From satellite to podcasts, programming is exploding -- but the fight for
profits will be ferocious.

How fast is technology turning radio upside down? Ask Brian Ibbott. Last
September, when the wannabe Denver deejay started playing music on the
Internet, the term for what he was doing -- podcasting -- had been around
for two weeks. These days the 35-year-old produces a half-hour show of
popular songs called Coverville. Some 9,000 devotees download it three times
a week to play on -- what else? -- their iPods. And if they tire of
Coverville, they now have 3,500 other podcasts -- and counting -- to choose
from.

For all the hullabaloo it's generating, podcasting is not even close to
being a business yet. While startups such as Odeo and The Podcast Network
are providing technological support and creating a podcasting network, right
now Ibbott has barely enough ads to cover expenses, and most podcasters work
for free.

Maybe a few will come up with a way to make a living doing it. Maybe not.
Regardless, a trend is afoot that could transform the $21 billion radio
industry. Consider the basics: With no licenses, no frequencies, and no
towers, ordinary people are busy creating audio programming for thousands of
others. They're bypassing an entire industry.

The digital revolution took its time getting to radio. Now it's exploding --
and the big bang goes far beyond podcasting. As radio shows are turned into
digital bits, they're being delivered many different ways, from Web to
satellite to cell phones. Listeners no longer have to tune in at a certain
time, and within range of a signal, to catch a show or a game. As the
business goes digital, the barriers to entry -- including precious
airwaves -- count for less and less.

A host of new players is piling in. They include satellite-radio upstarts XM
(XMSR ) and Sirius (SIRI ), new-media giants such as Yahoo! (YHOO ) and MSN,
and regular folks like Ibbott.

Traditional radio powers are already feeling the pain. On Feb. 25, Viacom
(VIA ) announced a $10.9 billion write-down in assets at its Infinity
Broadcasting division, a clear signal that earnings prospects were dimming.
A day later, Clear Channel Communications (CCU ), the nation's largest radio
chain, took a $4.9 billion writedown on its radio licenses, although the
company says it did so to comply with a new Securities & Exchange Commission
requirement to value its businesses.

Whatever the reason, there's no denying a stark reality: Listeners,
increasingly bored by the homogeneous programming and ever-more-intrusive
advertising on commercial airwaves, are simply tuning out and finding
alternatives. Says Rishad Tobaccowala, chief innovation officer at Publicis
Groupe Media: "Radio ****ed on their own product and then cluttered it up."

The industry tumult comes down to a simple phenomenon. As digital forms of
radio proliferate, listeners will enjoy an abundance of new programming --
but much of it still lacks a proven business model. What's more, even tested
radio businesses could see ad revenues wither as new rivals snatch away
listeners. No one is saying commercial radio is going away: It still draws
more than 200 million listeners a week. The industry "is challenged, but not
dead," says Laraine Mancini, an analyst at Merrill Lynch & Co. Still, the
biggest fear, for old-timers and newcomers alike, is that even as audio
programming grows by leaps and bounds, ad dollars will shrink.

For radio to make money, execs must be as innovative with the business model
as they are with technology. Satellite is losing money, but its subscription
approach is expected to pay off in a couple of years. Now, Net radio players
and cellular services are experimenting with subscriptions, too.

It's possible to imagine people paying monthly fees to hear
programming-on-demand on the phone, PC, or in the car. Listeners could buy a
song they hear on the radio with the click of a button. Companies could sell
subscriptions and place ads inside customized traffic information, weather
reports, or sports tickers. "This is the tyranny of choice," says Fred
Jacobs, founder of radio industry consultant Jacobs Media. "Companies need
to rethink the competitive scenarios and take risks."

As old-fashioned radio struggles, listeners are creating the future. In just
seven months, podcasts have appeared, covering subjects from Delta blues to
vegetarian cooking to consumer gadgets. Podcasting is growing on the backs
of two trends in the tech world: the proliferation of blogs -- scores of
which are becoming informal radio stations -- and the growing popularity of
mp3 players, including, of course, Apple's iPod. Much like television's TiVo
(TIVO ), podcasting gives users the chance to listen to their programming
whenever and wherever they want it.

Already the forces of commercialization are circling. Entrepreneurs are
offering software and services to help podcasters turn out more polished
shows. Advertisers such as Volvo (F ) are sponsoring podcasts. And
traditional radio stations, such as the British Broadcasting Co. (BBC) and
National Public Radio (NPR) station WGBH in Boston, are launching podcasts.

"One of the reasons to do this is because we don't know what it will add up
to," says Ruth Seymour, station manager at NPR station KCRW in Santa Monica,
which on Mar. 1 began podcasting 22 shows. For now radio stations aren't
charging for podcasts, hoping instead to lure more listeners nationally.

If podcasting is for now more of a potential threat to traditional radio,
satellite is already drawing blood. While the two players, Sirius and XM,
aren't expected to turn a profit until at least 2008, they have lined up
high-priced programming talent and are making an aggressive play for the
classic car-radio market. But drive-time radio isn't their only goal:
They're stepping up marketing of handheld receivers that allow people to
record shows and are placing programs on desktop programs such as
Microsoft's (MSFT ) Media Player. "Satellite-radio companies are at the
beginning of their growth curve," says XM CEO Hugh Panero.

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