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By the Project for Excellence in Journalism

Has new audio changed the economic picture for radio?

While traditional AM/FM advertising revenue still dominates, satellite and digital ad dollars are responsible for a growing percentage of overall radio revenue.

In 2006, total radio revenue (including broadcast, satellite and digital) increased 3.7% to $21.77 billion, up 2.8% over the previous year.1 The lion’s share (92.5%) of 2006 revenue – $20.14 billion – came from traditional AM/FM radio.

Traditional radio revenue has remained relatively flat in the past two years, but advertisers slowly are putting more faith in satellite radio, broadcast and non-broadcast Internet stations, podcasting and even cell phone radio.

The most promising players are broadcast Internet stations, which added to radio’s overall bottom line with small but sharp increases in ad revenue for 2007. And though satellite radio relies primarily on subscription fees for revenue, its relatively small slice of the advertising pie ($66 million in 2006) still makes it a competitor, with growth in triple digits (155% in 2006).2

Advertisers have made it clear they are willing to spend money to capture the new audio audiences, who tend to be more affluent. But they are still waiting for an accurate tool to measure an audience that now crisscrosses technology platforms. (See Audience section on the Portable People Meter.)

Advertising Revenue on the AM/FM Dial

Year-end figures for 2007 show that overall advertising revenue was down 2% from 2006 to $21.3 billion for traditional radio. But the economic diagnosis is much more complex.

Most stations still build the majority of their revenue on local advertising on the AM/FM dial: Local ads accounted for 77% of total advertising revenue in 2006. And this metric was down 2% in 2007 to $15.1 billion. But this is not as alarming as the revenue losses observed in other media sectors, like, for example, the ailing newspaper industry.

The good news: Revenue from what the radio industry calls “non-spot” advertising, made up primarily of Internet advertising revenue and station-sponsored events such as concerts, is way up. This figure has been growing steadily over the past four years that the Radio Advertising Bureau has released the data, but year-end numbers for 2007 show steep increases, with non-spot advertising growing 10% to $1.7 billion. That figure accounted for 8% of all advertising revenue for the year.

On the other hand, the national advertising category, which amounted to only 17.6% of total advertising in 2006, further declined. It was down 6% to $3.3 billion for the year. National revenue generally goes through one of the two giant national advertising reps – Katz Media Group or Interep. Though big-name national brands like McDonalds, Coca-Cola and automotive manufacturers do purchase corporate advertising campaigns through Katz or Interep, most of the advertising actually gets carried at the local level, so it is difficult to say whether these national companies are advertising less on radio.

Radio Revenues Growth by Quarter
Design Your Own Chart
Source: Radio Advertising Bureau

New Audio Revenue

Radio’s economic picture is far from neat and tidy.

So far, media research companies have not found an efficient way to separate revenue or audience figures for new audio choices, making it impossible to gauge what is working in these new and competing industries, much less offer a definitive side-by-side comparison.

What we do know is that the economic impact of the new audio platforms – satellite radio, HD Radio, Internet radio, cell phone radio and podcasting – is still a small slice of the total revenue pie. To put it in perspective:

Audio Revenue Growth
2001 – 2006

Design Your Own Chart
Source: Veronis Suhler Stevenson, “Communications Industry Forecast 2007-2011”

Further complicating the picture is the fact that several radio platforms are interdependent.

For instance, Internet radio consists of both traditional AM/FM broadcast content streamed online as well as on online-only audio channels like Pandora. Some Internet listening can only be streamed and some downloaded as podcasts, while others can be downloaded and then burned onto CDs. Podcasts can then be heard not only on any MP3 player and computer, but also on a number of enabled cell phones.

And certain radio content can be shared across all of these platforms.

Take National Public Radio, whose content is aired on local affiliate stations as well as HD stations and satellite radio. An NPR listener can also access news stories online, either at or through a local station’s Web site. From there, a user can stream live radio content, read a story, listen to a program or download it as a podcast for later listening on an MP3 player. NPR listeners also can access news and features from their cell phones.

With all of this innovation, the audience gets a wide range of listening options, but there is no accurate method to measure who is listening to what. And it is very difficult to parse out how much ad revenue each platform is bringing in.

Internet Radio, Small but Significant

Internet radio has been the humble success story of new audio.

