[BC] HD Radio Observations

[Mike Erickson]

The full article can be seen at www.hear2.com

Some intersting and sobering observations.  Some have already been beating
this drum.  I do disagree with two points, I do think there is some business
model on how to deal with it and I do think listeners are getting annoyed
with radio offerings.

 Who is Kagan Research talking to?

Here's how news happens.

Kagan Research <http://www.kagan.com/Default.aspx> releases a report which
very few people see. But they also release some headlines which are
oft-repeated. And in this case, the headline
<http://www.radioink.com/HeadlineEntry.asp?hid=134433&pt=todaysnews>reads
like this:

As the HD rollout continues to gather steam, the industry is expected to
benefit from positive buzz while preparing itself for future revenue
streams....HD radio is expected to generate $1.6 billion in revenue by 2011,
the bulk of which is expected to come from advertiser based secondary
channels.

I would love to review the original report in its entirety to give it the
kind of analysis it deserves, but it seems like much of this opinion is
based on reports from radio industry sources. And here's what I hear from
the industry sources I talk to:

- *There is no established model for how stations or groups plan to derive
revenue from HD radio.* "Nobody knows," is what the experts say on industry
panels.

- *There is no plan to spend more than subsistence sums on investments in HD
radio programming.*

- *There is no guarantee that these radios will be offered by the automakers
because they want to provide only what their customers want, and audience
based demand is so far lacking*. Nor are they looking to add expense unless
they're confident that expense can help move cars.

- *There is widespread confusion about the benefits of HD radio among
consumers*, let alone "what HD radio is"

- HD radio exists in anything but a vacuum. *The trend in technology is
toward more control by listeners, not more control by broadcasters.* The
trend favors audience creation, not industry rules.

- There is no desire to add inventory soon on HD because the industry is
trying to entice listeners to buy radios with an attractive introductory
offer (no spots). Meanwhile, the number of radios in circulation is small.
And *with a small number of radios in circulation there is no demand for HD
radio spots from advertisers*, anyway.

- *Even with millions of HD radios in circulation there would be no "local
sales" model since millions of radios nationwide don't amount to any
significant numbers at the local level.*

- *There is no strategy regarding how the radio industry can sell HD radio
without cannibalizing listeners and dollars from the very stations which are
now the cash cows.* Remember, you have to go through the current station to
get to its HD-2 channel. And who is most likely to go there first? The ones
who go to your current station, of course.

- *The success of HD radio is based on the premise that more choice will be
more popular, but we know that much of the relative success of satellite
radio is driven by its premium content and especially its lack of
commercials on music channels - not by choice per se* (in fact, if you want
Howard Stern, you don't really have any choice, do you?)

- *There is no evidence to suggest that listeners are sufficiently
displeased with what they hear now* that they will pay for an alternative,
especially with much of the low-hanging fruit already in satellite's hip
pocket. In fact, the evidence is very much to the
contrary<http://news.hear2.com/2006/06/nationwide_stud.html>
.

- *There is no consensus and little discussion on how Internet radio will
affect plans for HD radio development.* Even as the Internet is considerably
more universal than HD radio and communities across the nation are edging
ever closer to border-to-border WiFi.

- *There is plenty of evidence to suggest that the focus on HD radio is
distracting broadcasters from focusing on obvious web opportunities*, and this
is causing us to lose ground on the
web<http://news.hear2.com/2006/06/san_diego_june_.html>relative to
other radio alternatives which might be much more potent in the
future than satellite or HD.

- *New technology products succeed because consumers want them, not because
an industry does.* Sony wanted BetaMax<http://en.wikipedia.org/wiki/Betamax>,
but the market didn't. Philips wanted
Laserdisc<http://en.wikipedia.org/wiki/Laserdisc>,
but the market has spoken. Today this is playing out in the video world with
the race between Blu-Ray <http://en.wikipedia.org/wiki/Blu_ray>and the
ominously titled HD DVD <http://en.wikipedia.org/wiki/HD_DVD>, and it's far
from certain that either of them will be successful. And here's why: For the
average consumer, some things are just good enough.

Is radio one of those things?

So here's my question to the good folks at Kagan Research.

Who are *you *talking to?