Much has been made recently about the growth of satellite radio, and its impact on conventional stations. But for once the hype is probably understated.

In conventional radio, funded by sponsors, the audience is not the consumer. It is the product – ears to be sold to advertisers, who are the real consumers.

Satellite radio restores the audience to a place at the center of the system, making it into a collection of consumers paying for products (entertainment) that the people themselves want.

The economics of these two systems are very different. There is no correlation between the value an audience member places on the entertainment as entertainment and the value an advertiser places on his ears as a target for advertising. This disconnection leads to all sorts of problems, including lowest-common-denominator effects, and the elimination of market feedback in which consumers direct the programmers’ choices by their willingness to spend money. (See Do You Really Want to be Product?)

Furthermore, it is very difficult to make advertising on conventional radio into anything other than irritating noise, grabbing one’s time and grating one’s ears with pitches for products of no interest. If I listen to satellite radio for four hours a day at a cost of $12.95 per month, I am paying $0.11 per hour. So if a commercial station has 10 minutes of commercials each hour, plus 5 minutes of the same worthless news it had an hour ago, then my satellite radio is charging me about 2/3 of a cent per minute of pain avoided, and giving me the music for free. (As I have said before, don’t tell XM, but it could raise the price a long way before losing me. Unless it goes down the commercials path.)

How does conventional radio compete? With programming? Well, for comments on that score, see The Big Picture, and track the links.