Don't get too excited, it's still not based on delivering better choices in music, it's still based on advertising....
January 23, 2006
Move Over, HD-TV. Now There's HD Radio, Too.
By ERIC A. TAUB
Traditional broadcast radio, the last bastion of analog entertainment technology, sees a bright future for itself. Its strategy for success is to become more like one of its main competitors, satellite radio.
More channels and music formats, and less-intrusive advertising are critical to its growth, industry executives say.
Last week, Clear Channel Radio and CBS Radio began carrying out that strategy by broadcasting advertising-free digital side channels - complementary music and talk programs - in a combined 43 markets. Digital radio technology allows a broadcaster to offer up to three additional FM channels in the space formerly occupied by one.
The radio industry, like broadcast television before it, is switching to digital technology. With digital technology, AM stations sound like FM, and FM stations approach CD's in sound quality. A retrofit to HD Radio, or high-definition radio, costs about $100,000 per station.
The industry once believed its future would be secure simply by switching to digital technology, but the popularity of satellite radio, MP3 players and Internet radio has changed the game plan.
"Before the iPod and before satellite radio, broadcasters said, 'We already have 40 stations per market. Why cut up the ad pie?' " said Robert J. Struble, president of the iBiquity Digital Corporation, of Columbia, Md., the developer of the HD Radio digital technology. "But the industry recognizes that broader choices and niche formats do make a difference."
Joel Hollander, chairman and chief executive of CBS Radio, said, "The radio industry is healthy. It's just not growing fast enough for Wall Street. More options and more programming will allow us to grow faster; this is a three- to eight-year process."
The new side channels being offered by CBS, Clear Channel and other station groups seek to fill in the programming gaps in various markets. In New York, WCBS-FM is now offering an oldies music channel, and WKTU-FM is programming a country music channel. Beasley Broadcast Group is multicasting in 5 of the 17 markets where it has introduced digital broadcasts. The company, based in Naples, Fla., owns 41 stations, and expects to convert all to digital by the end of 2007. Its side channels include country and disco stations.
"HD Radio is the future," said B. Caroline Beasley, the company's chief financial officer. "We have to respond to the emerging competitive technologies."
By the end of 2005, 622 stations were offering digital simulcasts, allowing 80 percent of the United States population to receive a digital signal. That number should jump to 1,200 stations by the end of 2006, according to Mr. Struble.
Few listeners are able to hear the new offerings, however. Digital radio requires the purchase of HD receivers, which remain expensive, although prices are falling rapidly. HD radios for the home are now available for $500. "Tabletop digital radios will be $199 before the end of the year," Mr. Struble said.
As with satellite radio, the HD Radio industry hopes to persuade carmakers to offer digital broadcast radios as factory-installed units. BMW now offers digital receivers in two of its models, as a $500 option.
Digital radio home receivers are available now from Boston Acoustics and Radiosophy; car units are available from a variety of manufacturers.
By the end of last year, about 85,000 digital broadcast radio receivers had been sold, according to Stephanie Guza, an industry analyst with In-Stat, a market research firm. That number should climb to 500,000 by the end of this year, Ms. Guza said.
As the traditional broadcast stations offer new digital side-channel formats, an industry group, the HD Digital Radio Alliance, will oversee the effort to ensure that no two stations offer competing formats in the same market.
Member stations have agreed to keep the side channels free of advertising for at least the next 18 months. Once advertising is introduced, it will not be the same. The saturation of radio advertising is said to be one reason that satellite subscription radio from Sirius and XM has attracted more than nine million subscribers to date.
"We will look at different types of ads," said John Hogan, president and chief executive of Clear Channel Radio. "There's a need to do it differently. Radio is reinventing itself by taking advantage of and embracing new technologies."
The HD Radio technology was devised to be able to offer new types of ads. According to Peter Ferrara, president of the HD Digital Radio Alliance, new advertising formats could include text streaming across the unit's digital display, a push-to-buy button when a consumer hears about a product, or the sponsorship of a block of programming.
Mr. Hogan of Clear Channel expects to see episodic commercials, 15-second spots that follow each other to tell a story.
Broadcast radio executives believe that they continue to hold a trump card that their competition can never match: the local nature of free radio.
"People live in communities and they want to connect in their homes, to see if their schools are open," Mr. Ferrara said.
To encourage listeners to move to the new technology, the nation's major radio station groups have agreed to commit advertising valued at $200 million to promote digital radio.
The promotional campaign will begin this quarter and will tie ads for the technology with promotions for digital radio receivers and radio retailers.
The moves by the industry are expected to breathe new life into a trusted and traditional technology. "AM and FM are still very popular media," said Susan Kevorkian, a program manager for consumer markets at the IDC research firm. "Radio is still familiar and it's free. It's hard to compete with free."
