Thoughts on Radio's Digital Future
AM/FM in a Connected World: Threat or Opportunity? ... Yes.
I have been on the road a lot recently working to accelerate HD Radio™ Technology’s solid commercial progress. Two recent trips to opposite sides of the world – Japan to meet with our automotive and consumer electronics partners and Las Vegas for the Consumer Electronics Show - got me thinking hard about AM/FM radio’s place in the media mix circa 2011.
Both trips highlighted what most now fully understand: we live in a connected, converged world where consumers will have a rich multimedia internet experience anytime, anywhere and on virtually any device. So what does that mean for AM/FM, our ubiquitous, one-to-many, free, over-the-air medium?
The connected world is a threat to radio broadcasters, as listeners and advertisers have additional choices on where to spend their infotainment time and ad dollars. At the same time, it is also a huge opportunity to make AM/FM a more interactive medium.
The Threat: Lots of Competition in All Devices
In Japan, I reviewed our auto and CE manufacturing partners’ product plans and had confirmed what I and many others have been saying for some time: radio’s ‘battle for the dashboard’ has never been more urgent. Very soon, every new car will have multiple compelling infotainment applications - apps - built in.
Toyota’s Entune system, launched at CES, is a good example and follows patterns set by Ford (with MyFord Touch powered by Sync) and other carmakers. Toyota is building HD Radio Technology with iTunes Tagging into Entune, fantastic news culminating years of work.
But look what else is in Entune: satellite radio, iPod connectivity, Bluetooth, navigation with real-time traffic and points of interest data, and internet connectivity with several apps built in: Pandora, iheartradio, Bing, Open Table and movietickets.com. MyFord Touch has Pandora, Facebook and Twitter.
Paul Brenner of Emmis and the Broadcast Traffic Consortium, who spends at least as much time with car guys as I do, lays out the threat clearly: “These are digital cars. FM is an analog technology with limited capability. The digital car requires broadcasters to provide a digital solution so that automakers continue to develop their products with us.”
As car infotainment systems, like PCs and smartphones, become menu driven, radio risks losing its position as the default infotainment choice and getting buried six menu levels below sexier digital technologies. Drivers have only so much listening time and advertisers just so many dollars to spend, so radio’s audience and revenue streams are threatened in ways that didn’t exist, say, three years ago.
It’s not just cars either. Our Japanese CE partners are building the same connectivity and applications into their home devices with the same implications. So the two traditional product categories relied on by broadcasters - car and home radios - are being loaded with new, competitive digital infotainment applications.
And then of course there are the new listening devices – MP3 players, and more importantly, smartphones. The industry has recently awakened to the issue that AM/FM is by and large not included in these most important devices of the digital age. If radio fails to be in the infotainment hub in every consumer’s pocket, the industry is threatened by irrelevancy.
The Opportunity: Capitalizing on Connectivity
So there are threats, but hold the hemlock. As we all have been told, change brings opportunity. And so it will be with radio.
First, despite what some would have you believe, radio is not a dying industry. It is growing in listenership and revenue, and AM/FM’s local focus and appeal has stood the test of time. As I have written before, internet radio (and other new digital apps) will siphon listening time and ad dollars, but cannot replace over-the-air broadcasts. Broadcast radio’s advantage in cost and distribution efficiency, enabling unparalleled reach and frequency, will keep it competitive with internet radio’s greater personalization and targeting capabilities.
A radio station’s one-to-many broadcast architecture supports an infinite number of users in its coverage area. Internet radio’s one-to-one connections add cost and bandwidth for each new user. No existing or planned mobile network will support mass market internet radio listening. And consumers pay for the listening privilege as unlimited data plans give way to usage-based pricing.
These are the points I make with our automotive partners. ‘Yes, it makes sense to include these new digital apps in your cars, but don’t forget digital AM/FM is a must have as well. Radio is always available, always free and serves 262 million Americans weekly. Consumers expect radio, they expect digital, so you need to build HD Radio receivers into your cars’.
This logic is compelling, as our automotive success bears out. Toyota’s launch made it HD Radio automaker number 17, with more to come. More broadly, we again saw a doubling of total annual HD Radio receiver unit sales in 2010. This tremendous growth has been propelled by the ongoing efforts of the HD Radio Alliance, whose millions of promotional spots boost consumer awareness, highlight new features, solidify auto and retail relationships and ultimately, drive receiver sales.
So radio is not going away, but we all want more than just survival. Broadcasters have joined the internet streaming party, with businesses like Clear Channels’ iheartradio and CBS’s radio.com producing incremental revenue and some profit, as well as building reach and brand. These are important efforts, but by now most recognize that they will never come close to replacing AM/FM’s over-the-air listenership or revenue.
