship between the number of stations delivering a particular format of programming and the number of people listening to that format. - 69 -

i.

News and Information

Given that much of the rhetoric around diversity in programming is the assumption of the value for civic discourse, it is useful to examine the ratio of news and information programming, compared to music programming that is delivered online.

Table 5 shows that 18.7% of the radio stations currently broadcasting online deliver news, talk and information content. By comparison, only 16.7% of the actual time spent listening to Internet radio streams (the ATH) is spent listening to news, talk and information programming. This suggests that there is proportionately more of this type of programming available via the Internet than is actually being used.

Considering only the top ranked Arbitron stations, the amount of Internet radio content that falls into the news, talk and information format category online is slightly greater than the percentage of traditional radio broadcasts that are using the news, talk and information format.76 The vast majority of the programming delivered by America’s 12,467 broadcast radio stations is music: 84% compared to the 16% of stations providing news, talk, ethnic language and public affairs programming. The ratio is thus similar to the Internet stations tracked in Table 5.

Looking beyond the top ranked Arbitron stations at the larger universe of Realguide.com stations, a different picture of format diversity emerges.

Broadcast and Cable Yearbook. A Broadcasting & Cable/R.R. Bowker Publication. U.S. Radio Formats by State and Possession. 1999.

76

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Table 6. Internet radio formats available at Realguide.com Source: Realguide. http://realguide.real.com/tuner/ Format News Pop World Music Blues/Jazz Talk Spiritual Alternative Adult Contemporary Indie/College Oldies Dance/Techno Classic Rock Rock Classical Country Sports Rap/Hip-Hop Scanners/Cam Latin R&B Religious Talk Reggae/Ska Heavy Metal Gospel Comedy Soundtracks Education Tech Talk

# of stations 301 274 204 136 129 123 122 112 108 106 104 104 95 91 89 56 56 53 49 49 45 18 15 13 9 7 4 3

% of Realguide stations 12.2 11.1 8.2 5.5 5.2 5.0 4.9 4.5 4.4 4.3 4.2 4.2 3.8 3.7 3.6 2.3 2.3 2.1 2.0 2.0 1.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1

Table 6 shows that News still holds the top spot at Realguide in terms of the number of stations available, but a category called World Music holds the third spot, replacing Country, the format that ranked third in Arbitron’s tracking of its subscribers’ Internet radio stations. At Realguide.com Country is the eighth most broadcast format, a significant shift in comparison to the results when only the most listened to stations are examined. In other words, there are stations delivering more diverse formats online than it would appear if only the Arbitron-ranked stations are considered. Other formats such as Reggae/Ska and Tech

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Talk that appear in the Realguide.com listings reinforce this observation. These, as well as World Music and other formats, do not appear at all in the Arbitron rankings.

2

Internet Only vs. Traditional Broadcaster

Are traditional broadcasters dominating the online broadcast world or are new Internet-only broadcasters securing meaningful market share? This question asks whether the Internet is opening the door for new voices hoping to reach radio listeners, or whether it is, in fact, simply serving as an additional conduit that traditional broadcasters can use to distribute content.

Table 7. Internet Only Broadcasters vs. Internet with AM/FM Affiliate. Source: Compiled from Arbitron Webcast Ratings, September, 2000. Top 75 Aggregate Tuning Hours (ATH). www.arbitron.com Owner

Internet Only Internet with AM/FM Affiliate

# of Stations owned

% of stations owned

% of total ATH

36 39

48.0 52.0

57.5 42.5

As seen in Table 7, the 75 Internet radio broadcasters measured by Arbitron were almost equally divided between Internet-only and traditional AM and FM broadcasters. The picture changes somewhat when the two groups are measured based on Aggregate Tuning Hours (ATH), also calculated in Table 7. Internet-only radio stations account for 56% of the total hours spent listening to Internet radio, while traditional broadcasters account for the remaining 44%. This demonstrates that, at this stage at least, the new Internet-only broadcasters may be more attuned to the needs of the Internet radio audience.

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3

Ownership

There are 24 companies that own one or more of the top 75 radio stations ranked by Arbitron according to the Aggregate Tuning Hours measurement. Of these 24 owners, 50% own more than one station while the remaining half own only one of the top 75 Internet radio stations. As illustrated in Table 8, of the 12 owners with more than one measured online property, ABC Radio and Netradio account for 56% of the total number of stations. Of the two large Internet radio station owners, Netradio has almost twice as many properties as ABC Radio, with 27 stations compared to ABC’s 15.

