Analysis of United States commercial radio group Clear Channel's declared strategy to dominate the global internet radio medium and its potential impact on the United Kingdom radio broadcasting market, written by Grant Goddard for Enders Analysis in September 2008.

1. CLEAR CHANNEL: DESIGNS ON
GLOBAL RADIO?
GRANT GODDARD
3 September 2008

2. ExecutiveSummary
The largest American commercial radio group, Clear Channel, announced in
July 2008 its plans to dominate the ‘internet radio’ market. It will launch a
‘portal’ offering the programming of its 1,200 terrestrial radio stations,
combined with content from ten of its smaller rival terrestrial radio groups,
alongside seven of the US’ largest online radio operators and syndicated
shows. The new business unit will sell online advertising inventory, both within
the audio streams and on the web pages.
Although Clear Channel’s targets initially are US advertisers and US internet
users, it is likely that eventually the company will seek to roll out its business
model for online radio to the rest of the world, particularly to those markets
that speak (almost) the same language. As a result, within the next decade,
the UK commercial radio sector could face an additional source of competition
from overseas media companies offering radio content delivered via the
internet.
The major hurdle faced by Clear Channel in entering the European online
radio market is the cost and complexity of obtaining the necessary rights to
use music copyrights within its content. Music licensing agreements have
proven a challenge for internet companies, such as Pandora and Last.fm,
wishing to serve the pan-European market. Pandora has, in fact, retreated
from markets outside of the US, citing the expense of music licensing
agreements.
From a commercial perspective, online radio is presently only peripheral, as
revenues (from in-stream and online advertising, sponsorship, and e-
commerce) are currently modest. The reason is that take-up of online radio
listening is still at a low level in the UK (though comparable with usage in the
US), despite the marketing efforts of the BBC to encourage consumption of its
audiovisual content online via the iPlayer and Radio Player. However, the
growing integration of Wi-Fi connectivity into portable communication and
audio devices will help untie online radio from the desktop or laptop computer,
and promote its consumption ‘on the move’. The long-term rewards are likely
to be substantial enough for entrants to swallow equal doses of perseverance
and patience.
Encouraged by the way that Google has come to dominate the global market
for online search advertising, other media companies are now eyeing the
potential to dominate the global market for online radio advertising. Whether
the winner is Clear Channel, its rival CBS Radio or Google will depend upon
the outcome of the ‘land grab’ that is now underway in the ‘internet radio’
space.
Although the UK might initially seem unaffected by such developments, it is
the most likely market for the next stage of combat between the global
heavyweights of the radio sector. The UK commercial radio sector currently
thinks of the BBC as its biggest threat, but it should consider the potential

3. future challenge posed by the likes of Clear Channel, whose radio revenues
alone are three times that of the entire UK commercial radio sector.
Our opinion is that local content will become increasingly important in
differentiating radio services in one market from similar services elsewhere, as
the marketplace for radio becomes increasingly global. In order to compete
effectively online with content providers such as Clear Channel, UK radio
owners will need to offer much more than back-to-back music services that
can easily, and more cost-effectively, be replicated by competitors.
Clear Channel
Clear Channel, the largest US commercial radio group, announced in July
2008 that it is to launch “a new online radio network with the broadest reach
and most diverse content of any online audio network”.1 By offering online
streams of its own 1,200 AM and FM stations, alongside those of ten of its
smaller terrestrial radio competitors and seven of the largest US-based online
radio groups, Clear Channel is promising advertisers an online audience of
five million listeners per week. At a stroke, Clear Channel is creating the
largest US online radio network in a bold move to dominate the internet
platform in the same way that it already dominates traditional radio
broadcasting in the US.
The Clear Channel portal ‘iheartmusic.com’ also offers a personalised radio
service ‘Erockster.com’, although rumours persist that Clear Channel might
acquire Last.fm rival ‘Pandora’, which has quickly become the radio
application of choice on the iPhone in the US.2 Clear Channel has also
partnered with StudioNow to offer local advertisers a network of freelancer
videographers who can produce professional quality video or display
advertisements for use on its web site.
Clear Channel is locked in a ‘land grab’ for the internet radio space with its US
rival CBS Radio. As part of its online strategy, CBS Radio acquired London-
based internet company ‘Last.fm’ whose main product is personalised
streaming radio (see Radio: Last.fm is not the problem [2007-60e]), and
also has a stake in TargetSpot, a US-based online radio advertising
saleshouse. As a result, CBS is about to launch ‘play.it’, a web portal that
aggregates its own 140 terrestrial and 20 internet-only stations alongside
AOL’s 200 online stations and Last.fm, with a combined reach in the US
estimated as 3.4 million per month.3
The UK radio ecology is likely to be impacted, not immediately but within the
next decade, by this escalating war between Clear Channel and its rivals to
dominate the online radio space, initially in the US, but subsequently
overseas. Until now, access to the UK radio market has meant access to
terrestrial radio, which has always been tightly controlled. BBC domestic radio
is regulated by the government via the BBC Trust, whilst commercial radio is
regulated by Ofcom. Overseas radio content producers cannot broadcast
within the UK without a terrestrial radio licence awarded through an Ofcom

