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We are, according to Ralph Bernard, the chief executive of GCap Media, on the threshold of British radio's third golden age. The first golden age was radio's first real decade as a popular medium, the 20s.

The second arrived in the 60s when, for a brief period, pirates ruled the waves - even when the likes of Radios Caroline and London were blown ashore, their creative energies lived on as mainstream radio went pop, first at the BBC and then in the first wave of commercial stations.

And now? Well, the new impetus, Bernard stated in a keynote speech to the industry at the beginning of October, is the advent of digital. It is inevitable, he continued, that new technologies will spawn a whole new generation of creative radioheads.

We can only hope he is right and students of the Bernard oeuvre will not be surprised to hear him evangelising about digital - he has been a prophet (and sometimes almost a lone voice) of this for years. Some, however, may feel the tone and timing of his pronouncements were unfortunate, as radio (and especially commercial radio) seems entrenched in its most disappointing phase since the first local independent stations launched in 1973.

Wherever you look, this year's headlines have been bad. Commercial radio's poor audience performance has coincided with a mini adspend slowdown, so the combined effect is that the medium has been punished disproportionately by clients looking to trim budgets. This phenomenon was also amplified by the merger between GWR and Capital to create a new radio powerhouse, GCap. It has not been a success.

The notion was that GCap would lead a consolidated medium into a bright new future. Instead, we are left trying to assess the damage done by high-profile departures, most notably that of David Mansfield, GCap's first chief executive, who led the Capital half of the new company into the merger and was invited to carry the can for the downturn.

All of this has taken place against a background of squabbling about the validity of Rajar, the radio audience research system that forms the cornerstone of trading in the ad market. Kelvin MacKenzie, the former boss of talkSPORT, may no longer be in the industry following Ulster's purchase of his company, but his sustained attacks on Rajar damaged confidence in the medium.

There have been some bright spots, obviously. In September, Emap said it expected its radio division to buck the trend, with revenues predicted to be 2 per cent up year on year for the first half of its financial year, adding that forward bookings continued to look reasonable. But that barely offsets the red ink at Chrysalis in the spring, when it reported a 12.5 per cent decline in revenues for March and April; or at Capital, which had no sooner merged in May than it was revealing that April revenues were down by 17 per cent.

How on earth did radio, quite clearly the medium with the best prospects a decade ago, get itself into this pickle? Nick Hewat, the sales director of Virgin Radio, says it is not too hard to work out. He comments: "I think most of us understand why the radio medium isn't quite so cool these days - it has had some pretty poor press. You can't have people knocking your audience measurement system for two years without that having some effect on the way you are perceived."

He has a point. And it's not just MacKenzie who is to blame. Having closed ranks against MacKenzie for years, GCap, Chrysalis and Emap began to squabble with each other and Rajar in August, after a perplexing set of audience results for London (Heart, for instance, dropped from top dog to third). Phil Riley, the Chrysalis chief executive, normally a staunch defender of Rajar, admitted it was "stretched to its limits".

One thing is clear - the third golden age of radio will be stillborn if the only way to measure audiences is to use the existing system of quarterly self-completion diaries. Rajar keeps insisting it is making progress in this area, although some critics say a sense of urgency is lacking.

But it may also be true the debate about electronic audience measurement and the digital future may be blinding the industry to bigger problems.

The simple fact, surely, is that commercial audience growth has stalled.

The BBC is performing strongly by dominating the middle ground with Radio 2 and exploring the outer limits of radio's audience with new national digital stations such as 1Xtra and BBC 7.

The BBC continues to take 54 per cent of listening, with the commercial sector on 44 per cent. In audience terms, the perception is that the commercial sector has run out of momentum and, perhaps more worryingly, of ideas as to how to change the situation.

Bernard and the digital evangelists may well theorise about a new wave of creativity that is about to propel commercial radio to bigger and better things but as yet there is little evidence of new ideas. The biggest new analogue licence to come up for grabs this year - in Manchester - was won by Xfm with a promise to play 80s Manchester bands.

