NetRadio Shuts Down

Internet radio pioneer NetRadio (www.netradio.com) announced on Wednesday that it was terminating most of its employees and shutting down operations because it didn't get the financing it needed.

A previously announced strategic investment with The Advisory Board, Inc., a New York-based media company, was terminated because it was unable to obtain financing for the transaction. NetRadio tried other means to get funding, but couldn't get it in time. On Wednesday night, NetRadio shut down all its streams and posted a goodbye message on its homepage.

Despite the bad news, NetRadio says it still exists as a company and may be back some day. "We still believe in our idea and in the fact that Internet radio has a strong, viable future. We look forward to the possibility," read part of the public message.

Although NetRadio did not return phone calls seeking comment, a press statement said that a small management team, as well as the board of directors would remain on. At last count, about 50 employees were working at the Minneapolis, Minn.-based company.

AOL Radio

Meanwhile, one of the biggest companies is getting into Internet radio. On Tuesday, AOL unveiled its Radio@AOL service with music, sports programming and even a CD player, built into the new AOL 7.0 software. A company representative said that the radio service was a separate product, based around AOL's Spinner.com, which it acquired two years ago. Aside from some Spinner music channels, AOL built new stations for AOL's audience. AOL first included a media player in 6.0 of its software — now it comes with more functionality and is located in the toolbar.

Kevin Conroy, senior vice president and head of AOL Music, said: "Radio@AOL is AOL's first integrated radio offering and will set the standard for online radio by making it easy for mainstream consumers to enjoy their favorite music. With its prominent position on the AOL 7.0 toolbar, easy-to-use features and best-of-breed programming, AOL members will have the ability to conveniently listen to great music, news and other compelling programming right alongside other popular AOL features such as e-mail, chat and instant messaging."

This is AOL's biggest jump into the digital music space. Now it has the chance to introduce its 31 million members to Internet radio, where many might not have known it even exists. The company even said that it would be including MusicNet, the upcoming music subscription service launching soon.

So far, AOL isn't adding any functionality from Shoutcast, which could conceivably give members the ability to start their own MP3 music stations. AOL acquired Nullsoft in mid-1999, a company that creates Winamp MP3 players, as well as the Shoutcast MP3 server.

Of course AOL still has a deal with RealNetworks to bundle its media player on AOL's service. As a result of that deal, AOL's media player does not support streaming Windows Media files.

Fading Internet Radio Signals

The news comes as a shock to many, since it was mostly business as usual at NetRadio. In early October, NetRadio signed a deal with Digital Island to stream its music through DI's Cable & Wireless-powered network. Then, after announcing the financing agreement with The Advisory Board, things seemed to be going back on track —until the funding fell through.

NetRadio officially launched in October 1995, as a wholly owned subsidiary of Navarre Corporation (www.navarre.com), a distributor of music, software, and CD-ROMs. Early on, it was looking to sell CDs of the music it played to generate revenues, through a deal with Navarre's CDPoint site. NetRadio started out with over 100 channels, but in recent years narrowed that to about 85 pre-programmed channels.

On October 14, 1999, NetRadio had its IPO, which didn't quite set the world on fire. Even after a market rebound, the stock was an under performer. Still, NetRadio was popular. Month after month, it ranked many channels in Arbitron's webcast ratings, with its 80s station usually in the top 10. NetRadio also won out in Arbitron's monthly network rankings, getting the number one spot for six months in a row. In March 2001, Arbitron said that NetRadio had about four million aggregate tuning hours. Earlier this year Arbitron even did a demographic study of NetRadio's listeners, finding that they were "well-educated, upscale and Internet-savvy."

But as Internet radio matured, many companies sought new ways of generating revenue other than hard goods like CDs. About a year ago, a crop of companies came out with targeted in-stream advertising service that could purportedly help radio stations earn more revenue. In fact, NetRadio recently joined forces with in-stream ad company Hiwire, to offer more targeted advertising to its listeners. Still, the combination of sagging broadband penetration, low spending on advertising and even smaller number of Internet radio listeners meant that the market wasn't quite there yet.

David Lawrence, host of radio show Online Today (www.online-tonight.com), said that NetRadio's demise was related to costs. The company couldn't succeed on just a few hundred listeners, even with targeted ads from Hiwire. "There is no way to capitalize on that small of an audience," he said. "Small audience = no dollars, whether you are demographically targeting to individuals or not."

The future of Internet radio may lie with companies like Listen, Xact, MusicMatch, and Launch, who have more interactive radio features (and usually grab more headlines and lawsuits). The interactive services allow users to bookmark favorite artists, skip songs they don't like and affect the overall programming of a station — NetRadio mostly resembled a jukebox, playing one song after another.

So how can any Internet radio company hope to succeed when NetRadio, a long-time streamer, closes its doors? Subscriptions may be key. So far, RealNetworks, Listen.com, StreamWaves, and others are offering (or will soon offer) subscriptions to listen to ad-free, customizable radio stations. But the major labels are backing their own, yet to be launched competing services that resemble audio on demand (AOD) systems. Both services, MusicNet and PressPlay, also have big distribution partners, including Yahoo!, RealNetworks, AOL and others.