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By the Project for Excellence in Journalism


The economics of radio is changing rapidly and it remains to be seen which model or combination of models will prevail given the rising importance of the Web and declining pool of advertising dollars in traditional broadcast radio.

Revenues for satellite, Internet and mobile radio all grew in 2007, the latest year for which there are final data.  The evidence suggests that growth slowed in 2008 and that terrestrial radio could even have declined when the final numbers are tallied.

To be sure, 90% of radio revenue still flows to traditional, or terrestrial, radio.  Within that 90%, however, the composition has changed. The share of revenue from on-air advertising is shrinking while the share of money made from event sponsorship,  billboards and Internet advertising is growing.

But that that growth is not enough to keep pace with the decline from traditional advertising sources. And broadcasters find themselves competing against a whole new generation of low-cost operators that have popped up online.

Looking across all audio media combined – broadcast, satellite and digital – revenues were flat in 2007.

The market research firm of Veronis Suhler Stevenson predicted further declines for terrestrial radio through 2012, with satellite and digital radio having only slight growth over the next several years of 0.2% annually.

At the same time, the radio industry is nervously awaiting a decision in negotiations over how music royalties will be paid, something that Internet radio broadcasters say will have a big impact on the future.


According to the Radio Advertising Bureau, in the first three quarters of 2008, traditional radio revenue was down 7% compared to the first three quarters of 2007. This compares to an overall drop of 2% in 2007 compared to 2006.

Both local and national advertising fell. National ads are broadcast on stations across the country, usually by large companies, such as auto makers or food producers, while local ads are placed on fewer stations limited to small geographic areas.  In the first three quarters of 2008, the money derived from national ads dropped 11%, while that made from local ads fell 8%.

Those drops were mitigated by gains in revenue from other sources associated with radio stations, particularly Internet, billboards, concerts and other off-air sources. That income grew by 9% in the second quarter of 2008 from the same period a year before.1 But their growth was not enough to make up for the on-air ad declines.

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

Veronis Suhler Stevenson predicts that revenue from digital platforms for these stations (online and mobile) will continue to grow. In 2007, revenue from digital platforms for terrestrial stations was $243 million. If the predicted growth continues, it will be $1.5 billion by 2012, a compound annual growth rate of 43.1% over five years. What is not clear is when or if these trend lines will eventually lead to net gains for the stations.

Traditional Radio on the Internet

One growth area for traditional radio stations is online. Internet radio, where stations can stream their programs online, remains a small part of the overall economics of radio but is growing quickly. It may also represent the best hope for terrestrial radio to stem its receding tide of revenue.

For the owners of terrestrial radio stations, adding an Internet operation is relatively inexpensive. The Web sites typically stream real-time audio feeds and offer additional features such as podcasts. Also, the Internet allows radio stations to compete more directly with local news outlets. As stations add text, video and other formats to their websites, the lines between their offerings and that of the website of a local television station or local newspaper begin to blur.

If a program provides podcasts of its show, it could sell ads before, after or during the podcast.

The $243 million in advertising that Veronis Suhler Stevenson projects that Internet radio generated in 2008 was a gain of 55% over the year before and came on top of an estimated gain of 73% the previous year.2 Despite these expected gains, revenue from Internet radio is still expected to be a small part of terrestrial radio’s economic picture.

By contrast, traditional on-air revenues are projected to have a -0.5% compound annual growth rate from 2007 to 2012.3

Audio Revenue Growth
Design Your Own Chart
Source: Veronis Suhler Stevenson, “Communications Industry Forecast 2008-2012”

Some companies have tried to capitalize on the potential of Internet radio through economies of scale.

CBS RADIO, for instance, constructed a shared Internet platform for all its stations.  The hope with this new platform is that by creating one place for listeners to get all of its stations CBS RADIO will grow audience and draw advertisers to the platform. Listeners can download a program onto their computers or iPhones, and receive any CBS station’s live audio feed. The platform also permits a user to customize the program, highlighting favorite stations or search for specific musical genres or topical radio programs. It also suggests to the listeners other stations they may like based on their choices and allows listeners to purchase songs they like, among other features.

