GLOBAL WATCH MISSION REPORT

The future of radio – a mission to the USA

MAY 2004 Global Watch Missions The UK government Department of Trade and Industry (DTI) Global Watch Service provides funds to assist small groups of technical experts from UK companies and academia to visit other countries for short, fact finding missions.

Global Watch Missions serve a number of related purposes. These include establishing contacts with The DTI drives our ambition of overseas organisations for the purposes of ‘prosperity for all’ by working to collaboration; benchmarking the current status of UK create the best environment for industry against developments overseas; identifying business success in the UK. key developments in a particular field, new areas of We help people and companies progress or potentially disruptive technologies; become more productive by studying how a specific industry has organised itself promoting enterprise, innovation for efficient operation or how governments, planners and creativity. or decision makers have supported or promoted a particular area of industry or technology within their We champion UK business at home own country. and abroad. We invest heavily in world-class science and technology. Disclaimer We protect the rights of working This report represents the findings of a mission people and consumers. And we organised with the support of DTI. Views expressed stand up for fair and open markets represent those of individual members of the mission in the UK, Europe and the world. team and should not be taken as representing the views of any other member of the team, their employers, or DTI.

Although every effort has been made to ensure the accuracy and objective viewpoint of this report, and information is provided in good faith, no liability can be accepted for its accuracy or for any use to which it might be put. Comments attributed to organisations visited during this mission were those expressed by personnel interviewed and should not be taken as those of the organisation as a whole.

Whilst every effort has been made to ensure that the information provided in this report is accurate and up to date, DTI accepts no responsibility whatsoever in relation to this information. DTI shall not be liable for any loss of profits or contracts or any direct, indirect, special or consequential loss or damages whether in contract, tort or otherwise, arising out of or in connection with your use of this information. This disclaimer shall apply to the maximum extent permissible by law. The future of radio – a mission to the USA

Report of a DTI Global Watch Mission, May 2004 THE FUTURE OF RADIO – A MISSION TO THE USA

CONTENTS

Foreword 4 4Satellite radio in the USA 18 4.1 Service providers 18 Executive summary 5 4.2 In-car 18 S.1 Issues addressed 5 4.3 Receivers 19 S.2 Organisations met 5 4.4 Content 19 S.3 Findings 5 4.5 Marketing 19 4.6 WorldSpace 20 Introduction 8 4.7 Risks 20 I.1 Background 8 4.8 Conclusions 21 I.2 Participants 8 4.9 Summary 21

1 US radio audiences 9 5 Applications and uses of 22 1. 1 Size and shape 9 mobile telephony in the 1. 2 Station choice and content 9 US radio sector 1. 3 Localness 10 5.1 Introduction 22 1. 4 Opportunities and threats 10 5.2 Background 22 1. 5 Summary 11 5.3 Perception 22 5.4 Mobile telephones as 22 2 US radio advertising market 12 radio receivers 2.1 Overview 12 5.5 Possible revenue streams 23 2.2 Audience measurement 12 5.6 Building relationships 23 2.3 Opportunities and threats 12 with listeners 2.4 Summary 13 5.7 Summary 24

3Terrestrial digital radio 14 6Internet radio 25 in the USA 6.1 Introduction: regulation 25 3.1 Introduction 14 6.2 A threat to traditional 25 3.2 History 14 broadcasters? 3.3 The IBOC standard 14 6.3 Mobile internet listening 25 3.4 HD Radio rollout 16 6.4 Usage in the USA 25 3.5 Full conversion to terrestrial 17 6.5 Personalised services 26 digital radio 6.6 Costs 26 3.6 Conclusion 17 6.7 Content and extra services 26 3.7 Summary 17 6.8 Revenue opportunities 27 6.9 Radio on the television 27 6.10 Summary 27

2 THE FUTURE OF RADIO – A MISSION TO THE USA

7The impact of digital 29 technology on radio content 7. 1 Is radio dead? 29 7. 2Advertising is content 29 7. 3Digital oversights 30 7. 4 Making new forms 30 7. 5 Choice? 31 7. 6‘We’re all broadcasterz’ 31 7. 7 Conclusion 32

8 Comparative conclusions: 33 regulatory, cultural and economic 8.1 Introduction 33 8.2 Regulatory 33 8.3 Cultural 35 8.4 Theory of evolution: digital 36 radio arrives! 8.5 Digital evolution: creating a 37 crisis or an opportunity? 8.6 Why digital? 37 8.7 The digital radio proposition 38 is about data 8.8 What are the advantages of 38 AM/FM wireless data? 8.9 Cultural differences create 38 the killer application 8.10 What’s ahead for the UK 40 in 2010? 8.11 Summary 40

Appendices AMission participants 41 B Host organisations 44 C List of tables and figures 47 D Glossary 48

3 THE FUTURE OF RADIO – A MISSION TO THE USA

FOREWORD

The DTI’s report ‘Competing in the global We could not take every company with us, economy: the innovation challenge’, published so this report, jointly written by all the in December 2003, calls on UK businesses to Mission participants, is a chance to share our engage with overseas markets, partners and thoughts and findings with the rest of the technologies. The Future of Radio Mission to radio industry. Our seminar to launch this the USA (and all DTI Global Watch Missions) report has two keynote speakers from the set out to help a small group of UK business USA, iBiquity Digital and XM Satellite Radio, people do just that. so the audience can hear at first hand some of the things we did, and benefit from a The Mission was a truly collaborative effort chance to meet these companies. involving three UK government departments and eight organisations and individuals We hope you will read this report and find it representing different parts of the radio useful and think about engaging with some of value chain in this country: commercial and the companies and technologies mentioned. public service broadcasters, technology companies and independent producers, a The Mission team are grateful to all the trade body, university and corporate advisor. representatives of the US organisations In just one week the Mission had separate visited who made time in their busy meetings with 18 US-based organisations schedules to meet us and share their covering the spectrum of US radio from knowledge and experience. terrestrial to satellite, cable and internet, lobbyists to academia. Sarah Turner ITP Digital Media It is only right that government departments DTI Global Watch Service, Pera work together when we expect industry to do the same, but there are already incredible Scott Campbell examples of joined up thinking within the Sector Specialist radio community. There has been major US Media & Communications Industry cross-industry collaboration, for example, Advisor, UKTI between hardware manufacturers, public service and commercial broadcasters, to Gary Pluck successfully launch and market digital Science & Technology, FCO technologies and services around a single British Embassy, Washington DC standard for digital radio, DAB, not only in the UK but across Europe.

4 THE FUTURE OF RADIO – A MISSION TO THE USA

EXECUTIVE SUMMARY Seán Street Professor of Radio Bournemouth University

S.1 Issues addressed • National Association of Broadcasters (NAB) • National Public Radio (NPR) The Mission aimed to investigate the impact •Recording Industry Association of America of new radio technologies, including digital (RIAA) terrestrial, digital satellite, online and mobile •WorldSpace Satellite Radio on radio with a particular focus on the new • XM Satellite Radio Inc content, services and business models it will enable. Issues addressed – from both a NEW YORK North American and European perspective – •AOL Music & Radio included the following: •Bear Stearns & Co Inc • Clear Channel Radio •which new business models are available • Infinity Broadcasting Corp to technology companies, programme •Music Choice makers and broadcasters? • Nielsen SoundScan • what are the threats to traditional •Radio Advertising Bureau (RAB) companies and business models? •Sirius Satellite Radio Inc •how can best practice be adopted to drive consumer take-up of digital radio, when S.3 Findings hundreds of millions of analogue radios are still sold each year? The report is divided into eight chapters. •are US technologies relevant to the UK What follows are brief summaries of market, and how can the challenges of findings in the various areas under divergent standards and multi-platform consideration. For a fuller explanation of delivery be overcome? these findings, please turn to the •what are the opportunities for international appropriate chapter. collaboration around emerging technologies, radio content and business practice? S.3.1 US radio audiences

S.2Organisations met 44% of all radio listening in the USA is in the car. Even taking into account the size of During the Mission, the team met the USA, there is a very large number of representatives from the following US stations, with a long tail of stations with organisations (contact details are provided in very small audiences behind the larger Appendix B): metropolitan stations. Accusations of bland programming have been directed against WASHINGTON DC the large groups, as a result of their strong •Arbitron Inc advertiser and bottom-line focus. New • Consumer Electronics Assocation (CEA) digital technologies such as MP3 players •Federal Communications Commission (FCC) and the internet mean that there is •Howard University School of particularly strong competition for younger Communications audiences’ ears. • iBiquity Digital Corporation

5 THE FUTURE OF RADIO – A MISSION TO THE USA

S.3.2 The US radio advertising market S.3.4 Satellite radio

The US radio market is nearly 20 times that Two companies have been licensed by the of the UK, with revenue standing at FCC to develop digital satellite radio services approximately $19.5 billion, of which the two in the USA: XM Radio and Sirius. These largest groups, Clear Channel and Infinity, provide over 100 channels each, about 60% of account for 31%. Radio advertising audiences which are commercial-free for a subscription are measured by Arbitron who are (XM: $9.99 per month, Sirius: $12.99 per investigating a system of electronic month). As of June 2004, XM Radio had two measurement, although there is no million subscribers, and Sirius 400,000 immediate pressure for change towards this subscribers. Industry estimates suggest that from the major players. The 1990s saw a the total combined subscriber base will reach period of rapid growth and ownership 30 million by 2014. Capital start-up costs have, consolidation, with further consolidation a however, been considerable, and will take a continuing possibility. The development of HD long time to recoup. Radio (high definition radio) is not seen as an opportunity to grow audiences and revenue; S.3.5 Mobile telephony and radio at the same time, however, predominantly ad-free stations (eg XM and Sirius) are not The development of usage of mobile seen as a major threat by the big players. telephone technology in the USA has been somewhat different to that in the UK. There S.3.3 Terrestrial digital radio is, for example, considerably less WAP (wireless application protocol) and SMS (short Among a number of important new message service) usage, due largely to the developments in US broadcasting is HD pricing policy of US telecoms network Radio using the IBOC (in band, on channel) suppliers, the lack of interest on the part of system developed by iBiquity Digital broadcasters and the general culture of Corporation. The key difference between mobile phone usage in the USA. Unless there Eureka 147 and HD Radio is that the HD is a change in this situation, opportunities for technology allows broadcasters to use their UK companies remain severely limited. This current spectrum to transmit AM and FM very fact, however, may provide an as yet signals simultaneously with high quality unidentified revenue stream which could in digital signals. There is political and industry turn open the sector to more development. weight behind the development of this technology although it is very much in its S.3.6 Internet radio infancy, with, at Summer 2004, only approximately 100 stations actually Arbitron research demonstrates that 44% of broadcasting in HD Radio out of a total Americans claim to have used internet station population of more than 12,500. broadcasting at least once. The weekly However, in July 2004, Clear Channel audience for this, again according to Arbitron, announced that it would begin a rollout of is 30 million people, a 13% reach, suggesting digital broadcasting equipment using HD that internet broadcasting is used regularly by Radio technology across 1,000 of its stations, 30% of those who have tried it. Simulcasts planning to install 95% of its top 100 markets are less prevalent in the USA than the UK. within three years. Experiences in the USA suggest that bandwidth costs can be greatly reduced. While traditional radio broadcasters do not see current internet services as a threat, the

6 THE FUTURE OF RADIO – A MISSION TO THE USA development of wireless broadband services S.3.8 Comparative conclusions: has the potential for a major impact on the regulatory, cultural and economic way radio is consumed, particularly in the USA, where listening on the move (in-car) is a The key issues within the UK and US radio major part of radio consumption. industries are to be found in the areas of regulation, culture and technology. An S.3.7 The impact of digital technology enhancement of the old model of radio in on radio content both countries is driven by market forces. The challenge in the next five years – particularly Among US radio industry leaders, the in the USA – is to ensure that consumer take- perceived benefits of HD Radio largely up of new technology hardware is sufficient concern investor support rather than the to make the current level of investment cultural development of a new media form. succeed. Market evolution theory implies that As a consequence, advertising is frequently all components are integral. For the market to defined as ‘content’ and advertisers held in develop, the theory presumes that its higher regard than the listening audience. development will require consumer demand, The cultural development of radio in the US readily available product and evident owes a great deal to its commercial technological benefit for the consumer. underbelly and listeners accept the ‘radio advertisement’ as an inherent part of the listening experience. Focused upon enhancing business models, the industry has little insight into how digital technology will enhance the listener experience.

