HD Radio Grows and Prospers - "All this new cool content that doesn’t cost you anything", Peter Ferrara on HD Radio
Wednesday, March 3rd, 2010
As one of the driving forces behind the rollout of HD Radio, Peter Ferrara faced the mother of all daunting tasks — popularize a new media technology to manufacturers that didn't want to build the products, retailers that didn't want to sell them, automakers that didn't want to carry them, radio groups that didn't seem to have the time and money to invest in content for it ... and last but certainly not least, an audience that was ignorant or indifferent to HD Radio's potential. Nevertheless, Ferrara and the Alliance ventured forward and despite the inevitable missteps, doubts and premature reports of their demise, they have at the very least established a beachhead on which HD radio can grow and prosper. Here, Peter Ferrara takes stock of HD Radio's long and winding journey ...and where he hopes the road will lead.
Read the interview on allaccess.com!
What were your initial goals for the rollout and growth of HD?
When the HD Radio Alliance was formed at the beginning of 2006, there were only few stations in the country broadcasting in HD, just a couple of receiver sets being made and virtually no place other than online to actually buy an HD Radio. Our initial objective with was to bring together a consortium of major radio broadcast companies to help coordinate the rollout of HD Radio in the top-100 markets. This included the actual technical launch in each market as well as format allocations for the new HD2 multicast stations. Additionally, we became the marketing, promotion and PR voice for HD Radio with receiver manufacturers, retailers and auto OEMs in finding ways to advance HD Radio and consumer awareness.
While that was a lot to take on right from the start, we had little choice since we had the proverbial chicken-and-egg predicament: Radio broadcasters didn't want to spend money on HD Radio conversion or put on new HD2 channels if no receivers were being made, receiver manufacturers didn't want to make HD Radios without the support and distribution of retailers, and major retailers and automakers didn't see why they should carry something that had no consumer demand at that time. We had to work simultaneously in all these areas in order to build confidence and cooperation among all the potential stakeholders.
How far are you along in reaching those goals?
If you were to rewind to the beginning of 2006, there were a less than 500 radio stations in the U.S. that had converted to HD and fewer than 50 of them had HD2 multicast channels. By the end of 2009, just three years later, there were close to 2,000 stations broadcasting in HD, with almost 1,800 of them broadcasting HD 2 or HD3 new multicast stations. If you look at a coverage map today, you would see that HD Radio signals now covers 85% of the entire U.S. population. Additionally, there are now over 100 different HD Radio receivers available, over 14,000 retail stores fronts that sell HD Radio, and over 90 automotive vehicle lines that offer HD Radio as standard or optional equipment. While we still have a ways to go, I'd say we have made excellent progress.
How much of an impact did the auto downturn impact HD's growth?
While the economic downturn has been most unfortunate, it has had only marginal impact with our OEM progress. Gaining access to the dashboard is always a long and frustrating journey, but fortunately we had already laid much of the groundwork prior to the downturn. As a result, we now have 13 publicly announced auto manufacturer commitments, which include 97 different vehicle lines. From BMW and Audi to Ford and Kia, it's a great mixture. More importantly, our partners at iBiquity Digital continue to make significant strides in the OEM space and have built a pipeline of new models for years to come.
Because of the auto situation, did consider diverting more of your efforts into other avenues such as portable?
A major proportion of radio listening occurs in the automobile; it always has and it always will. As such, it is essential HD Radio stations reach listeners in the automobile, so we have focused on that significantly. Just the same, we didn't put all of our eggs into the auto basket and have worked very hard to make sure our growth accelerates through all distribution channels.
The portable category was a huge story for us last year. After years of technical improvements we were able to help introduce HD Radio into the Zune HD, the Insignia armband radio and an iPhone HD Radio converter and app. The consumer acceptance and sales of these new devices has far exceeded our expectations.
HD has been a hot topic among the group heads interviewed in past Power Player interviews. Cox CEO Bob Neil, for instance, says, "It is going to be a very long time before there are enough receivers in consumers hands. That means that programming HD-2 and HD-3 signals is just an expense, as there is no revenue associated with it because there are so few listeners."