Though its other new audio competitors have attracted more attention, Internet radio is in some ways better equipped to sustain high levels of revenue growth. Its compound growth rate of advertising from 2001 to 2006 was 50%, and, according to the media research group Veronis Suhler Stevenson, is predicted to continue at a respectable 40% over the following five years.4

Total advertising revenue for online radio was $106 million in 2006, up 77% from $60 million in 2005. But another component – paid content in the form of subscriptions and podcasts – accounted for an additional $45 million in 2006. That growth, up 66% from the previous year, is expected to slow down in the coming years – compound growth for 2006 to 2011 is predicted to be 25% over that period. Earnings from content amounted to slightly less than 30% of total revenue in 2006.

It is unclear how much the news sector has contributed to that growth. But there is a chance that news, talk and information content may gain more traction, thanks to a major cost factor that online music stations faced starting in 2007.

In June 2007, the Copyright Royalty Board approved a new structure that imposed stricter copyright fees on Internet radio stations. The royalty fee structure would charge online music stations (including both AM/FM Webcasters and online-only stations) on a per-song, per-listener basis, instead of as a percentage of revenue.

For all but the largest online radio groups, this could prove devastating. Many small and medium-sized Internet-based radio stations have already shut down because the fees exceeded their total revenue. Bill Goldsmith, owner of Radio Paradise, an eclectic online rock radio station, said, “This royalty structure would wipe out an entire class of business, small independent Webcasters such as myself and my wife, who operate Radio Paradise. Our obligation under this rate structure would be equal to over 125% of our total income. There is no practical way for us to increase our income so dramatically as to render that affordable.” 5

Congress could override the decision by passing a bipartisan measure, the Internet Radio Equality Act, which would instead charge a flat fee equal to 7.5% of an online radio station’s total revenue.

Satellite Radio’s Unprofitable Success

Satellite radio has generated the most revenue among the new audio devices, despite its troubled growth and the continuing quest by its two players – XM Radio and Sirius Satellite Radio – to reduce costs by merging into a single satellite provider.

Total revenue for XM in the first half of 2007 was up 24%, to $541.4 million over the first half of 2006. Sirius, which spearheaded the merger, performed even better. Its revenue for the first half of 2007 was $430.5 million, up 55% from the same time in 2006.6

The better financial indicator for the satellite radio companies, however, might be their net losses. Both companies pay such a high cost for recruiting on-air talent – Howard Stern’s five-year contract cost Sirius $500 million and XM paid Oprah Winfrey $55 million over three years – that the companies operate with a hefty debt. In other words, new subscribers are not making up for all that high-profile talent.

Both companies did reduce their net losses for the second quarter of 2007, XM by 23% over the second quarter of 2006 and Sirius by 44% over the same quarter.7

The revenue model for satellite radio, however, is different than that of broadcast radio. According to Veronis Suhler Stevenson, subscriptions accounted for 95.5% of satellite radio’s revenue in 2006.

Satellite Radio Revenues
2001 – 2006

Design Your Own Chart
Source: Veronis Suhler Stevenson, “Communications Industry Forecast 2007-2011”

The Predicament of HD Radio

Despite all the HD radio hype, the economic returns have not yet materialized. But that has not stopped stations from investing in the new technology.

Over all, HD Radio’s ambitions are based largely on unmet expectations. In July 2007, the Project for Excellence in Journalism (PEJ) interviewed station managers or executives at 14 HD radio news stations across the country. Among those, all of which were public radio stations, none had seen revenue gains from the crystal-clear broadcasts, even though most had been operating on the digital platform for more than two years.8 As noted above ( see HD section of Audience), news/talk programming dominates the HD radio dial largely because of an influx of grant money from the Corporation for Public Broadcasting, which enabled many public radio news stations to go digital.

Tim Eby, station manager at WOSU in Columbus, Ohio, and the central part of the state, said he expects “it will be several years before our HD channels begin producing significant amounts of revenue.” John Hingsbergen of WMUB in Oxford, Ohio, told the PEJ that “we don’t expect direct funding support for these channels until HD radios are more commonly available.” In the meantime, he said that he could only hope that “the addition of HD multicasting channels [can] help assure loyalty of station listeners and members.”

But Rich Dean of KUT at the University of Texas seems less optimistic about the financial future of digital radio. Dean said his station is “not even close to bringing in a profit.” Furthermore, he said the technology has performed poorly. “We are reluctant to push listeners to buy these expensive radios,” he said. “Already we bear the brunt of complaints about coverage and reception, as well as the poor build quality of the radios themselves.”

Have these pioneering news/talk/information stations borne a hefty financial burden in making the switch?