By nature of its design, HD Radio can only be used to simulcast analogue transmission until consumer migration to digital is complete. According to Clear Channel, this is 20-30 years away.

Satellite broadcasters claim to offer listeners greater choice, yet, typically content is homogenous, and, to an extent, defined by the primary listening environment, ‘in-car entertainment’. Future propositions tend to revolve around the provision of information services and genre based music content.

The popularity of IP based music services such as Apple iTunes and the adoption of LANs in consumer homes suggests that IP broadcasting poses a significant threat to both Satellite and HD Radio.

7 THE FUTURE OF RADIO – A MISSION TO THE USA

INTRODUCTION

I.1 Background I.2 Participants

Radio in the UK is at a particularly interesting The Mission consisted of representatives from stage in its history; the development of DAB a group of organisations with considerable (digital audio broadcasting), the growing use combined experience of producing and of the internet and other platforms and the distributing radio programming and data on all potential for transmission of parallel strands platforms. The team comprised: of data have demonstrated, once again, the medium’s capacity for re-inventing itself. At • Amelia Colvin the same time, technological developments Independent corporate finance advisor have led some to question the very identity specialising in US and European media, of radio as a medium, and to envisage its telecoms and technology metamorphosis into yet another form, while preserving its essential qualities of the • James Cridland personal and the portable. Head of New Media, Virgin Radio

These issues have been behind The Future of • Rachell Fox Radio Broadcasting Mission, which has been Liaison Manager, BBC Radio and Music sponsored by the UK Department of Trade Interactive and Industry’s (DTI) Global Watch Service and organised in conjunction with the British • Matt Hall Embassy in Washington DC and the British Head of Radio, Somethin’ Else Consulate General in New York. In May 2004 the Mission visited Washington DC and New • Matthew Honey York, meeting with major broadcasters, Managing Director, Unique Interactive technology companies, trade bodies and regulators with the aim of reaching an • Michael O’Brien understanding of the latest developments in Operations Director, Radio Advertising digital and traditional radio broadcasting in the Bureau USA, and to explore the potential for international commercial collaboration. The • Nick Ryan related areas of business models – which will Freelance Sound Designer and Composer survive in the medium and long term – and technological drivers – what is available and • Seán Street what lies behind the decisions – were of Professor of Radio, Bournemouth Media particular interest to the Mission. School, Bournemouth University

• Sarah Turner DTI International Technology Promoter (ITP), Pera Innovation Ltd

Contact details are in Appendix A.

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1 US RADIO AUDIENCES

1.1 Size and shape Patterns of listening throughout the day show a breakfast peak at 7pm, then listening dips The US radio audience is huge. 94% of the slightly but remains high until a rapid drop population listen to radio each week (ahead from 4pm to 7pm (see figure 1.1). Radio has of the UK at 91% reach). Only the 12-17 and higher reach than TV during the early part of the 64+ demographic dip significantly below the day. It is not until afternoon/evening that 94% reach. Americans spend about 20 hours TV takes over as the dominant medium. per week listening to radio (slightly behind the UK at 22 hours). There are 13,898 radio stations in the USA, 8,831 FM and 5,067 AM. 75% of listening is The highest proportion of radio listening is to FM stations. This is a huge number of in-car (44%). This level of in-car listening is stations even considering the large significantly higher than the UK (16%) – population. On a ‘stations per head of reflecting the importance of car travel in population’ basis, the USA has roughly ten everyday American lives. times more stations than the UK.

The level of in-car listening is partly responsible 1.2 Station choice and content for the fact that the highest listening demographic is men, age 35-44 (23 hours per Arbitron classifies radio stations into 13 week), and also, the lowest listeners are formats (Adult Contemporary, Country, teenagers who only listen for 12 hours weekly. News/Talk etc) with each format generally

25

Mon-Fri

20 Sat-Sun

15 QH Rating A 10 (persons using radio)

5

0 56 7891011121 23456 78910111212345 AM Noon PM Mid AM

Figure 1.1 Hour-by-hour radio listening in the USA (courtesy Arbitron Inc) 9 THE FUTURE OF RADIO – A MISSION TO THE USA having a different demographic and lifestyle 1.3 Localness footprint. This allows advertisers to target their advertising spend. The most popular US Localness is considered absolutely central to format is News/Talk, which accounts for 15% analogue station format/content. There are of stations and 16% of total listening hours. very few state-wide stations (only a few NPR stations) and no national analogue stations. In a typical large metropolitan market, Syndicated programming only accounts for listeners have a choice of between 40 and 60 10-15% of hours on local stations. stations. This level of choice is slightly higher than the level of analogue station choice in Localness is driven both by listener needs London, but lower than the digital choice and also by the FCC whose core principles offered in London. are localism, competition and diversity. The importance of localness in radio broadcasting The FCC does not regulate station format has been highlighted recently with XM (beyond decency) hence stations are able to offering a series of local traffic bulletins on change formats at their discretion (see their national satellite radio service. The large Chapter 7 of this report). This can mean that radio groups lobbied against allowing this to several stations all end up chasing the same happen since they saw it as impinging on demographic with similar offering. their territory.

The consolidation that has taken place in the 1.4 Opportunities and threats market over the last ten years is often accused of limiting diversity in radio Younger audiences (12-24) have been programming (Clear Channel are not reducing their radio listening at roughly a half uncomfortable with the idea that many of hour per year for the last three years. This their channels sound similar). However, with represents a 3% slide each year. It is thought the top 10 radio groups accounting for under that this is driven by heavy competition for 50% of the audience, there is still significant younger audiences’ time from devices such choice available on the dial. as games consoles/iPods/internet. There is a concern that younger audiences will not It is widely accepted that ads are a turn-off return to radio as they get older. for listeners, both the volume of ads and their quality. This is one of the most important Broadband is having an impact on factors that has provided an opportunity for consumers’ media day as illustrated in Table subscription and ad-free radio services – as 1. 1. Internet seems to be stealing time from seen from XM/Sirius (see Chapter 4), AOL all media – particularly newspapers (see and Music Choice (see Chapter 6). Chapter 6).

The large station groups are highly bottom- The media day (hours) line focused: the advertiser comes a clear Dial-up Broadband first. The groups have developed formats homes homes which maximise their return, and hence TV 3:03 2:45 content/programming-wise are less likely to Radio 2:43 2:23 take risks or experiment. This is one of the Newspapers 0:40 0:11 reasons that some listeners accuse the larger Internet 1:16 2:00 groups of bland programming. Table 1.1 The media day in the USA

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1.5 Summary

•Radio listening in the USA is dominated by in-car listening – accounting for 44% of all listening hours.

•Even considering the size of the US population, there is a very large number of stations – meaning that behind the large metropolitan stations there is a huge tail of stations with very small audiences.

•The large station groups are very advertiser and bottom line focused – which has resulted in them sometimes being accused of providing bland programming.

•New digital technologies such as MP3 players and the internet mean that there is particularly strong competition for younger audiences’ ears.

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2 US RADIO ADVERTISING MARKET

2.1 Overview Having already had successful electronic audience measurement trials in Philadelphia The US radio advertising market is worth two years ago, Arbitron are now rolling out a around $19.5 billion (2003). Radio accounts test in Houston next year. They hope to move for nearly 13% of the advertising pie to more markets in 2006/7. The view from (compared to just 7% in the UK). Bear Stearns was that a move to electronic measurement was inevitable. However, the Three quarters of advertising revenue is local view from Clear Channel was less clear – spot advertising. National advertising they felt that the ‘jury was still out’ and were accounts for nearly 20% and networked ads concerned about the economic feasibility of around 5%. This contrasts heavily with the electronic measurement for small stations. UK market where nearly 60% of advertising revenues are nationally bought and sold. 2.3 Opportunities and threats

The US market is often accused of being Any move to HD Radio is not seen as an highly consolidated. The numbers do not back opportunity to grow radio’s share of the this up: advertising pie. HD radio is seen by the big groups as a distraction rather than an •Top 50 groups account for 34% of stations opportunity (see Chapter 3). •Top 50 radio groups account for 62% of revenue Ad-free stations could pose a threat to radio advertising revenues as they steal audience. It is, however, fair to point out that there are The view of Bear Stearns, Clear Channel and two groups which between them take 31% the US RAB was that this was not significant of ad revenue (Clear Channel 19%, Infinity and not something of any concern. Only 12%). Opinion in the USA is that there is still iBiquity felt that this was something that they room for further consolidation. needed to take seriously.

2.2 Audience measurement Direct response advertising on DTV (Music Choice) has proved extremely successful. As Arbitron has a monopoly position in supplying this grows, it could draw revenue from audience measurement research in the USA. analogue radio, although it could only attack Like the UK, a diary based system is used national advertising which as we have seen is throughout the country. much smaller than local advertising.

As a result of the fact that the USA does not have a joint industry group such as the UK’s RAJAR managing audience measurement, it means that Arbitron can steer a move towards electronic measurement – using their own technology. The UK market is currently considering several competing measurement technologies. 12 THE FUTURE OF RADIO – A MISSION TO THE USA

2.4 Summary

•The US radio advertising market is currently around $19.5 billion (nearly 20 times that of the UK).

•The two biggest radio groups (Clear Channel and Infinity) account for 31% of ad revenue. Beyond these two big players, levels of consolidation are low. There is still the possibility of more consolidation to come.

•Radio advertising audiences are measured by Arbitron who are the sole provider of information using a diary based system. Arbitron are looking to introduce electronic audience measurement, however the future is far from certain with the big groups not pushing for change.

• Commercial radio is a relatively mature market in the USA, having gone through rapid growth and consolidation during the 90s. Further growth may still, however, be possible through further consolidation.

