• by Jonathan Blum , October 26, 2006

For advertisers, satellite radio is rather tricky. The medium will probably never fulfill its early Mel Karmazin/ Howard Stern-inspired hype, but radio beamed from space can be an effective marketing tool when done right. That satellite radio got oversold as an advertising medium is clear. In 2005, Kagan Research estimated that advertising revenue for satellite radio would be more than $854 million by 2014 - or roughly 80 percent of the $1 billion currently spent in terrestrial radio.

Yet XM Radio and Sirius Satellite Radio took in just $16.3 million combined in ad revenue in the second quarter of 2006, according to data from Magna Global USA.

"I am not saying satellite radio is not a business, and a good business," says Brian Wieser, vice president and director of industry analysis, Magna Global USA. "But over half a billion in ad revenue a year? From here? That feels like a stretch."

And the consensus among analysts is that terrestrial radio has done a good job responding to the new technology.

"We have always seen satellite as one of the challenges radio had to adapt to, from the Web to the iPod," says Les Hollander, senior vice president at CBS Radio. "Satellite is the premium service 'HBO,' if you will, to terrestrial radio's basic cable."

Most major radio organizations have reduced their ad volume per hour. And new programming investments like Jack FM and news program "The Nightside Project" on KSL in Salt Lake City have increased terrestrial radio's appeal to advertisers.

"I have been underwhelmed by satellite radio," says Corey Weiss, vice president integrated marketing for Palisades Media Group in Santa Monica, Calif. Weiss maintains that even the most basic terrestrial radio marketing far outperforms satellite.

He described a promotion his agency did for fast-food vendor Del Taco. The agency placed a Caucasian attempting to speak Spanish phrases on 93.3 FM, a Hispanic station in Los Angeles. Weiss described the response as "excellent."

"I don't see satellite performing as well, even with [Howard] Stern," says Weiss. "There is still a premium for large, simultaneous reach."

Marketers that do more targeted work are bullish on satellite radio.

"XM and Sirius work well as a direct-response tool today, right now," says Susan Rowe, executive vice president of integrated media at Carat Fusion. "There is still plenty of there there."

Rowe says that satellite radio's strength is its listeners; when presented with the right message, they respond. She says simple 800 numbers and unique Web site offerings can work well. Rowe observes that many of satellite's troubles have been tied to flat auto sales, pointing out that growth in satellite radio comes from in-car units.

But those who have converted are fiercely loyal. "That's the beauty of satellite. The people who love it are passionate about it," says Erik Flannigan, vice president for music programming at AOL. "Smart marketers should know how to make that passion work."