A Noticeable Difference. Take a look at these comparisons between how HD Radio and analog stations are rendered on the screens of new Ford and VW radios. Auto engineers have done a great job showing off the capabilities of digital: song title and artist; HD1, HD2, HD3 and HD4 indicators; tag buttons; and on the VW, the first OEM Artist Experience implementation, scheduled for show rooms this summer. Check out the analog stations’ display by comparison. Looks a bit thin, doesn’t it? Which screen would you want your listeners and clients looking at?
For that core broadcast product, we firmly believe there is a unique opportunity as HD Radio Technology is embedded into connected devices in cars, homes and phones. Simply stated, radio now has the back channel it always needed. With HD Radio digital broadcast technology and smart applications development, we can pair the low cost and ubiquitous reach of the broadcast radio ‘data download’ with the one-to-one responsiveness of the internet back channel.
iTunes Tagging, although initially an ‘offline’ capability, shows the connected potential. Consumer likes a song, wants to buy it, pushes a tag button, information is automatically stored, and the next time that consumer goes to iTunes, she has a folder labeled ‘Tagged’ which lets her preview and purchase the songs she has tagged. The station is paid a finder’s fee and their call letters are displayed in the Tagged folder, reinforcing brand.
The potential of connectivity is to make that buying experience instantaneous. Pressing the Tag button will take me directly to iTunes, or more simply, provide me a ‘buy it now’ button followed by a track download.
The potential extends beyond music purchase. By touching the album cover art on the radio screen (with the recently launched Artist Experience capability) I could buy concert tickets, go to the artist’s website for more info, or get lyrics. By touching the station logo (also available with Artist Experience) I could sign up for contests, vote up or down on a song or friend the station. In cars, as Ford’s Fusion showed at CES, these features can be voice activated, easing use and limiting driver distraction.
The attraction for advertisers, whose brands and products will be displayed like album covers, is hopefully obvious to all. Touch for more info, touch for an 800 number, touch for an instant coupon, touch for a product code, touch to buy. To say nothing of the vastly improved measurement and response capabilities sought by advertisers. Stations will easily monetize this feature.
We are working with our partners, including NAB FASTROADS, to develop these capabilities. Broadcast radio is great at reaching the masses and entertaining, informing and selling to them. The instant response capability of connected devices brings a richer, more customized, more immediate experience to that mass appeal. It will be a winner for listeners, advertisers and broadcasters...
…and mobile phone carriers. The best way to get radio on smartphones is to build a compelling business case for the carriers. The pairing of the cheap broadcast download channel, which will free up congested mobile networks, with the back channel leading to revenue producing mobile commerce, is an attractive economic proposition. New HD Radio capabilities like Artist Experience, iTunes Tagging and Live Pause (think TiVo for radio) bring the radio listening experience up to the expectations of digital consumers. So as HD Radio chip prices and power usage continue to drop, the technology will be embedded in smartphones, opening up a whole new class of products and revenue streams to broadcasters.
An Annual Tradition. Here’s a link to Dave Graveline’s ‘Into Tomorrow’ profile of HD Radio Technology from CES. Hopefully it gives you a sense of the strong recent HD Radio progress.
But this opportunity cannot be captured without some effort.
Not surprisingly, we are convinced that HD Radio Technology is a prerequisite. As radio sage Fred Jacobs wrote about CES, “it sure looked to us like HD Radio could be the path in. The avenue into Sync, Entune, and other systems. When consumer electronics folks think about radio, they think digital. And HD Radio is often the first thing that comes to mind.” He is right. Analog technologies cannot play effectively in the digital CE world. There is a reason every other mass market medium is digital.
So if you don’t upgrade to HD Radio Technology, you won’t be playing in the connected game. And this difference is becoming more and more evident to consumers. Take a look nearby at the screenshots of what a digital radio station looks like versus its analog counterpart. There are currently over 2,100 HD Radio stations reaching over 250 million listeners, so unconverted analog stations are rapidly being left behind.
But there is more to do to grab that connected opportunity - stations have to deliver the new digital services. How will John Smith feel when he reads the owner’s manual of his new VW Jetta, gets excited about seeing album covers, but sees nothing because his local stations haven’t implemented it yet? Not a solid first impression of radio’s digital capabilities.
Together with our partners, we have successfully brought exciting new HD Radio capabilities to a wide class of popular consumer devices, and are working hard to allow stations to add new application simply and cheaply. Our car and CE partners understand it will be a gradual upgrade process, but working together, the industry needs to show consistent progress. In the end, broadcasters control their station’s output.
So it’s a brave new connected and converged world out there. Ubiquitous connectivity brings the threat of new competition to radio. But with a little effort, that threat is dwarfed by the opportunities connectivity will bring to broadcasters. We are here to help: it’s all we do, all day, every day.
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Thanks for reading, and let me know what you think: email to thoughts@ibiquity.com. I do read, consider and try to respond to all of them.
All the best for a fantastic 2011.
Bob Struble
Columbia, MD
January 2011