I don't totally disagree with his comment that HD Radio is more of an expense at the moment than something that produces a profit, but I also believe that for it to become a revenue generating medium in the future, we have to invest in it now. If we don't spend the money to do those things that add value and consumer choice, there will be no motivation for the manufacturers to build it or for the consumers to listen to it.
Are you satisfied with the number and variety of HD receivers?
I'm not the type of person who is often satisfied when it comes to achievements. I always think we can do better and we are constantly looking for ways to improve. Just the same, on a comparative basis to where we were three years ago, I'm extremely pleased.
Even so, we're not at critical mass. The real tipping point will occur when the cost difference to build an HD Radio versus and analog-only is immaterial. At that point, receiver manufacturers will make all radios HD Radios. The good news is that cost variance continues to narrow so we're not that far away.
Do you envision HD Radio completely replacing analog radio?
Eventually, but it will be a long time from now. From a technical standpoint, we can do it now, but from a practical standpoint it doesn't make any sense. When you think of how many analog radio receivers there are in the U.S, it would be unrealistic to expect those devices to become obsolete anytime soon. It would be like expecting in the late '60s when FM was ramping up, whether we should get rid of AM. There will always be use for spectrum and for the analog signal. Nonetheless, I expect HD Radio will become the new standard and dominant technology over time.
Cumulus CEO Lew Dickey wants the Alliance to "pursue a barbell strategy, with cars on one end and portables/handhelds on the other. Unfortunately, the industry pursued tabletop radios, which was opposite of barbell strategy and has set us back three to five years."
What many people in the radio industry fail to understand is the process by which new consumer electronic devices come to market. It is a building process where you have to "win" certain categories and distribution channels. Without those in place, moving on to the next higher level is not possible. There is no question that automotive and portable are very important goals and as a result of our earlier groundwork; we are making huge strides in both areas.
Speaking of portable, what are the chances of HD Radio getting installed in an iPod or other Apple portable?
For reasons that are obvious, we can't comment specifically as to where we are in conversations with them. We believe there will be positive interest in the near future.
From a competitive standpoint, keep in mind that HD Radio is now in the new Microsoft Zune HD, which is basically the competitor to the iPod Touch. Furthermore, Best Buy is successfully selling their Insignia armband HD Radio and Radio Shack now offers an HD Radio converter and app for the iPhone. We're making good progress.
Are you primarily concerned with hardware and distribution, or are you investing equal time and resources into programming?
Yes to all of it. From the beginning of the HD Radio Alliance we have had to stay focused ... focused on everything. While we certainly have more HD Radio devices and places to buy them, nothing is more important than offering great content on the air. We constantly encourage our member companies and stations to create the best, most unique and compelling content they can. The more and better choices we give consumers, the faster and more relevant HD Radio becomes.
And it's happening: CBS is running a NASCAR HD station, ESPN now offers specific content for HD Radio; the Pittsburgh Penguins have their own 24-7 HD2 station, as do the Dallas Cowboys. There are also some great new and experimental programming like Pride (the gay and lesbian station), Irish Radio in Boston, international programming, Spanish News Talk and Classical Mozart. Additionally, HD-2 stations offer formats that are otherwise missing from individual markets -- Country in New York, Oldies in Orlando, Jazz in Philadelphia ... the list goes on and on. It seems as each month passes, we get better and more creative approaches to HD2 programming.
Are you concerned about radio's interest in adding new HD programming when they're dropping local personalities on their analog stations for syndicated and in-house national air personality?
Not really. In today's economy, companies are looking for ways to amortize costs by offering content that can be used across multiple markets and distribution channels. For example, the kind of content development that Clear Channel offers their stations enables the local stations to air and produce high-quality HD2 stations. When you realize that companies can often offer better and more compelling content by sharing those costs, it makes good sense. Just the same, we have to work hard to keep that content localized, as that remains one of radio's greatest and most unique consumer attributes.
Emmis Radio Pres. Rick Cummings asserts the company is profiting from its HD side channels by time-brokering them to ethnic programmers, world band and traffic interests. Hoevere, he added, "We've grown increasingly to believe that the answers for HD radio are not more formats and added inventory. The last things we need to do in the industry are add more channels that air spots. I also don't believe there's that much content out there. L.A. has got 80 radio stations now -- and now we're going to have 240 with all the side channels? There's not enough content to supply all that." Your thoughts?
