• by Erik Sass  @eriksass1, March 6, 2008

There was more bad news for the radio industry this week, with the Radio Advertising Bureau's announcement that revenues fell 2% in 2007 compared to 2006, to $21.3 billion. Describing the results as "diverse," the RAB pointed to high-growth areas, like non-spot (including Internet) up 10% to $1.7 billion, and network, up 4% to $1.1 billion. But this delicate euphemism,couldn't hide the setbacks in radio's two main arenas: local advertising, down 2% to $15.1 billion, and national, down 6% to $3.3 billion. Local and national combined fell 3% to $18.5 billion.

In the fourth quarter specifically, total radio revenues fell 4% to $5.4 billion, with local down 3% and national down 11%. Ominously, the downward trend seemed to accelerate throughout 2007, with a 1% gain in the first quarter followed by a 1% drop in the second quarter and a 5% drop in the third. Then, in January of this year, total revenues fell 6%--led by a 5% drop in local and a 13% drop in national advertising.

In late January, the accelerating slide prompted Jim Boyle, a radio analyst with C.L. King and Associates, to declare that "radio is indeed the 'new newspapers' with its slow-to-no growth prospects in the mid-to-long term." He added: "Our long-term view... is increasingly skeptical that radio can even get back to half of its historical 6 percent-8 percent growth pace, but is more likely to attain 0 percent-2 percent revenue growth in the out years."

Indeed, the downturn in radio seems to resemble the newspaper slump that came in mid-2006. After 1% growth in 2005, newspapers slowed to 0.35% in the first quarter of 2006, and switched negative in the next quarter, dropping .31%. It ended 2006 down 1.7%, and the business has been declining at an accelerating pace ever since.

Also like newspapers, radio's one bright spot--non-spot, including growing Internet revenue--is nowhere near large enough to offset losses in traditional revenue streams. Non-spot revenue added about $155 million in 2007, as the grand total declined $420 million. So even if non-spot continues to grow at a 10% rate compounded annually, it will still take more than a decade before it equals the total decline this year.

Meanwhile, although the RAB didn't give specific details on Internet revenue, a separate analysis from Bridge Ratings suggests that all forms of Internet radio generated about $500 million in revenue in 2007. That's less than a third of total non-spot revenues ($1.7 billion) and still just 2.3% of radio's grand total ($21.3 billion).

Furthermore, the industry faces an ongoing battle with recording artists over royalties for songs played online, which could jeopardize future revenue growth.