The cost of making the conversion to the HD radio signal varies with the size of the terrestrial analog signal. Of the stations interviewed, the bill ranged from $100,000 to $290,000. On average, the CPB grants cover about half of the conversion costs, although some covered more. Some stations received more financial assistance from other state and local grants. For example, the three stations operated by the University of Kansas did not pay any money for the conversion, but their general manager, Janet Campbell, said it did cost a lot of staff time.

For public radio stations providing news, talk and information, the digital broadcasting platform appears to be a win-win. It comes at a reasonable price and has strong potential to bring diversity to the airwaves and new avenues of revenue. Until that revenue comes in, HD radio stations will have to operate like any other local radio station that has few listeners – by broadcasting network programs and other syndicated shows.

The Potential of Cell Phone Radio

Cell phone forecasts, as was the case last year, are much healthier than actual performance.

Mobile phone radio is making a lot of noise among gadget-savvy consumers who are eager to consume a variety of radio-equipped phones from Nokia, Samsung and Motorola. But, so far, the financial splash is quieter. By year-end 2006, mobile phone radio revenue amounted to a meager $3 million, of which $2 million came from subscriptions to cell-phone-specific radio content and $1 million from advertising.9

As with satellite radio, cell phone radio is making more from subscription-based earnings than advertising. At the end of 2006, subscriptions were taking in double that of advertising dollars, although advertising’s share of the growth is rising much faster. Still, many analysts see a strong economic future for the platform. Veronis Suhler Stevenson, a highly regarded industry forecaster, predicts that both advertising and content-based revenue will increase at triple digits through 2008. By 2010, total advertising dollars are expected to surpass revenue earned from subscription-based content.

Looking forward, the media research group predicts a total compound growth rate of 104.5% for mobile phone radio revenue through 2011.10 Of that, advertising is expected to grow 126.7% over the five-year forecast and subscription-based revenue at a rate of 88.4%.

These, of course, are just predictions, subject to an array of other emerging trends and economic conditions over the next several years.

Audio Revenue Growth Predictions
2007 – 2011

Design Your Own Chart
Source: Veronis Suhler Stevenson, “Communications Industry Forecast 2007-2011”

News and Talk Revenue

How does news and information fit into the overall picture of radio’s economic health?

Radio newsrooms have an up-and-down profit history, but 2006 was the most profitable in a decade, according to an annual survey of news directors conducted for the Radio and Television News Directors Association and Ball State University by Robert Papper, formerly with Ball State. Nearly twice as many news directors (29.1%) in 2006 reported profitable newsrooms, compared with the previous year (18.1%).11 In turn, fewer reported losses or breaking even. And consistent with years past, most news directors (49.1%) did not know how their newsrooms were performing financially.

Radio News Profitability
Survey of News Directors, 1996-2005

Design Your Own Chart
Source: RTNDA/Ball State University Newsroom Surveys
Note: Based on survey responses of news directors

When broken down by ownership groups, some significant differences emerge. CBS has the most profitable news operation in terms of average revenue per news station ($26.6 million), followed by Citadel/ABC ($24.5 million).12 Clear Channel, which leads in news outlets, lags in profit, earning $4.1 million per station. One explanation for the revenue differences probably has to do with the markets where each group has news stations. CBS Radio operates stations in the top markets in the country. Seven of its 17 stations broadcast from the top five markets – New York, Los Angeles, Chicago, San Francisco and Philadelphia. By contrast, Clear Channel operates many news stations in midsize markets, particularly in the Southeast, where all-news stations fare the worst.

Is news or talk more profitable? Despite the proliferation of talk radio, mixed news/talk/information stations generally are more lucrative than straight talk stations.

CBS Radio’s news operation, for example, pulls in almost two and a half times the revenue of its talk programming. The gap for Citadel/ABC is a bit smaller, but still notable: News stations generate one and a half times the revenue of the talk stations. Exceptions to this rule, however, are Cumulus Media Partners and Radio One, whose talk formats outperform their news formats. While these comparisons indicate which formats are more lucrative for particular companies, such comparisons would benefit from factoring in market rank and coverage area to help explain why one format outperforms another.

Revenue Per Station: News vs. Talk

Design Your Own Chart
Source: BIA Financial Network, PEJ Research

Which company makes the most from news and talk programming as a percentage of its total radio revenue? Citadel/ABC was the leader among the top ownership groups in 2006, with a news operation that amounted to 39% of its total revenue. CBS Radio followed with 30% of its total revenue coming from news, then Salem Communications with 23%.13

Revenue by Ownership Groups

Clear Channel continues to dominate the economic playing field of the radio industry.

