High-Definition Radio Almost Ready for Prime Time

High-definition digital radio may sound like an obscure technical term, but it is likely to be a household name by the end of the year, or at least as familiar as its cousin, high-definition television.

So-called “terrestrial radio” (as opposed to satellite radio) is cranking up a $200 million advertising blitz aimed at speeding acceptance of HD radio technology among consumers, and among auto makers, because they make the products where people listen most.

BMW AG was the first OEM to offer HD radio as a factory option on its ’06 7-Series, but eight more auto makers are expected to offer the technology on 36 models over the next several years.

HD radio is a $500 option on a BMW, where it now is available on the 6-Series and 5-Series.

But Robert Struble, CEO of iBiquity Digital Corp., the company that invented HD radio and now is the sole licensee of the technology, tells reporters at a recent meeting of the Automotive Press Assn. the price will slide as volumes increase.

Currently, there are only “tens of thousands” of HD radios in the marketplace, but that will grow to about a million by the end of the year, says Jeff McGannon, vice president-OEM business development at iBiquity Digital.

Prices for HD radios in the aftermarket recently dipped to less than $300 and are expected to drop under $200 by the end of the year, McGannon says.

Even though HD Radio is debuting on expensive luxury cars, consumers soon will find it available on a wide variety of vehicles and brands, including those aimed at the youth market and the less affluent, such as Hyundai Motor Co. Ltd. products, McGannon tells Ward’s.

Visteon and BMW were first to put factory-installed HD Radio on the road in the BMW 6-, 7- and now 5-Series cars.

HD radio sound systems that use iBiquity Digital’s technology have been developed by numerous major automotive sound-system suppliers, including Delphi Corp., Visteon Corp., Siemens VDO Automotive AG, Panasonic, Alpine and Boston Acoustic. More than 15 manufacturers are developing digital receivers or already have them on the market.

As XM Satellite Radio, Sirius Satellite Radio, MP3 players such as the Apple iPod and in-vehicle movies and video games vie for the attention of the U.S.’s 224 million to 240 million radio listeners, so-called HD Radio is conventional radio’s bid to remain relevant to finicky consumers.

“The last medium to be digitized is terrestrial radio,” McGannon says.

However, iBiquity Digital executives are quick to point out they see digital radio as complementary, not competitive with satellite radio.

IBiquity Digital officials say the two technologies are destined to coexist, rather than compete, much like basic cable and premium cable channels such as HBO coexist in the world of television.

HD radio operates like regular radio, but when it receives a digital signal, AM-band broadcasts sound like FM and FM-band broadcasts have digital compact disc-like quality.

HD technology also enables broadcasters to divide their existing frequencies so they can carry multiple, simultaneous broadcast streams and wireless data.

That means radio stations can offer different programming on a separate channel on the same frequency – known as a multicast HD2 channel. HD2 stations are expected to be commercial-free for the next 18 months or so, and they will allow conventional radio stations to branch out into more innovative formats.

In Detroit, for instance, rock station WRIF-FM already is broadcasting its standard programming in HD, plus it has an HD2 channel known as Riff2 that features local bands and disc jockeys under 30, and is targeted at a younger demographic.

National Public Radio is offering its member stations programmed music formats for their multicasting channels, including jazz, electronica, classical and folk music.

About 700 AM and FM stations already are broadcasting digital HD signals in the U.S. More than 2,300 are in the process of upgrading to the system.

There are about 13,000 radio stations in the U.S., in total, but many of them are very small, iBiquity’s McGannon says.

“The broadcasting industry is a very good example of the 80/20 rule in which about 3,000 stations control most of the ratings/listeners. Keep in mind that many of the stations are small stations like church or school stations,” McGannon says.

Proponents say that by the end of 2007, when the nation’s 3,000 largest stations complete their rollout, HD radio is expected to reach 90% of Americans.

The changeover costs each station about $100,000, far less than the investment required for television stations to broadcast high-definition TV.

By the end of 2005, more than 70 HD radio stations offered two to three additional channels beyond their analog and main digital channels. Hundreds more are expected to go on the air in 2006.

In addition to the multicast feature, the wireless data function allows broadcasters to transmit real-time traffic information that can be displayed as text on the radio’s LCD screen or graphically on a vehicle’s navigation screen. Weather alerts, school closings, sports scores and other types of information also can be displayed.

HD radio also will offer a TiVo-like feature that will allow listeners to capture and replay songs or other types of programming.

Seven of the top U.S. broadcasting companies, including the biggest names, such as Infinity Broadcasting Corp., Clear Channel Communications Inc. and Greater Media Inc., have formed a strategic alliance to promote the technology.

The alliance’s goals include coordinating the formats on new multicast HD2 channels, working together to secure more automotive-related business and to reduce receiver prices.

They jointly are pushing HD radio with a giant $200 million advertising budget. The alliance is expected to be the biggest single radio advertiser in 2006.

A study of emerging automotive technologies released last August by J.D. Power and Associates suggests HD Radio has a bright future, in part because consumers prefer a one-time fee (for hardware) over the monthly fee associated with satellite radio.

“Premium sound systems and HD radio are highly attractive features consumers would like to see in new vehicles based on their estimated market prices,” J.D. Power says.

While consumer interest in new technologies typically drops after a price point is revealed, relative interest in premium surround sound and HD radio actually improves after the price is revealed, J.D. Power says.

“Even though satellite radio is at an advantage over HD radio by offering commercial-free content and coast-to-coast coverage, interest in HD radio is higher than satellite radio after the introduction of prices,” says Lawrence Wu, senior director of automotive emerging technologies at J.D. Power.

“In general, consumers would rather pay once for a feature, and have been reluctant to embrace subscription fees,” says Wu.

Satellite radio typically costs $12.95 per month. J.D. Power estimates an HD radio receiver will have a realistic market price of $150.

Sources at iBiquity Digital are reluctant to speculate exactly where the price will end up as an OEM option, but McGannon says the initial cost to OEMs should be “much lower” than $150.

Whatever the case, expectations are running high at iBiquity Digital, a privately held company with operations in Columbia, MD; Warren, NJ; and Detroit. With a smile, McGannon points out the company’s name is derived from the word ubiquitous.

“We expect that at some point in the future all radios (at all price points) will be HD radio receivers,” he says.

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