• HD Radio is not seen as an opportunity to grow audiences and hence ad revenue. At the same time, the arrival of ad-free national radio stations is not seen as a threat by the big players

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3 TERRESTRIAL DIGITAL RADIO IN THE USA

3.1 Introduction the FCC, recognising that the appropriate technology had matured, commenced In October 2002 the Federal Communications research and consultation into which of the Commission (FCC) – the US equivalent of the available digital radio standards it would be UK’s Office of Communications (OFCOM) – appropriate to adopt in the USA. selected in-band, on-channel (IBOC) as the technology enabling AM and FM radio It is considered that the FCC adopted the broadcast stations to commence digital IBOC standard for two principal reasons; operations. They immediately announced procedures that allowed existing operating 1The spectrum required for Eureka 1472 AM and FM radio stations to begin digital digital radio, as used in Europe and many transmissions on an interim basis using the other countries around the world, was HD Radio system developed by iBiquity already occupied by the US military. Digital Corporation1. 2The major US radio groups did not want to The IBOC system has subsequently been change the status quo in the US radio branded High Definition Radio or HD Radio in marketplace by allowing the possibility of the USA. new entrants, that would be possible if a ‘multiplex’ standard such as Eureka 147 3.2 History were adopted.

In 1990 the FCC first considered the 3.3 The IBOC standard feasibility of terrestrial and satellite digital radio services. At that time they concluded As with Eureka 147, iBiquity’s HD Radio that the digital terrestrial systems then under technology provides for enhanced sound consideration were undeveloped and that it fidelity, improved reception, and new data was premature to engage in discussions services3. It provides a method of regarding digital radio standards, testing, transmitting near-CD quality audio signals to licensing, and policy issues. In 1999 however, radio receivers along with new data services

1 iBiquity Digital Corporation was created in August 2000 by the merger of the leading technology developers of AM and FM digital broadcasting, Lucent Digital Radio and USA Digital Radio. iBiquity Digital combined the technologies from both companies to develop the best solution for AM and FM radio broadcasting. The company considers itself to be a developer and licenser of IP and broadcast related software. The company’s investors include 15 of the nation’s top radio broadcasters, including ABC, Clear Channel and Viacom; leading financial institutions, such as Grotech Capital Group, J P Morgan Partners, New Venture Partners, Pequot Capital and J&W Seligman; and strategic partners Ford Motor Company, Harris, Texas Instruments and Visteon. The Consumer Electronics Association (CEA), National Association of Broadcasters (NAB) and National Public Radio (NPR) support iBiquity’s IBOC system. Further information on iBiquity can be obtained from www.ibiquity.com

2 See www.worlddab.org/eureka.aspx for a further explanation of Eureka 147.

3 Morgan Stanley has predicted that the total wireless data market in the USA will be worth $63 billion by 2010. iBiquity predicts that HD Radio will have $5 billion of that market by then.

14 THE FUTURE OF RADIO – A MISSION TO THE USA

such as station, song and artist identification, stock and news information, as well as local traffic and weather bulletins4.

The key difference between Eureka 147 and HD Radio is that the HD Radio technology allows broadcasters to use their current radio spectrum to transmit AM and FM analogue signals simultaneously with new higher quality digital signals6. These digital signals eliminate the static, hiss, pops and fades associated with the current analogue radio system. The HD Radio technology Figure 3.1 How HD Radio works5 makes use of the existing AM and FM bands (in-band) by adding digital carriers to a radio that have converted. Current analogue radios station’s analogue signal, allowing will continue to receive the analogue portions broadcasters to transmit digitally on their of the broadcast. existing channel assignments (on-channel). The technology also allows for radios to be The HD Radio system uses perceptual coding ‘backward and forward’ compatible, allowing to discard information that the human ear them to receive traditional analogue cannot hear. This reduces the amount of broadcasts from stations that have yet to digital information, and therefore the convert and digital broadcasts from stations frequency bandwidth, required to transmit a

4 The data services being considered for HD Radio are very similar to those that are being used, tested and considered for the Eureka 147 standard. The Recording Industry Association of America (RIAA) has already raised concerns about some of these services such as the ability to record near perfect audio and in particular the possibility of being able to record surround sound audio.

5 Source: www.ibiquity.com/hdradio/hdradio_how.htm

6 Under the current FCC rules, radio stations are compelled to simulcast their existing analogue services, thus limiting ‘listener choice’. Interestingly perhaps it is ‘listener choice’ that is given as the strongest reason for the take up of DAB digital radio sets in the UK.

7 The ‘hybrid system’ allows for the simultaneous transmission of analogue and digital signals. However, in the fullness of time (+20 years), stations could become ‘all digital’. Tests have shown that a conversion to ‘all digital’ would significantly increase the transmission area without any interference issues. All HD Radios in production are ‘all digital’ capable.

8 Blending usually takes 4 to 5 seconds. This is a forced time delay to smooth any sudden cut outs but does cause issues when simulcasting live programming.

15 THE FUTURE OF RADIO – A MISSION TO THE USA high-quality digital audio signal. In addition, announcements), assisted living services (eg the iBiquity hybrid system7 is designed to radio reading services), non-English language blend to FM analogue when digital reception programming and news services to under- fails8. This blending feature eliminates a digital served populations. ‘cliff effect’ that would otherwise result in the complete and abrupt loss of reception at 3.4 HD Radio rollout locations where the digital signal fails. As of 19 April 2004, over 300 radio stations11 HD Radio allows a radio station to scale the encompassing more than 100 markets have digital portion of its hybrid FM broadcast from licensed iBiquity’s technology and have begun 96 kbps to lower rates in order to set aside digital audio broadcasting or are in the capacity for associated services. The FM process of converting to HD Radio. system can be scaled from 96 kbps to Cumulatively, these markets include over 220 84 kbps or 64 kbps to obtain 12 to 32 kbps for million people. In each of the six major other services9. Broadcasters are thus able to markets – New York, Los Angeles, Chicago, provide not only a vastly improved audio San Francisco, Miami and Seattle – a signal, but also multiple streams of digital minimum of 10 stations and up to 18 stations audio programming. In addition, the system is have licensed iBiquity’s technology. Radio capable of non-broadcast uses that are non- manufacturers have also begun selling digital audio and/or subscription-based in nature. radio receivers directly to the public12. These receivers currently cost ~$700 and are thus National Public Radio (NPR) is currently considered expensive. iBiquity are aiming for testing the idea of multiple broadcast a $199 future price point. streams under the auspices of its Tomorrow Radio Project10. Using HD Radio it is According to iBiquity, the estimated costs for demonstrating that it is possible for hybrid a station to implement its hybrid HD Radio and digital radio stations to air not only more system range from $30,000 to $200,000, music programming, but also public safety with an average cost of $75,000. Conversion services (eg national security costs vary depending on the age and other

9 The HD Radio system also allows broadcasters to use ‘extended hybrid modes’ whereby the digital sidebands are extended even closer to the analogue signal. This allows the broadcaster to obtain 12.5 to 50 kbps of capacity for other services.

10 National Public Radio (NPR), in conjunction with the engineering firm of Hammett & Edison, recently released results of its supplemental audio programming tests. In these tests, the public radio station’s signal in the test markets divided the 96 kbps digital data stream into two channels, 64 kbps and 32 kbps. The tests indicated that mobile reception and service area coverage for the split digital signals was nearly as good as that for the counterpart analogue signal. NPR states that the 64 kbps channel sounds ‘almost as good as a 96 kbps channel and a 32 kbps channel sounds similar to an analogue FM broadcast’. It should be noted that if the supplementary 32 kbps digital signal of a multiplexed station fails, it does not blend back into the analogue channel; instead, the receiver mutes that channel. See www.npr.org/about/press/040109.tomorrowradio.html for further information.

11 See www.ibiquity.com/press/pr/041904Coast2Coast.htm

12 Kenwood, Phillips, JVC, Panasonic and Texas Instruments recently showcased IBOC receivers at the 2004 Consumer Electronics Show in Las Vegas. Because of the high proportion of time spent in cars in the US, all of these radios are for the car. They are also all retro-fit. iBiquity aim to have HD Radios being line fitted by 2006/2007. Note that while IBOC is still in its nascent stage in the USA, over 300 million people in other countries can now receive up to 600 different digital radio services via the Eureka 147 standard. See www.worlddab.org/benefits.aspx

16 THE FUTURE OF RADIO – A MISSION TO THE USA characteristics of a station’s transmitter plant However, in an effort to increase the take-up and studio equipment13. of HD Radio, especially in the light of other digital radio competition from on-line, cable 3.5 Full conversion to terrestrial and satellite (see Chapters 4 and 6), it is likely digital radio that they are more willing than ever before to work with partners to achieve their objectives. The US Congress has set 31 December 2006 as the analogue television termination date, 3.7 Summary albeit with certain exceptions. There is, however, no analogous Congressional •Whilst analogue radio has been chasing mandate for the termination of analogue radio the dollar with more and more sterile and broadcasting as radio stations are not using limited programming, a burgeoning digital any additional spectrum to provide a digital radio market offering significantly more service, as is the case with digital television, listener choice and functionality has been and frequency band-clearing is not required born. This latter market is still in its diapers by US statute. Based on these factors, the but as it starts to grow up it is likely to FCC has seen no immediate need to show its parents that it is time to ditch the consider mandatory transition policies of the crystal sets and get into the 21st century. type contemplated with respect to DTV. •HD Radio is just one of the new infants. It However, the FCC has said that it does has political and industry weight behind it recognise the spectrum efficiencies and but still has a long way to go with only ~100 related new service opportunities inherent in radio stations actually currently broadcasting the HD Radio system. It also wants to enable in HD Radio out of a total US station terrestrial radio broadcasters to compete population of 13,898. The original legislation more fully with the satellite radio services does not allow for much of a ‘USP’ (unique now in operation. As a result, it is currently selling point). However, if the latest seeking comment on the ‘switch off’ issue consultation is effective, and the industry and a number of other HD Radio related starts to lighten up a little, HD Radio will be issues from the industry. here to stay. For example, in July 2004, Clear Channel announced that it would 3.6 Conclusion begin an aggressive rollout of digital broadcasting equipment to 1,000 of its Whilst iBiquity consider themselves to be the stations, working with the iBiquity ‘sole service provider’ rather than a technology and planning to install 95% of ‘monopoly’, they are, nevertheless, the only its top markets within three years14. Such gateway into HD Radio. As a result, any news as this will undoubtedly help the HD manufacturer or service provider will need to Radio cause significantly. Ultimately HD contact them and agree a licensing agreement Radio will bring with it, as with other similar with them if they want to work with HD Radio. digital radio systems, some very exciting In the past iBiquity have used their dominance new ways to consume audio and generate in the market to work within a ‘walled garden’. those much-required new revenue streams.

13 iBiquity’s website offers broadcasters a free assessment of the compatibility of their existing equipment with IBOC as part of iBiquity’s EASE programme to encourage broadcasters to convert to digital operation. See www.ibiquity.com

14 Press release, Clear Channel Radio, 22 July 2004. See www.clearchannel.com/Radio/PressReleases/2004/20040722_CCR.pdf

17 THE FUTURE OF RADIO – A MISSION TO THE USA

4SATELLITE RADIO IN THE USA

4.1 Service providers Industry estimates suggest that the total combined subscriber base will reach 30 The FCC has authorised two companies for million by 2014 which should generate satellite digital audio radio services – XM substantial cash flow for these two and Sirius. companies. However, the capital cost of start up was approximately $2 billion so it will take XM an extremely long time to recoup these costs.

