AMS News

Monday, May 28, 2007

Radio stations upgrade to HD despite cost, uncertainty

The Post and Courier

Paul O'Malley, regional president and Charleston- area market manager for Citadel Broadcasting Co., says his company will broadcast digital signals here within the next 12 months, a strategy to keep listeners from switching to satellite radio or MP3 players.

Some 15 million satellite radio fans can't be wrong.

Or can they?

In a bid to hang on to the airwaves, traditional radio companies are launching high-definition radio, technology that whips broadcast signals through the air in digital packets rather than waves.

It's an expensive proposition — for broadcasters and listeners alike — but it produces static-free, CD-quality sound. It also lets stations squeeze two or three signals onto bandwidth that used to hold only one. And because the signal is digital, broadcasters can send text data, from stock quotes to song titles.

The first HD radio hit the mass market in December 2005, and a month later an alliance of old-line radio giants launched a $200 million marketing blitz, promising to push HD radio into the country's 100 biggest cities within 18 months. Charleston, around No. 87 on that roster, started tuning into HD signals about a year ago.

Today, there are 1,307 U.S. stations broadcasting in the new, high-tech format, including 18 stations in South Carolina beaming 27 HD radio channels.

Five local channels owned by Texas-based radio titan Clear Channel Communications Inc. are now offering HD.

Las Vegas-based Citadel Broadcasting Co., which owns seven Charleston-area stations, is promising to put out digital signals in the next 12 months.

'Up in the air'

Those announcements represent some big investments. Analysts estimate that it costs about $100,000 for an individual station to buy the hardware and launch the HD format. For HD to thrive, a broadcaster needs to get the word out and "multicast," essentially produce extra stations to run on the same segment of bandwidth.

Theoretically, stations will be able to tap a wider spectrum of advertisers and charge their current clients more for airtime with HD, but the business model is relatively unproven, according to Citadel regional president Paul O'Malley.

"It's absolutely up in the air," he said. "I'm sure the industry folks will tell you, 'Oh, it's going to be great,' but we really don't know that yet."

O'Malley said, however, that HD is an imperative investment for a terrestrial radio station to stay connected and keep listeners from tuning into iPods or satellite stations.

"At the end of the day, the more options we give (listeners), the more we interact with them and the less likely they are to go elsewhere," he said.

But listeners can't tune into HD before forking out between $200 and $330 for a special radio.

Michael Corty, an analyst who follows radio companies for Chicago-based Morningstar Inc., said most consumers won't invest that much in hardware until there are is a critical mass of stations offering the HD option.

At the same time, some stations are hesitant to invest in HD upgrades without a healthy pool of potential listeners.

"It's a bit of a circular problem," Corty said. "Radio broadcasting has kind of been a slow-growth business for several years and I don't think HD radio is going to be a quick fix. ... In my universe, I don't see it as a major impact definitely for the next few years."

Mixed signals

Clear Channel, which owns almost 1,200 radio stations, made no mention of HD offerings in its most recent annual report to investors filed in early March.

Satellite radio, which also relies on digital signals, is cheaper upfront — often less than $100 for the required hardware — but requires a monthly subscription fee of about $12. At the end of the first quarter, the two satellite giants, XM and Sirius, had a combined 15 million customers, roughly 5 percent of the U.S. population.

HD radio costs listeners nothing after the upfront purchase of a receiver, but only some of the offerings will be ad-free, a major marketing point for XM and Sirius.

The automotive industry, the enabler for virtually every outfit that ever hoisted a blinking signal tower into the sky, has been slow to tune in to the new technology. Although a lot of cars are rolling out of dealerships with satellite radio systems already installed, only BMW is offering HD radio in its 2007 models — as a $500 extra.

Jaguar and Hyundai recently announced that they will each offer the technology in one of their 2008 models.

Some analysts contend that radio fans will leapfrog from a traditional signal to a wireless Internet signal, skipping HD radio — and its hefty sticker price — entirely.

Citadel Broadcasting estimates up to 16 percent of U.S. residents listen to radio online every week.

American Media Services, a Mount Pleasant-based company that consults for big radio companies on building more profitable stations, said every broadcaster in the country should be sending a signal to the World Wide Web, if they aren't already.

"I tell people, 'If you've got the financial ability to run HD, I would do it,' " said Ed Seeger, American Media's chief executive officer. "But I see an equal, if not greater, opportunity for stations to stream. ... If you go on your computer right now, you've got thousands and thousands and thousands of channels."

Reach Kyle Stock at 937-5763 or

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