By Sue Zeidler
LOS ANGELES (Reuters) - Like a sleeping giant, Internet radio is quietly attracting more and more listeners and advertising dollars, leading some experts to predict that some day soon it will eclipse the popularity of satellite radio and iPods.
Already, ratings company Arbitron Inc. says, some 37 million Americans tune into Internet radio at least once a month, up from 11 million four years ago.
With its growing audience, it could start to take a bigger bite of the $11 billion spent annually on online advertising. Nevertheless, But Internet radio faces hurdles, say proponents, because digital copyright laws make it less viable than rivals.
"The growth potential is huge but there are significant challenges. The record industry is doing their best to keep Internet radio in a box," said Jonathan Potter, executive director of the Digital Media Association. Instead, he said, the music producers "should be working on ways to enable it" to capture a paid audience for recording artists.
Potter's group has been pressing Congress for years to update copyright laws that require Web radio companies to pay royalties to record labels.
But restrictions continue to hinder the growth of the medium. Webcasters can only play four songs by any single artist in a three-hour period and are restricted from promoting the recording of their content, unlike, satellite operators which are free to do so.
"We need to clarify and simplify Internet radio laws to promote the growth of these services," said Potter, whose group represents small and large Webcasters like Time Warner Inc.'s (NYSE:TWX - news) AOL, Yahoo Inc. (Nasdaq:YHOO - news) and RealNetworks (Nasdaq:RNWK - news).
Potter says most Webcasts are still operated at a loss.
Steve Marks, general counsel of the Recording Industry Association of America, says record companies have embraced Internet radio by offering an easy way to get licenses to use its content.
But he said the trade group was disappointed that some Web radio companies have failed to respect the rights of artists.
"Internet radio companies should stop facilitating piracy and adopt secure streaming formats today," he said.
Still, entrepreneurs have found legitimate ways to overcome the barriers, and are now moving Web radio forward, fueled by views that wireless broadband will turn it into a "killer application." They are set to put it onto cellphones, MP3 players and other devices beginning as soon as late 2005.
"Once Internet radio's available everywhere and you'll have 'Internet walkmen', it will be a watershed moment," said Bryan Miller, general manager for alternative Cincinnati station
Digital Millennium Copyright Act (DMCA) restrictions.
"The DMCA puts a lot of restrictions on the industry. But when you have as much content as we have, these things don't stop you," said Srivats Sampath, chief executive officer of Mercora, which enables listeners to "timeshift" or record streamed programming so they can play it back later, which is prohibited on U.S. Webcasts.
"DMCA prohibits timeshifting of DMCA webcasts in the U.S., but you can timeshift everything you hear from our Canadian networks, which are registered in Canada where rules don't prevent listeners from timeshifting," said Mercora.
Other companies are helping Internet operators generate cash for their Webcasts. "We're good at offering alternative revenue models to advertising for Internet radio stations," said Kurt Huang, co-founder of Bitpass Inc., a Web-based payment service that helps online content providers bundle, promote and sell content and collects payments for them.
Ando Media provides a product called Webcast Metrics, which tracks Web radio usage across 500 independent stations including
"Internet radio represents one of the biggest untapped audiences -- daytime primetime," said Jordan Mendell, chief technology officer for Ando, noting that most Web radio listening occurs during the workday at offices.
"It's almost like a puzzle piece. Internet radio fills in the gap between drop-off and the drive home," he said.
Mendell said his company's data has translated into ad buys and has helped stations develop credibility. "We're seeing major ad buyers like Toyota and Napster putting major campaigns on our stations," he said.
Eileen Wolbert, director of advertising for Live365, a portal of10,000 Web radio stations, also cited a huge upswing in advertising interest this year.
As the medium gains traction, terrestrial broadcasters are embracing it after pulling the plug on streamcasts a few years ago. Viacom Inc's Infinity recently began streaming news/talk outlets and launched a couple of Web-only stations, while Clear Channel Communications Inc recently launched a new Web strategy.
Copyright 2005 Reuters Limited.
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