AOL’s thousands of online-only radio stations were also made available through the service, as part of a joint venture with CBS RADIO.  AOL is integrated into the popular AOL network of e-mail, instant messaging and all other Web properties of AOL.

For listeners, this means that AOL radio stations and CBS stations will be available in the same place. Moreover, they can share radio stations they like with friends over AOL instant messenger or e-mail, an obvious promotional opportunity for CBS RADIO and AOL. (See Online Ownership for more information on AOL)

Yahoo’s radio service, Launchcast, followed suit and teamed up with CBS.  Launchcast’s more than 150 stations will now be powered by CBS RADIO’s online platform and listeners will be able to access Yahoo radio stations in addition to AOL and CBS.  Yahoo’s sports and news sections of the website will feature top-rated CBS RADIO stations.  Launchcast service began in February 2009.

Traditional radio stations are trying to take advantage of the opportunities of the digital age. Whether any of them have discovered the ideal model, or one that attracts widespread acceptance from consumers, remains to be seen.

Internet-Only Radio

Internet radio also presents a problem for commercial broadcasters: the most promising technologies are also open to low-cost competitors.

Thousands have emerged to combine radio with interactivity.

Some specialize in musical genres. For example, offers free play lists of electric blues music. It makes money from advertising as well as a function that permits users to buy compact discs through Amazon, which rebates a portion of the proceeds to host sites. There are also audio ads, which users can skip for a monthly fee that starts at $5.95 for one-year memberships.

Others, such as, go even further. The Internet-only station permits users to enter their favorite songs and receive and play free playlists based on computer-generated matches. Pandora makes most of its money from advertising.  It does offer a $36 premium subscription service that provides an ad-free site that has no ads when accessing Pandora from a mobile phone, but it is not a large source of revenue.

In the fall of 2008 Pandora, a private company that does not reveal is financial results, projected that it would generate revenues of $25 million for the year.4

The Fight Over Music Royalties

The future of and the future of much of the emerging Internet radio industry were closely tied to a simmering controversy involving royalty rates paid for music.

Internet radio operators have long complained about a royalty system that they say has not kept up with changes in the industry., for example, maintains that it could be paying 70 percent of its revenues in royalties under a plan enacted by the Copyright Review Board.

“We’re losing money as it is,” said’s founder, Tim Westergren. “The moment we think that this problem in Washington is not going to get solved, we have to pull the plug because all we’re doing is wasting money.”5

The structure then in place called generally for a 0.0019 of a cent royalty each time a song is played. But there are important differences in how the fee is calculated and paid by different types of radio stations.

Broadcast radio stations were permitted to buy performance licenses annually from one of the various copyright agencies, such as the American Society of Composers, Authors and Publishers, or ASCAP.

The license applies to any of the songs that that agency has in its catalogue.

Stations could also buy per-play licenses, but for all-music stations this was not a cost-effective option.

Internet or satellite stations, however, had to pay the per-song play royalties set by the copyright board.

The problem is not as severe for satellite radio, which pays a lower rate and does not play as many songs as Internet stations like

But for stations that let their users pick what they listen to, it could be costly. A popular song may get played millions of times a day. Moreover, the medium was required to pay the fee twice: to the composer and the performer.

Broadcast radio executives argued that they were giving the performer free advertising and therefore should enjoy the bulk rates and other advantages.  They do, however, pay the Internet fees when a song is played on their Web sites.

Pandora and other Internet radio operations lobbied Congress to have a different royalty rate set for them. The gist of the bill, the Webcasters Settlement Act of 2008, calls for negotiations to set royalty rates for webcasters.6

The bill passed both houses of Congress in September 2008 and was signed by President George W. Bush on October 16, 2008. It calls for a new structure or fees to be negotiated by February 19, 2009.

Satellite Radio

The satellite radio landscape underwent a radical transformation in 2008 when the two pioneers, Sirius and XM, won approval to merge into Sirius XM – but then the new company reportedly flirted with a bankruptcy filing before selling a chunk of itself to a white knight investor.

