Thoughts on Radio's Digital Future

NAB Show 2010: Show Me the Money

Amid a general industry recovery, HD Radio Technology begins to add to radio’s revenue rebound

Photo of Bob Struble I’ve been reflecting on last month’s NAB Show in Las Vegas and wanted to share some thoughts. As many have reported, it was a positive gathering that showcased an undeniable industry recovery and renewed optimism in AM/FM. I also came away more convinced than ever that HD Radio Technology will play a fundamental role in the long-term success of radio.

As at the NAB Radio Show in Philadelphia last fall, I saw an important shift in the mood and focus of radio broadcasters. I described the mood in Philly as ‘resolved’. The industry had moved on from post-meltdown panic and was focused on dealing with the situation.

Vegas showed that last year’s feeling of resolution has now given way to optimism, and even excitement, about radio’s future. NAB was the first upbeat convention radio has had in at least two and a half years.

I try to sit down with industry leaders at these shows, both to get their views and to update them on the HD Radio rollout progress, and have a basic gauge on how the industry is doing. How did my meeting schedule shape up? In Vegas, I was as busy as I have ever been, booked solid for four days.

I got a consistent view from most I talked with. Radio revenue is recovering with the general economy, with most groups showing positive numbers for the first quarter in a while. National is particularly good, with the back half looking really solid. Price is firming somewhat, although there is an overhang of bargain deals from the depths of the industry’s difficulties.

There are new investment dollars coming into radio, which is always a good sign: Lew Dickey’s buyout fund, Emmis’ effort to go private, and many investors out of the headlines re-examining AM/FM. Smart money smells opportunity and a long term future.

Still, no one is declaring victory yet. Growth is still choppy. Major groups still have balance sheet issues, as the restructurings of Citadel and Regent clearly highlight. But almost all agree AM/FM has stabilized and is not going the way of newspapers.

There is an interesting industry debate going on about when (and if) we will get back to the industry’s prior revenue levels. 2007’s $21.6 billion is often cited as the benchmark. Predictions ranged from as early as 2012 to as late as never. My view is it will take quite a while, because this downturn was the result of not only cyclical economic decline, but also secular erosion driven by radio’s new digital competition. I see that competition getting stiffer, so recovery will be tougher.

My discussions emphasized how HD Radio Technology can help in that recovery. At the highest levels, AM/FM is going to have a tough time battling a wide array of digital competition if it is the last remaining analog medium in a fully digital world.

Through the industry downturn, iBiquity has really focused attention on the consumer side of the HD Radio rollout. We recognized early that groups and stations had no choice but to go into cost cutting and cash preservation mode, so the HD Radio broadcast rollout would be impacted. Our strategy was to accelerate HD Radio consumer adoption and fundamentally change the landscape broadcasters would see as they began their recovery.

Bottom line, it’s about dollars and cents. As radio broadcasters begin to generate meaningful incremental revenue from their HD Radio investments, the industry’s adoption of the technology will accelerate. And to generate revenue, there has to be a solid installed base of HD Radio receivers, hence our focus on the consumer side.

Well, how have we done with receiver sales? Really, really well.

It starts with the breakthrough progress in automotive over the last 12-18 months. Knowing how important in-car listening is to broadcasters, we have focused efforts here. In 2010, there are 15 different automakers offering HD Radio receivers in their cars, with more to come. From luxury makers like Mercedes and BMW to mainstream offerings like Ford, Hyundai and Kia, the technology is available on more than 80 different vehicle lines, with almost half coming as standard equipment. OEM automotive HD Radio receiver sales grew almost fivefold from 2008 to 2009. It is now clear that HD Radio Technology has achieved critical mass in this critical sector.

Portable HD Radio product sales have skyrocketed as well. A year ago these products did not even exist. Today, Microsoft’s Zune HD, Best Buy’s Insignia HD Radio portable player and Radio Shack’s GigaWare HD Radio adapter for iPod Touch /iPhone are racking up great sales. I was able to preview several more portable products during my meetings at NAB, and we anticipate retail availability soon.

HD Radio products in the traditional consumer electronics categories like aftermarket car, home stereo and AV, tabletop and iPod docks have also had nice growth.

All this progress has led to strong overall receiver sales growth. Our partners sold twice as many HD Radio receivers in 2009 as they did in 2008, after 3x growth from ’07 to ’08. During the first 6 months of our fiscal 2010 (ending March), we had more HD Radio receiver sales than in all of 2009. There are now more than 2.5 million HD Radio receivers in the market, and we forecast this strong growth to continue.

