Why Terrestrial Radio Will Never Be Great Again

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Why Radio Will Never Be Great Again There was a time when car radios cranked out the soundtrack of our lives.

Before that, families would huddle around the radio at home to hear serialized presentations, sporting events, and the latest music hits.

These days, radio is a bit of a forgotten toy.

Premium Solutions

There are more than 20 million people willing to pay for something that is available seemingly for free the old-fashioned way.

Sirius XM Radio (SIRI) begins 2012 with 21.9 million subscribers. Premium satellite radio is so popular that Sirius XM expects to add another 1.3 million more accounts than it loses this year, and that's despite a 12% price hike that began rolling out in January.

Think of it like people paying for cable television instead of settling for the free local channels that can be accessed with an antenna. Satellite radio's commercial-free music channels offer programming depth that isn't possible through ad-laden and wide-reaching terrestrial channels. Plus, the traditional stations -- with local or syndicated content -- don't have the big budgets to pay for marquee talent.

Surfing the FM and AM bands is still popular, but not with the kind of listeners that advertisers truly want to reach. If you're an advertiser, would you rather reach someone who won't flinch at paying $15 a month for premium radio or one who puts up with the shortcomings of conventional radio to avoid paying money for it?

You know the answer -- even though most of you still listen to AM and FM stations from time to time.

Turn the Knob

Clear Channel is the country's largest radio operator. It owns 850 radio stations, claiming to reach 238 million listeners a month. That's a lot of stations. That's a lot of people.

If ever there was a gauge for the health of terrestrial radio, it would be Clear Channel parent CC Media Holdings (CCMO). It reported earnings last week for all of 2011. How's it doing?

Well, Clear Channel's radio business saw its revenue climb 4% to nearly $3 billion last year. That's not too shabby, but an April acquisition of a traffic service accounts for all but $11 million of that increase. We would be looking at flattish results if it wasn't for the purchase, but it's not even that good. Last year's relaunch of its iHeartRadio app and a star-studded concert in Vegas to kick off the new streaming service helped prop results.

There were actually "slight declines in local and national advertising across various markets and advertising categories," the company confesses in its earnings release.

The economy's getting better. Car sales are starting to gain traction. Why isn't radio coming along for the ride?

Stream On

It's not just Sirius XM gnawing away at terrestrial radio's audience. Newer cars allow well-to-do drivers who happen to have smartphones the ability to stream Internet radio and music-discovery sites through their dashboards. Once again, terrestrial radio is losing more of the deep-pocketed listeners that advertisers want to reach.

Pandora (P) is leading the way here. It has deals with most of the automakers to deliver its customized playlists through car speakers.

Pandora won't be reporting its fiscal-year results until next week, but revenue through the first three fiscal quarters of 2011 soared 114%. There are now 40 million active users, 65% ahead of where Pandora was a year earlier.

Terrestrial radio is trying to take its fight digital. Clear Channel's pretty popular iHeartRadio app makes hundreds of its stations available wherever someone may be. Unfortunately, that also means that the local advertisers that are unwittingly overpaying for their terrestrial spots will find even less value in the product.

Thankfully for terrestrial radio station operators, we're in an election year. It's going to be a highly contested run through November, and that means a bump in political advertising. However, it will all be downhill from here.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article.



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55 Comments

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Antoni Caleca

Rick, no offense intended, but you are greatly biased and misinformed. Find another industry to insult, Radio is surviving no matter what you think. If you don't like it, then don't listen, but you are in the minority, believe it. Check the numbers. Pandora still can't make a profit. Smal internet stations do not have a chance of survival, no revenue. In addition, many listen to AM/FM streams, though Pandora wins slightly in the streaming category. Still, few internet streaming companies really do that much. The business model is flawed and good luck with changing the royalty fees. AM/FM royalties fees will probably remain the same. If you have noticed the momentum has died to change that aspect. So, in retrospect, you are so far off base.

September 18 2013 at 2:21 AM Report abuse rate up rate down Reply
Antoni Caleca

Furthermore, I have an ever increasing amount of friends that have cancelled their cable for over the air TV and have chosen regular cell phones rather than smartphones because of the cost of the 2 year plans. Many people do not have the money to waste on mobile media. Data can cost. FREE IS GOOD. The internet will never be free and mobile data really costs a load. I have limited my plan because it is ridiculous to watch a movie on my phone when I can do that at home. Maybe news and quickly on my cell, but streaming for hours is not practical, and that tiny speaker and lousy quality gives me a headache. Where are the nice audio systems?