The companies, both of which were individually losing millions of dollars despite gaining subscribers and revenue, said that they could have continued as separate entities but that service to subscribers would be much better and more flexible if the companies merged (See Ownership section for more information on the merger). However, in the months following the merger, listener complaints rose as changes were made to programming.7

Unlike traditional, advertising-based radio, satellite radio generates 96% of its revenue from subscriptions paid by listeners. Advertising accounts for the other 4%.

Revenue from the 17.3 million subscribers was $1.9 billion, a 33% increase from 2006. Though robust, the growth in the number of subscribers was slower than the previous year when it leapt by 47.6%. And, the increased revenue failed to result in overall profit.8

The question now is whether the single satellite radio provider will save enough in expenses to generate profits. The market research firm of Veronis Suhler Stevenson forecast a 12% compound annual growth rate for 2007 to 2012. For that to be sufficient, the merged company will have to find significant economies of scale, which could lead to elimination of duplicative channels or a sharp reduction in the number of employees.

Early indications were not encouraging.  In the third quarter of 2008, revenue increased to $612.8 million, but the company reported a loss of $217 million.9 In December 2008, Sirius XM stock fell to 14 cents a share and was in danger of being delisted from the Nasdaq stock exchange.10

On December 18, 2008, Sirius XM stockholders voted to approve to measures to alleviate this problem. One was to increase the number of authorized shares of the company from 4.5 billion shares to 8 billion.  The second amendment allows the company at any time before December 31, 2009, to reverse-split the stock.11

As of February 2009 the stock price was listed at 17 cents a share and the Nasdaq had waived its $1-a-share minimum rule until April 20, 2009. With a $175 million loan payment coming due at the end of that month, the company began to explore a bankruptcy filing.

But in rode a financial savior: Liberty Media, the parent company of Direct TV.  Liberty Media agreed to loan Sirius XM $530 million. In return, Liberty Media  received 12.5 million shares of Sirius XM preferred stock, convertible to about 40% of the Sirius XM stock, along with seats on the board of directors.12

Whatever happens, the predicted growth rate of satellite is not as strong as what some expected from mobile, the newest and in some ways most vibrant new competitor in radio.

Mobile Radio

Mobile listening remained a small but rapidly growing area as it headed into 2009.

Over all, revenue from mobile radio grew 200%, but only to a modest $9 million, in 2007, the most recent year for which data were available. The industry, like satellite radio, depends on subscriptions for its financial base. Of the 2007 revenue, $7 million came from subscriptions and $2 million from advertising.13

Those revenues are projected to grow at a 117.9% compound annual growth rate between 2007 and 2012, according to Veronis.

Even if the projections prove accurate, though, mobile radio revenue would still be smaller than broadcast, Internet or satellite in 2012.  Mobile radio would bring in $443 million in revenue, compared to $1 billion from Internet and $3.3 billion from satellite.

Moreover, it could fall short if another technology, Internet radio on smartphones, supplants it.

Terrestrial broadcasters have launched a major push to have HD and AM/FM radio chips installed in next-generation mobile devices to counter the advent of mobile devices able to connect to the Internet and stream radio stations.

Cellphones – and smartphones and PDAs, etc. – have a unique place in the landscape of advertising. They are the only form of media that people have on their person most of the time. As more people rely on them for Internet, radio and even television, it opens a new vista for advertisers.

Audio Revenue: Growth Projections
Design Your Own Chart
Source: Veronis Suhler Stevenson, “Communications Industry Forecast 2008-2012”

News and Talk Revenue

In all of these audio options, news is only one part of the mix. On terrestrial radio the category of news/talk/information is the No.2 radio format in the country in terms of stations and audience share, according to Arbitron. Many analysts note, though, that over the years the mix has become much more talk and less news.14

There are signs that the profitability is falling.

In 2007, 21% of news directors said their newsrooms were showing profit, compared to 29.1% in 2006.15

News directors who said their newsrooms were showing losses also increased to 10.5% in 2007, up from 8.6% in 2006. Directors who said their newsrooms were breaking even remained about the same.

