The joy of 6: Who says digital radio is dead?

This is The Steve Show," says Stephen Merchant as Kate Bush's "Cloudbusting" draws to its breathy conclusion. "I'm with my little gang of cronies here – we've got Harry, Dan, super-posh Rufus and Sammy from the North." He considers this. "We have to reduce everyone to one simple identifiable Viz-style characteristic. The concept of a personality is difficult to grasp in the modern, fast-paced world; people are probably listening to this while downloading ringtones and watching Pimp My Ride..." Sunday afternoon in BBC Western House in London's West End and Merchant's weekly programme on the digital station 6 Music is in full swing.

Motoring along on the comedian's Force 10 wit and sparkle, the two-hour show crams in an in-studio performance from acclaimed teen folk singer Laura Marling, an interview with award-winning journalist Nick Davies on his newsroom exposé Flat Earth News and a merciless dissection of the sub-Heat weekly magazines with the aforementioned "cronies" – a sort of Steve Wright in the Afternoon posse, with MAs.

"When you flick through the pages and see a headline like 'I Tried to Hack Off My Own Head'," Merchant notes of Love It!, "you know you're going to be in for a dynamite read for 65p." Then he plays "Grounds for Divorce" by Elbow.

"We're not trying to be wacky or do a comedy show," Merchant, 33, later explains. "We're just a gang of friends chatting like we would in the pub about music, gigs, culture, the news or whatever. Hopefully, the show has a bit of meat on the bone as well, so you'll learn something interesting from an interesting guest. Or at least hear a song you like by an artist you've never heard of. I think 6 Music fulfils a need that's not met by any other national music station."

This month has been a turbulent one for digital radio, with Britain's largest commercial radio company, GCap, pulling the plug on many of its digital radio investments, saying that take-up of the new medium is too slow to make it profitable. Some pundits believe this sounds the death knell for Digital Audio Broadcasting (DAB). Yet 6 Music is on a roll. The station, which celebrates its sixth birthday in March, posted its second consecutive record listener figures last month – up 110,000 year-on-year, to a small but significant half a million. In 2007, it was nominated for Radio Station of the Year at the Music Week Awards, recognition to sit alongside a previous win for Best Digital Radio Station at the Digital Music Awards.

So what is 6 Music's secret? And does its success suggest that the demise of digital radio has been somewhat exaggerated? Let us look at the history. As the first national music station to be launched by the BBC for 35 years, 6 Music's remit was unapologetically niche: devised to appeal to the trainspotterish "albums and archive" demographic – listeners unsatiated by the BBC's more mainstream pop offerings. Initially, this meant DJs such as Stuart Maconie playing the latest indie bands, repeats of classic (not to say, cheap) concerts from the BBC vaults and reruns of John Peel sessions: a sort of NME-meets-Mojo hybrid, served up with blokey Never Mind the Buzzcocks bonhomie. '

"People did criticise it for being too blokey," Lesley Douglas, 45, controller of 6 Music and Radio 2, explains in her Western House office. "But if you launch something that's absolutely about music then it's always going to be male-skewed. Radio 2 is about entertainment and music, Radio 1 is about youth and 6 Music is about music for music's sake."

So far, so Nick Hornby. But 6 Music dovetailed with a resurgent UK music scene: iPods, downloading, a boom in concert-ticket sales and summer festivals. Endorsement from the big names (Radiohead hosted for a week), an emphasis on "user-generated content" (putting great stock in listeners choosing records – for the whole show, in the case of Listener 6 Mix) and a gentle broadening of the DJ line-up to include names such as affable comedians Adam & Joe, Shoreditch scenesters Queens of Noize plus Stephen Merchant, all helped spread the word.