This installed base gives broadcasters an audience to monetize. It’s very early days, but station pioneers are leading the way to increased growth and real returns on HD Radio investments. How are they doing it? Several ways:

Selling HD2/HD3/HD4 stations: Aggressive stations and account execs have been selling spots and sponsorships on their new HD Radio channels. It’s typically in the form of much lighter spot loads or top and bottom of the hour sponsorships, but marquee names like Budweiser, Southwest, Verizon, Harley Davidson and Labatt’s have signed on.
Driving music purchase: Through iTunes Tagging, where a consumer tags a song for later purchase from iTunes, stations earn ‘finder’s fee’ revenue on each song bought. With a technology called Media Base Tagging, this money making feature will soon be extended to other music stores and other products.
Leasing spectrum: Upstart companies like WorldBand Media have built national ethnic language radio networks by leasing HD2 and HD3 channels in target markets. It’s a perfect arrangement where station owners get a regular check for the use of the spectrum, and the ethnic broadcaster builds a highly cost effective network. And this innovative programming, be it Indian or Pakistani language content on HumDesi or DesiBeats, or One Caribbean’s unique focus on the Caribbean American community in New York, is extending radio’s reach to underserved audiences.
Providing traffic information: Both Clear Channel, with their Total Traffic Network, and a large group of broadcasters called the Broadcast Traffic Consortium, with Navteq, have built national networks to deliver real time traffic data over HD Radio bandwidth. Consumer devices capable of receiving this information, first from JVC and Cydle, are just now in the market. Participating broadcasters will be paid, either through a share of the device sales or from shared advertising revenue.
Capitalizing on the sports angle: 24/7 HD2 and HD3 channels dedicated to specific teams like the Dallas Cowboys and Pittsburgh Penguins are on-air, along with several minor league and college sports teams. The Miami Dolphins and Washington Nationals are coming soon. Sports content has always been a strong driver of ad and sponsorship revenue, and that revenue is beginning to flow in the HD Radio world.

Not surprisingly, as this revenue begins flowing, other broadcasters want in on the action. I was asked if we were seeing any patterns in successful station monetization efforts. The answer is yes and the patterns come directly from radio’s tried and true playbook. How many times have we heard ‘you get what you pay for’ or ‘if you want results, measure it’? No different here.

Stations that have begum monetizing HD Radio Technology often have line item budget objectives for HD Radio sales. We’ve seen bonus commission plans and sales contests to incentivize sellers at the station. Stations are bundling all of their digital assets by packaging their HD2 or HD3 with an online streaming sale and traditional over the air spots. These packages are sold to advertisers as a total digital sales solution.

Some other tips and best practices: Make sure to encode HD Radio channels for PPM to capture listening. Sell the HD Radio channels, don’t just throw them in. You’ll set low value expectations which will be difficult to overcome. Limit spot loads. We have seen shortage and exclusivity drive attractiveness.

And finally, let your creative and energetic people have fun with the effort. We’ve seen the best programming and sales ideas come from those up and comers who don’t know what they are not supposed to do. They try things, sometimes nutty things, but often enough, breakthrough things. I believe they will lead the way.

Sound familiar? At NAB, several folks observed that this stage of HD Radio development feels a whole lot like the early days of FM, where people tried crazy things that just weren’t possible on AM. That seemed to go ok last time around. We’re here to help you make it happen again with your HD Radio efforts.

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Thanks for reading, and let me know what you think: email to thoughts@ibiquity.com. I read, consider and try to respond to all of them.

Bob Struble
Columbia, MD
May 2010

[Sidebar 1: We are Here to Help. iBiquity has a group of radio industry veterans focused on helping stations get the most our of their HD Radio investments. They can help on station launches, programming, promotion and monetization efforts by sharing lessons learned and best practices. We’ve also helped hook up stations with manufacturers and retailers on joint selling and promotion efforts. Don’t be bashful, call us, we would love the opportunity to help.]

[Sidebar 2: Station Success Stories. As part of the NAB effort, we worked with four stations to tell their HD Radio monetization success stories. The stations produced videos showcasing their efforts. In addition to the great money making ideas, the level of creativity and enthusiasm shown in these clips is infectious. Check them out here, along with many other stories of successes: http://www.hdradioalliance.com/realizing_revenue__stations_that_are_doing_it ]