Table 8. Ownership diversity among Arbitron’s top 75 Internet radio stations Source: Arbitron Webcast Ratings, September 2000. Top 75 Aggregate Tuning Hours (ATH) www.arbitron.com Owner

Internet Only or Broadcaster

# of Stations % of top 75 % ATH owned owned stations owned

NetRadio ABC Radio New Wave Broadcasting LP Fisher Broadcasting Bonneville International CHUM Group Citadel Communications Corus Entertainment Enigma Digital Inner City Broadcasting Corp. EXCL Communications eYada Global Media Ingleside Radio, Inc. One-On-One Sports Pacific Lutheran University

I B B B B B B B I B B I I B B B

27 15 3 3 3 2 2 2 2 2 1 1 1 1 1 1

36.0 20.0 4.0 4.0 4.0 2.7 2.7 2.7 2.7 2.7 1.3 1.3 1.3 1.3 1.3 1.3

43.3 16.9 3.7 3.2 2.7 1.2 2.0 1.8 5.7 1.7 0.7 1.2 0.5 0.6 1.3 1.8

Radio Margaritaville LLC Salem Comm. Corp Santa Monica College

I I B

1 1 1

1.3 1.3 1.3

1.4 1.3 1.2

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Scottish Media Group Shaw Communications Sunburst Media L.P.

B B B

1 1 1

1.3 1.3 1.3

2.8 2.1 1.5

The Broadcastweb Network, Inc. Texas Country Connection

I B

1 1

1.3 1.3

0.8 0.6

The gap between NetRadio and ABC Radio is even greater when measured according to Aggregate Tuning Hours. As seen in Table 8, Netradio captures 43% of the listening hours although it owns only 36% of the stations. The ABC stations, on the other hand, capture 16.9% of the ATH while they own 20% of the stations.

The top four Internet radio owners in Table 8 together own 64% of the top 75 Internet stations which combine to account for 67.1% of the total ATH. Studies of AM and FM radio broadcasters, however, have found an even higher ownership concentration in local markets. In 1997 the FCC found that “the top four radio owners generally account for about 90% of their Metro market’s total revenues.”77

While there does appear to be a certain amount of ownership concentration among the most listened to, Arbitron-ranked Internet radio stations, this must be viewed in the context of the thousands of other Internet radio station owners providing diverse programming for audiences, any of which can be received by any Internet user anywhere in the world. The Realguide.com radio stations represent a much more diverse group of owners, delivering content to listeners around the world.

77

FCC. Review of the Radio Industry, 1997. MM Docket No.98-35. March 13, 1998.

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Table 8 further shows that one quarter of the companies represented own Internet-only stations. Primarily because of Netradio’s large share of the top ranked stations and the total ATH, this 25% account for 45% of the stations ranked by Arbitron and 54% of the Aggregate Tuning Hours being streamed by listeners. That is, while Internet only broadcast owners represent only a quarter of the owners of Internet radio stations, they are responsible for 54% of the Internet radio listening online. Internet-only radio station owners, according to this preliminary data, have been able to successfully compete with traditional broadcasters for a substantial share of the online market.

4

Location of Target Market

Traditional AM and FM broadcasters are limited in where their radio audiences can be located. On line, however, it is possible for any Internet radio listener to access a radio station from anywhere in the world. While data is not available to measure the location of the listeners to the top 75 radio stations measured by Arbitron, a more useful tool for analyzing the content diversity is the location of the station’s target market. If, for instance, a third of the top 75 stations were gearing their broadcasts for a New York audience by delivering news, weather and traffic reports specific to New York, this would suggest that diversity in programming is being limited by the location of the top broadcasters, even though their content is available nationally.

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Table 9. Internet radio stations by location of target market Source: Arbitron Webcast Ratings, September, 2000. Top 75 Aggregate Tuning Hours (ATH) www.arbitron.com Location

# of stations with target market in this location

National San Francisco/California Washington, DC Dallas/Texas Seattle New York Calgary Chicago Detroit/Windsor, ON Los Angeles Minnesota London Toronto Western Washington New England Boston, Chicago, LA, New York * Columbus, OH Portland, ME

35 8 6 3 3 3 2 2 2 2 2 1 1 1 1 1 1 1

% of top 75 % ATH stations with delivered to target market in target market this location in this location 46.7 10.7 8.0 4.0 4.0 4.0 2.7 2.7 2.7 2.7 2.7 1.3 1.3 1.3 1.3 1.3 1.3 1.3

55.7 8.4 5.4 3.0 3.2 5.6 1.8 1.6 1.2 1.7 1.9 2.8 2.1 1.8 1.4 1.3 0.6 0.6

* One on One Sports (www.1on1sports.com) is a single Web site that provides access to four separate radio station sites. Each station can be accessed from the One on One Sports portal but each has an affiliate in a different city.

