The fight pits fledgling satellite radio providers, such as Sirius and XM, against terrestrial radio companies, which are trying to recharge their industry by pushing high-definition radio.
HD radio is a new technology that will enable traditional radio companies to offer a greater range of channels and better sound quality.
Of course, terrestrial radio is fighting back from a position of strength as it attracts almost 225 million listeners in the U.S., according to Arbitron's Fall 2005 RADAR survey.
One indication of the high-stakes battle being waged is Google's foray into radio. Last month, the search giant announced it had agreed to pay $102 million to acquire dMarc Broadcasting, an automated radio advertising media buying technology platform, in a deal that is likely to shake up radio ad sales.
Google said it plans to integrate dMarc technology into Google AdWords to create a radio ad distribution channel for Google advertisers. Digital radio, in turn, could be a vehicle for Google's advertisers because HD radio is locally based.
Currently, the U.S. has more than 700 HD radio stations and that number is expected to grow to approximately 1,200 by the end of this year, according to iBiquity, which develops and licenses HD radio technology.
To date, 12 of the nation's largest radio broadcasters have joined the HD Digital Radio Alliance and have committed more than $200 million worth of airtime this year alone to educate listeners about how it works, said alliance President-CEO Peter Ferrara. All HD formats are initially commercial-free, but that's likely to change once HD stations figure out how to monetize the technology.
Sex appeal back in terrestrial
"Digital radio creates an opportunity to put a little sex appeal back into terrestrial radio," Ferrara said.
While they have tended to plug their commercial-free music channels, both Sirius and XM have an ample number of channels that would appeal to b-to-b marketers.
XM, which currently has about 6 million subscribers, offers BBC World Service, ABC News & Talk, CNN, C-Span Radio and Fox News. Sirius, with 3.3 million subscribers, features Bloomberg Radio, CNBC, CNN and NPR Now. Both XM and Sirius carry professional and collegiate sporting events.
Whereas a terrestrial radio station may run 20 commercial spots in a given hour, satellite channels probably run half that number.
"Most of my clients are saying, `What about satellite?' " said Natalie Swed Stone, U.S. director of national radio investment for OMD, whose clients include Bank of America, Office Depot and State Farm Insurance. "In many ways, the channels sound very much like terrestrial radio, but it's a less cluttered environment, and the difference in advertising is in the cachet of satellite."
Other media buyers expressed skepticism. "[Satellite] is not going to start eating into the percentage of traditional [ad] sales until satellite starts to get mass audiences," said Chris Philip, senior VP-director of media services at Doremus. "B-to-b ad dollars have to be surgically applied, and at this point there are so many unknowns about satellite that I can't see a tremendous migration of ad dollars happening."
Satellite radio ad sales are typically in "clusters," in which marketers' messages can be sprinkled throughout several channels. Clients can also purchase just one program.
XM's ad revenue increased to $21 million in 2005 from just $3 million in 2003, according to D. Scott Karnedy, senior VP-sales and marketing solutions. He said b-to-b advertising currently accounts for 15% of overall ad revenue and is on the upswing.
XM's b-to-b advertisers include gotomymeetings.com, Hewlett-Packard Co. and United Parcel Service of America.
After purchasing spots on XM last year, UPS has expanded its satellite buy to include Sirius, said Susan Rosenberg, a public relations manager at UPS. She said the company is buying sports programming on both stations.
Sam Benrubi, senior VP-advertising sales at Sirius, would not disclose Sirius' ad revenue nor name any of its b-to-b advertisers but did say that most b-to-b dollars are devoted to the company's news shows and talk programming. "We can provide a national profile [for b-to-b marketers] under one roof, with a different array of brand names serving different demographics," Benrubi said. "We have a lot of unique opportunities."
The ascension of satellite radio comes as traditional radio companies deal with sluggish ad sales. According to the Radio Advertising Bureau, radio advertising was essentially flat in 2005 compared with 2004. Combined spot and nonspot radio ad spending totaled $21.50 billion last year, compared with $21.40 billion in 2004. Network revenue dropped to $1 billion, from $1.50 billion. Local ad spending inched up to $15.60 billion, from $15.50 billion.
One reason for the lackluster results: 14% of the radio industry's billings come from the automotive industry, whose ad spending on radio fell 1% last year, said Gary Fries, president-CEO of the Radio Advertising Bureau.