Radio's got a problem. Although some 200 million people tune in each week to hear their favorite overcaffeinated DJ or catch those crucial rush-hour traffic updates, it's getting tougher to hold listeners' attention. Facing flat revenues and competition ranging from iPods to music phones, the 87-year-old industry is scrambling to reinvent itself. But not even satellite radio or the new HD format addresses this analog medium's fundamental flaw: it doesn't give people any say in which songs they hear. If you don't like a track or a DJ, your only option is to turn the dial--or turn it off.
That could change if the pioneers behind personalized radio continue to win over music lovers who are burned out on regular radio but can't be bothered to constantly refresh their iPods with 99¢ iTunes. On websites such as Last.fm, Pandora.com and the new Slacker.com personalized radio lets you train it to understand your tastes. You can, of course, just listen to the music passively as it plays on your computer. But it's even better when you make it your own, by marking each song as a favorite, skipping past it or banishing it from the station's playlist altogether. (See chart below for more details on how personalized radio works.) And despite growing concern about how proposed new royalty fees for Internet radio stations could hamper the industry's growth, on May 23 Sprint became the first wireless carrier to offer personalized radio on its phones.
Each customizable radio service has its own way of assessing what you like. Pandora refers to its database of more than 600,000 major-label songs--all of which have been categorized by musical attributes such as voice, tonality and chromatic harmony--then serves up similar-sounding tracks. That can get a little monotonous, so Slacker, which launched in March, uses professional DJs to dream up constantly changing playlists that give you more variety while still adhering to your basic tastes. If you ask for Gwen Stefani, for example, you'll also get the Cars, Talking Heads and Björk in addition to more obvious matches such as Blondie and Madonna. And Last.fm, which is based in London, taps into the collective wisdom of its 20 million users worldwide. For example, if you like Beyoncé, and other Last.fm members who like Beyoncé also listen to Mary J. Blige, then the service will put Mary on your playlist as well.
Personalized radio isn't just a quirky idea for tech geeks to fawn over and venture capitalists to gamble their millions on. Although its revenues are minuscule compared with the $21 billion of the terrestrial-radio industry, more than 4 million people in the U.S. visit Pandora and Last.fm each month, according to comScore Media Metrix. That makes them the fifth and sixth most popular Web radio stations in the country. "It's the ideal middle ground between having an intact experience and being in control of what you receive," says Last.fm co-founder Martin Stiksel.
Making personalized radio portable could be the key to its long-term success. "The biggest problem with Internet radio is that it's stuck on the PC," says Slacker CEO Dennis Mudd. "What you really want is this device you can play in your living room, in your car or in the desert walking around." In addition to Sprint's move to put Pandora on phones, SanDisk recently demonstrated a prototype portable player that could run Pandora, and Slacker plans to sell a $150 iPod-like player this summer that can get wireless music downloads from its website.
Unlike iTunes, music from Slacker is free. "Most people don't want to pay for radio," says Mudd, who hopes to bring in revenue through audio advertising spots. That model is showing some promise. The overall Internet-radio market brought in more than $400 million in ad revenue last year, according to JPMorgan Chase. About half of that came from online ads on websites owned by conventional radio broadcasters like CBS Radio and Clear Channel. "Internet radio, when you tie it in with our business model, I think it works," says Clear Channel CEO Mark Mays, who is beefing up his stations' Web presence with online videos and promotions.
Even old-school DJs see the appeal of personalized radio. Elvis Duran, who hosts a popular morning show on New York City's Z100, says he could imagine a future in which listeners wake up to some comedy and conversation from the show followed by three songs tailored to their tastes. But he doesn't expect live DJs to become obsolete: "When people wake up in the morning, it's good to hear some people who are talking about interesting topics and who let you know, hey, the world's still spinning and I can go out there." Good idea. No wonder Apple never built a radio tuner in the iPod: it's scared of the competition.