iBiquity's Robert Struble: If You Aren't Thinking Digital, You're Smokin' Dope (04/11/05)
By Reed Bunzel, Editor-in-Chief
More than 200 radio stations have already made the conversion to HD Radio, enabling them to simulcast a digital signal along with their analog transmission. This number is expected to climb to more than 600 by the year's end, at which time market analysts predict digital radio receivers may have an attractive price point that will encourage consumers to purchase units for their cars or homes. Until then, however, digital radio is much like the proverbial tree that falls in the forest — if no one can hear it, does it actually make a noise?
HD Radio can and will make that noise, maintains Robert Struble, president, CEO and chairman of the iBiquity Corporation, which developed and now is licensing the in-band, on-channel digital broadcasting system known as HD Radio. Despite the dearth of receivers on the market, so many radio groups are either converting or have pledged to convert their stations to HD Radio that evolving to a digital transmission standard is a fait accompli. In fact, Struble says the two primary challenges that exist today are acquainting broadcasters with the benefits — beyond superior audio quality — that digital has to offer, and promoting those benefits to the listener.
Radio Ink spoke with Struble to gain a better sense of the business opportunities HD Radio might afford broadcasters - essentially, how radio can make money by converting to a digital signal. In an ROI kind of world, in which converting an entire industry to a digital standard will cost upwards of $200 million, broadcasters are asking how their up-front investment will return dividends down the road. We asked Struble to check the technical jargon at the door, and approach this issue the way executives and managers would discuss it in the conference room.
Are radio group executives underestimating the influence - or the threat - of other digital media, including satellite radio, iPods and wireless broadband technologies?
I'll give you a mixed answer. Radio has faced many challenges before, from television, 8-tracks, CDs, cell phones and even FM replacing AM. Each time, radio has adapted, changed and thrived. This is a great business; the margins and the cash flow this industry generates aren't seen very often in the business world - at least, not outside something like Tony Soprano's business. On the other hand, you'd have to be living under a rock to not believe that these new media somehow are going to change the way we do business. It is not just satellite radio; it's iPods, it's MP3s, it's the Internet, it's gaming and the whole proliferation and fragmentation of media.
Are these influences taking their toll on radio?
If you look at TSL or AQH during the past four to six years, especially among the lower demos, they're only going in one direction: down. I'm not saying it's the death of radio; I'm saying this is a question of growth and asset value. If you look at what Wall Street has done to our stock multiples during the past 18-24 months, it's also a question of the way we do business.
How important is it for radio to offer all the bells and whistles that other digital media offer to consumers, especially younger listeners?
We look at a lot of research on the expectations of media, especially in the younger demos - the digital kids sometimes called the “millennials.” If you ask them what they expect from media, it's “what I want, where I want, when I want it, how I want it and if you can't give it to me, I know where I can get it elsewhere.” Anyone who thinks he can meet those expectations with analog technology is smokin' dope. You cannot do it. You have to move to digital.
Former CBS Radio President Dan Mason, who's also a consultant for iBiquity, has described the conversion to HD Radio as the chicken-or-the-egg dilemma. He believes radio broadcasters must be the “chickens” and convert to digital before the equipment manufacturers mass-produce the receivers. Do you agree?
It is a chicken-or-the-egg dilemma. At this point, there's basically zero consumer awareness of HD Radio. The broadcast industry must move that ball forward. The satellite guys launched billions of dollars into the sky, and started promoting in big ways before the first radio was available. Also, radio must overcome some past missteps with the consumer electronics manufacturers. The radio industry touted RDS and AM stereo as big advances that were going to be supported by the industry, and a lot of manufacturers built a lot of equipment just to see broadcasters not adopt these technologies. There's a bit of skepticism on the part of the equipment manufacturers, so radio must take the first step and to a large degree they've done that.
Still, terrestrial radio has a lot of ground to make up to equal what satellite has done.
