By Derek Caney
NEW YORK (Reuters) - The radio industry could find itself at the kids' table in the media banquet hall, as new technology threatens the business, advertising executives said this week at the Reuters Media and Advertising Summit.
Satellite radio, digital music players and the Internet are slowly encroaching on traditional radio's stronghold on local entertainment and advertising. Plus, radio ads themselves are less memorable and creative, these executives said.
"Radio is at the center of a perfect storm of technological threats," said David Verklin, chief executive of media buying agency Carat Americas. "It has to reinvent itself."
He noted that Apple Computer Inc.'s iPod and other music players like it have given listeners the ability to listen to what they want when they want.
Satellite radio services such as XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc. are offering more channels, many commercial free, for a monthly subscription.
Finally, the third threat he saw was over-commercialization. "To some listeners, radio is a little bit of content in a sea of ads."
Radio revenue growth has been slowing since 2003, according to the Radio Advertising Bureau. Prior to 2001, the industry logged four consecutive years of double-digit revenue growth.
To address these concerns, Clear Channel Communications Inc., the top U.S. radio company, said last month that 95 percent of its 1,200 stations would be upgraded to digital by 2007. If successful, the company could offer free programing rivaling that of the satellite radio industry.
"Why would you pay for something you get for free?" asked John Hogan, CEO of Clear Channel's radio business, echoing a mantra throughout the radio industry.
Television executives said similar things in the 1970s, when cable TV was a fledgling business. Cable and satellite TV services now serve about 81 percent of U.S. homes.
And satellite radio is spending hundreds of millions of dollars on programing exclusive to its medium, the biggest chunk of which is Sirius' five-year $500 million package to lure shock jock Howard Stern away from Viacom Inc.'s Infinity radio unit.
"There is a genuine question whether people are going to want to pay $12 a month for (Howard Stern)," said Les Moonves, co-chief operating officer of Viacom.
One of the key problems radio faces, ad executives said, is the dearth of creative commercials. "Radio is seen as the poorest cousin of all the creative canvases," said David Droga, outgoing chief creative officer of Publicis Groupe's Publicis Worldwide, who is building his own creative shop.
"But to me, radio is a fantastic canvas," Droga said. "It's theater of the mind." Still, he said good radio ads are "few and far between."
Clear Channel, for its part, is betting that by cutting advertising on its stations, it will increase its listenership and raise the value of the remaining ad inventory.
The strategy, which Clear Channel dubs "less is more," drove radio revenue down for the last three consecutive quarters, but Hogan remains positive.
"We think the early returns are extraordinarily promising," he said. "We knew there would be a financial cost to this."
Indeed, while Clear Channel's shares have fallen 1.4 percent in the last year, it has outperformed the S&P Media Index, which has fallen 11 percent.
But even as it shores up its own business model, Internet firms such as Google Inc. and Yahoo Inc. are striking at the radio industry's lifeblood -- local advertising -- by offering services like restaurant recommendations, movie times and other features.
"There's over $100 billion of local advertising dollars that are spent on newspapers, radio, television stations, and yellow pages," said David Sanderson, head of consulting firm Bain & Co.'s media practice. "Where will those dollars migrate in the future?"
One possible destination is Clear Channel, which this year hired an AOL executive to craft an online strategy.
Sanderson added, "These business models will go through dramatic change in 10 years."
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