As seen in Table 9, 47% of the 75 Internet radio stations measured by Arbitron are created for a national market, while the remaining 53% are targeted to listeners in a specific city. By comparison, when the target market locations are compared according to listening hours, 56% of the actual tuning hours are being spent listening to the national stations. Thus the national, Internet-only stations are attracting a proportionately greater share of listening time than the local, AM and FM stations that are also broadcasting online. This makes sense given that the AM and FM stations have other outlets by which listeners can access their programming. All listening to the Internet-only stations must take place online.

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Of those who choose to listen to the local, AM and FM radio stations broadcasting online, early research from Edison Media finds that 56% choose stations that are from their market, compared to 34% who choose stations in other markets, and 6% who choose stations from other countries.78 This finding was substantially replicated in a study from Arbitron/Coleman Research that measured use of Internet radio stations by users with dialup connections. They found that 52% of listeners choose stations in their own market, 35% choose stations in another market, and 10% choose stations from other countries.79 This study noted an apparent warning for local broadcasters, however. It found early indications that the popularity of listening to local Internet radio stations might wane as Internet connection speeds increase.

The Arbitron/Coleman study found that broadband users are more likely than dialup users to listen to out-of-market stations. 41% of broadband users, compared to 35% of dialup users, choose U.S. radio stations from outside their own market. Furthermore, 17% of broadband users, compared to 10% of dialup users, listen to radio stations streaming from other countries. 80 There are a number of possible reasons for this phenomenon. First, it may simply be that people with higher speed connections tend to be more adventurous online. Their faster connections mean that they can use a wider range of all Internet services than users with slower connections. Or, in the absence of further research, it is also possible to speculate that as broadband Internet access was initially more readily available to urban dwellers than to people in suburban and rural settings, these urban dwellers may be people Edison Media. “Internet Study V” Arbitron/Coleman “The Broadband Revolution. 2000 The Arbitron Company. 80 Arbitron/Coleman “The Broadband Revolution. 2000 The Arbitron Company 78 79

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more likely to listen to Internet radio from other markets regardless of their connection speed. They may be a demographic group that also has a higher than average income or education level, or who travel more than their counterparts with slower connection times, or may be more heavily weighted to mobile professionals or immigrants, each of which might suggest an increased likelihood to listen to radio from outside your own market, regardless of connection speeds.

The connection between Internet connection speeds and the likelihood that people will access Internet radio stations from outside their local market is an observation worthy of additional study.

5

Language

Only one of the Internet radio stations rated in the top 75 by Arbitron delivers programming in a language other than English. This is perhaps not surprising. It would be very difficult for non-English language broadcasters to garner the broad listenership required to compete with the English language country music and classic hits stations that secure Arbitron’s top spots.

A far different picture emerges upon examination of the approximately 2500 Internet radio stations listed by Realguide.com. As seen in Table 10 there are a significant number of radio stations now available via the Internet delivering programming in languages other than English. Many of the Internet radio stations listed by Realguide.com are delivering programming in languages ranging from Thai to Lithuanian and Mandarin. While these

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stations may not attract the large domestic audiences of the Arbitron-ranked sites, the fact that they are available over the Internet does support the notion that the Internet is making available diverse programming in a way that traditional radio is not.

Table 10. Languages available at Internet radio stations listed by Realguide.com Source: Realguide. http://realguide.real.com/tuner Language English Spanish German Portuguese French Italian Dutch Polish Arabic Greek Icelandic Russian Croatian Hindi Swedish Czech Turkish Cantonese Slovenian Thai Estonian Farsi Hebrew Galician Latvian Norwegian Romanian Hungarian Japanese Mandarin Finnish Punjabi Serbo-Croat Slovak Bulgarian

# of stations 1596 82 63 55 41 19 17 11 11 10 9 9 8 8 8 7 7 6 6 5 4 4 4 3 3 3 3 2 2 2 2 2 1 1 1

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% of stations 78.85 4.05 3.11 2.72 2.03 0.94 0.84 0.54 0.54 0.49 0.44 0.44 0.40 0.40 0.40 0.35 0.35 0.30 0.30 0.25 0.20 0.20 0.20 0.15 0.15 0.15 0.15 0.10 0.10 0.10 0.10 0.10 0.05 0.05 0.05

