There is necessarily a lot of interest in the future of internet radio, especially of the mobile kind, within the radio broadcasting community, public and commercial. I say necessarily because of the potential it has to, at a minimum, disrupt the current economics of broadcasters and, at the ultimate, to replace big tower radio with radio delivered by internet protocol (IP). We want to know: is internet radio irrational exuberance, to borrow Alan Greenspan’s coinage or is it something real?
There’s certainly exuberance about internet radio, some of it irrational, but I believe that it will have a real impact on broadcast economics. I concluded the post linked in the next paragraph with this:
… To be consequential to us, these services have to only skim the cream off our listening to harm the thinning margins that most stations are experiencing. …
I’m always interested in analyzing the mechanics of change. What technical and economic hurdles does a new technology have to overcome to be disruptive? Toward that end, I was interested in the issue of how to scale up radio listening in a wireless IP environment. In a previous post on this subject, Does radio need to worry about IP-delivered audio?, I looked at the very real technology issues relating to scaling up IP bandwidth for traffic loads comparable to current radio listening and posited some developments that could mitigate that.
So I’d like this time to consider economic hurdles, specifically the trend toward tiered data pricing. There’s a wide range of actual use among smartphone data users (¼ actually use no data, while the top 6% use ½ of all data). Streaming users are more likely to be heavy users, so in tiered pricing, they’re likely to pay more because their subsidy by light users goes away.
Brad Reed, in an article titled, IBM: Tiered mobile data pricing here to stay in Network World writes:
In a paper analyzing the telecommunications market over the next five years, IBM Global Business Services says that as IP-based high-speed mobile data standards such as LTE and WiMAX spread more broadly throughout the world, carriers will give up trying to stop over-the-top providers such as Skype from riding over their pipes and will eventually "enter into formal partnerships" with them. But because the carriers will be losing the revenue they once generated through minute-based cellular plans, they will have to make up for it by eliminating their all-you-can-eat data plans. ¶ "If people value connectivity then they must pay for connectivity," says Ekow Nelson, the global leader for the communications sector at the IBM Institute for Business Value. "With all-you-can-eat models there's going to be no way for carriers to compete. This will be an adjustment because most users have been conditioned to enjoy unlimited access to over-the-top services for free."
There will be some carriers that buck the tiered pricing trend, but IBM’s analysis seems pretty solid to me, especially since in this country it’s being lead by LTE rather than WiMAX companies (the former seems destined to dominate 4G). It’s likely that pricing for both light and heavy users will decline with time, but tiered pricing won’t help adoption of mobile streaming in the near term. Until that general price decline happens, tiered pricing will be a hurdle.
Happily for me, I’m grandfathered into AT&T’s all-you-can-eat 3G data plan, so I can continue to enjoy Pandora in my car from a double-tethered iPhone (audio and power) during low or moderate data use hours. It’s already largely replaced real radio for music listening late evenings and weekends. But it’s a long, long way from replacing traditional radio stations for my news, traffic and weather needs. --Dennis