As of now, there are 42 stations in L.A. that broadcast in HD, and there are 21 additional unique HD2 channels, which considering the market size, doesn't seem like too many. I think there is always room for better content .... consumer choice is a good thing.
I do agree that it wouldn't be beneficial to flood any market with more stations and more commercial inventory because doing so increases supply disproportional to demand. That will suppress rates and discourage spending. We have to be smart and do it differently.
My vision is that as HD radio and HD2 stations grows and becomes a viable and competitive option on the air with analog radio, that will actually allow broadcasters to run fewer commercials. For example, let's say I have 5-share radio station today and I'm running10 spots hour. What if I could have two 2.5-share stations where I ran seven commercials and hour? I'm running 30% less spots on each station, yet I'm actually gaining 40% more spots in total. I know it's kind of a fuzzy math, but this could be a way for us to reduce inventory levels on individual stations while still growing total inventory on all stations. It could generate more revenue at favorable prices. It would also encourage increased listening with fewer commercial interruptions. That sounds like a win-win to me.
What are the most effective ways to promote the music variety of HD content?
All of the HD Radio Alliance member stations have made a significant commitment in commercial inventory that we use to forge partnerships with receiver makers, retailers and auto companies. At the same time, we use this inventory to promote HD Radio at the consumer level. We promote three basic things: What HD Radio is, so people understand the benefits of the technology; its availability in cars, retailers and online; and most importantly, that HD Radio offers new content that you can only get if you have an HD Radio.
All of our commercials in 2010 are strategically targeted and are tagged with, "More Stations, No Monthly Fees. HD Radio ... A Good Deal More." We want to make sure that consumers know that HD Radio is not something else in their life they have to pay a subscription for, like they do for cell phones, cable or satellite radio. We're driving that message aggressively but simply to consumer: "Hey, when you buy a new HD Radio you'll get all this new cool content that doesn't cost you anything." We think that will resonate strongly with the consumer.
Also, we promote HDRadio.com which is a very viable consumer-centric website. It shows consumers the many benefits of HD Radio, a market-by-market local program guide of stations and offers an extensive buyers guide with links to HD Radio manufacturers and retailers.
Isn't there a value in using star power to promote HD? Sirius can use Howard Stern, Oprah and other big names to promote their programming. Does HD have any star power, even on a local level, at their disposal?
While terrestrial radio has plenty of star personalities to draw from, it is harder for us to execute that strategy as the HD Radio Alliance is a national network of individual stations and formats. Just the same, we encourage our member stations to use their local personalities to promote their HD2 stations and HD Radio in general. I don't think there's anything more powerful than great morning show or a compelling personality talking about the virtues of HD Radio. Some do that better than others.
The one disadvantage HD has compared to satellite is in content regulation. Could HD feasibly have pay channels that could air more controversial, adult content.
Since HD Radio receivers can be addressable, we could carve a subscription-based model at some point in time, but I'm not sure we want to get into that fray. Despite the freedom to broadcast whatever they want, the satellite subscription-based business model isn't working as they continue to lose money each quarter.
Bottom line: After all the progress you've mentioned here, are you satisfied with the growth in consumer demand for HD Radio?
As I said previously, I'm never satisfied. I do think we are doing all we can to make sure there is quality content on-air, that there are plenty of HD Radio receivers and places to buy them at good prices, and that consumers understand the benefits of HD Radio. Consumer awareness and demand is growing, but we still have a long way to go.
We work very hard to stay on point and not get discouraged or distracted by whatever else going on. While we are not immune to the current economic situation and understand it may take us a bit longer than we originally thought, we won't be dissuaded in any way or dilute our energy or efforts.
Have you set specific sales figures or penetration levels as goals to attain to or exceed?
There are 70 million radios sold in the U.S. every year ... that's all sorts of radios, from home, auto and portable. I think that if sometime over next five years, HD radio could comprise 10-15% of that market, it would be incredible.