Then there was Russell Brand. Given an early crack at presenting in 2005 by Douglas, a stand-up devotee, the emerging lothario repaid the favour by immediately informing listeners he'd once kept boredom at bay while working in a double-glazing factory by pleasuring himself with a Henry vacuum cleaner. Audience figures responded accordingly: one report suggested Brand was responsible for spiking the BBC's entire digital audience by 40 per cent (he "graduated" to sister station Radio 2 in 2006). Hardly enough to give Chris Moyles sleepless nights, but enough to suggest something interesting was going on elsewhere on the airwaves. "It was an enormous display of faith from Lesley," Brand says. "I was given incredible, almost irresponsible, freedom and enjoyed it enormously. It was a lovely station to work on. I learnt an awful lot."

"I think the point that people started to think it could be more than 'music experts' was when Russell came in," says Douglas. "It shifted the image."

Stephen Merchant's programme is typical of this more inclusive attitude. "My show is for people like me, who like discovering different kinds of music but are intimidated by the sort of DJs who sneer at you," he says. "I wanted my show to reflect how I discover music: through recommendations from friends. I've played both The Monkees and Arctic Monkeys in the same show, plus 1970s singer-songwriters and 1990s hip-hop. That's what you find on my iPod." So while 2002's launch line-up might have been culled from some dispiriting Channel 5 music quiz – featuring, as it did, Sean Hughes, Phill Jupitus, Craig Charles and Suggs from Madness – today's roster is more convincing.

Breakfasts at 6 Music belong to Shaun Keaveny. The former XFM DJ and card-carrying Lancastrian (show strapline: "The aural equivalent to a bacon butty") helms the all-important flagship show with a winning mix of world-weary good humour, congenial listener interaction and a tendency to play Queens of the Stone Age's noisy ode to narcotics, "Feel Good Hit of the Summer", before 8am.

This morning, producer Louise Orchard gets Alan from London's East Dulwich on the phone. It's time for "Toast the Nation", a regular slot where listeners nominate a song after flagging up points of local trivia, the more mundane the better. Alan mentions a neighbour's concrete house that's "architecturally interesting". It's not entirely clear whether he has understood the slot's intended irony.

Later, there's an extended comedy of errors when Keaveny plays a clip from TV's Ashes to Ashes, introducing it as first Masterchef then Life on Mars before finally getting it right. "The worse this show gets, the better I feel," he beams, off-air. "I'm starting to get a buzz off it." Tom from Sheffield emails in. His reassurance is perhaps emblematic of the good-natured relationship between Keaveny and his listeners. "I know you're having a hard day but I've just switched over to listen to Wogan," he advises. "And he's being equally shit."

The way we listen to radio has changed. These days, a "radio" need not be involved at all. Some 8.1m Britons now listen to broadcasts online each week, according to the first survey into such habits, unveiled in January. Plenty more listen through the TV after Freeview (which includes some 25 radio channels) took off on the back of cheap set-top boxes. Meanwhile, the advent of DAB not only ushered in better sound quality, but more efficient use of airwaves meant potential for hundreds more stations catering to all sorts of tastes.

Previously, the BBC's dominance of medium wave and FM with Radios 1 to 5 meant only a handful of commercial stations – Classic, Virgin – could compete on a nationwide scale. The ability to "listen again" via the web has also levelled the playing field, creating all kinds of new demographics. "I get a lot of people who say they're listening at work on a Monday morning," says Stuart Maconie, whose 6 Music show Freak Zone airs on Sunday evenings. "These days, people can be at their computers and listen to me on headphones. Modern technology, "time-shifting" – all that stuff – increasingly means everything we used to know about radio is wrong. All bets are off. The era when 9m people would be listening to Simon Bates' 'Our Tune' at the same time has gone forever. That's exciting."

Meanwhile, digital radios, sales of which had stalled due to price, have quietly become our new favourite gadget. A record 550,000 sets were sold in December alone – John Lewis on London's Oxford Street announced they were flying out faster than iPods. Sales are expected to reach 9.1m by the end of this year. A 2007 report by regulatory body Ofcom suggested the digital format had finally come of age, saying it expected half of all radio listening to be digital by 2012 and about 90 per cent five years later. With plans to review medium wave and FM in 2009 and 2012 respectively, it implied that neither was likely to be around by 2020.

