Music Mogul Tuning In to Online Radio.

Entrepreneur Richard Branson's marketing savvy has made his Virgin Group empire seem larger than life, and his latest endeavor, an online radio network based in Los Angeles, is no exception.

RadioFreeVirgin.com is the first official online investment by Branson, chairman of the Virgin Group, who has pledged to pour $247 million into Internet ventures.

The online radio network, which sprung from the Web site for Branson's Virgin Megastore retail chain, is in beta testing and doesn't officially launch until Sept. 11, but it's already making waves. More than 400,000 users worldwide have downloaded the RadioFreeVirgin player, which allows users to listen to a host of online music channels.

In the overcrowded online radio market, the company's advantages include a strong affiliation with the Virgin Megastore chain, not to mention Branson himself.

"Building relationships is potentially quite important, and obviously Virgin has a lot of ability to do that," said Jeremy Schwartz, media and entertainment analyst with Forrester Research.

Accidental discovery

When Virgin Megastore launched its VirginMega.com Web site a couple of years ago, the site's developers thought streamed music would be a good accompaniment for users as they searched for their favorite titles to purchase online. A downloadable radio player was added as a small tuner buried in the VirginMega.com site.

In a short time, thousands of people had downloaded the tuner, through which they could listen to sets of streamed music specially created for the site.

"It got rave reviews, and we never spent any money on marketing or put it prominently on the site," said Zack Zalon, general manager of RadioFreeVirgin.

After about 100,000 people across the globe had downloaded the tuner, executives realized they had a viable business on their hands and brought a business plan for an online radio network to Branson.

Five months ago, RadioFreeVirgin.com was established as a separate private company owned entirely by Branson and headquartered in the Miracle Mile district of L.A., under the official name of Virgin Audio Holdings LLC. Users can now download a beta version of the RadioFreeVirgin tuner for free at www.RadioFreeVirgin.com.

There are already thousands of online radio sites in operation, according to industry analysts. The sites range from traditional broadcasters netcasting their over-the-air programs, to specialized broadcasters that focus on one type of music, to network-style companies like RadioFreeVirgin that netcast a wide variety of music channels.

"There's a whole slew of Web sites that are for music... (but) I don't think (RadioFreeVirgin) is necessarily a late entrant. Radio via the Internet is still wide open, and I don't think anyone has established any kind of advantage," said David Davis, entertainment analyst at Houlihan Lokey Howard and Zukin.

The next several years will bring more competitors and consolidation, and creating a strong brand will be very important, Davis said.

"I'm looking at the site right now, and the way they name their channels -- 'Guilty Pleasure,' 'Game Goth,' 'Hip Hop 101' -- this is the way that you're going to cut through the clutter, with clever branding," he said. "And Virgin itself is a strong brand in music."

Those brands and the station's programming have been dominant factors in the network's word-of-mouth success, Zalon said. About 25 online music channels, from "Love Sexy" (think Barry White) to "Guilty Pleasures" (Olivia Newton-John ballads and the like) are currently available. By the end of the year, the site will boast up to 50 channels, he said.

RadioFreeVirgin's in-house staff puts together the playlists for the channels, but outside experts have been hired to program certain genres of music, such as Delta blues. They also have tapped into the Virgin Megastore's resources, including the deejays who program the music that's played over the in-store sound systems.

The company's relationship with the Virgin Megastore has helped RadioFreeVirgin move ahead in other areas as well, such as e-commerce. RadioFreeVirgin features a "Buy it" button, which users can click to be transported to the Virgin Megastore Web site. There, they can buy albums and read reviews, while the RadioFreeVirgin tuner continues to play music.

RadioFreeVirgin plans to bring in most of its revenues through advertising, but will focus on trying out new methods, such as in-stream audio ads during the netcasts, similar to commercials on broadcast radio. "People are sick of banner ads," Zalon said.

Meanwhile, RadioFreeVirgin executives are keeping in mind that the industry is changing rapidly and that users want to listen to music other places than on their desktop computers. That's why they're currently negotiating deals to make the network accessible through set-top boxes, as well as via digital satellite radio and wireless devices.

"It's like how movies started out like theater, and television started out like radio, with a guy just reading to the camera. Traditional radio is still related, but this is a different medium," Zalon said. "The progression of radio to the Internet has not matured."