Robert Struble: At Long Last...Digital [09/23/02]
Finally, after more than a decade of debate, development, testing, politics, consolidation, more testing, technical evolution, public comments, and considerable waiting, Radio is prepared to go digital.
Barring any unforeseen regulatory action from the Federal Communications Commission, in-band, on-channel digital radio—also known affectionately as IBOC by those who have affection for such things—is set to hit the U.S. radio industry sometime within the next few weeks.
The radio industry has been anticipating the implementation of digital audio broadcasting for more than a decade, ever since talk of a system known as Eureka” first drifted across the Atlantic from Europe. Heralded in the early 1990s for its superior audio quality and lack of technical interference, Eureka eventually was deemed unsuitable by broadcasters and engineers because of its potential to significantly upset the U.S. radio industry and because the required spectrum was unavailable. In its stead an in-band, on-channel system of digital broadcasting was proposed—one in which a digital signal would be “piggy-backed” on top of a station’s existing analog signal until such time when the prevalence of digital technology in our daily lives obviated the need for analog altogether.
After several false starts and tests, numerous visits back to the drawing board, and considerable investment of human resources and money, that time finally has arrived. Thanks to iBiquity, a privately held company with partners in the broadcasting, consumer electronics, and financial communities, IBOC was publicly launched at NAB 2002 in Las Vegas earlier this year, pending final approval from the FCC. With that final regulatory hurdle almost a given, iBiquity Chairman/CEO Robert Struble is increasingly confidant that the technology he and his team has developed and refined since 1996 will begin to “light up” in just a matter of weeks.
“The first efforts at creating an in-band, on-channel DAB system was a partnership between Westinghouse, CBS, and Gannett, and it was called USA Digital Radio,” Struble recalls. “The initial four or five years of the effort really were a big a science project. There were a lot of designs that were tried and scrapped, a lot of tests, some research and development, and some patent work. But it really wasn’t a whole-hog effort.”
By mid-1996 Gannett had exited the business and CBS merged with Westinghouse, and “all of a sudden someone at CBS said, ‘Hey, we used to have this investment in USA Digital Radio,’” Struble continues. “They held a big meeting at [CBS’] Black Rock—Mel Karmazin was there, and so was [CBS CEO] Mike Jordan, and at the end of the meeting they decided this was going to be important to the industry. They told me to go to Gannett and re-negotiate the partnership agreement and get control of it. That was the reinvigoration of the business.”
Lucent Digital Radio was another IBOC proponent, and the two companies merged in 2000 to form iBiquity. “There was a third proponent called Digital Radio Express, a small Silicon Valley company,” Struble says. “We bought their intellectual property, and in a relatively short time we got the technology to a point where it’s now set to launch. We’ve taken care of any issues with standards, fights, or competing technologies, and we’ve assembled a really solid group of investors and partners, all pushing the business forward.”
Struble was named president, CEO, and co-chairman of iBiquity in August 2000 following the merger, and he currently manages the company’s strategic operations. Immediately prior to assuming his responsibilities at USADR in 1996 he held the positions of President of Westinghouse Communications and President of Westinghouse Wireless Solutions Company, two technology businesses of CBS, where he successfully oversaw digital product technology development and commercialization. He earned his Bachelor’s Degree in Chemical Engineering from MIT, where he was elected into the Tau Beta Pi and Sigma Xi engineering honor societies; he received his MBA from Harvard, where he graduated with high distinction as a Baker Scholar.
In a sense, the early months of digital broadcasting might be very much like a tree falling in a forest, since fewer people today own IBOC radios than the number who owned AM radios in the days of the KDAK Harding-Cox election returns. While a handful of stations already have been broadcasting IBOC for months, using experimental FCC permits, few consumers are actually listening. To that end, in early August iBiquity re-branded IBOC as HD Radio, and the company—along with several audio products manufacturers are gearing up for a January 2003 launch of commercially viable HD Radio sets. Meantime, iBiquity and its broadcasting partners are making a strong push to convince the radio industry what most consumers already know: analog is out, digital is in.
INK: What technological challenges still exist before IBOC can go commercial?