• XM has two satellites in geo-stationary 4.2 In-car orbit and a network of approximately 800 terrestrial repeaters Both companies have formed strategic • Subscribers are currently charged alliances with car manufacturers: XM with $9.99/month and XM has managed to General Motors, Honda and Toyota; and Sirius keep its churn rate down to 1.3% with Ford, Daimler-Chrysler, BMW and Mazda. • It has 2 million subscribers (June 2004) and management expect to be at GM has been incentivised to install XM breakeven by mid 2005 at which point XM radios, and XM view that as part of their cost will become EBITDA cash positive (see of customer acquisition. A significant number Chapter 7) of vehicles come with the XM model factory- fitted. This means that XM don’t have to rely Sirius on dealers to up-sell their model or on consumers to make the purchase decision. •Sirius has three transmitters directly above GM then offer three-month free trials of XM the continental US which means that they which help to hook customers in and leads to require fewer terrestrial repeaters as a 70% conversion rate at the end of the trial. consumers are more likely to have line of sight to one of the satellites at any given Both XM and Sirius stand to benefit time significantly if they can persuade car • Subscribers are charged $12.99/month manufacturers to factory fit satellite receivers. with a churn rate of less than 2% Their success will depend on the quality of the •Sirius currently has 400,000 subscribers alliances they have forged with these (May 2004) and expects to be at manufacturers. Moreover, to date, the installed breakeven point when it has acquired 2-2.5 base of in-car satellite receivers is typically in million subscribers, projected to be by mid high-end models where the monthly to late 2005 subscription fee would not be a considerable additional cost to consumers. Once mid and low-priced car models appear with satellite radio pre-installed it is likely that the conversion rate will be much lower (see Chapter 7). Once these cars move into the used car market, churn is also likely to increase.

18 THE FUTURE OF RADIO – A MISSION TO THE USA

4.3 Receivers contrast to the UK where DAB digital radio offers consumers extra choice with added XM have retained in-house control of all information services and no subscriptions to hardware development – chipsets, receivers pay (see Chapter 7). The low churn rate for etc. This has enabled them to drive down a satellite radio would suggest high consumer key barrier to entry for consumers – cost of satisfaction with the new services although it receivers. There are now sub-$100 receivers is still too early to assess this properly. in shops. This is because of evolution in the chipset manufacture which has driven down Programme associated data (PAD) typically the costs of chipsets. New models of radio consist of artist, song title and channel receivers are coming out with FM frequency name information with some associated modulators, which means very little wiring is information for the ads carried on the required, removing the hassle factor for speech channels. The new radio receivers consumers. Moreover, car, home and coming onto the market this year are boombox adapters allow consumers to capable of receiving streaming data which transfer their listening easily. A new product would allow for the provision of scrolling in development by XM with store and stock prices and sports scores. forward features will provide extra content and enable on-demand use of material and This explosion in radio content creates new the ability to time-shift content. opportunities for UK production companies to sell radio content to the USA. The relative 4.4 Content immaturity of the existing data services would suggest that the UK could make a Both companies offer over 100 channels, mark here. ~ 60% of which are of commercial-free music. Both regard content as the key driver 4.5 Marketing for consumers, providing compelling content that is unavailable elsewhere. They don’t offer XM have led the marketing of satellite radio a ‘jukebox’ service but radio services with a in the USA. To date it has been predominantly high level of interactivity, DJs and live mass awareness-raising work with some programming. XM receive ~120,000 listener outreach such as presence at music festivals phone calls/month across 20 channels and etc. XM rely on word of mouth marketing to describe their service as ‘a local station for raise awareness of their specialist music the USA’. XM recently started offering real- channels. They also harness the power of the time traffic and weather information on a car manufacturers/dealers to evangelise. local basis in 16 markets (soon to be 21) in conjunction with Mobility/Traffic Pulse. Schedule information is contained on their website, and 70% of subscribers sign up for a It is generally agreed that the perceived weekly email newsletter which promotes homogenisation of traditional analogue radio forthcoming programme highlights. The stations in the USA is a contributing factor in the take also cross-promote other services on air. up of satellite services. This is in stark

19 THE FUTURE OF RADIO – A MISSION TO THE USA

Content, price and product features are how The European Satellite Digital Radio (ESDR) XM tries to differentiate itself from Sirius. initiative will offer: Sirius radios are more expensive than XM models and the subscription charges are •A comprehensive range of services for the higher. Factory fit in cars also helped XM motorist, with broader choice of live radio get a head start, giving them a huge programmes plus radio on-demand and advantage and allowing them to overtake telematics services Sirius, although the latter are now working • Mobile, portable and fixed reception hard to catch up. They are working on a • Seamless national and European coverage video service with four high quality video channels aimed at pre-teens for in-car back It is hard to quantify the likely impact of this seat applications. Sirius has also struck initiative in the UK. It is anticipated that in some very good deals with sports bodies order to make this business model work, the including the National Football League (NFL) ESDR would have to provide Europe-wide which gives them exclusive coverage of services, and whilst an English-language sporting events. Sirius is focusing on service may appeal to ex-pats and other creating a premium brand to justify their English speakers, it is difficult to estimate the higher subscription fee, and whereas XM demand in the UK for services such as have spent money on advertising, Sirius has German-language programming. invested in programming. Both companies are helping to create a new radio category. DAB is already well established in the UK, Services are national and no retuning is providing subscription-free additional choice required – an important benefit for the USA’s with the full backing of both commercial 3 million truckers. and public service broadcasters. The appetite for additional (potentially foreign- Interoperability has been mandated by the language) subscription-based broadcasts is FCC so there is an office in Florida staffed expected to be small. 50/50 by XM and Sirius, and co-funded purely to work on interoperability. There are no 4.7 Risks deadlines for completion of this. High start-up costs may leave investors 4.6 WorldSpace feeling nervous about the length of time it will take to recoup initial investment; they WorldSpace Satellite Radio was founded in may back out leaving either company 1990 and uses satellites to broadcast directly seriously under-funded. to people across Africa, Asia and parts of Europe. WorldSpace developed the Satellites cost a significant amount of money technology used by XM today and was to launch and maintain. If either company originally part of the same company before were to lose one, it would have disastrous XM was spun off. implications for future profitability.

In Europe, WorldSpace has partnered with Take up in-car may drop off as satellite Alcatel Space to establish a consortium that receivers appear in lower end or second-hand will offer consumers a service tailored to models. The cost of customer acquisition and European linguistic and geographic markets. retention may become uneconomic.

A very minimal risk could be that terrestrial broadcasters change their strategy and begin to offer more choice in digital radio and more 20 THE FUTURE OF RADIO – A MISSION TO THE USA variety in their broadcast offering. This would • XM have retained in-house control of all undermine the satellite operators’ USP, hardware development, which has broader choice. However, it seems unlikely to enabled them to drive down a key barrier happen as there appears to be little appetite to entry for consumers – cost of for this from terrestrial commercial radio. receivers. A new product in development by XM with store and forward features 4.8 Conclusions will provide extra content and enable on- demand use of material, and ability to Despite the above risks, if we assume that time-shift content. current terrestrial broadcasters continue to ignore the threat posed by satellite radio, and •The perceived homogenisation of satellite investors hold their nerve, the traditional analogue radio in the USA satellite radio model appears to offer a appears to be a contributing factor in the financially viable and credible alternative to take-up of satellite services. This is in stark HD Radio in the USA. Opportunities for UK contrast to the UK where DAB digital radio radio exist in provision of new audio content offers consumers extra choice with added and data services to satellite broadcasters. information services and no subscriptions.

4.9 Summary •PAD typically consist of artist, song title and channel name information with some • FCC has authorised two companies for associated information for the ads carried satellite digital audio radio services. on the speech channels. XM has 2 million subscribers (June 2004), currently charged $9.99/month. Sirius has •The main conclusion is that if we 400,000 subscribers (May 2004), charged assume current terrestrial broadcasters $12.99/month. continue to ignore the threat posed by satellite radio and that the satellite • Industry estimates suggest that the total investors hold their nerve, we believe combined subscriber base will reach 30 that the satellite radio model offers a million by 2014 which should generate financially viable and credible alternative substantial cash flow for these two to HD Radio in the USA. companies; however, the capital cost of start up was approximately $2 billion which • Opportunities for UK radio exist in the will take an extremely long time to recoup. provision of new audio content and data services to the satellite broadcasters. •Both companies offer over 100 channels, approximately 60% of which are •WorldSpace Satellite Radio was founded commercial-free music channels. They in 1990 and uses satellites to broadcast both regard content as the key driver for directly to people across Africa, Asia and consumers, providing compelling content parts of Europe. In Europe, WorldSpace that is unavailable elsewhere. has partnered with Alcatel Space to establish a consortium that will offer •They have both formed strategic alliances consumers a service tailored to European with car manufacturers and stand to linguistic and geographic markets. benefit significantly if they can persuade However, given that DAB is already well car manufacturers to factory fit satellite established in the UK, the appetite for receivers. Their success will depend on the additional (potentially foreign-language) quality of these alliances. subscription-based broadcasts here is expected to be small. 21 THE FUTURE OF RADIO – A MISSION TO THE USA

5 APPLICATIONS AND USES OF MOBILE TELEPHONY IN THE US RADIO SECTOR

5.1 Introduction 5.3 Perception

This chapter will look at the possible In the USA, cell phones are seen primarily as applications of mobile phone technology in communication devices, rather than the US radio industry. Specifically, it will look something through which you receive at the two most obvious applications; first, entertainment. Phones with features such as the development of possible revenue colour screens, cameras and web access are streams through the ability to buy music and available in the USA, but are seen very much other products from broadcasters through as ‘upscale’. Some, limited, services such as your mobile phone; and second we’ll look at weather and traffic texts are available, but at the ways that mobile applications can be the moment no one is offering either audio or used to build and strengthen the listeners’ video on demand. Although the new relationship with their favourite stations. generation of handsets available in the USA provides mobile web access, the cost of these 5.2 Background services is prohibitive. This probably goes back to the pricing structure of calls from and to cell As with most US telecommunications, the phones, and is something which will limit the Federal Communications Commission (FCC) is mass appeal of listening to music. responsible for overseeing the regulation and ownership of mobile telephone licences (see 5.4 Mobile telephones as radio receivers Chapter 7). It does this through a subsidiary, the Wireless Telecommunications Bureau Mobile phones with built-in FM radio (WTB). This section of the FCC, as well as receiving capability are already common in looking after mobile telephones (in the USA the US market. According to a spokesman for known as ‘cellular’ or ‘cell phones’), is also US trade body, the Consumer Electronics responsible for paging, personal Association (CEA), ‘ultimate portability’ communications services, public safety, and always resonates with the American other commercial and private radio services. consumer when it comes to electronic The WTB is also responsible for implementing goods, be it games consoles, audio devices the FCC’s statutory authority to assign or phones. And, in the world of radio, what’s spectrum licences by competitive bidding. more portable than a phone?

