After several years of being whacked by an ad spending slowdown, local radio stations will see some relief over the coming few years. But they will never regain the revenue growth of earlier times, and that will happen despite their best efforts to become more attractive to advertisers.

That is less a reflection on the value of local radio as it is of a local marketplace that's become so much more competitive for advertising dollars, especially from the internet and local cable television.

That's the conclusion of a new study from BIA Financial Network, the media research outfit.

BIAfn is forecasting local radio ad spending to increase 0.8 percent this year over 2005, when expenditures rose only 0.5 percent, the result in good part of Clear Channel’s Less is More initiative to reduce commercial clutter. Reduced inventory worked to hold down total revenues.

But in 2007, BIAfn is predicting revenue will grow 2 percent and pick up from there, rising to 2.5 percent in 2008, 2.6 percent in 2009 and 3 percent in 2010.

Mark Fratrik, vice president of BIAfn, says a number of factors are holding down growth. One is the loss this year of syndicated radio host Howard Stern to Sirius, the satellite service, and another is Less is More and its effect on inventory, though as he notes much of that effect was felt last year.

But Fratrik says another worrisome factor is that many advertisers have come to perceive radio as an outdated medium and less attractive than newer media.

“There’s a concern about the effectiveness of radio advertising because younger people aren’t listening to it as much,” he says. “There are new audio competitors, whether it’s iPods, satellite radio or the internet. There’s also increased competition from local cable systems, which have cable networks that are very [demographically] targeted, similar to radio formats.”

Local radio has been hurting for some time, really since the ad recession. In 2000, revenues grew 11.4 percent, only to tumble 7.8 percent the following year.

Ad-tracking firm TNS Media Intelligence reported in September that ad spending on local radio dipped 1.5 percent on a year-to-year basis for the period January through June. National spot radio slipped 1.4 percent and network radio was about flat at down 0.6 percent.

The Radio Advertising Bureau this month reported that ad revenue through third quarter this year was flat to the year-earlier period. Local revenue is down 2 percent while national revenue is up 2 percent.

By contrast, newer local media are seeing dramatic growth as advertisers shift dollars. Ad spending on local cable this year is projected to increase 19 percent, to $4.3 billion, according to researchers at Kagan. And Borrell Associates is projecting local online ad spending will surge 31 percent next year, to $7.7 billion.

“There’s a lot going on,” says Fratrik. “It’s a more competitive audio marketplace as well as a more competitive advertising marketplace, which is very frustrating for radio stations.”

Taking all that into account, local radio's rising revenue forecasts are downright encouraging. And in the meantime, as Fratrik notes, the radio industry is making changes to make radio more attractive to advertisers.

One is better local ratings. Arbitron is ditching the paper diary method the radio measurement service has used for decades in favor of an electronic system, the Portable People Meter. Media buyers have long said the diary system was flawed. Arbitron will replace the diary with the PPM in top markets.

Arbitron will install the Portable People Meter next year in New York, Los Angeles, Philadelphia and likely Houston, where a test of the PPM is underway and awaiting accreditation. The remaining top 10 markets will be switched in 2008, and by 2010 the system will have spread to the 50 largest markets.

Another industry initiative is better research. Since 2001 radio stations have been funding the RAB’s Radio Ad Effectiveness Lab (RAEL) that is developing research studies to support local ad sales teams.

And Fratrik says the ongoing rollout of high-definition radio may spark revenue growth by expanding the number of stations available in each market.

“The long and short of it is that radio has to compete more effectively and win back some younger people,” he says. “HD, in the long term, can help the industry with improved fidelity and increased formats. But, over the short term, radio will be challenged to see a rebound."