Late To The Download Dance

Hear the song, buy the song -- too bad radio didn't do this sooner

Broadcast radio stations are turning their Web sites into music stores via paid download services that mimic Apple Computer's (AAPL ) enormously popular iTunes. This is such a neat and intuitive idea that you have to wonder what took them so long.

Then again, this is a medium so wedded to old ways that it is celebrating the 45th anniversary of the payola scandal that took down pioneering rock DJ Alan Freed with a brand-new payola scandal.

Traditional media have become much cozier with buying and selling -- the legitimate kinds -- as stacks of shopping magazines and Queer Eye DVDs attest. But beyond QVC (L ) and Home Shopping Network, Big Media has generally viewed trying to make money on consumer transactions like a visit to relatives who live in distant time zones: a nice idea, but not worth the trouble.

But tough revenue outlooks have a way of making such notions more interesting. NBC and ABC (DIS ) have deals with a company called Delivery Agent to sell items glimpsed on the set of, say, Will & Grace. Still, buying through Delivery Agent requires schlepping from the TV to the PC, searching for the item, and then going through a painstaking purchase process.

Radio is better built for impulse buys. You hear a song. You remember a long-forgotten summer night. You must own the song. Buying it is cheap. A trip to iTunes -- or a radio station's Web site -- is easier than driving to the mall. Selling music is "a good way to connect to the essence of what radio is about," says Peter Smyth, chief executive of Greater Media, which sells 99 cents downloads on nine of its 19 stations' Web sites. More than 100 U.S. stations will sell music this way by fall, says Jeff Specter, founder and CEO of MusicToGo, a company that provides the Web technology.

RADIO'S NOD TO COMMERCE is in part an attempt to salvage its screwed-up relationship with listeners. Thanks to the indie-label revolution of the '80s and '90s, the amount of commercially available music exploded, fragmenting the mass market. Meanwhile, stations narrowed playlists, turning off ardent music fans. Yet stations' profit margins stayed stratospheric -- as high as 50% to 60%, says Tom Taylor, editor of Inside Radio -- so they had little incentive to revamp.

Then along came satellite radio and iPods. It's true that current subscriber totals for XM Satellite Radio (XMSR ) and Sirius Satellite Radio (SIRI ) are still relatively tiny. It's also true that consumers' embrace of satellite radio and iPods places them among the fastest-growing technologies of all time. Apple sold 6.2 million iPods last quarter -- a 616% rise from that quarter in 2004. Satellite radio, which requires purchasing new gear and paying more than $100 in yearly fees, is projected to have nearly 10 million subscribers by yearend. It is encroaching on the one space commercial radio dominates -- the car -- and playing with local weather and news. And iTunes now includes software that simplifies finding and playing podcasts -- radio-like programming for iPods.

So why is commercial radio so late to the dance? Granted, selling legal downloads is a low-margin business. Stations' take from a song's sale is, literally, pennies. Selling downloads also requires a conceptual leap of faith: A sold song is played on a device other than a radio, so sales abet the competition.

Unsurprisingly, radio stations' Web stores stick with familiar and smaller playlists, so their sales hardly rival those of comprehensive sites such as iTunes. Since February, Greater Media's online stores have sold some 50,000 songs, says Smyth; in slightly more than two years, iTunes has sold more than half a billion. "The savvy people are at iTunes or elsewhere or are stealing it," shrugs Specter. "This is the McDonald's (MCD )of music distribution."

But the McDonald's of the world win largely on convenience. In late July, XM announced a deal with Napster. Compatible MP3 players will tag songs for purchase through Napster when hooked up to a PC. So it goes for radio: When it finally does make its move, a competitor finds a way to do it better.

By Jon Fine

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