Broadcasters upbeat about HD Radio

MarketWatch By David B. Wilkerson

CHICAGO (MarketWatch) -- Call HD Radio anything you like when you talk to a radio broadcaster - but don't call it an answer to satellite radio.
The response you'll invariably get is that there isn't any point in making a comparison between a subscription product with 14 million customers and a medium that draws 225 million listeners. It's apples-to-peas.

Rather, in conversations with veteran radio executives, you'll hear satellite being referred to as just another entertainment choice with the potential to divert listeners' attention - along with MP3 players, audio from cable television systems, Internet radio, and more.

To traditional broadcasters, then, radio's job is to fine-tune its offering and make sure it's in step with what today's consumers expect from any content provider.
"This is an improvement over what most consumers already know and understand anyway," said Peter Ferrara, chief executive of a consortium of major broadcasters known as the HD Radio Alliance. "So it's not really about answering anything. It's about moving our medium from analog to digital, and we live in a digital world."
However, digital radio has a hurdle to overcome, in that few people seem to truly understand what it is, despite a relentless advertising campaign by the radio industry's biggest players.

HD2 Multicasting

Using digital technology, a radio station is able to offer two or more additional channels in addition to its main broadcast signal, as well as wireless data, in a process known as HD2 multicasting. The sound quality is significantly better than analog radio, with AM sounding more like FM does today, and FM stations offering CD-like quality.

More than 1,100 radio stations in the United States are currently broadcasting in HD, with over 600 carrying HD2 multicast programming. HD2 multicasts have launched in 85 of the nation's top 100 markets.

Industry's effort

In 2005, Clear Channel Communications and others formed the HD Radio Alliance. The group's hope is that with a wider variety of formats available as digital channels, the local angle that the main station and their digital counterparts can provide, and the lack of a subscription fee will keep listeners engaged.

Broadcasters are encouraged to look at what genres have either greatly diminished or disappeared in their service areas, Ferrara said. In cities like Chicago and San Francisco, smooth jazz stations offer more traditional jazz on their digital secondary channels. Some rock stations are programming comedy formats, and hip-hop stations are offering "old school" hip-hop from the '80s and early '90s on their additional channels.

Ferrara says new variations are debuting all the time. "KLOS in Los Angeles has been doing a fusion of Hispanic and Anglo rock. Now that's just not something that you would normally hear on the air," he said. Elsewhere, there are gay channels, an Irish channel in Boston, and variations on every mainstream format, including country, R&B, urban and Christian.

The industry is combating the perception that traditional radio is uniform and bland, a notion that gained traction after a massive round of consolidation spurred by the 1996 Telecom Act.

For the remainder of 2007, HD channels are slated to remain without commercials, as the industry tries to build an audience. The lack of commercials may present a problem, says radio consultant and historian Donna Halper. "Several GMs I've talked to say they would like to put some new and innovative formats on HD," she said, "but they're running a business, and if they can't make money on HD, why would they bother?"

Ferrara stresses the temporary nature of HD's commercial-free era. "The time will come sooner rather than later that the HD2 multicast channels will be monetized," he said in an e-mail.

Consumer awareness - a mixed bag

Meanwhile, a recent study on consumer awareness of the product offered a mixed assessment.

According to a survey by Bridge Ratings, 72% of individuals 12 and over said they had heard of HD Radio in January, up from 62% in June of 2006. Among individuals 25-54, awareness spiked to 75% from 62%.

However, when asked what HD Radio actually is, just 15% of those 12 and over were able to identify it as a radio technology "that improves sound quality, offers additional digital interactivity and required a special radio," down from 19% six months earlier. In the 25-54 age group, the figure dropped to 13% from 15%.
"While overall awareness of the term 'HD Radio' has increased in the last year, there is considerable confusion, misinformation or total lack of understanding as to what HD Radio is or what its benefits are to the consumer," the Bridge Ratings study said in summary.

Perhaps not surprisingly, given these findings, the survey also noted that interest in purchasing an HD Radio seemed low. Only 8% of those 12 and over said they were very interested or somewhat interested, down from 11% in June 2006. For adults 25-54, the percentage dropped to 14% from 17%. Tabletop versions of the radios are available in the $200-$300 range, while radios for the car can range from $100 to $2,400, depending on how many other capabilities they have. The higher-end models might include an in-dash DVD player and navigation system, which utilizes a 20 gigabyte hard drive.

The HD Alliance recently announced that BMW will make factory-installed HD-ready radios available across all of its 2007 models. This was the most comprehensive automotive deal in the technology's history. "Having BMW be first is really really special, because they are known to their customers [and others] as being on the leading edge of new technology, for delivering to the consumer the best, if you will," Ferrara said.

Ferrara would not disclose names, but said nine different auto manufacturers and 51 models of cars have committed to HD Radio announcements and rollouts over the next 18-24 months.

Whatever the disparity in its audience size compared to terrestrial radio, Halper says satellite radio' publicity campaigns have played some role in the confusion over HD. "I think satellite radio has been so much more on the public's mind that the majority of people still don't know what HD is and what it can do."

In 2007, the HD Alliance plans to spend $250 million on its HD Radio advertising campaign to educate consumers.

Bridge Ratings now projects that there will be 1.5 million HD radio units sold in 2007 - down from its previous forecast of 2.1 million.

Internet hopes

Ed Seeger, president of radio brokerage firm American Media Services, says that although HD Radio is a good weapon for broadcasters to have in their arsenal, it's sreaming Internet Radio - now often framed as a competitor - that holds the greatest hope for the medium's future.

"The broadcasters have everything in place to take advantage of that technology," Seeger said, referring to creative staffs and advertising sales professionals with established relationships in local markets."

Once receivers are widely available that can pick up AM, FM, HD and, through a Wi-Fi connection, audio from the Internet, broadcasters can reach office dwellers over the PC, then reach them in a variety of other places, he said.

The idea isn't lost on Ferrara and the HD Alliance. Handheld HD devices are in the works. "I think that by late 2007, early 2008, you'll begin to [hear of] designs for portables. It all comes down to the chipset and power management," Ferrara said.
"I think there is going to be a convergence of digital offerings to the consumer," commented Ferrara. "And HD Radio will play a very key role in that. The main reason is that radio is still the No. 1 way that people discover new music. If you think about the possibilities that exist for HD Radio in an MP3-iPod device that could be dockable ... it's very powerful."