ACB radio and a number of other innovative online radio offerings are
part of the Live 365 network.

Kelly

the San Jose mercury news

Webcaster cuts costs while audience grows
But advertisers are choosing traditional media

BY DAWN C. CHMIELEWSKI
Mercury News

Internet radio broadcaster Live365 is struggling to stay true to its
name.

The Foster City Webcaster, which made it possible for anyone with a
computer, an Internet connection and a collection of CDs to fulfill
their dream of becoming
a D.J., is on the ropes. It has laid off more than half its staff, gone
dark for five days, and put its staff on a two-week unpaid
``sabbatical.''

But before dismissing it as just another IPO-motivated, Internet
flameout, consider this: Live365 is the nation's largest Internet radio
network. It broadcasts
nearly 5 million hours of music in a typical month over 40,000 radio
channels. And it attracts a larger online audience than radio giant
Clear Channel.

So why is Live365 faltering?

Live365's problems illustrate the challenges ahead for Internet radio.
No one doubts that Internet radio is growing exponentially. MeasureCast,
a firm that
measures Internet radio audiences, said the total number of hours
streamed by Webcasters has increased 382 percent since last January.
Even the most popular
Internet channels, such as Radio Margaritaville, have yet to build an
audience that would rival, say, a small-market radio station in
Poughkeepsie, N.Y.
So they can't attract enough ad revenue to pay the bills.

And as the recession causes companies to cut spending in all areas,
including advertising, new-media ventures like Internet radio suffer
disproportionately.

``As the money dries up, the ad agencies are going to want to put the
money where they're almost guaranteed results. They go to newspapers, to
radio, to
television. And if anything is left, they go to the Internet sector,''
said George Bundy, chief executive of BRS Media, a San Francisco
consulting firm
that specializes in streaming media. ``That extra money has tended to
dry up . . . and Internet radio and Internet streaming sales are almost
non-existent.''

Funding hard to find

Alternate sources of cash, meanwhile, are hard to find. Investors are
understandably reluctant to pump fresh millions into pure Internet
plays, in the wake
of the dot-com implosion.

Add to these fiscal woes the looming uncertainty caused by a dispute
with the recording industry over royalties. After a more-than-two-year
impasse, an
impartial Copyright Arbitration Royalty Panel will determine the rate
Webcasters pay music labels to stream music online. Once that rate is
set, Webcasters
like Live365 will be liable for retroactive payments.

All of these developments served to undermine Internet radio's momentum,
causing even Clear Channel, the nation's largest radio-station owner, to
pull the
plug on its Internet-only division, said Bundy.

``I'd like to think it's just a blip, because I do see potential
growth,'' said Bundy. ``Unfortunately, all of these things have caused
the industry to
lose some of the growth that we've seen.''

Ironically, Live365 views itself as a hardy survivor in a year in which
a host of Webcasters, including NetRadio, ClickRadio and RadioWave,
succumbed to
expensive bandwidth costs and a poor advertising climate.

``We consider ourselves to be bucking the trend of the industry at
large. We consider ourselves to be sort of the last man standing,'' said
Raghav ``Rags''
Gupta, Live365's chief operating officer. ``The fact that our user base,
our revenues, continue to trend upward is a good sign and part of the
reason we
survived the fallout.''

Staff reduced

With pressure from its offshore investor -- which it won't identify --
Live365 trimmed costs and looked for new sources of cash since October.
It slashed
its workforce from 80 to 38. It reduced promotional spending and lowered
bandwidth cost by striking a deal with a discount broker that allowed it
to stream
music to five times as many people for a quarter of the cost.

But that move backfired when Cogent Communications, a national data
telecommunications carrier, disconnected the unnamed reseller, causing
Live365 to go
dark Dec. 5. Its radio stations resumed Webcasts five days later, when
Live365 switched to another provider.

``We might have built that redundancy in quicker two years ago, when
there was a lot of money. Maybe we wouldn't have moved to a cheap
bandwidth solution
at all,'' said John Jeffrey, Live365's executive vice president.
``Basically, we and every company that's left are doing everything we
can to weather the
storm and cut corners. . . . We're doing everything we can to stay
alive.''

Live365 started charging customers a one-time fee of $14.95 to join its
network, plus a monthly charge of $4.95 to upload MP3 music files to its
servers
and broadcast a looped playlist to listeners. It charges more to
broadcast live over the Live365 network from a home computer, get
information about the
number of listeners and the tracks they liked, or to arrange for more
storage space on the company's servers.

Listeners go to Live365.com, where they can navigate by genre, search by
artist or specific tracks to find a station they want.

Subscription fees

Gupta said Live365 now draws 40 percent of its revenue from subscription
fees. And the company may also begin charging listeners a subscription
fee to access
commercial-free programming or to hear music in CD-quality sound.

Live365 should break even this year, said Gupta, as expenses hold steady
and ad revenue increases. But he also acknowledged that the company is
in discussions
with a prospective buyer, whom he declined to name.

It's unclear whether independent Internet radio operators will be able
to compete with deep-pocketed competitors such as America Online. In
October, it
debuted
Radio@AOL,
bringing at no extra cost 75 channels of music, news
and talk in genres including rock, pop, country, rap, classical, jazz
and world
to its 32 million members.

``Will Live365 make it? I don't know. It's really kind of hard to say at
this stage in the game,'' said Bill Rose, vice president and general
manager of
Arbitron Webcast Services, which measures Internet radio audiences.
``What I do know is they have a very popular offering. If they could
find a way to
tide themselves over during the tough times, the consumers like what
they're providing.''

Contact Dawn C. Chmielewski at
[log in to unmask]
or (800) 643-1902.


VICUG-L is the Visually Impaired Computer User Group List.
To join or leave the list, send a message to
[log in to unmask]  In the body of the message, simply type
"subscribe vicug-l" or "unsubscribe vicug-l" without the quotations.
 VICUG-L is archived on the World Wide Web at
http://maelstrom.stjohns.edu/archives/vicug-l.html