The mobile phone market in the USA has However, although these phones with FM been slower to take off than in many other capability seem to be an accepted part of the countries. The most widely given explanation radio landscape in the USA, those driving the is that this has been mainly down to the new methods of delivering radio content individual licence owners’ (Sprint, AT&T etc) (satellite, high definition) seem to prefer to pricing plans, which essentially mean that the concentrate – initially at least – on getting cell phone owner is paying for both making their main methods of delivering their and accepting a call. The use of ‘roam’ tariffs broadcasts to the audience out into the – where users are charged more for making market before looking at tie-ins with phone calls when outside their local area – can also manufacturers to include their technology in make having a mobile very expensive. handsets. For example, satellite broadcasters 22 THE FUTURE OF RADIO – A MISSION TO THE USA

XM admit to looking at the possibility of Although this reading of the market seems putting their technology into mobile phones very pessimistic, there are indications of but, as with other US broadcasters (for possible opportunities for those companies whom the bottom line is the main driver in willing to take a punt. The general opinion developments in technology), they have been seems to be that sales of music on mobile able to discern no particular desire from the phone platforms will grow, but will remain a consumer for this service. Therefore, there is very minor part of total music sales. no huge profit to be made, and hence no pressing need to work on the technology. 96% of music sales in the USA are still for a Certainly, the satellite companies see phone physical CD, rather than downloads. The tie-ins as a much lower priority than either opinion amongst industry observers is that home or in-car listening. this probably won’t alter that much, as the price of CD is offset by the pleasure of In terms of high definition radio, indications physical ownership. However, the recent are that phone manufacturers are working launch of such high profile and consumer on developing HD technology for their friendly download services as Apple’s iTunes handsets, but think that, as it’s ‘not a more might change the general view of such effective way of receiving broadcasts than services, and encourage growth in the mobile on a broadcast device’, it won’t be a hit phone sector. with the consumer. In terms of downloading ringtones onto 5.5 Possible revenue streams mobile phones, this is one area of possible revenue growth where there seems to be Although technological advances mean it is some disagreement over future directions. already possible to download tunes from UK Although the market is in its earliest days, sites, with obvious revenue raising there’s disagreement whether the sector will opportunities for radio broadcasters, the offer only marginal growth, or whether it will representatives of the US broadcasting media be a major revenue earner. that the Mission met seemed to be extremely disinterested in the idea. For the latter to happen, the general consensus is that the current average cost The general opinion across the industry is ($2.50 for a 20 second clip) needs to that the concept of sell-through services on become more competitive – especially mobile phones in the USA just isn’t there. when iTunes Music Store is offering whole Apart from anything else, there are doubts as songs for a dollar. to whether the phone system is up to supporting the amount of data transfer that There is much more consensus on the such transactions would generate. There’s a success of handsets which feature a feeling that if the carriers want it, it might ‘compose your own ringtone’ facility, as this happen, but otherwise it’s very unlikely. was one of the features which drove the take-up of the Blackberry (essentially a mobile e-mail service) system.

23 THE FUTURE OF RADIO – A MISSION TO THE USA

5.6 Building relationships with listeners broadcast by XM Satellite Radio. These channels, which although they’re available As with revenue streams, the use of mobile nationally, each concentrate on a different phones to strengthen broadcasters’ major conurbation’s traffic news, make a relationship with their audience is largely point of asking for travel tips, and name- unexplored by the US broadcasting industry. checking the punters when their tips have Text alerts (sent by the station to registered been verified and are broadcast (see Chapter members of the audience) and gathering 4). This enables XM to increase the ‘local’ audience opinion are both underused methods character of the stations, possibly the biggest of station-audience communication. Reasons selling point in US radio. However, they will for this include widespread internet access, probably run into conflict with terrestrial and subsequent e-mail usage (internet broadcasters, who are already jealously connections in the USA are normally free due guarding their ‘local’ exclusivity, if they go to the accepted phone billing method of not much farther down this path. charging for local calls), the preponderance of syndicated content on the major radio groups 5.7 Summary which limits local involvement and interaction, and the aforementioned high tariff charges for • Unless serious changes take place in the phone usage. usage of mobile phones and the culture that surrounds them (eg SMS and WAP Furthermore, it should also be pointed out usage), possible areas of revenue creation that, for local, internet and college stations, and opportunities for new business for UK the use of such person-to-person methods of companies remain severely limited. communication as Microsoft Instant Messaging Service and it’s Yahoo equivalent, •The barriers to entry in this sector include are widespread. Their two main advantages the pricing policy of US telecoms network over SMS is their cost (free) and speed (the suppliers, the lack of interest on the part of message is revealed in the receiving both broadcasters and audience, and the computer’s desktop at the same time as general culture of mobile phone usage in being sent). the USA.

The only instance of making active use of •However, the fact that there’s such a total their audience’s mobile phone usage we lack of development in this area means came across was in the local traffic channels that, for those of an extremely entrepreneurial mindset, there may be some as yet unidentified revenue stream which could open up the whole sector, in the manner in which SMS messaging took off as a phenomenon in Europe.

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6INTERNET RADIO

6.1 Introduction: regulation Wireless broadband is seen as being about two years away; this is perceived as a threat In the UK, internet radio broadcasts are by most traditional broadcasters. At least one nominally regulated by OFCOM (though it internet-only broadcaster is actively funding should be noted that it has never flexed its research on wireless broadband as a means regulatory muscle with content concerns). of getting entertainment into mobile devices.

The FCC in the USA does not regulate Internet radio listening has regularly internet radio. There is talk of the FCC having attempted to get away from the PC. some regulatory control, but only really with Announced the week of the Mission were pornography in mind. two ‘radio’ devices which make use of wireless internet to enable internet radio in 6.2 A threat to traditional broadcasters? any room in the house. Access without a PC is limited to preset internet radio stations, One traditional AM/FM broadcaster told the though these are kept on a server used by Mission, ‘We had things like cassette the device and can be updated at any time by recorders in the past, and they never killed the companies concerned. radio. This new stuff won’t, either.’ 6.4 Usage in the USA AOL say that the internet and radio help each other. A service on AOL called ‘Breakers’ Arbitron research says that 44% of all allows AOL to post new singles from major Americans say they have tried internet artists for their subscribers to listen to before broadcasting at least once. The weekly they are serviced to radio stations. The new internet broadcast audience, according to Michael Bolton single, for example, had over Arbitron, is 30 million – a 13% reach of all 500,000 ‘listens’ in just 24 hours. Radio, the Americans, and suggesting that internet company argues, want ratings, and therefore broadcasting is used regularly by 30% of familiar songs. If AOL breaks a song first, the those that have tried it. company claim that radio stations benefit since the new song becomes familiar quicker. 79% of Americans have access to the internet, with 68% of those having access at 6.3 Mobile internet listening home or at work (the rest based on public computers like libraries or schools). 24% of It is clear that US radio depends, to a large Americans have broadband access at home, extent, on in-car listening – to date, an area a figure that is rapidly growing. Users who untouched by internet radio. Production of use internet streaming are twice as likely to IBOC and satellite radio has so far have broadband in their home: 52% have concentrated on car receivers, with home broadband, against only 23% of users who receivers yet, in most cases, to be launched do not listen, or watch, internet broadcasts. (see Chapters 3 and 4). A typical US listener listens for a long time while mobile – Use of the internet has a good effect on all estimates of total radio listening which radio listening. The Radio Advertising Bureau occurs in-car vary from 33% to nearly 50%. (RAB) in the USA say that the percentage of 25 THE FUTURE OF RADIO – A MISSION TO THE USA frequent users of the internet (those that use Contrastingly, there are many extra fees to be it for, on average, over an hour a day) who paid when simulcasting or streaming a listen to radio while they surf is 82% – a discrete stream in the USA – stemming from figure which includes traditional AM/FM radio the RIAA’s lack of rights in traditional as well as internet radio. broadcasting. The RIAA levies a charge of 0.07 cents per track per listener for online 6.5 Personalised services streaming. In addition, the use of actors in radio commercials also causes extra Personalised services are becoming a payments to be required. ubiquitous part of music download sites, with Musicmatch, Napster and Yahoo’s Launch As a result, many US AM/FM radio stations do service offering a trainable audio feed. not simulcast on the web. Clear Channel has a Consumers start by telling the website the handful of radio stations on the web: a minute kind of bands they like. Using the same kind percentage of the 1,270 radio stations owned of technology as an online store’s by the company. High rights fees are the main recommendation system, the systems play reason cited, though the company does songs by the bands and artists that the recognise the internet’s strengths in listener- consumer has selected, plus a set of tracks trial. The RIAA’s stance appears to have, for the that have also been ‘recommended’ by other moment, killed internet broadcasting for many users of the system. Listeners can skip terrestrial simulcasters. For internet-only tracks they don’t like and score all played broadcasters, it was indicated that their tracks to enable the system to continue fine- biggest costs are the music usage fees. tuning its service. Broadcasting one-to-one also involves a lot of These personalised services are seen by the data. According to iBiquity, cumulative capital music download sites as a useful discovery expenditure costs are $1,165 per listener; in tool. However, traditional broadcasters in the comparison to $480 for cable, $132 for DTV, USA doubt that they will be widely used. One $38 for satellite, and $2 for terrestrial radio (in cited the example of an owner of an in-car this case, the IBOC standard). Some CD multichanger who never changes the technical solutions have been made to discs, and pointed out that this experience combat this: mainly to reduce out-of-network clearly shows that, for the most part, people bandwidth. AOL’s services are mainly used by don’t want to go through the bother of their subscribers, and therefore the extra choosing their own music. bandwidth used remains wholly within their network, thus incurring them little, if any, 6.6 Costs extra cost. Music Choice delivers streams directly into cable internet headends, thus, In the UK, commercial radio services are again, resulting in bandwidth being kept subject to a nominal extra fee from the entirely within the ISP’s network. Mechanical-Copyright Protection Society (MCPS) for live streaming, typically £1,000 6.7 Content and extra services per quarter, and Performing Right Society (PRS) costs are seen as part of the WAMU 88.5 FM, the American University agreement for the radio station concerned. radio station in Washington, is already The internet, just like DAB and satellite, is broadcasting an extra radio station on their currently seen as an additional platform. website, based on their popular bluegrass programme. NPR makes programmes available for archive listening on their website.

