As terrestrial radio ad dollars continue to shrink, the adoption of online radio by listeners and marketers will push the web side into double-digit growth over the next few years, a report by SNL Kagan says. This year, the researcher expects the space to hit $441 million, up 12 percent from $394 million in 2008. It is likely to peak next year, as SNL Kagan projects an annual online revenue growth rate of 20 percent in 2010 to $530 million. Meanwhile, total radio revenue was up a mere 2 percent in 2008 and the digital part of the business is projected to be just 2.7 percent of total radio revenues in 2009.

In general, the ad movements have not been as dramatic in the radio space when compared to TV and newspapers. Unlike newspapers, which has relied on circulation to at least some extent as part of their revenue stream, radio typically relied solely on sponsorships. So the rising growth rates for online radio have a great deal to do with the wider swings that online advertising has been taking. While most analysts predict that online ad revenue will recover next year, if the dollars don’t return as expected, that could also blunt streaming radio’s gains as well.

And as the chart above shows, it will take a much longer time for online radio to begin to approach the kinds of money that traditional stations attract. Still, as those dollars shift to online, stations will likely create networks similar to the Yahoo (NSDQ: YHOO) Newspaper Consortium to help make up for the lack of balance between terrestrial and web dollars. No matter whether SNL Kagan’s view is too optimistic or pessimistic, most observers of radio revenues say both online and offline ad dollars are expected to remain a very small piece of the total advertising pie.