Don't bury terrestrial radio. It's not dead yet. Well, at least it thinks it's not dead yet. In an ambitious move to carve out new business models, a consortium of radio station operators, led by Clear Channel
You are welcome to check out the first 75 channels of this bold initiative to combat the growing popularity of satellite radio and portable media streaming. Clear Channel is hoping to serve up these channels -- and then some -- through rival broadcasters, Internet radio, and multicasting.
Multi-what?
Multicasting is part of the HD Radio offering, in which specially equipped radios can play more radio channels by splitting up specific broadcasting frequencies. Even though that is likely to be a limited market for several reasons, the specialized content should make it easier for advertisers to reach their ideal audience.
Yes, ads will be a problem here. Even if they are geared to be less intrusive than in conventional radio, there is a price to pay when enjoying free radio, and it's the sponsors who will pick up the tab. That may make it a hard sell for the 10.5 million subscribers who have turned to either XM Satellite Radio
It's not as if satellite radio is perfect. You will still find a few premium channels with chatty disc jockeys and too much time spent pitching what's going on elsewhere around the satellite radio dial. I'm guessing those days may be numbered, since XM and Sirius receivers already display the songs that are playing and the next generation of radios will be more interactive. In other words, if you like a song, you will be able to press a button and it won't be long before XM and Sirius create e-commerce-friendly pages that will allow you to dock your receiver to an online connection that can not only band information, discography, and lyrics but also has the ability to purchase the songs digitally or through an online retailer. Superfluous DJ banter may never go away entirely, but it's becoming less necessary.
In its present form, Format Lab is pretty nifty. It's designed much like the music channels at XM and Sirius. Unlike dreadful terrestrial-radio drivel, it's not the same dozen songs in heavy rotation playing over and over again.
If the ultimate product runs lean on advertising, Clear Channel has a hit here, though it ultimately adds up to a poor man's version of satellite radio. As a product that can be streamed online, it faces a boatload of competition from countless specialized music stations. The product will be able to stand out in the terrestrial crowd, but is that crowd worth marketing to?
Survival of the hit fest
The key to survival in terrestrial radio is to aim where satellite radio can't. Deeper playlists through narrower genres is nice, but as long as a station is subsidized by ads, it won't hold up to satellite radio. That leaves the local market. XM and Sirius may have been able to offer up channels for localized traffic in key metropolitan markets, but it will never be able to offer the plethora of local talk, sports, and news.
On the musical side, that also means embracing local artists. The economics will have to change, because the listening audiences will only keep shrinking as satellite radio continues to snag the most rabid listeners. Beyond satellite radio, you have the Apple
Conventional radio used to own the commuting market, but now new cars are fitted with satellite radio receivers, and some even make it easier to play your iPod through your car radio. These trends have spooked the major record labels in terms of CD sales, but the shift in listening habits also has to be troubling to FM and AM radio operators.
If a radio station is offering something so cookie-cutter that it can be duplicated nationally, it won't matter how many multicasting frequencies can be split into the updated radio dials.
Sunlight through the clouds
The fact that companies like Clear Channel and Cumulus Media
This doesn't mean that old-school radio will matter the way it used to. It will mean only that terrestrial radio is embracing new realms that may come with smaller moats but a wider set of revenue streams.
Five years from now, the music listening experience is going to be far different from what it is today, just as today's climate is radically changed from the way things were five years ago. Taking the time to ponder the possibilities -- and go out on a limb to predict winners -- is a noble growth stock investing strategy. It's this kind of thinking that dominates the Rule Breakers newsletter team, which I'm proud to be a part of. Of the stocks mentioned above, XM is already an active recommendation, and I wouldn't be surprised to see more from that list in the coming years.
The future never sounded so good. You just have to take the time to listen.
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Longtime Fool contributor Rick Munarriz is a Sirius subscriber, but he does not own shares in any of the companies in this story. T he Fool has a disclosure policy.