RS: This is the most thoroughly tested system in US radio broadcasting history. We know it works everywhere. It works in the concrete jungle of New York and the hills of San Francisco and the swamps of Florida and everywhere in between. But we know it works on prototype boxes. I have a $30,000 radio, but I don’t think that’s going to sell to consumers very well. So, for the last 18 months we’ve been working on getting that prototype box down to a chip that can go into a radio, and we’re very far along with that. The big news at the NAB in April was on the transmit side: the three major transmission equipment manufacturers now have IBOC equipment. You can buy Harris’ Deckstar line, or Nautel’s NDIBOC, and Broadcast Electronics has their FSI and FXI line. The technology is there on the station side.
So far, most of the talk about IBOC has been on the technical side. How do you now take this technology out and introduce it to the consumer?
On the consumer front this is all about commercialization. What we need to do next is get radios out there, so at the Consumer Electronics Show in January we’re going to announce the launch of IBOC radios that will be cheap enough that people will actually buy them.
With so many different media out there vying for consumers’ dollars, how do you market digital radio in a way that breaks through all the competitive clutter on the shelves?
There are a ton of different choices out there. Radio broadcasters were very forward-looking in setting up this company, and our basic proposition is that radio will not last very long as the only analog medium in a world that’s fully digital. Today’s kids don’t know what an LP is. They’re going off to college with their PCs loaded up with MP3 files. They’re all using cell phones. When they need information they go to the Internet instead of going to the library. And if radio broadcasters believe an analog product is going to be meaningful and speak to this generation of kids—and the generations coming up behind them—I have some swampland to sell them. Fortunately, broadcasters recognize that they need to upgrade the industry’s base technology in order for it to be competitive with all the new offerings out there.
So how do you sell that concept when Radio listening has been declining steadily over the last decade?
You have to have a compelling value proposition for the consumer. For HD Radio that means vastly improved audio quality, with FM sounding like CDs and AM sounding like FM stereo. It also eliminates all the interference you usually get driving around town. So, the kids who are used to listening to CDs and MP3s and don’t like interference are going to be able to get that experience in their cars. The record is extremely clear on this—consumers pick digital quality every single time.
But it’s not all about the audio signal…
That’s right. In addition to listening to the audio coming out of the radio, there’s going to be a host of new data applications. Once the industry figures this out and “gets it,’ you’re going to have super-creative program directors and jocks who are thinking about great things they can do to enhance the experience for their listeners.
Any hint of what sort of “great things” we should expect?
Initially it’s going to be the stuff you would expect it to be. It’s going to be song, artist, title, and call letters. But very quickly it’s going to become a button that says “Traffic,” and when you press it you get traffic instantly, and it might be customized to my route. Or it might be more information about an ad. Or, if you really love the song you just heard, you could press a rewind button and it will go back to the beginning of the song. These are some of the new features these radios will have, and we think it’s going to be compelling new value for consumers.
Do you foresee a day when other wireless devices besides radios also might be able to receive HD Radio signals?
Absolutely. You need small and cheap chips to do that, but we’ve had ongoing discussions with chip companies about why we don’t have an IBOC chip in a cell phone. The great thing radio broadcasters have—and it’s an economic point—is the cheapest way to deliver data that exists. One station with an antenna on top of the Empire State Building covers the entire New York metro, while the satellite guy needs all those repeaters and the cellular guy needs transmitters every ten feet. Broadcasters have a built-in advantage because they’ve got a great spectrum, and digital radio enables them to capitalize on that asset. Could that go into cell phones? Absolutely. Could it go into Palm Pilots? Absolutely. It’s not going to be next year, but if you look at the trajectory of digital, all that stuff’s going to be available to broadcasters.
What still remains for the National Radio Systems Committee to do before they sign off on IBOC?
The NRSC is essentially done. They have submitted both FM and AM reports to the FCC, and they endorse the technology. Actually, that’s not quite true, because the AM report says “let’s authorize AM initially for daytime only—we want to see a little more data before we go to nighttime.” So there might be some additional work to be done there. In any event, it was an exhaustive two-year process. The NRSC evaluated the technology under extremely strict guidelines, and they’ve submitted their report. It’s public record.
So now the ball is in the FCC’s court…
The FCC has gone through public comment periods where everyone in the world has had a chance to offer their opinion, and that’s all done. They have to change their rules in small but important ways to allow broadcasters to move forward with IBOC. We’ve answered the Commission’s questions and we’ve been working with the industry standard-setting body, the NRSC, to prove to everybody that this works. Now the test results are a matter of record. The FCC has volumes on how IBOC performs, and now it’s just a matter of continuing to work with them and making sure they move forward.
What actions do you expect from the FCC?
