Advertising-supported content has become the dominant business model for the internet, as demonstrated by our (AOL, Time Warner, NYSE:TWX) recent change from a membership-based model. Advertising Age recently released its study of the 100 top advertisers and how they spend their advertising dollars. For all the brouhaha about the internet, traditional print advertising still dominates the marketing plans of the top corporations. A breakdown of 2006 expenditures by ad distribution platform shows --

1. Magazines -- $29.83 billion
2. Newspapers -- $29.80 billion
3. Network TV -- $27.16 billion
4. Spot TV -- $17.23 billion
5. Cable TV networks -- $16.75 billion
6. Radio -- $11.06 billion
7. Internet -- $9.75 billion
8. Syndicated TV -- $4.2 billion
9. Outdoor -- $3.83 billion

also see 2006 Advertising recap II- The big rollers

The merger of Sirius Satellite Radio (NASD:SIRI) and XM Satellite Radio (NASD:XMSR) was supposed to solve a number of the cost, marketing and programming cost issues at the two companies. Rumors about the merger had been in the market for months, but the Monday of President's Day weekend the deal was announced.

Both stocks jumped sharply, but the champagne was barely out of the celebratory bottles when the shares in the companies began to move down. Both stocks have dropped about 10% since January 1.

No one knows for certain what happened, but there are two possible explanations. One is that the concern over FCC and Congressional objections are so severe that the merger will not get done. Both companies will spend millions of dollars and countless hours working on the deal, and it will fall through. Neither company can afford much distraction. It is not as if the stock market has been pushing either company's shares up over the last two years.

The other reason is based on the theory that satellite radio is yesterday's medium. It may have been a good business when the two company's started commercial distribution a few years ago, but new technology has superseded a strong demand for coast-to-coast radio service. To some extent, the is what the companies are arguing to support the merger. They want the federal government to buy the argument that satellite radio is a small island in a large sea that includes everything from the iPod to terrestrial radio.

Unfortunately, the logic behind satellite radio being a small player is probably true, and this makes it the most probable reason for the sell-off in the stocks. Commercial radio is still a profitable business. It is, in essence, self-supporting and tens of millions of people listen to the radio everyday. Even Google (NASD:GOOG) has decided to get into the business of brokering radio time, so there must be something to it.

Other forms of listening to music in cars and on portable devices are doing much better that XMSR and SIRI. The iPod is clearly profitable, and its sales are still growing. WiMax networks from companies like Sprint (NYSE:S) and Clearwire (NASD:CLWR) will give consumers access to wireless broadband and multimedia.

Under the circumstances, it is possible that the satellite radio stocks could fall further. The business model may be that bad.

Advertising dollars are swiftly moving off age-old (emphasis on *old*) platforms like the television and print and onto the Internet. The contemporary radio moguls, like the record and movie industry execs before them, are in denial and are starting to protect their precious turf instead of innovating to keep customers. Innovation is just too hard, you know, so they'll fight all the battles before acknowledging that the war has been lost. A broken record from earlier struggles, really (no pun intended).

Advertising dollars will continue to shift to more relevant mediums or they'll be forced to become more relevant to consumers on the current medium. This is why Google bought dMarc broadcasting -- to inject its success into a dinosaur medium like terrestrial radio and make consumers actually care about listening to ads again. But there are more fires in the kitchen here. Let me give you an example here of a personal nature.

Recently I've tried both XM Radio and Sirius in my vehicle with some of the newer "plug-n-play" radios. While I liked the content on Sirius more (like all the college football games being broadcast!), in the end I chose -- like millions of others, most likely -- to listen to just a handful of stations. When I couldn't find anything on I liked, I switched to a CD. There's the pinch -- trying to be relevant to all listeners all the time is impossible. My solution? Jettisoning both radios for auction on eBay, closing both accounts, buying a new (and dirt cheap) flash-drive MP3 player that plugs into the auxiliary jack on my car stereo and listening to all my music for free, how I want and when I want. I'll even record Internet broadcasts directly into MP3 files to use in the car now. Like I said -- the content I want when I want it (with, gasp, no cost attached!).

Things like audio books and podcasts aren't on satellite radio yet. Now, if I could have purchased some satellite radio stations "a la carte", I would have stayed. But paying $13 per month and not needing 95% of the content was a total waste, I figured. I am sure the satellite radio (and television) execs will cry that a la carte pricing would destroy their companies. This may be true, but using the oldest pricing and business model in the book for content availability is *not* innovative. Hence, my dilemma.

Moral of the story? Relevance to each customer is of utmost importance -- in content, advertising and everything else. Will this force innovation? It better, because with all the talk of content protection and the shifting of ad dollars here and there, the consumer now has more choices than ever.