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As in any other enterprise, money flows both into and out of radio. Commercial stations take in money from advertisers and spend it on assets such as content programming, often purchasing programming from national network radio. Noncommercial stations are funded by donations, which are then used to cover expenses, including content.

Revenues from Local and National Advertising

About 8 percent of all U.S. spending on media advertising goes to radio stations. Like newspapers, radio generates its largest profits by selling local and regional ads. Thirty-second radio ads range from $1,500 in large markets to just a few dollars in the smallest markets. Today, gross advertising receipts for radio are about $19.4 billion (about three-quarters of the revenues from local ad sales, with the remainder in national spot and network sales), down from about $21.7 billion in 2006. The industry consists of approximately 15,029 stations (4,762 AM stations, and 10,267 commercial and educational FM stations).

Spending for Radio Content

Local radio stations get much of their music content free from the recording industry (although by 2009, the music industry—which has seen a shortfall in its own revenues—was proposing to charge radio for playing music on the air). Therefore, only about 20 percent of a typical radio station’s budget goes to cover music programming costs. When radio stations want to purchase additional programming, they often turn to national network radio, which generates more than $1.1 billion in ad sales annually by offering dozens of specialized services (such as news features, entertainment programs, and music formats). The companies providing these programming services to local stations receive time slots for national ads in return.