Hewat argues that consolidation will eventually deliver the goods. He states: "It has been a bit like politics, with everybody trying to occupy the middle ground because that's where you can maximise audience and ad revenues. But it has meant lots of stations competing head to head for the same listeners. With consolidation, a media owner can still hold the middle ground while having sub-brands that can go out in different directions and seek new audiences."

The good news, he says, is that when people purchase a new digital set, their listening goes up by 17 per cent. If commercial radio can take the lion's share of that new listening, it will be well on the way to recovery.

So the equation seems relatively simple: digital distribution plus better audience research multiplied by consolidation equals renewed growth.

And interestingly, we have seen a shift in the industry's balance of power over recent months. With GCap stumbling so badly, many agencies and advertisers now believe Emap is the media owner best placed to lead commercial radio to recovery. After all, it too has been pushing forward, not just on the digital front (the UK's five most listened-to digital radio brands are all Emap properties), but also in terms of consolidation - in the summer, it acquired Scottish Radio Holdings.

Howard Bareham, the head of radio at MindShare, says he is not in any position to endorse that theory. In fact, he argues that life will continue to be tough for all media owners in the radio sector. He concludes: "Other media are becoming better organised. Radio companies with strong stations - the ones that are continuing to invest long term in their brands and the ones that have strong sales forces - will be best placed. But radio revenues continue to be weak - and I can't see that changing in the foreseeable future."

THE TRUTH ABOUT DIGITAL

Not so long ago, futurologists believed that digital media consumption was going to be good for radio in all sorts of ways. Digital transmission meant increased capacity, while new services (especially new national services from strong brands) were expected to increase listening. The last time there was big expansion in new services, around a decade ago (the era when Virgin Radio and Classic FM launched), commercial's share of audience leaped forward. The same was expected to happen again.

And then there was the theory that when people surfed the internet in the evenings, it would be increasingly natural for them to listen to the radio as they did so.

Digital has also expanded the number of platforms on which radio brands are available. Emap, for instance, has been very successful in developing a presence for its brands on cable, Sky Digital and Freeview. Listening via the internet has become an increasingly important outlet for all broadcasters.

Then there was the podcasting phenomenon. Increasingly, we were led to believe, people were prepared to download non-music audio content from the internet on to their MP3 players for time-shifted listening on the move. This had to be seen as a golden opportunity for established media owners.

So much for theory. Podcasting doesn't look like becoming a serious mainstream activity; increased internet usage is not noticeably increasing radio's listening figures and digital radio over the airwaves has yet to capture the public imagination.

Simon Blackburn, the head of radio at Media Planning Group, says the potential continues to be exciting. But he adds: "We must also be realistic, though. Industry experts predict that one in three households will own a digital radio set by the end of 2008."

In the television market, the digital issue is being forced by the imminent reality of analogue switch-off, beginning in 2008. Tellingly, there are no such plans for radio to go solely digital.

A report commissioned in August by the Digital Radio Development Bureau and led by the former culture secretary Lord Smith of Finsbury, agreed that this was unfortunate but concluded that the transmission infrastructure does not yet cover enough of the country. Also, there has not yet been enough airwave spectrum allocated to the medium to allow local and regional stations (and, after all, there are hundreds of them, in an intricate patchwork across the country) to switch to digital in their entirety.

This is, of course, as much a political issue as it is one of financial resources - but while this situation persists, it is rather difficult for radio to project itself as a leading-edge medium in the 21st century.

Howard Bareham, the head of radio at MindShare, believes the industry should not pin too much hope on digital riding to its rescue in the short to medium term. He states: "I think perhaps some people have been over-optimistic. Sometimes we expect people's lives to change overnight when, in fact, all we are looking at is the behaviour of a few early adopters. By and large, we are still listening to radio in the same sorts of ways, in the same sorts of situations."