Catalan Danish Korean Lithuanian Luxemborgeois Swiss Tunisian Urdu Vietnamese

1 1 1 1 1 1 1 1 1

0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05

While it is difficult to gauge whether the delivery of one non-English language station over the Internet reflects demand, it is possible to compare this availability to the number of nonEnglish language stations available from traditional AM and FM broadcasters. Out of the 12,467 radio stations broadcasting in the United States, 642 deliver programming in languages other than English. This includes 528 Spanish stations, 88 foreign language/ethnic stations, 5 Portuguese, 4 French, 4 Greek, 4 Polish, 3 Chinese, 2 Arabic, 1 Russian, 1 Eskimo, 1 Vietnamese and 1 Filipino station.81

The 528 Spanish language stations represent 4.2% of the total number of traditional stations available compared to 4.1% of the Internet radio stations identified by Realguide.com. These numbers are comparable however, looking beyond Spanish, Internet radio stations offer significantly more language diversity than traditional AM and FM broadcasters. For example, while there are only 5 Portuguese language AM and FM stations in the U.S., equal to roughly 0.008% of the total stations available, 2.7% of the Realguide.com stations provide Portuguese programming for listeners. Significantly, each of the 55 Portuguese stations

Broadcast and Cable Yearbook. A Broadcasting & Cable/R.R. Bowker Publication. U.S. Radio Formats by State and Possession. 1999.

81

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available at Realguide.com is available to listeners anywhere in the world whereas the 5 stations available from traditional broadcasters are only available in the 5 geographic markets they belong to. In other words, one Portuguese station online potentially provides language diversity to a greater number of listeners than all five of the offline stations.

Furthermore, whereas the 12,467 traditional radio broadcasters in the U.S. represent only 11 languages, there are Internet radio stations delivering programming in 44 different languages. Many of these broadcasts originate outside the United States; however, to the listener in search of diversity or the American broadcaster carving a niche with advertisers, the origin is of little consequence.

6

Distribution

The 75 top-ranked Arbitron stations work with the 14 content distribution companies identified in Table 11 to deliver their programming to listeners. Table 11. Distribution companies used by Arbitron-ranked Internet radio stations. Source: Arbitron Webcast Ratings, September, 2000. Top 75 Aggregate Tuning Hours (ATH) www.arbitron.com

Accelernet Activate Akamai Broadcast America Control Room Technologies Enigma Digital Ginger Online

Global Media GUS Networks House of Blues iBEAM Broadcasting Real Broadcast Networks Rivals.com The Broadcastweb Network, Inc

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Table 12 lists each of the combinations of content distributors used by the Arbitron-ranked stations, the number of radio stations each is responsible for streaming, and the percentage of the total tuning hours of the top 75 stations being streamed by that distributor.

Table 12. Number of Internet radio stations and % Aggregate Tuning Hours supported by each team of Distributors. Source: Arbitron Webcast Ratings, September, 2000. Top 75 Aggregate Tuning Hours (ATH) www.arbitron.com Distributor

# of Stations streamed

% of total ATH streamed

Akamai, iBEAM Broadcasting

27

43.3

RealBroadcast Networks

15

16.9

Activate, GlobalMedia

11

11.0

Activate

7

8.3

BroadcastAmerica, RealBroadcast Networks

3

3.4

GlobalMedia, RealBroadcast

3

2.2

Akamai, Enigma Digital

2

5.7

Ginger Online

1

2.8

Accelernet, RealBroadcast Networks

1

1.3

Activate, BroadcastAmerica, Control Room Technologies, RealBroadcast Networks, Rivals.com

1

1.3

Akamai, House Of Blues

1

1.2

Akamai, Real Broadcast Networks

1

1.2

The Broadcastweb Network, Inc.

1

0.7

GUS Networks

1

0.7

As seen in Table 12, half of the distribution companies are only involved in the broadcasting of one of the top 75 stations. Furthermore, the small content distributors such as Accelernet and Control Room Technologies are streaming the radio station in conjunction with one of the larger providers rather than independently. On the other hand, the Akamai/iBEAM combination streams just over a third of the top stations. Real

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Broadcast Networks delivers 20%, and Activate/Global Media delivers 15%. Thus the three largest distributors handle 70% of the Arbitron-ranked stations.

