The Internet Won't Kill Radio

If you read enough media reports, you'll begin to believe that the Internet will kill AM, FM, and even satellite radio. Connectivity drums up promises of choice (bad for conventional radio) and cheapness (bad for satellite radio). But the question's not that simple.

The Internet creates opportunities, even as it renders some media platforms obsolete. Furthermore, it'll take more time than you might think to seamlessly tie content floating out in the cloud to a box inside your dashboard.  

Nine lives
"Will the Internet Kill Traditional Car Radio?" asks a headline in yesterday's New York Times.

"The Internet's tentacles seem to have no limit, reaching out and strangling CDs, bookstores, newspapers and magazines," begins automobile columnist John R. Quain. "Now it has its sights set on the car radio."

Quain's thesis -- and I hate to call it his thesis, since it's shared by many industry watchers -- states that the growing popularity of smartphones and mobile hotspots makes it easier to stream Internet radio stations or tap into Pandora Music and other music-discovery sites.

His one test-drive beef is with AT&T's (NYSE: T  ) spotty 3G coverage in New York City, but "buffering" won't be the end of this revolution. Speeds of 4G and beyond will come quickly. In fact, Sprint Nextel (NYSE: S  ) is already marketing the Sierra Wireless (Nasdaq: SWIR  ) Overdrive mobile hotspot as the first 4G device on the market.

In other words, unreliability won't save radio forever on this front. However, pure practicality could help keep terrestrial radio on the air.

The high price of freedom
Connectivity doesn't come cheap these days. Music developers aim first for Apple's (Nasdaq: AAPL  ) pricey iPhone before trickling down to other devices. A monthly iPhone plan through AT&T starts at $70, and that's for just 450 voice minutes and no text messages. The pricing schedule ramps up quickly, topping out with a $120 plan for unlimited minutes and texting. AT&T does offer attractive family plans for additional lines, but we're essentially talking about a device with a limited audience in terms of affordability.

So what about the Overdrive through Sprint? Mobile hotspots are game-changers, because they allow as many as five devices to connect to a single wireless hub. In other words, you don't even need a pricey smartphone. An iPod touch can run Pandora -- and cars continue to make it easier to connect iPods into their speaker systems. However, Sprint's Overdrive will set owners back $60 a month.

Will smartphone and mobile hotspot plans get cheaper in the future? Don't be so sure. High-end smartphones by Apple and Research In Motion (Nasdaq: RIMM  ) are reasonably priced because wireless carriers subsidize the handsets, to the tune of hundreds of dollars apiece. Even though the carriers make up that shortfall during the course of two-year contracts, they're still on the hook to fund smartphone users' ever-growing appetite for unlimited data. Just ask AT&T, as it digs deep to overcome complaints of spotty coverage. Mobile hotspots are also typically subsidized.

So in all honesty, it's hard to imagine more than half of the country paying $100 or so for smartphone plans, or $60 a month for mobile hotspots. The potential market is big enough to dent terrestrial radio, but it won't obliterate AM and FM altogether.

Satellite survival guide
Satellite radio may be more susceptible than terrestrial to the Internet threat. Sirius XM Radio (Nasdaq: SIRI  ) has 19 million subscribers; if someone has disposable income to pay $15 a month for premium radio, they may also have the means for a smartphone or a mobile hotspot.

The key here is that satellite radio is a cheap alternative compared to fancier connectivity plans. A sufficiently large chunk of the market can afford a satellite radio subscription, but not a smartphone. Another significant slice of smartphone owners won't think twice about paying another $15 for XM or Sirius.

In other words, fears of satellite radio's doom are overblown. Sirius XM can pay up for premium content that ad-supported radio -- terrestrial or Internet -- can't afford. There's enough market to go around for everybody.

The real threat of Internet radio
"For the first time, small local stations will be able to reach an entire driving nation, so some broadcasters may see their audiences swell as more listeners find them on Internet-connected car radios," Quain concludes.

Unfortunately, I don't agree there, either.

After all, when Quain kicked off his column by suggesting that the Internet had vanquished CDs, bookstores, newspapers, and magazines, he missed the mark. The Internet didn't trip up any of those industries -- it just leveled the playing field, making powerful players less so. Major labels now have to compete with unsigned garage bands on MySpace. Print media publishers have to compete with blogs, public-domain content, and sticky sites that lure in consumers.

If every small radio station can broadcast to the world, they'll have to compete not only with every other station on the planet, but also with music-discovery sites -- or any hobbyist with time enough to create and stream their own playlist. A handful of savvy small-market stations could truly expand their audience, but for the industry as a whole, connectivity's growing popularity will be a net negative.

Thankfully for terrestrial and satellite radio, that day is far, far away.

Will the Internet kill satellite or terrestrial radio? Share your thoughts in the comment box below.

Sprint Nextel is a Motley Fool Inside Value recommendation. Apple is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz is a subscriber to both Sirius and XM. He does not own shares in any of the stocks in this article. He is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 11, 2010, at 4:14 PM, skred2 wrote:

    The writer obviously is not aware of MiRoamer and Blaupunkt's joint effort. I think the last portion was particularly wrong as 20 years later, I'm still fond of my old college radio stations. Strangely, they are hugely successful on the internet as well. Also, given the fact that my hockey game is now broadcast in FM, vs. the AM that went 500 miles and I don't have Sirius, nor want it, there IS a market for this. Those of us who've added live internet streams to our iTunes playlist are well aware that there's a growing market for internet radio. A little more research before making tech calls here, please.

  • Report this Comment On May 12, 2010, at 10:56 AM, webjawns wrote:

    I agree that the Internet will not negatively affect Sirius satellite radio, at least in the short term. Sirius offers so much more live content, which at the moment, iTunes and Pandora cannot compete with. Sirius offers every kind of programming from Liberal to Conserative opinion, financial to home decorating, etc. Callers can interact with the people creating these programs via email and phone in real-time. That is currently unmatched in the Internet world. Unreliability in 3G/4G networks and quality issues with the former will help Sirius to beat out Internet programming. There is also a huge difference in the quality of the programming.

    HOWEVER, Sirius has a huge stake in the Internet, in addition to the satellite market, and I believe they will dominate as they expand online programming. When I get in my car every morning, I turn on my Sirius satellite radio. When I get to work, I tune in online. When I leave, I listen in my car again. Many of my peers do the same.

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