The U.S. radio industry is grappling with severe financial challenges as it contends with cratering ad spending and a locked-up credit market.

Radio ad revenue growth posted double-digit percentage gains in the late ’90s. But in the middle part of this decade, revenue growth slowed sharply before flattening, pressured by a shift in ad dollars to online platforms and advertisers waiting until the last minute to buy ad spots, which led to lower rates to fill inventory, the media research firm SNL Kagan observed in a recent report.

Now revenue is in decline, with no quick recovery in sight. After slipping 2% in 2007 to $21.3 billion, total U.S. radio ad revenue dropped 9% in 2008 to $19.5 billion, according to data released by the Radio Advertising Bureau.

Local revenue dropped 10% to $13.6 billion; national was down 12%, or $2.9 billion. Network revenue for 2008 was flat at $1.2 billion, as off-air jumped 7% to $2 billion.

Automotive, the industry’s top ad category with 15% of total revenue, plunged 22% in 2008 to $2.5 billion. Radio’s second-largest ad category—comprising communications, cellular and public utilities companies—was down about 10% at $1.7 billion.

In the fourth quarter, local advertising revenue was...

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