Yes, but I don't begrudge the satellite guys. If I had their business model and their capital, I'd be doing the same thing. But satellite paid mightily to get in cars. They threw $400 million at GM; they also paid every single receiver manufacturer to develop the radios. Our approach and business model is much different. We don't have the dollars, or a subscription model where you give radios away. But we do have the ability to say, “This is the standard. This is AM and FM radio. This is approved by the FCC, and if you don't have this in your product line two or three years from now, you will be selling black and white TVs in the age of color.” Sure, a number of people will want to pay for radio, and that's fine. But the vast majority of the country - 94 percent of people - get free, over-the-air radio, and this is the new standard.
What are some of the ancillary business opportunities that HD Radio affords radio broadcasters?
Some things are a few years down the road, and some are real-time. The one that looks like the nomination for the first killer application is supplemental audio channels — the ability to multicast in FM.
There are some misperceptions about what a secondary audio channel can do. Can you explain why this is such a big deal?
One of the things that digital offers - which has been successful either in the satellite, iPod or the DAB context in Europe is new and diverse content. If you believe this is important for AM and FM broadcasters, then HD Radio will be an excellent way to deliver it. This new content comes in two fashions: one is taking AM up to FM quality, with the ability to play music again on the AM band; the second is the ability to multicast on the FM band. This means you'll not only have your main digital channel in FM, which you're currently simulcasting with the analog signal, but you'll also have the ability to offer a second, third, fourth or fifth stream of different content. So, if you're a country station, maybe your secondary station is playing bluegrass, or maybe roots country or Johnny Cash and Hank Williams. If you're a classic rocker, you can play deep cuts or death metal on the B channel. That will clearly be the push early on. This is a real-time thing.
That's what NPR is working on with their Tomorrow Radio project.
That's right, NPR has pushed this very aggressively. They will be able to play classical on their main channel in the middle of the day, and then have Morning Edition or Car Talk or All Things Considered on their secondary channel. They've offered to their member stations four free streams of content to enable this secondary feature to be built out. I don't think NPR has given anything for free in its entire existence, and we love 'em. This gives a sense of their commitment to it.
Could this secondary audio channel be a subscription service?
Absolutely. If you believe the FCC, and the only thing governing indecency requirements between terrestrial radio and satellite is the fact that it's subscription and conditional access, you could have racier content on your secondary channel. Maybe if we'd had this three or four years ago, Howard Stern would still be on Infinity. You'd have “clean Howard” on the main channel, and “extreme Howard” on the secondary channel. But this could take many forms, including premium services, concerts and who knows what else? The radio guys will decide this. [Entercom CEO] David Field is saying, “Let's string together some national networks and offer a satellite-like service, but do it better and cheaper. Maybe that's a way to combat satellite.” There are a lot of great business ideas out there, but out of the box, this appears to be the first killer app.
Where do data services fit into the mix?
If the secondary audio channel is the nominee for “killer application number one,” the delivery of data is the nomination for “killer application number two.” Radio broadcasters have two of the most valuable assets imaginable in the media world. They have spectrum they essentially got for free, and it's beachfront property. It's perhaps the best spectrum in terms of how it propagates, transmits and receives. And they have an incredible installed base of 1 billion radios a device in the dash of every single car in the country. When you adapt that spectrum and those devices to digital, an army of application developers will come running to them saying, “Here's a good idea. Let's transmit stock quotes to stockbrokers.” There will be 100 ideas like that, and we believe the data services will be revenue-generating.
How might this “killer app” work?
The first application we think makes the most sense is downloading real-time traffic data, then displaying it on real-time navigation screens. To be fair, this is a catch-up, because the satellite guys have already announced this and XM has already rolled it out. A radio station will broadcast traffic data and, if you have a navigation screen in your car, you will see the traffic tie-ups displayed on that system. In Japan, if the traffic is stopped, the road is painted red; if it's below 35 miles an hour, the road is painted yellow. Because traffic is such an important franchise to AM and FM radio, this will likely be one of the first real good killer applications.
Another one is program-associated data, or PAD. This really is just scrolling test, which I describe as RDS on steroids. At the bare minimum, it's song title, artist and call letters. This seems simple, but research shows that people love it. They want to know the song title; they don't want to hear the jock talking over the track. But there's also a dollar sign attached. If you're playing the Allstate ad, it should say 1-800-ALLSTATE on the screen. Here's a pretty cool synergy: If you're playing the ad for the national auto spot, you could have the local dealership scrolling, and maybe an additional special on the text screen. There are ways to bundle product for advertisers that will make sense, and hopefully ring the cash register.
