Thoughts on Radio’s Digital Future
June 12, 2009: And Then There Was One...
With TV now digital, AM/FM is the last analog bastion. Probably not a great place to be. We are working hard to change that.
On June 12, 2009, the digital television era began. After years of effort, several false starts and a few postponements, it finally happened. Analog signals were switched off and all local TV stations began broadcasting using only the ATSC digital standard.
In some ways this was remarkable – for more than 80 years, the technology behind TV broadcasts was analog. Over the years, analog technology was used to broadcast millions of hours of programming including events that changed the nation and drove the sales of billions of television sets. And on June 12th, that analog workhorse was simply abandoned.
But in many ways it was completely unremarkable. The entire TV production process had basically already gone digital, the over-the-air piece was the last link. And TV was just the next in a long line of consumer media to convert. I’ve lost count: albums to CDs, VCRs to DVDs, Walkmen to iPods, digital cell phones, digital cable, digital satellite television and radio, digital cameras. The list goes on.
So with TV having made the switch, we can now say that in the US, every consumer electronic device people use and all the consumer media they consume is digital.
Except one: AM/FM radio.
I got a few emails on June 12th from friends in the radio industry remarking that AM/FM was the only analog consumer medium left. They were concerned and so am I. All of the media that have made this transition have done so for a simple reason. Digital is better than analog, and today’s consumers get that and expect digital capabilities. If the radio industry remains stuck in an analog world, it will only compound the tremendous difficulties we have been seeing over the last several years.
So how is digital better? I think of it coming down to three broad improvements: better quality, more choice and more capabilities. (In many cases you could add convenience to that list as well, but let me focus on the first three.)
Better quality: compare that high def TV or DVD picture to their analog predecessors, or a scratch- and skip-free CD to vinyl.
More choices: how many more stations could you get with digital cable? How many more songs are on an iPod than a Walkman?
More capabilities: think of all the things you do on a digital mobile phone – email, internet, pictures, music versus an analog phone with which you could, um, make calls. Or the interactive features on a DVD versus a linear VCR tape. Or the ability to access the internet or make phone calls on digital cable lines. Consumers have recognized these benefits and have voted overwhelmingly for digital products and services.
HD Radio technology offers all of these digital benefits to AM/FM listeners.
There is a significant audio quality improvement: I have been listening a lot in my Hyundai Genesis with its factory installed HD Radio receiver, and the difference is impressive, especially on AM, which is a night and day upgrade.
There is more choice: the HD2 and HD3 channels enabled by the technology are giving consumers a wide variety of new, innovative niche programming not available on analog.
I got an invitation last year to attend the 25 year anniversary of the HDTV effort, which made me chuckle. The digital transition in TV took more than 25 years, with a government mandate and hard cutoff date. That is unfortunately par for the course for broadcast technology upgrades. FM was approved by the FCC in 1940, given its current frequencies in 1945 and it took until the late 70s until FM had passed AM in listenership. Color TVs did not become standard on the retail floor for 25 years after the first color TV broadcasts were aired. I believe that these transitions take longer for two primary reasons. First, they represent upgrades to an already established and widespread service, so there is no immediate need to upgrade (unlike say with iPods). Second and probably more importantly, they involve coordinated action by both broadcasters and consumer electronics manufactures, neither of whom wants to be too far ahead of the other. This leads to the ‘chicken and egg’ problem common to broadcast upgrades. Cell phone carriers, as a counter example, operate a closed system and specify both their network upgrade schedule and the devices which will operate on their network. They are the chicken and the egg. There is a fair amount of frustration on the pace of the HD Radio rollout, and no one is working harder to make it go faster than us. But measured against this historical perspective, including the DTV transition, we are and will continue to do very well.
There are more capabilities: new features like iTunes Tagging, which enables listeners to tag songs they like for later purchase, are rolling out. Traffic delivery networks have been built, and consumer devices are on the way. More new features including an electronic program guide and the ability to display album art are coming soon.
Oh, and I forgot to mention: there is money to be made in digital. Digital upgrades in other industries point the way. Mobile carriers charge a lot more for all those new digital services. Cable companies have seen whole new revenue streams develop with internet access and telephony. The ability to better target specific demographics using digital technology has increased share and CPM for cable companies. And manufacturers have sold a few digital TVs, and digital cell phones, and iPods, and DVDs, and digital cameras. You get the idea.
Similarly, revenue is beginning to flow to HD Radio broadcasters. Spots and sponsorships have begun to monetize HD2s and HD3s. Longer term, these multicast channels will provide much better demographic targeting opportunities. HD Radio broadcasters have leased HD2s out to niche broadcasters. Stations get paid (a little) when a listener buys a song using iTunes Tagging. And deals are in place to compensate stations delivering real time traffic information using HD Radio bandwidth. It is very early days on the HD Radio revenue front, but the trails are being blazed.
"But we are digital, we’re streaming," some broadcasters might say. Absolutely necessary but not sufficient is my reply. As I wrote in a column about a year ago, broadcasters must have an online strategy and important brand building and incremental revenue will follow. But the belief that online broadcasting could replace broadcasters’ over the air business is not realistic. Listener aggregation online will not come close to reaching what can be done in a local market with limited over the air choices. Newspapers have tried migrating their businesses online, and the incremental revenue has come nowhere near replacing the losses in their core business.
And at a higher level, the assertion that mobile internet listening, in cars or elsewhere, spells doom for AM/FM is equally unrealistic. The economics and capacity won’t allow it. Mobile internet is dramatically more costly than AM/FM as an audio streaming service. And in terms of capacity, point-to-point mobile internet networks won’t have the streaming capacity to support anything close to what point-to-multipoint AM/FM does. Commuters listening to audio streams in any major market would literally shut the networks down. The recent reports of ATT’s mobile network capacity being strained by bandwidth hungry iPhone apps are the first indication of these issues. Add mobile internet radio to the growing list of radio competitors, but don’t view it as death sentence for the industry.
No, radio has to be digital over-the-air as well. It is radio’s core business, its fundamental infrastructure, and it must be upgraded from its current 100 year old technical state. It’s a question of competitiveness: HD Radio technology will give broadcasters the higher quality, additional content and new capabilities they need to fight it out with all of those other digital players. It’s also a question of growth: HD Radio capabilities will lead to new revenue to help improve top and bottom lines.
Fortunately, a long time ago in an economy far, far away, some visionary broadcasters recognized that AM/FM had to have a digital upgrade plan, and began an effort to do just that. That initiative eventually became HD Radio technology, and radio’s digital conversion is well on its way: 2000 stations upgraded, 1000 HD2s and HD3s pumping out new content, 13 different auto makers factory installing HD Radio receivers on 70 different vehicle lines, 100 different consumer electronics products, 14,000 retail outlets stocking HD Radio receivers, more than a million HD Radio receivers sold, portable products launching, new services like iTunes Tagging and real time traffic being deployed. No one is claiming digital victory yet, but I believe we should all be happy with this progress, especially in this economy.
But we are far from done and the actions of AM/FM broadcasters will be the single most important determinant of the success of radio’s digital future.
So ask yourself this question: Am I comfortable that while every consumer electronic product my listeners have is digital and every consumer medium they use is digital, my product remains the only analog medium in a fully digital world. That’s the state of things after June 12, 2009.
We are here to work with you to change that. Radio’s digital upgrade is all we do, all day, every day. Give us a call, we’re happy to help in any way we can.
Thanks for reading, and let me know what you think: email to thoughts@ibiquity.com. I read, consider and try to respond to all of them.
