Streaming radio, also know as online, Internet or Web radio, has been around for quite a while (at least as measured in “Internet time”). Over the past several years, it has experienced geometric growth and has become one of the most common uses of online time for the average Internet user. Today, thousands of terrestrial radio stations are streaming their content over the Internet and even more companies have emerged that offer Internet only radio broadcasts. As the audience of listeners has increased exponentially and the demographic diversity has grown, advertisers have begun to show significant interest in including online radio spots in their advertising mix.

In general, there are two major types of streaming radio advertisements available – gateways and instreams. A gateway advertisement runs immediately when the Internet radio station is first loaded, before the station content actually begins to stream. Instreams are advertisements that are inserted into commercial break points much like traditional radio advertisements. For now, these types of ad buys are mainly made on entire networks of stations, as individual Internet radio stations often have limited audiences. In addition, Loudeye Technologies, a leading provider of services and infrastructure for the delivery of digital media and streaming content, also provides buttons on the player that allow listeners to click directly through to the desired Web page on the advertiser’s site.

In the near future, advertisers will be able to specifically target their ads to individuals that match a defined set of demographic criteria. This will be possible through technologies that are just beginning to appear that will enable ads to be dynamically placed within the content stream at specific points. What that means is that two people, listening to the exact same broadcast over the Internet will be presented with two completely different sets of offers that have been tailored to them. The user data that makes this targeting possible can be collected when users go through the registration process to download a player such as Windows Media Player or the Real One Player.

Such a system also ensures that advertisers can obtain meaningful data that can be utilized for quantitative and qualitative analysis of the success of their advertisements. The accountability of this system, combined with its targeting abilities, will make Internet radio one of most sought after online advertising formats. Unfortunately, there are shadows blowing overhead, as the industry may have to move away from a pure advertising-based business model to a subscription or subscription-advertising hybrid model in order to survive the recent assessment of royalties by the Librarian of Congress.

As chronicled in The Bivings Report’s daily dispatches since February of this year, the streaming radio industry has been facing proposed royalty assessments on copyrighted content that they send over the Web. While the rate has been modified from the initial assessment, the 0.07 cents per one hundred songs streamed is still significant for most streaming radio operations, especially those that are completely ad supported and available on the Internet only. While the new royalties will have a measurable economic impact on these companies, it is likely that the industry as a whole will survive and eventually prosper under a subscription-advertising hybrid model.

The greatest concern that arises for marketers is that when this form of advertising becomes popular, demand may greatly exceed the available inventory, driving the cost of these advertisements above sustainable levels. An industry weed-out that leaves only the biggest companies in play may exacerbate the situation. Although supply will eventually meet demand, the cycle may become chaotic as advertisers abandon the format as it becomes too expensive, leading to falling rates, which will then lead to greater demand, which will drive rates up, and so on. While this is a normal capitalistic mechanism, the fledgling industry may be too weak to hold up against these fluctuations.

Given the opportunity, Internet radio will be a major online advertising option in the not-too-distant future. It is already demonstrating that it is capable of providing tangible contributions to an overarching campaign, and it should therefore be able to weather the economic downturn, any technology implementation issues, and the royalty assessments.