4. ‘beauty parade’, and no American company has yet won such a licence. The
difference now is that radio delivered by the internet (known variously as ‘IP
radio’, ‘internet radio’ or ‘online radio’) is regulated by neither Ofcom nor the
government, so that global radio content can be offered to the UK without a
distribution licence.
The major hurdle to truly international online music radio is the thorny issue of
music rights agreements, which currently prevent Europeans from accessing
CBS Radio or Clear Channel’s online radio offerings (or the aforementioned
Pandora). As yet, it proves too costly (and an administrative challenge) for
large US media companies to pay the music royalty charges to stream to
markets outside the US in which they are presently not monetising their
listening. Although heavyweights such as CBS Radio and Clear Channel
ensure that appropriate music rights agreements are in place ex ante,
nevertheless there are thousands of small, independent online radio stations
(predominantly based in the US) who seem less cautious about offering their
content to the UK without holding the requisite UK music rights agreements.
This complex situation is likely to become easier once pan-European music
rights agreements become available as a result of a European Commission
directive in July 2008.4
Already, the UK online market has been considered valuable enough for
Yahoo!, AOL and RealNetworks to spend considerable sums in legal fees
arguing to the UK Copyright Tribunal in 2006 as to the royalty rates they
should pay to stream music to the UK. In its Decision, the Tribunal described
these companies as “most of the powerful protagonists of the online music
industry”.5 Clear Channel and CBS are similarly huge media conglomerates,
with annual revenues of US$3.6 billion and US$1.8 billion respectively just
from their radio divisions in 2007.6 Once these companies’ internet radio
businesses become sufficiently established in the US market, the marginal
cost of extending those services to Europe will become much smaller.
InternetRadio Usage and Revenues
The US market already dominates global consumption of internet radio. The
peak listening time for online audio content, originated anywhere in the world,
is the North American working day. In the US, 33 million of the population
aged 12+ (equivalent to 13%) listen to radio via the internet each week. It is
the substantial population of the US, the fact that 82% of the population aged
12+ have internet access (at any location), the high penetration of broadband
(76% of homes), and the propensity of Americans to listen to radio at work
(38% of weekday radio listening between 10am and 3pm is in the workplace)
that make the US by far and away the most significant online radio market.7
The UK market, although much smaller in size, consumes proportionately as
much radio online as the US, driven by the BBC’s intensive marketing of its
online radio offerings (the BBC Radio Player launched six years ago and, in
June 2008, was integrated into the iPlayer) and the growing penetration of
broadband (58% of homes).8 In the UK, 9.4 million adults (19% of the

5. population aged 15+) listen to radio via the internet each week, of which 2.5
million adults (5%) listen every day or most days. Of those using online radio,
89% listen at home and 24% listen at work. The majority of online radio users
(8.0 million per week) are listening to live radio rather than time-shifted
content. The latter is delivered via two routes: ‘listen again’ streams (6.2
million users per week) or downloaded ‘podcasts’ (4.4 million). Users of online
live streaming listen for an average 78 minutes per week, users of ‘listen
again’ 52 minutes per week, and users of podcasts 63 minutes per week.9
This consumption is very low in the context of the average UK radio listener’s
1,350 minutes per week radio consumption, but usage is growing
significantly.10
Until recently, online radio had required listening via a desktop or laptop
computer, a quite different consumer experience from the traditional radio
receiver. However, several developments are transforming the listening
environment for the consumer. Standalone internet radio receivers (that look
similar to AM/FM radios) are now regularly coming to market, with around 40
models presently on sale in the UK, four of which are available from Argos
(priced from £59.99 upwards).11 Secondly, Wi-Fi capability is being added to
an increasing number of devices, including mobile phones and portable music
players. A recent forecast by Strategy Analytics predicted that 28 million Wi-
Fi-enabled ‘handsets’ will be in use in the UK by 2012.12 Thirdly, wireless
internet access is increasingly available at home and ‘on the move’ – almost
half of the adult population with domestic broadband use a wireless router to
connect, and sales of mobile broadband connections ‘took off’ in 2008 (1.5
million UK connections in June 2008).13
Wi-Fi can deliver audio/radio content much more robustly and cheaply than
video/television content because audio uses comparatively little bandwidth
(streaming as low as 24kbps for music, compared to video’s minimum
192kbps), which is why manufacturers of Wi-Fi-enabled devices are
promoting radio features as a low-cost product ‘must have’. Nokia’s latest ‘N’
range of mobile phones (13 models in the UK) comes pre-installed with ‘Nokia
Internet Radio’ software.14 The iPhone and iPod Touch incorporate Wi-Fi, with
the former’s exclusive UK service provider O2 including unlimited access to
9,500 public fixed wireless connections (known as ‘Wi-Fi hotspots’) via The
Cloud and BT Openzone.15 Even some of the Blackberry ‘Smartphone’ range
(three models) support Wi-Fi connectivity.16
According to Ofcom research, 11% of adults (aged 16+) in the UK now access
the internet away from home or work, of which 32% connect via a free Wi-Fi
network, 23% connect via a paid for Wi-Fi network, and 31% use a mobile
phone to connect.17 At home or work, 48% of internet users claim to listen to
the radio whilst online, whilst the desire to listen to music ‘on the move’ is
demonstrated by the 45% penetration rate of mp3 players.18 Gareth Thomas,
product manager at UK technology manufacturer Intempo, predicts that "with
wireless music streaming becoming increasingly popular, we anticipate a
greater demand for people to be able to access their music in this way while
on the move”.19 The availability of public Wi-Fi spots is growing rapidly in the
UK, led by The Cloud, BT Openzone and T-Mobile.20