September 18 2013 at 2:16 AM Report abuse rate up rate down Reply
Antoni Caleca

One other thing: DATA COSTS....AM/FM IS FREE! As the young demos age, they will have less money to play as they gain responsibility. Especially with stagnant wages, people do not have a great amount of disposable income to waste on data plans. Radio is FREE, and as long as it remains free it will thrive. The facts in this article are so biased...why? What is the negativism about for AM/FM? Pick on cars, they have been around longer, old technology, who needs it. We should be flying in spaceships, but we aren't because it is not practical. Old technology is ok if it works. Again, the factor is: CONTENT.

September 18 2013 at 2:10 AM Report abuse rate up rate down Reply
Antoni Caleca

This article is complete misinformation. Despite the negativism of the Internet Industry toward AM/FM, it appears that despite the competition AM/FM is holding it's audience and even grew slightly in the younger demos 2012-2013. TSL remains equal. So what is this about the dyiny industry? Statements made my proponents of online (corporates) that want to win favor convincing people that Radio is dying so that they can make more money. It seems that Internet streaming companies have a flawed business model and can't make money. People are consuming more media and online has grown, streaming as well. But it has not killed Radio as this article aserts. Furthermore, consumers are beginning to hear the inferior quality of the compressed audio from streams. Actually analog does have better more cleaner quality, just takes more bandwidth. Digital compresses the audio in order to sent more signals down the fiber and over mobile. After all, we have analog ears and the recordings begin in analog and, yes, end in analog. FM has far better quality than the internet and mobile. So really, the concern is content. Forget Clear Channel and Cumulus, they have homogenized formats and almost ruined the Radio Industry. Fortunately, they are beginning to sell stations to smaller more innovative companies and again Radio can be innovative and fresh again. Local and Live, content. Radio can be two way bu using social media and the internet as well as mobile to communicate with the jock. So, if AM/FM has content, people will listen. And really, internet in cars? Difficult to maneuver the internet and drive. The simple Radio, even with new menus, is much easier. And really most people want to be entertained and don't have the time to do the work. Music discovery on the internet by tweeners and 20s may change as they age and work and have responsibility, not having the time to surf the internet. Yes, internet streaming has opened the listener to more choices, but people are consuming more media and Radio is far from dying! Your facts are wrong. Why do you have a vendetta against AM/FM? The corporate world of the internet is far worse. Radio survives...

September 18 2013 at 2:04 AM Report abuse rate up rate down Reply
Joel Flickinger

All the talk radio you'll ever need. http://www.skidrowstudios.com/

August 21 2012 at 2:57 PM Report abuse rate up rate down Reply
Richard Johnson

Great article Rich!
Technology will continue to move forward, but at the end of the day, consumers want FREE. “The Facebook” would’ve never become “Facebook” if they were charging a membership fee. While your 100% right about it never being great again, I wouldn’t count out terrestrial radio just yet. There’s always going to be someone with a vision willing to make his or her mark on the World by taking chances. It’s the American Way!

Take this example for instance, I’m willing to bet you’ve never even heard of this site, yet it’s currently the fastest growing investment forums in the entire World. Look at the Alexa ratings; it’s only been open for three and a half months. http://www.alexa.com/siteinfo/investorshangout.com#

Investors Hangout is an all free stock message board website with over 19000 stock boards fully equipped with a chart and stock quotes for the NYSE, NASDAQ, AMEX, and OTC BB & PINKS.
http://investorshangout.com

May 28 2012 at 5:43 AM Report abuse rate up rate down Reply
Alan

I still love terrestrial radio especially flamethrower stations at night from half way across the continent.

May 22 2012 at 8:05 PM Report abuse rate up rate down Reply
mrosen8596

i believe your story on declining radio influence is because all of the popular commentators are republicans whereas all of the newspapers and tv channels are mucho left wing liberals
murray rosen a radio lover.even this letter will neveer appear on this site

March 05 2012 at 9:31 PM Report abuse +1 rate up rate down Reply
mrosen8596

i believe your story on declining radio influence is because all of the popular commentators are republicans whereas all of the newspapers and tv channels are mucho left wing liberals
murray rosen a radio lover

March 05 2012 at 9:29 PM Report abuse rate up rate down Reply
dholin4444

Terrestrial radio will never become a "forgotten toy" for me. It has kept me informed for many years on political and other matters; it costs me nothing except some very minor billing for electric usage; and it allows me to multi-task while taking care of time-consuming chores. The simple things in life (like terrestrial radio) are gifts we all can enjoy gratis without buying "packages" or "bundles."

March 05 2012 at 9:52 AM Report abuse +1 rate up rate down Reply
1 reply to dholin4444's comment
jabster62

As far as news goes, I would agree with you completely. But in the context of music, it's not what it used to be. The commercialism isn't limited to the ads plyed between songs anymore. I think in many cases, the songs themselves are commercials for record companies trying to promote what they think is "the latest and greatest". People, in general, aren't buying into it and thus, the decline of terrestrial radio.

May 29 2012 at 7:49 AM Report abuse rate up rate down Reply