Comparing the same content distributors according to the ATH of the stations they broadcast provides a further indication of the level of involvement that these companies exhibit. Table 12 demonstrates that the Akamai/iBEAM optimization service has the business of 36% of the measured radio stations and is distributing 43% of the programming requested by listeners.

Overall, however, Table 12 shows that the top three distributors together account for about the same percentage of Aggregate Tuning Hours as stations. These three distributors stream 70% of the top-ranked stations and together they stream 71% of the total ATH.

Akamai and Real Broadcast, already part of the two most popular distribution partnerships, are also involved in partnerships with many of the other content distributors involved in the streaming of Internet radio broadcasts. Akamai, for instance, works with House of Blues, Enigma Digital and Real Broadcast Networks, as well as with iBEAM, and is therefore involved with 62.4% of the total ATH being delivered nationally. Through its partnerships with Accelernet, Activate, BroadcastAmerica, Control Room Technologies, Rivals.com, Akamai and Global Media, Real Broadcast Networks is involved in streaming 22.9% of the Internet radio stations ranked as part of this study. Between them, Akamai and Real Broadcast Networks are involved in the distribution of over 80% of the country’s Internet radio content.

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J. FINDINGS & ANALYSIS

An analysis of the most listened to Internet radio stations ranked by Arbitron as well as the more eclectic offerings listed by Realguide.com provides some useful insights into the level of diversity being delivered online. While the results of the research in each of the areas studied are summarized here, there are two overarching findings that are particularly relevant from a policy perspective.

!

The availability of radio programming nationally is increasing dramatically. Especially for audiences in rural areas and small towns with only a few AM or FM stations available, there are more diverse programming options available. This programming diversity does come, in part, from the availability of Internet-only broadcasting newcomers. Even if those dotcom broadcasters were unable to compete effectively in the marketplace, however, it can still be argued that audiences would have access to more diverse programming by virtue of being able to use the Internet to listen to traditional stations from outside their own market.

!

While there may be a degree of ownership concentration among Internet radio broadcasters, this study has found that the Internet has made it possible for new players to enter the radio broadcasting market. Whereas these players may not have had the ability to win spectrum licenses and the approval to broadcast via a traditional AM or FM channel, new owners like NetRadio have been able to gain significant market share online.

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Other findings in this study:

1

Format

The Internet has added to the number of radio formats available. Niche broadcasters are delivering specialized formats such as Tech Talk and Soundtracks but, in addition, even slightly more traditional formats such as Bluegrass and World Music are made available to all Internet radio listeners rather than only to those listeners in the large centers likely to have access to such programming via terrestrial channels. It is, therefore, audiences in small markets that have the most to gain from the diverse formats available online.

The same applies to news, talk and information programming. Having access to news and talk programming from other markets clearly adds to the range of choices available to the Internet radio listener. In addition, this study shows that there is a slightly higher percentage of news, talk and information programming being delivered online than is available via traditional AM and FM stations.

2

Internet Only vs. Traditional broadcaster

This research supports the notion that the Internet, with its lower barriers to entry and open regulatory environment, provides opportunities for new, start up stations to compete with established broadcasters.

It is worth noting that the most listened to Internet radio stations are owned by NetRadio, an Internet-only broadcaster with no AM or FM affiliate stations. While traditional AM and

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FM broadcasters currently own more stations than Internet-only broadcasters, they receive less than half of the listeners’ tuning time. NetRadio alone receives 43% of the total ATH listeners spend with Internet radio stations. The NetRadio Corporation (Nasdaq:NETR) is headquartered in Minneapolis, Minnesota. Its major shareholders are ValueVision International, Inc. and Navarre Corporation.

3

Ownership

This analysis of Internet radio station owners does demonstrate a relative concentration among a small number of players. The top two owners (NetRadio and ABC Radio) deliver more than 50% of Internet radio listening time across the country. Given that a few owners account for a significant proportion of the national audience, it is foreseeable that they will therefore gain access to an equal proportion of advertising revenue. In short, a few large Internet radio stations are likely to account for a similar proportion of ad spending.

While there are early signs of ownership concentration, there also appears to be a steady influx of new players entering the radio broadcasting market. These new players, if they are able to survive, will represent an increase in the overall number of owners providing radio broadcasting alternatives to consumers. Thus, the market that the FCC uses to measure for ownership and competition has indeed expanded, and these new voices should reasonably be taken into account when determining policies that involve the degree of ownership diversity in radio broadcasting.

