• by Erik Sass  @eriksass1, April 3, 2006

"The radio industry has been struggling over the last couple years, and while it might be a little better this year, we're definitely not out of the woods yet--not even close," according to Tom Buono, CEO of BIA Financial Network, summarizing a report from BIA that recorded a meager .5 percent growth in ad revenue in 2005 and predicted further stagnation in 2006, with 2.2 percent revenue growth, at most.

"There's a number of things going on," Buono explained. "Overall, the radio industry is based on one source of revenue, and that's advertising. And they're certainly feeling the impact of advertising dollars being marginalized by new media. You see automakers going to new media with their budgets, including Google and things like that, and that takes a big bite out. What we've seen recently is a sort of divergence--and it's not something that you can just bounce back from in just a few years."

Mark Fratik, vice-president, BIA, sketched a plan for radio broadcasters that industry execs likely already know by heart: "For the industry to see stronger growth, it must better attract younger listeners by offering new formats and utilizing multiple distribution platforms. Also at the same time, radio needs to demonstrate its effectiveness as an advertising medium by utilizing improved research methods."

Taking the long view, radio's recent weak performance in the face of competition from a new, seemingly more attractive medium, the Internet, is just another in a series of events that have incrementally marginalized radio--but it's also worth noting that radio has always rebounded, at least somewhat.

According to Ben Compaine, who has studied the history of American radio, the introduction of TV and FM both constituted points of "inflection" for the industry as a whole--TV decreased radio's desirability as an ad medium in the 1950s, and the proliferation of stations with FM subdivided radio revenue dramatically in the 1970s. Illustrating the shock of the first turning point, Compaine notes that radio received 15 percent of national ad revenues in 1945, but just 6 percent in 1955.

But by the same token, radio continues to adjust, adapt, and respond. Because the industry is hungry, it offers advertisers ample opportunity for triage and maximizing ad value--including experimentation. And in terms of raw financial figures, Buono notes: "It outpaced retail sales for 29 out of the last 32 years. You know the radio industry has been a survivor."

Radio execs are pinning their hopes for innovation and growth on the rollout of terrestrial HD digital radio, which promises to target niche markets by allowing multicasts of different musical genres on a single frequency. According to Bob Struble, head of HD iBiquity, the company that controls digital radio technology, HD radio may also someday allow a higher degree of ratings transparency and advertising ROI measurement with the introduction of "buy" or "more info" buttons on HD radio sets.

Buono reiterated HD's appeal, saying: "We do have HD radio that's on the horizon, and that could create new revenue streams for the advertisers," and dismissed worries that the industry might bungle the transition: "I would say that HD radio is just a natural evolution of broadcasting. I think we will be in a digital environment for TV effective by 2009 across the board, and radio will probably be making that transition over the next 5 years as well. By 2011, it will be the norm."

But Buono also warned against embracing any one approach as an industry savior, advising a multi-platform approach instead: "One other possibility is to use the Internet more as an advocacy tool than as a competitor, and to create new strategic alliances to develop new revenue streams in combination with new media." Indeed, he said, "there's no reason that radio and the Internet couldn't be a powerful marketing tool for a lot of media."