Many great radio ideas have come from the grass-roots level. Is it important to educate managers, programmers and salespeople on the possibilities of HD Radio?
Up to this point, we've been toiling away with engineers and technology and regulatory bodies. Now the creative minds are rapidly addressing the question: “I bought it, now what do I do with it?” I get calls every week from high-level guys and station people, asking, “Can I do this? What would I need to do that?” Program directors, promotions guys and salespeople now have more content to program and sell, and new ways of making money they've never had before. This is where it really gets fun.
Still, some radio broadcasters would rather not have so much “fun,” and keep things within their comfort level.
Maybe. But if Microsoft is right, we'll all be reading our New York Times on an e-tablet five years from now. Radio broadcasters will be one of the main distributors of that sort of content. Between 2:00 and 3:00 in the morning, when they're not selling a lot of ads, they'll be able to turn down their audio and blast out The New York Times to 100,000 e-tablets around Manhattan - and they'll get paid for it. It's spectrum rental. The Internet is a great way for distribution, but radio has great spectrum that's so economically attractive compared with anything else out there - cell phones, WiFi etc.
We're also excited about the concept of a “Buy” button. There's no better place for an impulse purchase than when you're sitting in traffic listening to ads. Radios will have a “Buy” button: If I like a song and want to download it, I press the “Buy” button, and that track gets downloaded in the format I want. Or, if I'm listening to an ad for 1-800-FLOWERS, I can press the “Buy” button. That stuff is very doable, and we think it's pretty cool. Plus, the radio station gets a cut of the sale, because it occurred when that station was being listened to.
How does time-shifting come into play?
We live in an on-demand world, and radio must have an on-demand feel to compete. It's probably a generation or two away, but the “TiVo-for-radio” app is coming. If you liked a song you just heard, you'll be able to press the rewind button, and go back to the beginning. If you can't wait for traffic on the 8s, press the button for traffic, and it will come up instantly.
How long will it be before the electronics manufacturers begin producing receivers that pick up both satellite and HD Radio?
It's out already. Panasonic has an HD-XM receiver, and Kenwood has an HD-Sirius unit. Despite the fact that the satellite guys are mandated by the FCC to have radios that have both XM and Sirius, you're seeing HD-satellite units first. In the future, every satellite radio will have AM and FM built into it; it's just going to be digital. That's the standard. As [Sirius Chairman] Joe Clayton says, this is the difference between basic cable and HBO. People pay extra money to get HBO because they want to avoid commercials, or see the racier programs. That's comparable to satellite. Everybody gets basic cable, and that's comparable to HD Radio. There is room for both services. The radio industry is not talking anymore about whether satellite is a viable business; it is. It all comes back to how you serve your listeners, how you meet their expectations and what content and services you provide.
What do you see as the biggest challenge in the conversion from analog to digital?
The promotion of HD Radio to the consumer. We're well along on the infrastructure side; the roll-out actually is going ahead of schedule. Stations are converting faster than they're required to. The challenge is consumer awareness. The satellite guys have spent $750 million on consumer awareness. HD Radio will be marketed at the grass-roots level, with stations reaching out to their listeners, touching them in the ways they know how. We went through this when FM came around in the '70s. There was almost zero FM listening in 1970; by the end of the decade, it was about 80 percent. How did the industry do it? The same way we think they'll sell HD Radio. They did a lot on the air. At the top and bottom of every hour, you'll hear “now broadcast in HD.” They've done many promotional spots about how great HD is, and urging listeners to “get on down to that retailer and buy it.” The morning DJs will say, “Hey, did you hear me on HD? What did I sound like?” You'll see a lot of giveaways, with stations actually buying radios, and having contests in conjunction with their retailers. Radio is fabulous at this. They know how to promote stuff, they know how to reach their listeners and they know what makes sense to them. With the industry's major commitment to the infrastructure, they will really take up the challenge of promotion, and drive it home.
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