There are many challenges involved in thinking about adapting traditional radio practices to distribution via the internet, but I wanted to focus on one in my first post. Understanding the economics of sound broadcasting is, I believe, as important as understanding how the technology opens up the possibility of linking sound to other forms of media communication, and how audience may shift the way they listen. My central point is that the current idea of radio as a mass medium is based upon the economics of over-the-air broadcasting, that the use of the internet as a broadcast medium radically alters these economics, and so implies that we need new models of radio practice.

In essence, while over-the-air radio is largely a high fixed cost / zero marginal cost activity, internet radio has far lower fixed costs, but relatively high marginal costs. This should be apparent if we compare the costs involved in setting up a significant over-the air station with studio, production and broadcast staff, and transmitters with those required for internet broadcasting. The general observation is backed up by some academic research (Ting and Wildman 2002). Of course, with the regulatory directions faced by licensed broadcasters, and the attention to higher production values amongst over-the-air station managers, contrasting with the desire amongst online providers to automate as much as possible, this isn’t surprising. It is, though, the marginal cost profile which is most important. An over-the-air station with 500 listeners incurs the same costs even if its listenership goes up to 500 000 listeners. That’s not to say that the station won’t improve its production values (and so costs) if the larger listenership raises more revenue, but to make the point that there aren’t any direct costs involved in the extra listeners: the stations still has to pay the same station, labour and transmitter costs regardless of the number of listeners in the geographical area in which it broadcasts. By contrast, the costs of adding the additional bandwidth to service extra listeners faced by internet broadcasters adds significantly to its costs. Even though in the years since Ting and Wildman undertook their study bandwidth costs have fallen, it will always drive up costs to add listeners online when compared with the zero marginal costs of the FM broadcaster.

The ordering of costs in traditional over-the-air radio has always pushed stations to attempt to maximise their audiences within their broadcast footprint. There are again qualifications – stations target wealthy, or less well-served, groups in competitive commercial markets – but mass audiences and spot advertising-based funding characterised the main business model for late twentieth century radio. Each station will have a breakeven point where advertising revenue covers the fixed costs. After this point the revenue from each additional listener is all profit, so even if the marginal revenue falls as the scale increases (as is often the case with broader market groups) potential profits can be considerable.

In online radio, the higher marginal costs of the extra bandwidth may be greater than the additional revenue, especially if marginal revenue falls as scale of listenership increases. It may well be worth having smaller, more tightly-focused listenerships. This may well be even more the case when you start to add additional gains that online distribution presents. I’ll return to some of these gains in future posts, but just to pick a few makes the point well: the ease with which the listeners can be profiled suggests tighter marketing is likely; the ability to charge for listening rights means subscription charges are possible; and the ability to construct bespoke services with computer compiled programmes responding to listener preferences, all make new sorts of radio service more likely.

This all suggests to me that radio formatters and programmers can start to think in radically different ways about how we design radio services for listeners. This opens up considerable possibilities for public service and community broadcasters, and certainly in the commercial field it looks like a business imperative.

References
Carol Ting and Steven S. Wildman ‘The Economics of Internet Radio’ at intel.si.umich.edu/tprc/papers/2002/89/InternetRadio.pdf