26 THE FUTURE OF RADIO – A MISSION TO THE USA

AOL’ s service is made up of around 175 self- digital television. This is mainly due to the programmed jukebox stations – stations preference of US audiences to listen to radio made up of a three-hour loop of songs. In on the move, and also due to increased addition, some terrestrial simulcasters are music licensing fees for simulcasting on also exclusively on AOL Radio, with these services. commercial content removed (and replaced with promos for AOL Radio). On-demand Music Choice is a cable television music services are high, with video and audio service broadcast on almost all digital cable content on demand. networks, seen as a way of adding value and content to the cable networks. It consists of 6.8 Revenue opportunities a number of different genres playing non-stop music, with accompanying visual information AOL only offer their internet radio services to and advertising on the screen. The company their subscribers – and have a ‘billing reports that this advertising is highly effective. relationship’ with 25 million homes globally (of which the vast majority are within the USA). Directly after the Mission, Sirius announced They see AOL benefiting from subscriber that many of their radio channels would also attraction and retention with the AOL Music & be available through a direct-to-home satellite Radio service. They do not intend to earn service, which may change the way the USA incremental revenue from ticket or CD sales, consumes radio. preferring not to be seen as a retailer – in spite of the fact that they have evidence that their Over ten million people in the UK listen to service ‘has a demonstrable effect on sales’. radio via their TV set. This market is almost completely absent in the USA. In terms of audience levels, AOL claim that their five rock stations have a combined 6.10 Summary audience of 250,000: a figure similar to that for the major rock station in Seattle, which •There is little doubt that simulcasts of has an annual revenue of $17 million. They, existing AM/FM radio stations are more and other leading internet broadcasters, prevalent in the UK than the USA: mainly report that hours tuned by their listeners are due to the different music licensing roughly similar to terrestrial radio. AOL structure. This is good news for listeners commence selling advertising on their radio and advertisers, and thus good news for channels shortly. Content created by AOL for the music licensing authorities, who stand their music channel is also used on-air by to gain more revenue in this way. A music television network ‘fuse’, and is for change to copy the US model of extra sale digitally using download service iTunes. payments for simulcasts should be Is AOL creating this content because it feels resisted; the US music licensing situation it creates additional value for subscribers – or, is the result of a historical accident. alternatively, is AOL creating this content because it is unable to get content in this •Bandwidth costs are a major part of an way from existing broadcasters? internet broadcaster’s expenditure. Experiences in the USA seem to suggest 6.9 Radio on the television that these can be highly reduced. By working together, UK broadcasters may be Unlike in the UK, US radio stations are not able to use similar technologies to reduce simulcast on digital television systems; bandwidth costs here; both for themselves whether on cable, satellite, or via terrestrial and for the major ISPs.

27 THE FUTURE OF RADIO – A MISSION TO THE USA

•While radio broadcasters do not see current internet services as a threat, it is clear that mobile listening is a large part of US listening. With fully national mobile technology and worldwide standards, the UK is excellently placed to introduce wireless broadband services before the USA; broadcasters should carefully examine how this technology might change the way radio is consumed.

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7 THE IMPACT OF DIGITAL TECHNOLOGY ON RADIO CONTENT

7. 1 Is radio dead? Though the advertisements themselves do not appear to be the most sophisticated of US radio is a hive of innovative activity. productions, their precise use is shrewd and Broadcasters and listeners stand at the foot their effectiveness undeniable. The mission of a steep incline, which leads to the encountered no better illustration of the adoption of new digital radio technologies. sophistication of US radio advertising than More radio programming takes place in the the remarkable graph (see Figure 7.1) US than anywhere else on the planet. BUT, indicating an almost identical demographic amid the excitement, the genetics of radio match between listeners to WFAN Radio and have been misplaced – ‘the form’ is those who have bought the Chevrolet floundering, left behind by an industry so ‘Malibu’. intent on driving revenue that advertising is, itself, regarded as ‘content’ by broadcasters ‘Radio is simply an advertising medium and and listeners alike. an ideal stimulus to drive people to the Internet’ – Mr George Hyde, RAB 7. 2 Advertising is content

With the exception of NPR, educational radio and satellite broadcasters, advertising seems to be regarded as ‘content’ by the entire industry and accepted as such by their audience, although the comparatively high respect paid to advertisers is nothing new in American radio. Advertising has always been at the root of much entertainment, and the sponsor of most broadcasts in this industry from the outset. Indeed, the phrase ‘and now a word from our sponsors’, owes its genesis to US radio broadcasting in the 1940s. As such, advertising has come to be accepted as an inherent part of the listening experience. Even XM, who are evangelical about their advert-free services, is, ironically, tarred with the same brush:

‘XM is one of the largest brands currently advertising their product on analogue radio’ – Figure 7.1 WFAN is a match for Chevy Malibu! Mr George Hyde, RAB

29 THE FUTURE OF RADIO – A MISSION TO THE USA

7. 3 Digital oversights content through triangulation of their repeater transmitters, which exist in urban areas. The US radio industry has, as yet, failed to However, XM and Sirius are congressionally notice that digital technology can, and will, disallowed from using their technology in this bring about new forms of content and way due to the market advantage it would redefine what we understand as ‘radio’. At afford them. the moment, however, IBOC technology is regarded solely as a tool for the organisation 7. 4 Making new forms of content, and maintenance of a business model for advertisers. There is little financial investment in advancing radio ‘the form’. Advertising no IBOC technology, notwithstanding the longer appears, in the mainstream, to supplementary data channels, has had facilitate the development of radically creative potential ‘designed out’ of its different content. A general comparison could circuitry. By nature of the fact that it is ‘in be made between the emergence of digital band’ (ie occupying the same spectra as technologies today and that of consumer analogue), it can only simulcast analogue radio technology in the thirties but for the lack transmission ‘until the last person switches of investment in new forms of content. off their analogue set’ (iBiquity). Unlike the ‘Golden Age’ of American radio development in which advertising revenue Then, and only then, will additional directly facilitated the naissance of new bandwidth, currently occupied by analogue, drama and comedy formats such as Amos ‘n’ be freed, allowing for ‘full digital’ Andy, Burns & Allen or Dick Tracy, advertising transmission. This would extend transmitter revenue is now used to perpetuate existing range and allow full implementation of all forms and formats. IBOC has to offer. With the vast majority of radio content music According to Clear Channel, ‘IBOC full digital based, we noticed a conspicuous absence of broadcasting is 20-30 years away’. radio drama and radio feature programming. Audiences have little exposure to this sort of Unless NPR’s ‘Tomorrow Radio Project’ is material, and broadcasters – with the allowed to take advantage of the inbuilt data exception of NPR (currently 94% analogue channels to broadcast sound, content is listenership) and XM – have little or no unlikely to evolve as a direct result of IBOC, interest in creating it. NPR is the great at least in the medium term, and few new saviour in this regard and regularly broadcasts stations offering digital only content will be commissioned features and drama. XM also born of its invention. hosts several drama channels such as ‘Radio Disney’ and ‘Sonic Theatre’ and comedy The possibility of location-based channels ‘XM Comedy’ and ‘Laugh USA’. programming on IBOC (by means of transmitter triangulation) is acknowledged as Although the suitability of XM’s Playboy Adult a possibility, although no broadcasters seem channel is questionable, at least for in-car to have immediate plans for this sort of entertainment, it too could be considered functionality. Should this facility become atypical programming. utilised, it is likely to be used for context- sensitive information services rather than The US pays host to many leading lights in entertainment. Satellite broadcasters also creative radio production such as the Prix have the potential to broadcast localised Futura winner Gregory Whitehead. Yet, to

30 THE FUTURE OF RADIO – A MISSION TO THE USA all but a handful of aficionados, radio is satellite USP and the individual listener. rarely considered an art form. It is no Neither Sirius, nor XM, acknowledge a surprise, therefore, that Whitehead’s distinction between ‘perceived’ and ‘actual’ productions and those of his peers are choice. To listeners as a whole (and ‘families aired more frequently outside the US, in cars’ as a collective), satellite, undeniably, finding airtime on networks such as ABC in offers an enormous variety of content, and, Australia and the BBC in the UK. owing to geographical superiority, great access to it. However, the lateral Many of Whitehead’s programmes were organisation of content into homogenous commissioned by the now off-air New genre-based channels would seem, for the Radio and Performing Arts Inc (NRPA). individual at least, to result in less choice. Founded in 1981 to foster the development The new subscriber is likely to have already of new and experimental work for radio and developed specific tastes and is attracted to sound arts, the organisation commissioned satellite by its offer of 24/7 genre indulgence. and/or distributed over 300 original works XM are, nevertheless, right to be excited for public radio and introduced American about forthcoming plans to play every radio art to European audiences. It was Motown track ever recorded, in succession, considered the single most influential a move legislatively prohibited on source of radio art in America. commercial radio.

‘During our eleven years on-air, funding 7. 6 ‘We’re all broadcasterz’ diminished and with the introduction of audience research we came to be considered This ‘on demand’ environment offered by minority programming. Thereafter, we had a satellite radio dramatically redefines the role continuous battle for airtime.’ of the broadcaster as a ‘lateral content provider’ as opposed to a ‘linear programmer’ ‘We regard the internet as having great and, as such, indicates that listeners potential for work of this kind. The entire themselves now bear responsibility for NRPA catalogue is currently being archived programming their own content. online’ – Helen Thorington, Founder NRPA, Executive Director Turbulence. Charged with this new role as broadcaster, audiences are offered great opportunities by The NRPA now exists as Turbulence.org in internet-based services such as Apple collaboration with Wesleyan University, iTunes. I would suggest that the internet Massachusetts. poses a challenge to satellite radio through its ability to offer its subscribers 7. 5 Choice? recommended content and direct download of music at any location. With the popularity With over 12,500 analogue radio stations of wireless LANs in the home, and the currently on air in the US, the issue of choice release of the Apple Air Tunes (which allows is naturally raised. Satellite radio wireless streaming of music to any room broadcasters are vehement that they offer fitted with a power point) together with listeners greater choice than they would iPOD, former listeners to other broadcasters otherwise have. Indeed, satellite radio are already broadcasting for themselves. presents a much needed alternative to the advert ridden commercial stations, and their There is no doubt that these interactive 120 digital channels may well attract early applications of digital technology genuinely adopters, yet a paradox exists with regard to empower music fans, but it is likely that most

31 THE FUTURE OF RADIO – A MISSION TO THE USA have neither the means nor the time to invest • Opportunities exist for UK content creators in creating their own entertainment to originate new ideas for digital radio infrastructure. And, for many, participating in content, if they are able to convince US a global cultural phenomenon of ‘digital broadcasters of the stakeholder benefits of empowerment’, the acquisition of content doing so. technologies is still more important than the content itself. • In the light of a comparatively advanced European market, radio programme 7. 7 Conclusion makers may also have an opportunity to advise US markets of how best to put new •The US radio industry is, in the main, not technologies to creative use. yet interested in bringing about the next generation of radio content. •Prospects also present themselves for the creation of advertising content that takes •The creative innovation of content will not advantage of interactive capabilities of take place unless its application provides digital broadcasting. increased revenue. • It will be a long time before additional •Radio is a different form of media in the functionality such as multi-channel US with regard to listener habits and transmission, location-based programming, expectations. The way in which radio is dynamic content, conditional access, consumed accounts for the fact that most return paths and interactivity bring about a content is music based. Content is in paradigm shift in radio content in either stasis and this fact is accepted by terrestrial or satellite broadcasting. listeners. As such, their expectations are easily met. • It is certain that IP-based services will lead the way. •Rollout of IBOC digital radio technology is foreseen as being incremental. This imposes restraints upon the application of emerging content ideas. Much of IBOC’s unique potential will remain out of reach until it ceases to be used as a mechanism of simulcasting analogue. The perceived benefits of new digital radio technologies largely concern the better distribution of content and therefore increased revenue from advertising.