Others suggested this was Ofcom's wishful thinking: if the Government succeeds in turning all the FM frequencies into more bandwidth-efficient digital ones, it could flog off the extra space to users such as mobile TV. This month's GCap closures make that seem rather less likely: digital has succeeded in splitting the industry.

And DAB remains firmly in the minority, accounting for around 10 per cent of all listening – well below the 80 per cent of UK households that now own a digital TV. One radio CEO has even branded digital the "Betamax of radio". Further challenges will come from internet stations such as Last FM, which create playlists tailored to listener tastes.

So, despite the public's enthusiasm for buying the hardwear, is a station such as 6 Music simply bucking the trend? Or does it represent the future? One factor is the BBC's clout, both in terms of bringing marquee names to digital, and then being able to promote those names. Put simply, it's hard for the commercial world to match that.

"The commercial side is going through a consolidation process," says Mandy Green of the Digital Radio Development Bureau. "Often, they just don't have the marketing to get people excited about their new stations. They're not able to cross-promote in the way that the BBC can. You'll find a station like 6 Music is storming away because it gives you a unique proposition: that content and those presenters you can't get anywhere else. Content is king when it comes to digital radio." Unsurprisingly, the BBC, along with Channel 4 and others, remain convinced DAB represents the future. Later this year 4 Digital will usher in 10 new stations.

Saturday afternoon in Western House and Queens of Noize are prepping their show The Sonic Safari. Each week there's a theme. Since the "indie girls about town" have just returned from a holiday in Kingston, today is Jamaican music day. Their programme aims to be part musical education, part window into the lives of two livewires whose combined CV includes booking acts for Shoreditch's 333 club, DJing at Kate Moss's Topshop launch and inspiring Razorlight's "Golden Touch" – best mates whose thick-as-thieves eminence was sealed last spring when they "married" in Vegas.

"We have best-friend giggle issues on air," confirms Tabitha Denholm, 33. "We're so used to chatting to each other you sort of forget you're on the radio. The amount of times we've had to cut to a record and go into different rooms to calm down..."

"I think we bring light-heartedness and an obvious opposition to the blokeyness," says Mairead Nash, 25. "To be into music, you don't have to be serious. Plus, we've got good access to bands cos we're directly involved in [the scene]."

They play a pre-recorded interview Tabitha has conducted with revered reggae producer Winston Riley. While it plays, and off-air, Mairead detects a certain over-enthusiasm in the voice of her DJ partner. "Alright, Nicey!" she chides, referring to the Harry Enfield and Paul Whitehouse caricatures of the Tony Blackburn/Mike Read school of bonkers DJ mateyness. "We're not fucking Magic Radio!" Perish the thought.

Lesley Douglas declares herself rightly chuffed with 6 Music. "I love the line-up we have," she says. "I don't think I'm going to be pulling it apart in the near future. The thing I'm proudest of is that it's found its own identity." Pushed, she says she wouldn't mind finding room for Never Mind the Buzzcocks host Simon Amstell. "I think he's a superb presenter and exactly the sort of person who fits 6 Music."

In other words, no longer niche but in no danger of becoming mainstream (Keaveny: "It will always be more Groucho Club than All Bar One..."). With digital radios flying off the shelves on one hand and commercial stations closing left, right and centre on the other, the future will be nothing if not interesting. But perhaps 6 Music points the way forward. For its success can't be attributed entirely to the clout of the British Broadcasting Corporation.

It has shown that hitherto untapped niches are there to be capitalised on. Do so with conviction and quality, and there's no reason why audiences shouldn't grow beyond that niche, without sacrificing credibility on the altar of success.

"DAB's still a new and revolutionary platform," says Maconie. "We're used to thinking of things in terms of Radios 1 and 2 and commercial radio, because that's how we've always thought of them. I think we'll pick up people who didn't think of listening to radio before because they thought it was too dull or formulaic.

"Seriously," he says, "I don't see that there's any ceiling."