6. Ofcom has acknowledged that “Wi-Fi radio [is] gaining a foothold” and its
research found that 6% of adults claim to own a Wi-Fi radio receiver, while a
further 11% said they would be interested in Wi-Fi radio services.21 By
comparison, adult penetration of DAB radio receivers did not reach 6% until
as recently as 2005, demonstrating how close Wi-Fi radio hardware is behind
the DAB adoption curve.22 The government’s Digital Radio Working Group
noted in its recent Interim Report that “IP [delivery] is likely to play a vital role
in the future digital radio landscape, both in its own right and as a
complementary technology to broadcast digital technologies such as DAB”.23
As yet, revenues from online radio are as small as its audiences, with
estimates of annual revenues in the US ranging from US$50 to US$500
million (0.2% to 2% of total US radio revenues).24 Wachovia analyst Marci
Ryvicker suggested in April 2008: “We are at least five (if not ten) years away
before new media/digital opportunities have any financial significance in the
broadcast space”.25 Whilst, in the US, there are already independent
saleshouses that specialise in online radio advertising inventory (Ronning
Lipset Radio and Jones Media), here in the UK, no such advertising
specialists yet exist. Nor are there yet signs of cross-industry collaboration
online in the UK, with the exception of RadioCentre’s internet radio ‘Player’
(which aggregates its members’ and BBC radio online streams but does not
monetise them through the sale of in-stream advertising).
Possible Impacton the UK Radio Market
The spectre looming over the UK radio industry is that the Wi-Fi platform (a
global standard, unlike DAB) will quietly become ubiquitous in devices,
offering users large volumes of audio content from anywhere in the world.
This is the prize within the sights of Clear Channel and CBS Radio which
realise that, following Google’s example on the internet, wherever an online
audience can be found in the world, it can be monetised. Consumers simply
demand relevant content and they do not care whether an audio stream is
delivered from London or California.
The BBC has less to be worried about because its national radio output is
mostly comprised of high quality, individual ‘programmes’ that benefit from
considerable investment in content and production values. Because many of
its shows are speech-orientated, they have always found a market overseas,
particularly in the US on National Public Radio, the closest comparator there
to BBC Radio. Additionally, the BBC already has an incredibly strong online
presence for its content (internet, cable, and mobile, the latter if its current
proposal is approved), and its iPlayer is quickly establishing itself as an
efficient non-broadcast conduit to connect audiovisual content with
consumers.
However, commercial radio produces few programmes whose content is not
ephemeral. The majority of UK commercial radio output comprises recorded
music interspersed with some local information, some chat and occasional

