Digital audio formats, like satellite radio, online radio, and podcasting — subscription-based programming that is pushed to MP3 players — are creating new business models and opportunities in radio and the music industry. According to “The Future Of Digital Audio,” a new report from Forrester Research, Inc. (Nasdaq: FORR), 20.1 million US households will listen to satellite radio, and 12.3 million US households will use their MP3 players to listen to audio podcasts by the end of the decade.

“Consumers want to listen to what they want, when they want, on the device of their choosing. New formats like online radio and podcasting, where downloadable content is sent directly to an MP3 player, give consumers more programming and ultimate flexibility,” says Forrester Research Vice President Ted Schadler. “If radio and music executives can successfully shift their thinking to embrace new audio delivery methods, both industries will benefit from new revenue streams and increased consumer loyalty over the next several years.”

To succeed in today’s fragmented, consumer-driven market, radio should take note of the lessons learned in the TV industry when cable entered its programming mix. According to Forrester, music and radio executives must adopt subscription-based models, on-demand delivery, and ad targeting strategies for radio to successfully maximize its new formats. For example, in addition to rolling out high-definition (HD) radio, broadcasters like Clear Channel and Infinity Broadcasting should move quickly to both ad- and subscription-supported online delivery and subscription-based programming and services to HD receivers to accommodate varied consumer demand.

The radio industry will also contend with increased ad skipping as the adoption of TiVo-like digital radio recorders (DRRs) increases. Improved ad measurement capabilities online and offline will ease some of the ad industry’s concerns by enabling it to target specific listeners.

“The Future Of Digital Audio” includes a forecast of US digital audio adoption from 2004 to 2010. Sample data points and analysis include:

  • Satellite radio reached 4.5 million subscribers by the end of 2004, up more than 150 percent from 2003. In order to grow steadily beyond 2010 — when satellite’s prime market segment (higher-income, entertainment-oriented, technology-optimistic households) will become saturated — satellite radio providers should consider offering multitier subscriptions to reach the more than 85 percent of US households that fall outside this wealthier, early-adopter segment.
  • Online radio (streaming audio) will continue to grow as portals like AOL, Yahoo!, and MSN increase programming and traditional broadcasters move portions of their programming online, reaching 30 percent of all US households and close to 50 percent of US households with broadband by 2010.
  • Podcasting, which is the newest entrant into the digital audio mix, will see significant growth by 2010 — reaching 12.3 million households — as MP3 adoption climbs and broadband reaches 62 percent of households.
  • HD radio will bring high-definition broadcasting to AM/FM radio, offering additional programming and features like traffic information integrated with onboard navigation systems and program guides that give DVR-like control to radio. HD radio growth will lag satellite but will pick up speed as broadcasters embrace the technology and HD receivers drop in price. Forrester estimates that HD radio will reach 9.7 million US households by 2010.

“The Future Of Digital Audio” is available to WholeView 2™ clients and can be found at