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Furthermore, because Internet radio stations are able to broadcast from international locations, the Internet has made it possible for stations to diversify the ownership pool without actually having a physical presence in the U.S. market. International broadcasters, then, may eventually be able to compete in the U.S. market for listeners and perhaps even advertising dollars.

Of particular note among the new influx of broadcast owners is that the most listened to Internet radio broadcaster is NetRadio, a complete newcomer. This highlights the fact that Internet broadcasting has added to the overall diversity in ownership among radio broadcasters. Netradio owns twice as many stations as its nearest competitor, a traditional media company.

4

Location of Target Market

All but one of the top-ranked Internet-only radio stations focus on national rather than local content. Most of the Internet radio broadcasters who also broadcast over the air, however, are simply re-transmitting their locally focused AM and FM based stations.

While 53% of the Internet radio stations ranked by Arbitron are targeted to listeners in a specific city, it is the nationally focused Internet radio stations that capture the majority of the listeners’ attention. The Internet-only broadcasters account for 56% of the tuning hours devoted to Internet radio. This may suggest that the promise of the Internet is coming true and that it is the new, Internet-only competitors, who are dominating online and providing new content alternatives for consumers. Conversely this may be a reflection of the different

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goals that Internet and traditional radio stations have for the delivery of content online. While Internet-only stations rely on the Internet for 100% of their listenership, AM and FM stations may choose to focus on their local markets and only invest a small percentage of their budgets on the Internet, viewing the platform as a tool for gaining a marginal increase in listenership rather than as a core business.

5

Language

While the most listened-to Internet radio broadcasters in the United States offer very little non-English language programming, the more inclusive Realguide.com listing demonstrates that there are many non-English language stations streaming content over the Internet. Compared to the two languages (including English) being represented by the Arbitron ranked stations and the eleven available on the 12,467 AM and FM stations broadcasting in the U.S., there are 44 languages represented at Realguide.com. This means that consumers gain access to significantly more language diversity with the advent of Internet radio broadcasting, something that is particularly relevant for consumers living in small markets with fewer AM and FM radio stations.

6

Distribution

One of the results of this study most worthy of additional examination relates to the considerable concentration of a few distributors being used by the top-ranked radio stations. Akamai and Real Broadcast Networks are involved in streaming over 80% of the Internet radio content being listened to across the United States.

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While, at the time of this writing, there is no evidence to suggest that a distributor can use its conduit role to affect the programming being streamed by its clients, the concentration of ownership with a few providers does suggest that it might be possible for distributors to create a bottleneck in the delivery of Internet radio. In this way distributors could hinder the delivery of diverse programming being delivered by niche broadcasters at this time. It is recommended that the preliminary information gathered here form the basis for future investigations into whether vertical integration or alliances among distributors have the potential to affect diversity in radio programming.

K. IMPLICATIONS The results of this research suggest a range of implications for radio broadcasters, regulators and listeners in North America. The competitive landscape is being affected by the arrival and increasing popularity of Internet radio and ownership concentration issues are arising in response to these shifts. The ability of Internet broadcasters to sidestep traditional barriers to entry is highlighted by NetRadio’s high online visibility, and issues surrounding diversity and local programming are certainly worthy of further investigation as Internet broadcasters increasingly deliver global programming to audiences around the world.

The Internet has already changed the radio broadcasting marketplace and introduced new sources of diversity to audiences. With rapid advances in mobile Internet access technology and the deployment of high-speed Internet connectivity, Internet radio usage should continue to grow. Audiences with broadband connections are better able to access audio

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files and, once it becomes possible to access Internet radio stations in the car and from other mobile devices, AM and FM radio broadcasters’ traditional prominence as the mobile media source may be further threatened. On the other hand, the ability to reach global audiences and the continued surge in the use of Internet radio will also create new opportunities for traditional radio broadcasters to expand their offerings and attract new audiences.

Developments in mobile and broadband technologies can be expected to increase the penetration of Internet radio and, should more listeners tune into radio over the Internet, there would be heightened competition for listeners and advertisers, increased concern over cross-ownership and ownership concentration, a greater need to consider diversity at the local level and, no doubt, a renewed call for regulatory intervention by some players.

