Internet Radio Advertising to Increase Tenfold by 2009

Total advertising devoted to online radio Web sites will grow 56 percent annually over the next 5 years, reaching over $300 million by 2009, according to a report by Borrell Associates.

This year, a total of $30 million will be spent on banner ad placements and $4.5 million on streaming audio ads across online radio sites. Combined, that amounts to roughly $35 million, or 0.3 percent of the $10.5 billion projected to be spent on Internet advertising in 2004.

While that percentage indicates an online advertising channel only in its infancy, consistent growth in audience over the next five years is bound to "significantly" erode traditional broadcasters' ad revenues, said Gordon Borrell, president and chief executive of the Portsmouth, Virginia-based company.

But online radio sites should not expect any sudden surges in ad revenue just yet, he added.

"I don't think there are amazing opportunities in online radio Web sites staring advertisers in the face right now," Borrell said. "Traditionally, the audience gets there first. Almost all of the advertising we're seeing now is national advertising. Local advertisers will hold off till the audience hits a critical mass of around 60 million, which we don't see happening until 2009"

In terms of the online radio audience, the number of regular listeners has grown to 20 million in 2004, exceeding 10 percent of the estimated U.S. Internet population of 189 million. Almost half have tuned in for the first time in the last year.

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Meanwhile, the overall audience (measured in cumulative unduplicated total audience) has increased 40 percent from 2003 to 2004. At the forefront of that increase are the top five online radio sites: AOL, Yahoo, Live365, Musicmatch, and Virgin Radio, all of which recorded audience growth in the last year.

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Some of the newcomers appear to have migrated over from traditional radio broadcasts, which have recorded diminishing listener numbers across all age categories since 1998. The largest losses have been in the 18- to 34-year-old age group -- the same demographic that comprises the bulk of new online radio listeners.

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The report also suggests that while 2,250 local stations have experimented with simulcasting their regular content online, to succeed online such broadcasters will likely have to team with a major portal.

"For the time being, the traditional players, the regular radio stations, have decided they don't need the portals," Borrell said. "But the big three portals can target the whole national audience. What are the local stations going to get online? 20,000 listeners?"