My buddy Walt Koschnitzke posted a story yesterday on ASB about a new internet radio device that will use Wi-Fi and be able to pick up thousands of internet radio stations. When you couple it with the advent of regional broadband access, it will likely be bigger than XM and Sirius in terms of changing the way we listen at home and in our cars.

So, what’s a local radio station to do? In the very small markets, the station’s lament has always been that the FCC only gave us one AM and one FM license. How will I possibly compete?

Here’s my suggestion: Audio servers don’t cost near as much as FM transmitters, lawyers and engineers. Buy more audio servers. Keep broadcasting your mainstream formats and then start integrating your locally-produced content into niche format internet-only streams.

If I prefer classic country, but I like hearing local news and weather, you could produce such a stream and insert local ads as well. It’s a new revenue stream that’s just an upsell to your existing advertisers. You should also be able to measure it more accurately than your broadcast stations. You should be able to get incremental revenue out of your advertisers on a cost-per-listener basis. Use the adwords model and charge just a few cents per listener. What advertiser would refuse? 

How about a stream that just re-plays your local sports broadcasts? Edit them down to eliminate half-time and excessive time-outs and insert local sponsorships (these can even be different sponsors than on the original broadcast).

If you stick to your locally produced content and locally produced commercials, you also eliminate the sticky mess of union agreements on the talent side of the national ads.