Downloads: Net radio's killer app?

Summary:Why the MP3 format could mean instant profits for online radio stations.

It's no coincidence, according to online radio companies, that investment in Net radio is happening even as the hype grows around digital downloadable music.

"The whole MP3 craze, what that really means to people is music online," said Rotem Perlmuter, vice president of strategy for MTV Online. "As MP3 becomes the most common search online, that means a future for online music, and the big media companies want to be a part of that."

MP3 -- the most popular form of high-quality, downloadable music -- promises instant access to popular music, if it can gain a foothold in the music business. It could also mean instant profits for online radio stations, which hope to become a primary way users discover music.

"When we eventually get to the ability to download and sell singles, that's sort of the ultimate promise of these radio services," said Jo Sager, vice president of marketing for Tunes.com, which operates Rolling Stone Radio. "Radio airplay is the biggest driver of CD sales. You can apply that same tenet online, with the added benefit that you can buy it immediately."

Listen, then buy
Internet hubs such as Yahoo! Inc. (Nasdaq:YHOO) are already laying their plans for joining radio and downloadable music sales within their own sites.

"We'll soon be adding the ability to listen to a preview of all the songs in our radio database, and in the long term we plan to participate in the digital music front," said Michael Latham, Yahoo! director of productions for entertainment and media. "We believe it will come sooner rather than later."

When the opportunity does come, America Online Inc. (NYSE:AOL) could be in a good position to purvey both online radio and downloadable music, with Tuesday's purchase of Spinner Networks, Inc. and Nullsoft, Inc. Spinner is a popular online radio service, while Nullsoft makes the well-known WinAmp MP3 player.

"Consumers have a way of finding what they like and what's convenient," said Ted Leonsis, President of AOL Interactive Properties. "Some people will like buying CDs, some will like downloading music ... this could help all participants in the music industry -- consumers, artists, labels and retailers -- and expand the market."

Topics: Tech Industry

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