Year-end figures for 2006, the last year for which full data are available, show that the top two radio ownership groups both experienced a drop in revenue compared with the previous year. Clear Channel’s revenue declined 1.6% from 2005 to 2006 (to $3.57 billion), and CBS dropped a substantial 14.2% (to $1.96 billion). The third-highest revenue-earning radio group, Entercom had an increase in 2006 over 2005, rising 9.5% to $553 million.14

Radio Revenues
2005 vs. 2006

Design Your Own Chart
Source: BIA Financial Network, PEJ Research

While CBS Radio’s news stations remained strong in 2006, the company’s large revenue drop can be largely attributed to the failure of its new music formats in New York and other major cities. The loss of Howard Stern, the No. 1 attraction of its talk stations, to Sirius, also affected the year’s revenues.

At least some of Clear Channel’s drop can be explained by its pending move to go private and the house-cleaning that followed the decision. The company put 448 of its stations up for sale in late 2006 and received conditional FCC and Justice Department approval in early 2008. By year-end 2006, it owned 1,134 stations, 50 fewer than in 2005.

Another factor: The economic growth spurred by the company’s “Less is More” advertising program, started in 2004, may have reached a plateau. Clear Channel aimed to reduce on-air ad clutter in an effort to increase ratings and gain more advertising. It began selling 30-second advertising spots instead of the traditional 60-second spots. As of early 2006, the company reported selling more than 35% of its advertising inventory in 30-second and 15-second spots.15 The company met its goals, but it could be debated whether the ratings benefits that come from reducing commercial airtime are being exhausted.

Without a definitive answer, some radio stations – including a few Clear Channel properties – are experimenting with exclusive sponsorship for an entire hour of programming. Network television also is testing the single-sponsor ad model, which was in use in early television.

Profits by Market Size

Are news stations in bigger markets more profitable? Not necessarily.

The Radio-Television News Directors Association (RTNDA) annual survey of news directors revealed that stations in small markets (those with less than 50,000 listeners) performed slightly better than major-market stations (those stations with more than 1 million potential listeners). More than 30% of news directors in small markets reported profits, compared to 26.7% at major markets. More small-station directors also reported breaking even (18.6%) than major-market colleagues (6.7%).

Radio News Profitability by Market Size
Survey of News Directors, 2006

Design Your Own Chart
Source: RTNDA/Ball State University Newsroom Surveys
Note: Based on survey responses of news directors. Major markets are those with 1 million or more potential listeners. Large markets are 250,000 to 1 million; medium markets are 50,000 to 250,000; and small markets are fewer than 50,000 listeners.

Looking at it another way, the two radio owners with the best average market rank also had the highest revenue-generating newsrooms. CBS Radio, whose 140 stations had an average market rank of 12.1, leads radio owners with an average of $26.6 million in revenue for its newsrooms. And Citadel/ABC, whose 24 stations ranked 3.9, had the second-highest value of news revenue per station ($24.5 million).

On the other hand, Citadel (excluding the newly acquired ABC stations), ranked 107 and its newsrooms earn an average of $1.6 million per station. Yet Radio One, with a respectable rank of 21.4, only generates about $735,000 per news station.


1. Veronis Suhler Stevenson, “Communications Industry Forecast 2007-2011.”

2. Ibid

3. Veronis Suhler Stevenson, “Communications Industry Forecast 2007-2011.”

4. Veronis Suhler Stevenson, “Communications Industry Forecast 2007-2011.”

5. Radio and Internet Newsletter, “Hanson Addresses FAQ’s about Royalty Rate Decision,” March 2, 2007.

6. XM and Sirius press releases.

7. Ibid.

8. In July 2007, the Project for Excellence in Journalism solicited interviews from 49 HD news radio stations. The 49 stations were selected from the entire database of iBiquity Digital, the developer and licenser of HD radio technology (which then listed 2,000 commercial/non-commercial HD-1, HD-2 and HD-3 channels). Of the 49 stations that PEJ contacted, 14 returned a complete survey.

9. Ibid.

10. Ibid.

11. Robert Papper, RTNDA/Ball State University annual news director survey, “News, Staffing and Profitability,” The Communicator, October 2007. Note: Since 1997 when the question of profitability was first asked in this survey, approximately 50% of respondents have not known how to answer the question. This survey, however, remains the best indicator of the economic reality inside of radio newsrooms.

About the study: This survey was conducted in the fourth quarter of 2006. Valid responses came from 225 radio news directors and general managers representing 740 radio stations.

12. BIA Financial Network

13. BIA Financial Network .

14. Ibid.

15. Veronis Suhler Stevenson, “Communications Industry Forecast 2007-2011.”