July 21, 2008

HD Radio Striving For Consumer Attention

Although well priced for its features, digital high-definition radio still faces the challenge of being broadly adopted by consumers.

More automakers are offering HD radio as a factory or dealer-installed option. And HD radio offers new interactivity that can't be matched by its analog predecessor. For example, a feature that allows users to tag a song they like for purchase on Apple's iTunes store.

However, sales are still very small considering the fact that HD radio receivers hit the U.S. market four years ago, only to be picked up by Radio Shack just two years ago. Consumers seem to be less aware of HD radio and more likely to subscribe to satellite and Internet radio.

To date, nearly 1,750 AM/FM stations (out of a total of about 13,000 stations) covering 83% of the United States are broadcasting digitally, while about 800 offer original formats and content on HD side channels, according to iBiquity Digital, the developer and licensor of HD radio technology. U.S. HD radio sales totaled about 300,000 units in 2007, with about 1 million units expected to be sold this year, iBiquity says.

Still, compared with the estimated annual radio sales of about 70 million, sales of HD radio units are very small. And according to a consumer survey conducted in January by Arbitron and Edison Media Research, only 24% of respondents said they had "heard/read anything recently about HD radio," down slightly from 26% a year earlier.

HD radios range from table-top units to car radios being offered by leading consumer and audiophile brands as Panasonic, Yamaha, Denon, Polk and Harman Kardon.

iBiquity president/CEO Bob Struble remains optimistic that falling prices will finally jump-start the HD market.

"It's not a great mystery that a higher volume of radios will sell at a lower price," Struble said.

"We've seen this movie before with consumer electronics. Think of the first DVD players for $2,000. We are following a similar path to make it happen as quickly as we can. The price point is fundamentally important."

But Edison VP Tom Webster counters that new technologies and lower prices won't be enough to drive mass consumer adoption of HD radio.

"Programming is a regional crapshoot of varying quality," Webster says. "The industry has to create value through the creation of strong, passionate brands that may be augmented by music, but stand for more than 'one great song after another' ... Building brands takes the time, resources and energy of radio's talented programmers and creative staff -- but many are already programming three to five broadcast stations, so often the HD2 channel gets relegated to the back burner."

"The problem is that it is being rolled out as if it's a new radio invention, like FM," says Robert Unmacht, media consultant and radio expert with iN3 Partners in Nashville.

"If there were no competition from new media, it would be fine for this to gradually phase in and replace analog radio. But with so much competition, we don't have that time to wait."

As satellite broadcasters XM and Sirius await FCC approval of their proposed merger, some members of Congress have voiced support for iBiquity's request that the FCC require all new satellite receivers to include HD radio capability.

But General Motors and Toyota, the world's two largest automakers, have come out against the proposal, arguing in a joint filing to the FCC that "any mandate will inherently distort the normal incentives to (reduce costs) and further improve the HD product offering."

Unmacht believes that automakers' interest in HD radio will fade in favor of the promise of wireless connectivity.

"There will come a time where broadband will be like electricity, where you don't even think of it as Internet," he says. "It will be used for any number of devices in houses and cars."

Struble insists that Web radio is not a formidable threat.

"If you take the 3 (million)-4 million listeners of radio drive time, that would shut down a broadband network," he says. "It simply doesn't have the capacity. And if at some point the consumer is charged for the access, that spectrum is no longer free. Radio has an economically efficient pipe to distribute to a broad audience."


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