•The industry is involved in a significant degree of innovation, yet its energies are entirely focused upon perpetuating a financial status quo. The radio content culture is cradled by an infrastructure that has arisen from a commercial underbelly. There is little interest in advancing what is aired, and less insight into the possible commercial benefits that this might offer.

32 THE FUTURE OF RADIO – A MISSION TO THE USA

8 COMPARATIVE CONCLUSIONS: REGULATORY, CULTURAL AND ECONOMIC

8.1 Introduction The FCC establishes regulatory policies that promote competition, innovation and Industry experts, analysts and professionals investment in broadband services and facilities all agree on one issue: Britain and the USA while monitoring progress toward the have very little in common when it comes to deployment of broadband services in the USA. the development of the digital radio The Commission supports a competitive landscape. The key issues that divide the two framework, fosters innovation and offers countries lie in regulatory, cultural and consumers meaningful choice in services. The technology adoption standards. We may FCC encourages the highest and best use of speak the same language but the message spectrum domestically and internationally in could not be more different. This is a case order to encourage the growth and rapid where the environment on either side of the deployment of innovative and efficient Atlantic is polarised. As a result, the contrast communications technologies and services. It in development and financial returns for also reviews media regulations so that media investing and operating digital radio and ownership rules promote competition and ancillary technologies is striking. diversity in a comprehensive, legally sustainable manner and facilitate the mandated 8.2 Regulatory migration to digital modes of delivery.

In the USA, The Federal Communications As with competition and diversity, localism in Commission (FCC) is an independent US radio has been a cornerstone of broadcast government agency, directly responsible to regulation for decades1. Localism is an integral Congress. The FCC was established by the part of serving the public interest. It requires Communications Act of 1934 and is charged stations to be responsive to the particular needs with regulating interstate and international and interests of their communities. Localism communications by radio, television, wire, means providing opportunities for local self- satellite and cable. The FCC’s jurisdiction expression. It means reaching out, dedicating covers the 50 states, the District of the resources to discover and address the Columbia, and US possessions. unique needs of every segment of the community, including notifying the community The formal charge of Congress to the FCC can of crisis situations. It means airing sufficient be summed up in less than 30 words – ensure programming responsive to community needs, that the American people have available, at and making programming decisions that truly reasonable costs and without discrimination, serve and reflect the makeup of the rapid, efficient, national – and worldwide – community. Indeed the Commission recently communication services; whether by radio, reaffirmed a network affiliate station’s right to television, wire, satellite or cable. reject network programming.

1 See, eg, Deregulation of Radio, 84 F.C.C.2d 968, 994 ¶58 (1981) (‘Radio Deregulation Order’) (‘The concept of localism was part and parcel of broadcast regulation virtually from its inception’).

33 THE FUTURE OF RADIO – A MISSION TO THE USA

In the UK, The Radio Authority was consumers and protect licence holders from disbanded along with four other regulators competition, has created an environment which in December 2003. OFCOM is the new fosters growth in technology and independent regulator and competition entrepreneurship. The commercialisation authority for television, radio, process consists of a number of slow steady telecommunications and wireless steps instead of a giant leap forward. communications services. It exists to license and regulate commercial radio within The forces at work in the regulatory the UK. The principles of OFCOM in its environment have caused the markets to regulatory capacity are specific. Its main develop in very different ways. In the UK this tasks are: to plan frequencies; to appoint environment drives technology development licensees with a view to broadening listener to create new devices through which choice and to enforce ownership rules; and audiences can receive radio with higher to regulate programming and advertising. penetration than in the USA. This continued After wide consultation within the industry it development has increased listening draws up, reviews and enforces codes, opportunities for radio audiences and which set standards and practices in broadcasters alike. Figure 8.1 is a graph of advertising and sponsorship, programming UK listeners to digital radio through mobile, and engineering. OFCOM is also required TV and internet radio in early 2004. under the Broadcasting Acts 1990 and 1996 to draw up and enforce the rules on The result of these regulatory differences in ownership of radio licences. the USA is the creation and development of a robust and buoyant market, offering diversity The role OFCOM plays in protecting consumers and choice to broadcasters and audiences. and their interests is diametrically opposed to However, instead of personal devices, that of the FCC or the NAB, which are analysed Americans are increasing listening through in this report. The UK, in its aims to protect satellite radio.

60

50

40

30

20

10

0 Age 25-54 Age 15-24

TV sets Mobile Internet radio

Figure 8.1 UK listeners to digital radio through mobile, TV and internet radio in early 2004 34 THE FUTURE OF RADIO – A MISSION TO THE USA

8.3 Cultural Free Speech. The NAB’s statement of principles is general and advisory rather than Natural selection acts by taking advantage of specific and restrictive. There is no slight successive variations; it never takes a interpretation or enforcement of these great and sudden leap, but must advance by principles by NAB or others. They are not short and sure slow steps. The reasons for intended to establish new criteria for slow uptake in digital services in the UK had programming decisions, but rather to reflect been the lack of affordable digital receivers in generally accepted practices of America’s the market. The value to UK digital audiences radio and television programmers. They is choice. Currently the number of digital-only similarly are not in any way intended to inhibit stations is relatively small. The main UK creativity in programming of controversial, broadcasters are offering simulcast services diverse or sensitive subjects. and developing new channels targeted specifically at digital audiences. Digital radio A spectrum-neutral number of initiatives and also offers the broadcaster the opportunity to broadcast bills have been introduced and create more brands, although it is uncertain if passed to enable broadcasters in the USA to this will lead to further revenue generating develop and operate multiple analogue and opportunities. digital platforms. For example, a broadcaster can own up to eight commercial radio The FCC allows public interest and the stations in a single market, not more than broadcaster to decide market demands for five of which are in the same service (AM or programming. There is no promise of FM). Additionally, the size and geography of performance within the licence. OFCOM the USA has enabled the market, licenses a station and within this licence is a technologies and delivery of radio broadcast ‘Promise of Performance’. It includes a content to develop in a multitude of different description of the types of content it will ways. This is creating a host of revenue broadcast and it cannot deviate from this generating opportunities for broadcasters, promise. In the USA, if a station decides to and we are seeing a number of new change its programming due to market technologies developing to support this demands, it can do so overnight. In doing so, growth. There is no reason why the UK it remains profitable. cannot also compete as we are a world-class leader in the development of digital In the USA, the development of digital radio technology. is at least five years behind that of the UK. The USA has taken slow slight successive NAB’s goal is to foster growth and steps to develop the market but it is competition, support the development of developing contrary to the UK. The striking digital radio and move towards analogue difference there is the sudden leap forward in switch-off in 2008. In both countries OFCOM satellite radio. and the FCC have offered automatic licence renewals to analogue broadcasters. NAB The National Association of Broadcasters encourages development of a standardised (NAB) is an industry-supported body that platform amongst its members whilst the fosters an environment of pro-activity, markets develop and we move towards the support and openness. The NAB and the switch to digital. One of the key differences stations it represents respect and defend the between the two regulators is that the FCC individual broadcasters’ First Amendment allows market driven programme content to rights. Supporting the notion of openness audiences without restriction. falls under the constitutional law known as

35 THE FUTURE OF RADIO – A MISSION TO THE USA

The theory of evolution is that the market expands and the local broadcast loses its evolves in a certain direction until there is appeal to advertisers and the signal extends interference. Interference then causes a outside of the community’s purchasing area. change in direction of the development of XM Radio, a satellite broadcaster (see Chapter this market. Interference can come from a 4), is addressing this by generating local news variety of market forces, including new and road condition reports and has invested technology developments, which could be heavily in localised traffic reports. more desirable to the consumer, with reduction in costs and better quality and 8.4 Theory of evolution: digital services; the interference results in the radio arrives! market developing in an entirely different direction than originally anticipated. An irreducibly complex system is one composed of multiple parts, all of which are A key cultural difference in the UK is the lack necessary for the system to function. If even of galvanisation between the one part is missing, the entire system will fail broadcasting/technology manufacturers with to function. The shortcomings in the UK in other industries, which could create the killer achieving strong return on investment (ROI), application and new sources of revenues. The lie in part in the regulatory environment, and US culture is one in which trade bodies and slow uptake to commercialise and capitalise relationships are working together with the on the technology and advancements it has common goal of developing a unified market, developed. The market is currently in which all can profit and in which fragmented but this offers opportunities for competition is healthy. collaboration between the two countries in developing digital platforms and data casting One distinctive factor in the USA is the opportunities. broadcast AM/FM footprint, which is much wider than in the UK. In the USA, AM will be UK ownership laws were relaxed in 2002, the band to benefit the most from the switch allowing more foreign ownership. This has to digital (see Chapter 3). The AM sales pitch resulted in a greater level of interest from is about quality. Significant increases in overseas players from the USA. There are advertising rates are being achieved in FM as new licences coming up for auction, which a result of better quality. Therefore it is are ‘greenfield’ opportunities for anticipated that this will follow through into broadcasters. Radio is an attractive the AM signal as more stations switch over proposition to investors. Valuations remain to digital. Currently broadcasters using HD high, up to 16 times EBITDA. The regulatory Radio (see Chapter 3) are transmitting within environment has driven some large US this footprint both in analogue and digital players from acquiring radio stations in the signals. The digital signal boosts the AM market. The absence of these players with signal and the reach is extended. fresh capital in the market could potentially cause downward pressure on valuations. The reason why analogue radio worked so Digital radio broadcasters will benefit from well is that it is localised and community the changes and reap financial returns as the focused. Advertisers also are able to reap the market becomes more fragmented. The advantages by targeting their advertising emergence of new marketing opportunities campaigns. The least attractive quality to for digital radio doesn’t spell new revenues advertisers and listeners for digital radio is if for the broadcasters but we are seeing the broadcaster operating the station is not projected growth for the next six years on usually local. A complaint is that the market average of 6.5% in total advertising revenues.

36 THE FUTURE OF RADIO – A MISSION TO THE USA

8.5 Digital evolution: creating a crisis or 8.6 Why digital? an opportunity? In both countries a key driver to move to Stations which target certain demographics in digital is that the analogue spectrum can be the digital space have actually seen revenue used for other services and there is an doubling over the last four years, eating into attempt to move towards a standardised terrestrial revenues. Innovation is a key broadcast platform. In the UK it is common component to capturing digital market share. for technology platforms to be standardised Being first to market with a scalable business and therefore the adoption and take-up rates model and the ability to deliver audiences on are much more rapid (GPRS, GSM and JAVA, a national, regional and local scale will ensure to name a few). successful growth projections. Programming targeting the UK’s specialised socio-economic In the USA, iBiquity develops software and diversity has demonstrated the power of reference equipment, which they license to digital radio to attract new audiences and broadcasters, broadcast equipment revenues. One view is that we will see profit manufacturers and receiver manufacturers margins of the major UK players shrinking as (see Chapter 3). The business model is very a result of the growth of digital radio. This will similar to Dolby Labs. They are working with obviously present major financial challenges the FCC in adopting the technology as a for the broadcasters going forward. standard and are currently the only licence holder of this technology in the USA. They work to promote the adoption of the technology worldwide and market the HD Radio technology brand.