We envision a two-step process. The first order will come out this fall, and we think the FCC is going to tell broadcasters that it’s all right to start lighting up stations. The second step, which will come at the end of another public comment period, is to select iBiquity as the broadcast standard, probably early next year. The NRSC also is going to be an important body that will help the Commission think about what exactly should be in a standard.
Assuming all the activity at the FCC is positive, how long until stations begin broadcasting in IBOC?
This fall. Technically there are stations broadcasting in digital now, under experimental licenses. But before the first commercial broadcaster can go to digital the FCC has to do something, and we think that’s sort of October-ish. By the end of the year you may not see hundreds of IBOC stations, but you will see dozens of them on the air. We’ve tried to simplify it a bit by trying to focus on six markets, because that’s where the receiver manufacturers tell us there are people who will buy HD Radios. Rigtht now we’re talking about New York, Chicago, Los Angeles, San Francisco, Seattle, and Miami. Harris has just announced what they’re calling their 6-city road show—guess where they’re going. They’re going out with their IBOC equipment, and we’re going to educate and train the broadcasters in those markets.
How long before digital totally replaces analog transmission?
There are widely varying estimates on that. When the system first comes out it will be in hybrid mode, meaning that broadcasters will be simulcasting both the analog and the digital signals. The reason for this is there are 800 million radios out there that are analog, and until a certain percentage of those radios are digital they need to serve those analog customers.
Still, you must envision a timetable for when the last analog transmitter is unplugged from the audio chain…
We’ve looked at upgrade cycles at stations, we’ve looked at how people buy cars, we’ve looked at the turnover cycles in radios, and we estimate that it will take 12 years. I’ve heard as short as five, or as long as 500. The basic answer is that to a certain degree it doesn’t matter. It’s a market-driven transition, and the station will be able to make the decision to turn off their analog based on what they think their listeners want. If there’s a particular station that has a very high-tech group of listeners and they have determined that a vast majority of them has converted to digital radios, they can go all-digital. And they can offer new services because you pick up that analog spectrum and do new things.
How do you expect to avoid the pitfalls that killed AM stereo and, before that, FM quad?
We’ve learned a lot coming last. We’ve been able to look at AM stereo and FM quad, and we’ve also very closely watched the roll-out of high definition television. The big difference here is there is no standard fight. If you look back at AM stereo, it was a fight between two companies because there wasn’t a standard. We’ve taken care of that. We’ve merged two companies and acquired the technology of another, so there is only one technology in front of the FCC.
What sort of expense is involved for a station that switches to IBOC?
It will cost about $75,000 on average for a radio broadcaster to go to IBOC radio. They use their existing studio equipment, their existing antenna, their tower—in fact, the only thing they need to buy is a digital exciter, and they might want to buy a studio-transmitter link, Going to high definition television was a multi-million dollar investment. The cost difference is also very real on the consumer side. Those first HDTV units were $8,000, but in radio we’re looking at a $100 increment. Also, the programming content in radio is already digital, since so much of it comes from CDs.
What additional equipment does a station have to buy in order to convert to IBOC?
Not much. At bare minimum, the one piece of equipment you need is a digital exciter. The exciter creates the wave form. In many cases people are also buying a small lower power second transmitter. And you’ll probably have audio processing equipment to process the digital signal in a way that you want—you need separate processing of the analog and the digital. It depends on what the station has. Also, if you’re an AM station using a phone link as an STL, you’re probably going to have to upgrade to a wider bandwidth studio-transmitter link.
What would you say to those broadcasters who have expressed dismay that they will have to pay a licensing fee to iBiquity in order to convert to IBOC?
I would remind them that we’ve spent $100 million thus far developing the technology, and in terms of revenue we’ve got about a nickel in return. Essentially, iBiquity is a licensing company, like Dolby. If we don’t get licensing revenue from all the various sources we’ve identified, there won’t be digital radio because there won’t be a company that is viable. This is all about economic viability. On the other hand, we’re not idiots, either. We know radio broadcasters very well, and we know they are some of those most fantastic businesspeople in the country. And part of being a good businessperson is negotiating your best deal. So there’s lots of spirited negotiations going on, and they’re all being very productive.
How did you calculate the license fee for each station?
