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MARCH 3, 2005
By Heather Green, Tom Lowry, and Catherine Yang The New Radio Revolution [Page 2 of 2]
FEWER EARS. Having raised comfortable piles of cash, both XM and Sirius are investing to lure subscribers. Sirius is prepared to pay Howard Stern up to $500 million over the next five years after luring the shock jock from terrestrial radio, hoping he'll bring loyal fans with him. Despite a rocky start, Lehman Brothers expects nearly 35 million people to tune in to satellite radio by 2010, up from roughly 4 million now. While only a fraction of the traditional radio audience, these defections could have a huge impact. Lehman Brothers analyst William Meyers estimates that since many satellite listeners listen during the daily commute, the most lucrative hours, satellite alone will cut traditional radio revenue growth after 2006 to 2.5% from 4%. How is old-time radio responding to this assault? For starters, it's looking for ways to bring back listeners. With ads clogging airwaves, the average listening time per person has dropped by more than three hours, to just under 20 hours a week since 1993, according to industry monitor Arbitron (ARB ). Clear Channel and Entercom Communications (ETM ). are reducing the frequency of commercials and cutting them from 60 seconds to 30. ON-DEMAND CONTENT. More profound changes lie ahead as the radio majors join the digital fray. Their biggest hope is high-definition, or HD, radio, which provides CD-quality sound. By the end of the decade at least 2,500 stations are expected to have it. Radio execs are betting that HD will allow them to offer the kind of niche programming already available on satellite radio and on the Web. And in the next few years, HD will feature TiVo-like functions, enabling listeners to store music and news and get on-demand content such as traffic information, weather, and sports scores. HD radio will keep traditional players in the fight. But getting traction will mean convincing carmakers to install the radios -- and satellite has a head start in colonizing the dashboard. Cutting the price of HD receivers -- now $500 to $1,000 -- will be crucial to attracting auto makers. Even as they gear up for HD, the likes of Clear Channel and Infinity have discovered the Net. By this summer nearly 250 Clear Channel stations in the top 25 markets will introduce ad-supported sites offering radio feeds and studio performances from artists. Yahoo, MSN, and America Online (TWX ) have staked out an early lead by providing subscriptions and free services that allow people to customize music channels, skip through songs, and buy a tune as they hear it. "If we don't do these things online, people will go somewhere else to get it," says Evan Harrison, hired from AOL Music to develop Clear Channel's Web strategy. NEW AND IMPROVED? Not everything is easy for those taking the digital road. While audiences at the biggest Net radio players, including Yahoo and MSN, continued to increase last year, the total weekly online-radio audience was unchanged during the past six months, at around 19 million, according to a recent Arbitron survey. Why the plateau? Some companies limited the music people could hear online to avoid paying heavy royalties. To help foot the bill for those fees and boost the nascent industry, AOL, Yahoo, and MSN agreed last year to jointly seek advertisers for their online radio stations. Radio execs argue that their innovations and adjustments in programming will put their business back on a sound footing. "We've gone through a lot of events in our history that were…all said to spell the demise of radio," says Jeffrey H. Smulyan, CEO of Emmis Communications, a leading owner of radio stations. "I feel good about the radio business." On one point, he's right to be optimistic. Thanks to the new technology, more people than ever will be creating and listening to audio programming in coming years. But the radio industry, a members-only club for the best part of a century, is turning into a free-for-all.
 Green is Internet editor for BusinessWeek, Lowry is media editor, and Yang is a reporter in the Washington bureau with David Kiley in New York
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