It is important to note that the implications discussed here stem from the data available in today’s young Internet radio marketplace. These findings are likely to be reinforced as technology evolutions such as mobility and broadband access expand the market and generate additional interest in Internet radio. The findings would also be reinforced if this research was expanded to include a consideration of audio download services such as Napster.

1

Competition

A clear implication of this early research into diversity in Internet radio broadcasting is that the Internet is presenting traditional radio broadcasters with a new source of competition. The Internet is allowing new competitors to enter the market and, at least so far, it is these

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new, Internet-only broadcasters who are capturing the majority of the listening time nationally.

What is less clear, at the time of this writing, is whether new, Internet-only broadcasters will compete effectively with terrestrial broadcasters for advertising revenue. So far Internet radio stations have not significantly impacted ad spending in America, however as ad insertion technologies pervade and Internet radio use increases, it is possible that Internet radio stations and terrestrial radio stations will find themselves competing for advertising revenue.

The success of new competitors in the radio broadcasting space implies that there is an argument to be made by radio station owners for the further relaxation of FCC ownership restrictions. There are early signs that the Internet is allowing for competition from a new group of broadcasters.

2

Concentration

There are early hints of ownership concentration among Internet radio broadcasters. The net effect of the Internet to date, however, has been to expand the number of owners delivering radio programming to audiences.

Should levels of ownership concentration continue to increase, one possible implication is that this may lead to a similar concentration in advertising revenue. In AM and FM markets one measure of ownership concentration is the percentage of advertising revenue accruing to

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the largest broadcast owners. While share of advertising information is not yet available for Internet radio stations, percentage of ATH is likely to be a strong indicator of each owner’s ability to capture a corresponding share of advertising revenue.

3

Barriers to Entry

In the traditional world of radio broadcasting one of the major barriers to entry for prospective newcomers is access to spectrum. With a limited spectrum available, new broadcasters must apply for a license to that spectrum, often a long and costly process that serves as a significant hurdle for many would-be broadcasters. Whereas access to spectrum used to be the most significant barrier to entry for new radio broadcasters, this barrier is non-existent for Internet radio broadcasters.

Instead the key barrier to entry for Internet radio broadcasters is the more universal one of gaining access to capital. The importance of access to capital as the primary barrier to entry implies that start up, niche stations must have solid business models and the ability to generate revenue and be profitable or be otherwise subsidized.

4

Competitive Advantage

NetRadio’s early dominance begs the question of whether Internet radio broadcasters in fact have an advantage over traditional AM and FM stations who are often slower to make the move to the Internet. Internet-only radio broadcasters are not subject to ownership restrictions, do not need to pay licensing fees, and have more freedom about the programming content they delivery. Also, because the Internet is their primary delivery

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channel, Internet-only stations may be more focused and more technically proficient than their AM and FM counterparts.

On the other hand, the ability of Internet-only stations to compete in the radio broadcasting arena has implications for traditional broadcasters hoping to establish a strong competitive advantage. Whereas the dotcom broadcasters must start from scratch, AM and FM stations already have a team of reporters, editors and content creators developing programming 24 hours a day. Unlike their Internet-only counterparts, AM and FM broadcasters have strong brand identities and organizational infrastructures that they can leverage on the Web. Likewise, traditional broadcasters have established, real world marketing engines at their disposal. They can use their AM and FM channels to promote their Web broadcasts and launch cross-platform campaigns to benefit both their on and offline efforts.

5

Local Programming

One of the key implications to stem from this research, and a good candidate for further research, is the likelihood that Internet radio broadcasting may lead to a decrease in the availability of local programming such as news, local-issues talk shows, traffic and weather.

The majority of the content being broadcast by Internet radio stations is either national in focus, or targeted at consumers in a few major centers. As we saw in Table 8, almost all Internet-only stations are geared towards a national audience. This means that, while AM and FM radio stations are expected to deliver local content, Internet radio stations are free to create programming for people living in New York, Seattle, Melbourne and Cape Town. To

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the extent that federal policy-makers continue to expect localism from radio license holders in the United States, Internet-only radio broadcasters may not further that goal.

6

Vertical Integration

Any attempts at vertical integration between content creators and distributors might cause concern among certain players in the radio broadcasting industry. Should the broadcasters with significant market share (i.e. ABC Radio and NetRadio) integrate with the distributors who have already garnered a similar market share (i.e. Akamai and Real Networks), it is possible that these companies could create a bottleneck in the delivery of Internet radio. This bottleneck could hinder the distribution of diverse programming by smaller niche Internet radio providers.