7. listener interaction. As the sector moves towards replacing more local shows
with nationally networked content, stations become more vulnerable to
competition within a radio market that will become increasingly global. Our
opinion is that, in the future, it will become imperative that radio stations be
either very ‘local’ or truly ‘global’ to attract an audience. A supposedly local
station with a bare minimum of local content will find it has no unique selling
point in a crowded, global market.
There have been some important innovations by UK commercial radio owners
in the online space. Virgin Radio has long pioneered a myriad of web
offerings, GCap Media has launched personalised radio services for its Xfm
and Classic FM stations and also streams its brands on the iPhone, London
station LBC has a long running subscription podcast service, and Bauer has
aggregated its brands within the ‘whatson.com’ portal. But the dominant
opinion outside the BBC is that terrestrial broadcasting (AM, FM and DAB) will
remain the ‘mass market’ platform for radio and that, as one UK commercial
radio broadcaster told a recent conference, “the internet is quite an easy thing
to join later, as there is no Ofcom licence [required]”.
The radio and music industries have attempted to reduce the impact of
overseas radio companies streaming to the UK without the necessary music
rights. In a two-year agreement signed in March 2006 with Phonographic
Performance Limited (PPL), representing the owners of sound recordings, the
UK commercial radio sector had promised not to stream its online radio
services outside of the UK (using geo-IP blocking). In return, PPL and the
International Federation of the Phonograph Industries (IFPI) had promised to
take action to force overseas stations to pay UK royalties if they wanted to
make themselves available online to consumers in the UK. Geoff Taylor, IFPI
executive vice president, told commercial radio: “Those [overseas] people
who are not prepared to pay will be closed down”.26 However, such promises
do not seem to have significantly impacted the availability of overseas online
radio content in the UK.
With the ‘land grab’ for the internet radio space having already started in the
US, the UK market is soon likely to be on the agenda. Microsoft Chief
Executive Steve Ballmer predicted earlier this year that “there will be no media
consumption left in ten years that is not delivered over an IP network”.27
[First published by Enders Analysis as report 2008-82.]
© 2008 Grant Goddard
Published by Radio Books
http://www.radiobooks.org
http://www.grantgoddard.co.uk
1 Clear Channel Radio, Clear Channel Radio, Katz Group Launch Largest Digital Network , By
Any Measure, press release, San Antonio & New York, 28 July 2008.
2 Peter Whoriskey, ‘Giant of Internet Radio Nears Its “Last Stand”’, Washington Post,
Washington DC, 16 August 2008.

8. 3 CBS Radio, CBS Radio Offers Most Listened To Online Radio Service, press release, New
York, 5 August 2008.
4 European Commission, Antitrust: Commission prohibits practices which prevent European
collecting societies offering choice to music authors and users, document IP/08/1165,
Brussels, 16 July 2008.
5 The Copyright Tribunal, Interim Decision CT84-90/05, 19 July 2007, p.8., para.3.
6 Clear Channel, CC Media Holdings Inc. Reports Second Quarter 2008 Results, San
Antonio, 11 August 2008, p.14.
CBS Corporation, Form 10-K, 28 February 2008, p.50.
7 Arbitron & Edison Media Research, The Infinite Dial 2008, presentation, New York, April
2008.
Arbitron, Radio Today: How America Listens To Radio, presentation, New York, 2008 Edition.
8 Ofcom, Communications Market Report, report, London, 14 August 2008, p.128.
9 RAJAR, Podcasting and Radio Listening Via The Internet Survey, report, London, June
2008.
10 RAJAR, Q2 2008.
11 Argos, web site, http://www.argos.co.uk
12 BBC, BBC Executive Proposal For The Syndication Of Content To Managed Service
Providers For Delivery Via 3G, London, [undated], Figure 1, p.5.
13 Ofcom, Communications Market Report, report, London, 14 August 2008, pp.69 & 109.
Enders Analysis, [forthcoming report], London, September 2008.
14 Nokia UK, web page, http://www.nokia.co.uk/A4221001
15 O2, Wi-Fi – Frequently Asked Questions, web page,
http://www.o2.co.uk/iphone/frequentlyaskedquestions/wifi
16 Blackberry, Blackberry – Wi-fi Enabled BlackBerry Smartphones, web page,
http://na.blackberry.com/eng/ataglance/networks/#tab_ddetail_subtab_wifi
17 Ofcom, Communications Market Report, report, London, 14 August 2008, p.69.
18 Ofcom, Communications Market Report, report, London, 14 August 2008, pp.25 & 64.
19 Libby Plummer, ‘Personal and portable audio – Profitable profits’, Independent Electrical
Retailer, 8 August 2008.
20 Ofcom, Communications Market Report, report, London, 14 August 2008, p.110.
21 Ofcom, Communications Market Report, report, London, 14 August 2008, pp.240-241.
22 RAJAR, Q1 2005.
23 Barry Cox, Digital Radio Working Group: Interim Report for the Secretary of State for
Culture, Media & Sport, Department for Culture, Media & Sport, report, London, June 2008,
p.7, para.4.3.
24 Radio And Internet Newsletter, “$500 million pie” doesn’t exist!, Chicago, 30 March 2007,
http://www.kurthanson.com/archive/news/033007/index.shtml
25 Quoted in: Erik Sass, ‘How’s 2008? Disaster For Newspapers, Magazines and Radio’,
Media Post, New York, 24 July 2008.
26 Musictank, Future Radio: Will Digital Kill The Record Biz Star?, event, London, 29 March
2006.
27 Peter Whoriskey, ‘Microsoft’s Ballmer on Yahoo and the Future’, Washington Post,
Washington DC, 5 June 2008.