• by Karlene Lukovitz  @KLmarketdaily, September 7, 2007

While traditional terrestrial radio continues to make waves, non-spot--mostly Internet--radio is increasingly driving the medium's ad revenue growth.

Non-spot revenue gained 16% in this year's first quarter and 12% in the first half, to reach $711 million, and represented 7.2% of total radio ad dollars in the first quarter and 6.8% in the first half, according to the Radio Advertising Bureau's (RAB) reporting of Miller, Kaplan, Arase & Co. tracking data.

Non-spot has been growing at an average rate of 10% per month for the past two years--and if the growth continues as expected, will hit $1.5 billion by 2008 and approach $2 billion by 2009, points out RAB President and CEO Jeff Haley.

The only other radio segment to show a gain in the first half was network, up 3%, to $551 million.

Local and combined local/national each declined by 1% (to $7.1 billion and $9.2 billion, respectively), and national declined 2%, to $2.1 billion. This meant an overall flat period for radio.

Last year, total radio revenue edged up 1%, to $21.7 billion, based on a 5% gain in national plus the 10% gain in non-spot.

"The majority of non-spot revenue is coming from stations' online efforts, and we expect this to continue accelerating as more and more stations expand their offerings," Haley confirmed.

Bridge Ratings recently projected that Internet radio (including streaming, audio and music video ads, buttons, banners and sponsorships) will generate $19.7 billion in ad revenue by 2020--a level on par with last year's revenue for terrestrial.

But while Internet radio is the hot new segment, it's far from the only radio game in town from marketers' perspective. "All of the platforms are important, because they offer different types of programming, advertising opportunities and overall marketing propositions," stresses Matt Feinberg, senior vice president, director of radio and director of interactive broadcast for Zenith Media.

Traditional terrestrial radio of course offers the biggest reach, and its subset, HD, offers side channels, as well as additional and distinct ad formats--although it has only recently become an advertising vehicle, Feinberg notes.

(HD accounted for 4%, or about $800 million, of terrestrial broadcasters' total revenue in 2005, according to Kagan Research estimates. Bridge Ratings projects that HD will have less than 10 million listeners by 2020, versus 250 million for traditional terrestrial and 180 million for Internet radio. Whereas Internet radio offers more, and more diverse, music than has been available in the past on radio, HD's USP--quality--is a less intuitive sell to consumers, eMarketer senior analyst Paul Verna has pointed out.)

Feinberg also sees real value in satellite, citing an integrated sponsorship on satellite as among Zenith's recent, innovative radio efforts.

As for Internet radio, the ability not only to insert ads in streaming content, but sync banners and audio/video pre-rolls (the ad spots placed at the front end of a growing number of online audio/video offerings) opens highly effective new possibilities, Feinberg says. "The video capabilities stations now have on their Web sites are in many respects giving them the ability to compete with television," he adds.

However, contention between music copyright owners and webcasters puts a not-insignificant fly in Internet radio's ointment.

In essence, SoundExchange, the nonprofit performance rights organization that collects royalties on behalf of sound recording copyright owners and artists for non-interactive digital transmissions (including satellite and Net radio), is pushing to collect greater royalties. But methods/estimates of Internet radio revenues vary, leading to squabbling about which estimates royalties should be based upon.

Could the copyright/royalty stand-off stunt Internet radio's growth? "It's a big issue--although to my mind, it defies logic--and it could potentially impact streaming [Internet] radio in a negative way," comments Feinberg. "But I'm hoping that common sense will prevail."