7

Un-regulated Radio Broadcasting

Traditional AM and FM broadcasters are beholden to the FCC for the granting of an initial broadcast license. These licenses are granted based on the FCC’s determination about whether the proposed station will serve the public good. Once a license is granted the radio station is subject to regulatory intervention. While the Communications Act stipulates that the FCC may not determine or censor a radio station’s content, stations are expected to foster public understanding about issues in their local communities. They are also subject to license revocation if they air obscene or indecent language, solicit money from their listeners under false pretenses, or broadcast certainly types of lottery information.82

The Public and Broadcasting. June 1999. Prepared by: Mass Media Bureau, Federal Communications Commission. Washington, DC. http://www.fcc.gov/mmb/prd/docs/manual.html#REGULATION.

82

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While terrestrial radio broadcasters must apply for spectrum licenses and then abide by the regulations that come with that license, Internet broadcasters have been free to deliver programming to audiences in a regulation-free environment. This thesis provides a preliminary glimpse into radio broadcasting in an unregulated environment.

The similarities between the most popular programming being provided on and offline provides early support for the idea that, regardless of the regulatory environment, broadcasters are subject to the demands of the market. For-profit broadcasters, whether on or offline, must obey the market rather than using their broadcast stations solely as a platform for sharing their own views or preferences. It is perhaps paradoxical that early data suggests there may actually be a greater diversity in programming and ownership available to North American audiences in a broadcast environment that is free of regulation.

8

Summary

The results, analysis and implications put forth in this study support the initial hypothesis that Internet radio has added diversity to the traditional over-the-air broadcast structure. Audiences have access to a greater diversity of formats, channels, owners, languages, geographically focused programming and content distributors than they would if Internet radio broadcasts were not available.

While these preliminary results do suggest that Internet radio has added diversity to the marketplace, it is critical to remember that the Internet radio broadcasting industry is still very young, and that economic and industry forces may affect the ability of smaller, niche

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broadcasters to continue providing this diversity. It is recommended, therefore, that additional research be conducted to monitor this industry over time. Issues including ownership concentration, the ability of distributors to create bottlenecks to hinder diversity, the link between broadband connectivity and the use of out-of-market radio stations, and the revenue models that will drive Internet radio broadcasting are thought to be particularly worthy of further study.

L. CONCLUSION

The need to ensure diversity in radio broadcasting has been at the heart of the government’s efforts to regulate broadcasters throughout the history of the medium. From the Communications Act of 1934 to the June 2000 Biennial Review of Broadcast Ownership Rules, diversity has been a lauded goal and a regulated characteristic of the broadcasting medium. The rise in popularity of Internet radio broadcasting has meant that stakeholders from all sides of the debate have developed opinions about whether or not it is reasonable to consider the Internet as relevant to policy discussions regarding AM and FM broadcasters.

While we are still in the very early stages of Internet radio broadcasting and recognize that this new delivery channel is still not available to many Americans, this thesis provides early support for the hypothesis that Internet radio has added diversity to the radio broadcasting industry. Internet broadcasters are providing American audiences with access to an increasing number of stations, owners, formats, and language choices. While the most popular Internet radio stations appear to reflect the demands of the mass market and do not

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demonstrate significantly more diversity than is available via AM and FM stations, smaller niche stations are providing thousands of new programming options to radio listeners. Of course, it remains to be seen whether industry economics and forces will sustain these smaller broadcasters. In order to give them an opportunity to establish themselves as longstanding competitors in the industry, it is recommended that changes to existing ownership regulations not be considered until the market has had a chance to mature.

The finding that Internet radio broadcasters are adding diversity to the broadcasting marketplace is likely to be reinforced as advances in mobile and broadband technologies provide an increasing number of consumers with access to Internet radio stations. Services such as Napster that enable the sharing of individual audio files can also be expected to expand the level of choice available to consumers and reinforce these preliminary findings.

This thesis finds that format, ownership and language diversity have been enhanced by the availability of Internet radio broadcasting, and suggests that technology evolutions will reinforce these findings. There may, however, be legitimate cause for concern about the early concentration of ownership among both Internet radio station owners and distributors, particularly if these parties consider vertically integrating.

Overall, however, Internet radio broadcasters have already added new station options to the marketplace and provided a new source of competition for traditional broadcasters. This research depicts an increase in diversity as a result of Internet radio broadcasting. The radio

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universe as a whole has already been expanded significantly and positively and, as the industry evolves, this expansion is likely to continue.

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