We tried to set it up so the stations that will get more benefit from IBOC—because they have larger audiences, better signals, or better markets—will pay more than the station that doesn’t. The license fee is all based on the station’s FCC fees. The broadcaster has an option: they can either pay us a one-time fee that’s 15 times their FCC fee, and we go away and they never see us again. But for those who don’t want to pay all at once can pay year-by-year, at a rate that’s [RATE TO COME] times the annual fee, for ten years. We need to get a little bit of money from everyone, and the radio industry should know that the licensing fees we set for broadcasters is, far and away, the lowest we get out of anyone.
Some broadcasters are concerned that the encoding signal for Arbitron’s Personal People Meter might not be compatible with IBOC.Is it?
My understanding is that they are compatible.
Are you concerned that the initial roll-out coincides with a lingering economic downturn?
When times are good and stock prices are high, people are more willing to spend money. But this is not going to be an overnight transition. This year we’ll get dozens of stations on, and next year we’ll get hundreds. But there are 13,000 radio stations out there, so our plan is a ten-year cycle. We’re doing everything we can to make that growth curve as steep as we can. Sure, it would help if we had a better economic climate, if ad rates were good, and if revenues were going through the roof. But this is all about the long-term health of the industry, and we have to upgrade our technology to compete with everything that’s available today. We can debate all we want what the curve is going to look like, but if you ask any broadcaster if they believe in digital radio, they’ll say absolutely. Of course, you might get a different response if you ask them to write the check tomorrow!
The industry has been calling this technology IBOC for years. How did you arrive at HD Radio?
You’re right—everyone in the radio industry knows this as IBOC, but consumers don’t know what that means. It would be like rolling out HDTV and calling it 8VSB. We hired a couple of firms to help us develop both the brand and the logo, and we did a bunch of testing with consumers. What we found out, happily enough, is they associate high definition with quality. You’re going to see the HD brand on at least 17 Kenwood radios next year, and our hope is that, as stations roll out, they’re going to put that in their station promotions. Seeing the brand out there, getting the place of purchase support we’re expecting to get from the Kenwoods and the Clarions and the Alpines, and hearing it on your radio, is going to get the message out. Quite simply IBOC wasn’t going to work.
Who are the first consumers you expect to go out and buy HD Radios?
Basically, there are 13 different radio segments, from very high-end home all the way down to boom boxes and clock radios. Not surprisingly the early segments will be the higher-end segments, and we’re primarily looking at three of them: the high-end home market, the after-market auto market, and the OEM auto market. High-end home is the older guy with a lot of disposable income who listens to classical music on the radio, and loves technology. The after-market auto is the guy who has the $2,000 car with the $3,000 stereo system. He goes into Bob’s Custom Stereo and gets the latest, greatest, biggest speakers he can get. There are 6 million units in this segment sold every year in the US, and it’s predominantly younger male. The last is OEM auto: this one takes a little longer because you have to get on the auto platform, but it’s the guy who buys the expensive car and takes the full lux package. Again, it’s higher income and typically male.
HDTV has been slow catching on. Why do you expect HD Radio to be any different?
The good news is that, unlike in TV where the big picture tube is driving the cost, with HD Radio it’s just a chip. And the good thing about chips is they get cheaper every single year. So $100 becomes $50, which becomes $25, and then $10—and then you’re in the clock radios and the boom boxes.
What sort of time frame do you envision before we’re living in a fully digital radio world?
The AM/FM radio of the future will be HD radio. It will be the standard. When people go to a store they will just buy it. Ten years from now there won’t be any analog radios being sold. One of the beautiful things about this business—and this is critical for radio broadcasters—is that no one is smart enough to predict what great twists and turns the product is going to take once you get on the digital bandwagon. When they first came out with PCs everybody thought it would be DOS, but 15 years later you have all these unbelievable applications—and the Internet. We’re going to see things in terms of what radio is able to get out of digital broadcasting that will blow your mind. Ten years from now audio is going to be part of a PD’s job, and they’re going to have to continue to do a great job. But they’re also going to have a whole other set of tools and applications and fantastic values they can bring to their consumers. Analog has been around for 80 years, and it’s played out. These are the infancy days of digital—right now we’re at the “Pong” stage of IBOC.
Sounds as if the role of programmer is about to make another sharp turn…
Radio has some of the most creative, entrepreneurial, risk-taking people around. That’s this industry. Someone in San Francisco is going to come across some cool application, and six months later it will be across the country. You’re going to see that continual experimentation and creativity, and because you have a new technical platform that enables so much more to come out of the radio, where it’s going to be ten years from now it’s going to be a richer, more compelling experience for radio listeners.
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