Dear Radio Executive:

So, it looks like the automobile will be the battleground where AM and FM face off against Satellite Radio, Internet Radio, MP3 Players and cell phones. How might that turn out?

According to a recent Bridge Ratings study, Satellite Radio will have 35 million listeners by 2010. Listening statistics indicate that 94% of the US population listen to terrestrial radio - that's 279 million.

What we don’t know is how many of Satellite Radio’s future 35 million will be skimmed off the top of current traditional listeners. Being conservative, even if half of them came from the terrestrial radio between now and 2010, then there'd be 35 million Satellite listeners and 261.5 million listeners of AM/FM. That would mean terrestrial radio may stand to lose 6% of its audience over the next 5 years.

6% or 17 million sounds substantial to me – but not significant enough to create a revenue problem from advertising for terrestrial radio.

MP3 players and cell phones don't pose as much of a threat in the overall scheme of things because we are discovering that behavior and use of these entertainment sources is different from the experience of what we call "true radio listening". A new Bridge Ratings study indicates that MP3 players and cell phones chip away at radio time-spent-listening, but users of these technologies are more likely to return to terrestrial radio for its programming variety, its personalities, the convenience of its music screening and its familiarity and comfort.

We are finding that there is a very different type of person subscribing to satellite radio compared to those that do not subscribe and do not INTEND to subscribe.

Subscribers to satellite radio are generally "innovators" and "early adopters" of new ideas and technologies. Combined, these two categories of consumers compose 16% of the population. 16% of the current U.S. population (297 million) is around 35 million. Are you seeing a trend yet? The majority of Americans who have indicated they do not intend to subscribe to satellite radio fall in to the remaining categories of the innovation adoption curve:

• The Early Majority
• The Late Majority
• Laggards

These three groups combined total 84% of the U.S. population. After an initial market penetration, satellite radio will have to work even hard and put more marketing resources to work in order to penetrate these last three groups. And that's not taking new technologies which may enter the scene such as nationwide or even city-wide WiFi technology which will not only be satellite radio's real threat, but it will also challenge terrestrial radio to be the "best it can be".

Today, in 2006, terrestrial radio's greatest strength is its individual brands. Whether it's WABC, JACK, Smooth Jazz or POWER 106, the brands that radio has created over the years will be very difficult to displace. The multitude of satellite radio's channels which are primarily recalled by channel number - not name - and the thousands of internet radio stations which have virtually zero brand recognition, will have to unravel their brand dilemma. For terrestrial radio has had a tremendous head start from years of expert programmers and marketing people putting their brands out there through television, print, blimps and t-shirts to name a few. That's the good news.

The bad news is the budgets that created these brands? They're being slashed - even today. The pressure on the radio industry continues to come from Wall Street and as you likely know all too well, if there are budgets to cut, the "fat", if you want to call it that, comes from marketing and promotions and research. The two budget lines our industry can ill-afford to be without.

In a period of convergence of all this new technology distraction for terrestrial radio's listeners, 2006 should be the year the industry re-establishes its fire for branding its stations with the knowledge that branding is likely to save our skins.

Your feedback is vital to our company's on-going success. I look forward to hearing from you.

Sincerely,

Dave Van Dyke

President