However, the figures are an inexact barometer. Most news directors, 54.8%, reported that they did not know how their newsrooms were doing.16

Which companies are making the most of their news/talk stations?

CBS RADIO continues to have the highest average revenue per news/talk station, with $21.4 million per station in 2006 and $19.5 million in 2007.  The next highest is Cumulus, with $9.1 million average revenue per station in 2006 and $8.4 million in 2007.

The industry leader in number of stations owned, Clear Channel, lags behind in terms of average revenue per news/talk station with $3.3 million in 2006 vs. $3.1 million in 2007.17 These differences are generally due to the size of the market in which the majority of stations owned by a company operate.18

Revenue Per News/Talk Station
Design Your Own Chart
Source: BIA Financial Network database, PEJ Research

Similar estimates could not be made for the new audio media. But news represented a much smaller proportion of the programming on Internet-only and satellite radio, raising worrisome questions if they eventually supplant traditional radio.

It should be noted that as the newer technologies grow, the financial importance of news could drop. The technologies that allow consumers more control over what they listen to, such as mobile, podcasting, specialized Internet stations such as Pandora and more, may not involve news at all. In terrestrial radio, almost every one offers some level of news, if only a few minutes at the top of the hour. But even that amount may shrink in new technologies more targeted to niche audiences wanting to tailor the content themselves.


1.“Online and Experimental Marketing Continue to Grow in Radio’s Off-Air Sector as On-Air Is Supported by Select Core Categories,” Radio Advertising Bureau.  November 21, 2008

2. Veronis Suhler Stevenson, “Community Industry Forecast 2008-2012”

3. Veronis Suhler Stevenson, “Community Industry Forecast 2008-2012”

4. Interview via e-mail with Joe Kennedy, CEO of Pandora

5. Peter Whoriskey, “Giant of Internet Radio Nears Its ‘Last Stand,’ ” Washington Post, August 16, 2008.

6. Elliot Van Buskirk, “House of Representatives Passes Webcast Bill,”, September 29, 2008.

7. Mike Snider, “As Sirius, XM Signals Merge, Customers Are Confused,” USA Today, November 18, 2008.

8. Veronis Suhler Stevenson, “Communication Industry Forecast 2008-2012”

9. Sirius XM Press Release, November 10, 2008

10. Olga Kharif, “Sirius XM’s Dual Concerns: Debt, Delisting” Business Week, December 12, 2008.

11. “Sirius XM Radio Announces Results of Voting 2008 Annual Meeting of Stockholders,” PR Newswire, December 12, 2008.

12. Elliot Van Buskirk, “Liberty’s $530 million Lifeline Keeps Srius Xm Afloat,”, February 17, 2009.

13. Veronis Suhler Stevenson, “Communication Industry Forecast 2008-2012”

14. PEJ conversations with Dale Willman executive editor of NPR Field Notes; Adam Clayton Powell III, senior fellow at the  University of Southern California, and Chris Sterling, professor of media and public affairs at George Washington University

15. Robert Papper, RTNDA/Hofstra University Annual News Director Survey, “News Staffing and Profitability,” RTNDA Communicator, September/October 2008

16. Robert Papper, RTNDA/Hofstra University Annual News Director Survey, “News Staffing and Profitability,” RTNDA Communicator, September/October 2008

17. The figures are different from last year’s State of the News Media because PEJ has changed the way in which it sorts radio stations by format.

In the BIA Financial Network system stations self-identify their format and many identify themselves as more than one format (i.e., news/talk/sports).  In last year’s annual report PEJ sorted for only stations that include the word “news” somewhere in their format code, excluding stations that identified themselves as “talk” without including the word “news.”

This year, using the BIA database, PEJ is employing a different method to sort the stations including those that use the word “news” or the word “talk.”  The reason for this is because stations self-identify and there is no clear definition of “news” or “talk” in the BIA system and because the line between “news” and “talk” is increasingly blurred in world of radio.

18. BIA Financial Network and PEJ research