Retuning Internet Radio: Dialing in to the Rise of Music’s Middle Class

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Mercora’s discovery functions much like Last.fm, with an emphasis on tagging and user preferences, but instead of simply measuring song statistics and playing music from a fixed library, Mercora users actually stream songs from the libraries on their own computers. Unfortunately, listening to and sharing tunes on Mercora requires you to download a separate software client, but that client also serves as an instant messaging program, and Mercora DJ’s can engage in live chat with listeners.

Mercora, run by Srivats Sampath, former CEO of McAfee, also has the advantage of a mobile client that lets users access the music network using their wireless smart phones. By mid-2006, Mercora was serving at least a million users.

Music discovery is an interesting service to monetize. All three of the above services are offered for free with banner advertising, the model that seems to work best. Both Pandora and Last.fm offer their service without ads through paid subscriptions. Last.fm also displays affiliate links to ticket vendors and third-party music retailers like Amazon.com.

In early July, Pandora experimented briefly with embedded audio advertising for about a week-and-a-half. The reception was mixed. Some congratulated the service on finding a new way to modify it. Others ranted about how they would never listen to Pandora again. “The jury’s still out,” says Westergren.

Meanwhile, Ghose has already decided that audio advertising is not for Mercora. “We don’t really want to disrupt the listener’s experience,” he says, mirroring complaints by some Pandora users. Ghose was concerned mainly about the interactivity of audio. “If I’m listening to an audio ad, how to I interact with it? How do I respond to it? How do I let the advertiser know I’ve responded to it?”

The very nature of the free, ad-supported model means that these music discovery services have signed some rather wonky licensing deals with the music labels. For example, users of Pandora can skip no more than 6-10 songs each hour. Last.fm users are not allowed to pause their streams and can only preview most tracks for 30 seconds unless they appear in-rotation in an audio stream. And Mercora DJs have to wait one full hour before playing an IM request from a listener. Fortunately, the power of music discovery outweighs the artificial limitations of licensing agreements which, with their weird restrictions, remove the burden of dealing with legal issues from would-be internet DJs.

In late January, the New York Times published an article about labels becoming increasingly disillusioned with DRM (Apple chief Steve Jobs yesterday called for labels to drop DRM altogether). The ability to match up music with listeners who want to hear it through streaming broadcasts has great marketing potential for large and small labels alike. It’s a step towards Westergren’s “musician’s middle class,” and with the new ubiquity of land line and wifi internet connections capable of delivering CD-quality streaming audio, not to mention the increasing internet connectivity of mobile devices, 2007 could be the year that the idea of traditional radio went off the air.

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