6

5

4

Demand/ 3 Supply multiple 2

1

0 2002 2003 2004 2005 2006 2007 2008 2009 2010

Figure 8.2 US wireless data bandwidth demand is 2.5 to 5 times greater than bandwidth supply through 2010 (Source: Morgan Stanley Dean Witter, iBiquity Digital)

37 THE FUTURE OF RADIO – A MISSION TO THE USA

8.7 The digital radio proposition is 8.8 What are the advantages of AM/FM about data wireless data?

Significant revenue can be generated from 1 Sufficient and flexible wireless capacity the data stream for the stations, as digital 2 Extremely low cost pipe radio supports a variety of content 3Great spectrum applications and wireless devices. Table 8.1 4 Ubiquitous consumer use lists some of the content and data 5 Connection to existing local audio content applications available to exploit. 6 Low cost pipe for any wireless device – not just radios Advanced automotive applications 7 Inexpensive data pipe Automotive devices • Capex at $2/listener Integrated telematics services 8 Unparalleled reach Enhanced GPS platform • GPS units From the advent and growth of digital radio • Telematics technologies, it is apparent that other Interactive applications industries – as outlined above – will benefit (w/uplink storage) from digital radio. The financial benefits of M-commerce digital radio include creating new revenue • Music streams and markets for both the broadcaster and content providers. There are • Concert tickets exciting new promotional opportunities to • Sports tickets drive consumers via new media. One • Books example of this is the surging interest in Content applications watching movie trailers among American Supplemental audio services audiences. This comes under digital images. Personal radio services In Europe, new mobile handsets will feature Local traffic/weather conditions visual digital radio. Movie trailers Digital images Emergency warning broadcasts 8.9 Cultural differences create the Game downloads killer application Financial information Sports information The difference between the UK and the USA Visual radio is that in the USA almost 50% of the Other technologies listening market is in the car and the PDAs and eTablets remaining is home/office. In the UK, the total Smart phones number of automobiles is 39 million with Other applications total listening hours in cars standing at 16% (see Chapter 1). Clearly there is an untapped E-newspapers market, and aftermarket sales of digital radios E-books for cars are not noteworthy due to costs and lack of portability. The auto manufacturers Table 8.1 Digital radio content and data applications have identified and seized the opportunity to be both the point of sale, and broadcaster; General Motors is an investor in XM Satellite Radio. The key to success within the car market has been a free trial for the first three

38 THE FUTURE OF RADIO – A MISSION TO THE USA

80 $ billion $63 Billion

60

40

20

- 2002 2003 2004 2005 2006 2007 2008 2009 2010

•Smart phones Primary •Pagers •PDAs devices • Cell phones •In-vehicle telematics •Wi-Fi

Figure 8.3 USA wireless data revenue projected to grow to $63 billion by 2010 (Source: Morgan Stanley Dean Witter, iBiquity Digital)

$15 IBOC station investment NPV $ million > $10 million $10

$5

$ - 250 200 100 50 Top 10

Figure 8.4 US datacasting produces positive return on investment in HD Radio in a wide range of markets (Source: Morgan Stanley Dean Witter, iBiquity Digital) months, and then a conversion to one-year up to five years out before the mobile subscription (see Chapter 4). GM says that becomes a tool for entertainment in the USA. cars sell 70% faster with digital radio The USA has a reluctance to adopt new installed than without. Persons in the over 55 forms of personal devices. Satellite age group are key listeners. Car dealers are broadcasters XM and Sirius both have an important source of radio sales. partnerships with auto manufacturers to put radio in cars, and offer incentives through In the USA, mobile phones and other technology transfer and financial subsidies. A personal devices are not used for car payment may include subscription for entertainment. For example, the technology sales of radios in cars so the purchase of platform in mobile is not standardised, which digital in-car radios is a ‘soft landing’. The creates an interoperability issue; it could be conversion rates to long-term contracts are

39 THE FUTURE OF RADIO – A MISSION TO THE USA about 75% or higher. The positive result is •In the UK, the drivers for developing digital low churn rates. All music channels are were prompted by the government who commercial-free and this kind of content sells offered broadcasters automatic extension and is helping sell cars. on their analogue licences to switch. In the USA, drivers were to switch to a The car concept is a compelling content standardised format. proposition, which offers diversity and choice; it is niche oriented, offers non-music radio, • It will take five years to decide which works. and streams include data. These are new revenue sources for the operator, car •In both countries, entrepreneurs and manufacturer, and content providers. broadcasters are recreating the broadcast model and improving the old model. 8.10 What’s ahead for the UK in 2010? Market forces and interference have caused these developments to occur. • It is estimated that 39.55 million homes in Europe will have digital radio •There is no doubt that both models are •17.5 million in the UK will have digital creating new revenue opportunities for radio, representing 44.2% of total both countries. installed base •Total sales of digital radios £140 million •The challenge we face moving towards • 40% of all radios will be digital 2010 is building killer applications so • 24% penetration of digital radios, or consumers are prepared to embrace the 26.5 million digital technology and make the • £636 million total advertising market investment work. projections •Market evolution theory implies that all (Source: DRDB, RAB, Eureka 147 Research) components are integral. If even one part is missing, the entire system will fail to 8.11 Summary function. The market will develop over the next two to three years slowly and •The two countries have very little in gradually. Capital investment requirements common when it comes to the for infrastructure development are development of the digital radio landscape. significant against short term returns. The theory presumes that the development of •The key issues that divide the two the market will require consumer demand, countries lie in regulatory, cultural and products readily available, and technology technology adoption standards. This report that provides evident benefits for the provides insights into the countries’ consumer. The industry must take action regulatory, social and economic and devise a well executed plan if it is to complexities. capitalise on this opportunity.

•The USA versus the UK: there are two distinct models: – Satellite and subscription – Over the air free digital

40 THE FUTURE OF RADIO – A MISSION TO THE USA

Appendix A

MISSION PARTICIPANTS

Amelia Colvin Rachell Fox Independent Corporate Finance Advisor Liaison Manager [email protected] BBC Radio & Music Interactive [email protected] Amelia Colvin is an independent corporate www.bbc.co.uk/radio finance advisor to private equity funds in www.bbc.co.uk/music Europe and the USA, specialising in the www.bbc.co.uk/digitalradio telecom, media and technology industries. She has a 17-year background in American and Rachell joined the BBC in September 2001 European television broadcasting, with from the Commercial Radio Companies broadcasters including PubliEurope, Finninvest, Association (CRCA) where she was Thames Television and BBC Worldwide. Operations Director.

Amelia has board level operational experience The BBC exists to enrich people’s lives with in technology start-ups and holds expertise in great programmes and services that inform, a variety of operating models which extends educate and entertain. Its vision is to be the across the telecommunication, mobile most creative, trusted organisation in the technologies and software sectors. Clients world. It provides a wide range of distinctive have included Lloyds Bank, Lucent programmes for everyone, free of commercial Technologies, Hewlett Packard, BT Brightstar interests and political bias. and Scottish Equity Partners. The interactive wing of BBC Radio & Music is responsible for all national BBC radio stations, James Cridland including five new digital-only stations. Head of New Media Virgin Radio [email protected] Matt Hall www.virginradio.co.uk Head of Radio Somethin’ Else James Cridland is Managing Editor of Virgin [email protected] Radio New Media, and has worked in radio for www.somethin-else.com ten years as a copywriter, presenter and Net advisor. He joined Virgin Radio after a short spell Somethin’ Else is the UK’s largest successfully running his own dot-com company. independent radio production company, producing for all the UK commercial radio Virgin Radio is a nationwide rock/pop stations in addition to being the UK’s largest commercial station on digital radio, satellite, supplier of programming to all BBC networks. AM, FM, cable and the internet. As the first They are also involved in interactive radio European radio station to stream online, Virgin development and mobile-broadcast crossover. Radio is rated by Arbitron as the world’s most listened-to online radio station, and was recognised as Online Radio Station of the Year in the Interactive Music Awards 2003. 41 THE FUTURE OF RADIO – A MISSION TO THE USA

Matthew Honey Nick Ryan Managing Director Freelance Sound Designer/Consultant Unique Interactive [email protected] [email protected] www.uniqueinteractive.co.uk Nick Ryan is a freelance sound designer and composer. He was one of the main creative Matthew Honey sits on the board of UBC forces behind critically acclaimed ‘The Dark Media Group plc and was appointed House’, a BAFTA award winning interactive Managing Director of Unique Interactive in radio drama broadcast on BBC Radio 4 in June 2001. September 2003. His portfolio also includes an ongoing three year contract with BBC UBC Media’s interests include radio Creative Research and Development as an production, analogue and digital radio audio media research specialist. stations, airtime sales, audio studios and DAB digital radio data capacity. Nick is responsible for conceiving future applications for sound in the light of Unique Interactive is one of the UK’s leading emerging media and technology. Research data-delivery developers, specialising in DAB collaborations have included MIT Media Lab, digital radio data, multimedia content delivery Sensura, BBC Radio News and Current and online media archiving for a wide variety Affairs and Sony Entertainment. of clients in the broadcasting sector. Seán Street Michael O’Brien Professor of Radio Client Services Director (Operations) Bournemouth University Radio Advertising Bureau Mission Academic and Report Editor [email protected] [email protected] www.rab.co.uk www.bournemouth.ac.uk www.media.bournemouth.ac.uk An engineering graduate of Queens’ College, Cambridge, Michael spent five years working Seán Street is Professor of Radio, the first UK in strategic analysis roles, first for a academic to hold the title. His research consultancy and then for Guinness plc. interests include the development of new Michael followed his love of all things radio platforms, the relationship between content and joined the RAB, where he heads up the and technology, and the comparative history Marketing Operations team and takes a of US and UK radio broadcasting. special interest in the evolution of radio in the digital age. The Bournemouth Media School is one of Europe’s leading academic centres for The RAB is the trade marketing arm of teaching and research in broadcast media. commercial radio and its mission is to guide The School has particular specialities in video UK advertisers and their agencies towards and audio production, journalism, marketing, the effective use of radio advertising. They public relations, advertising, scriptwriting, ensure that advertisers understand how the sound and music design for the screen and medium is evolving and that as radio evolves computer animation. in the digital age, it takes account of the needs of advertisers.

42 THE FUTURE OF RADIO – A MISSION TO THE USA

MISSION ORGANISERS

Sarah Turner Scott Campbell International Technology Promoter Sector Specialist DTI Global Watch Service, Pera US Media & Communications Industry Mission Leader Advisor, UKTI [email protected] [email protected] www.globalwatchonline.com/itp www.ukti.gov.uk

Sarah Turner is the DTI International Scott is a New York City based Sector Technology Promoter (ITP) for digital media, Specialist for UK Trade & Investment (UKTI). North America. The ITP network is His role involves facilitating Business, Policy sponsored by the DTI Global Watch Service and Technology developments in both UK and and managed by Pera Innovation Ltd. The North American markets for the Media & Service facilitates technology and Communications sectors. Scott’s international knowledge transfer into the UK by business experience enables him to offer brokering partnerships between UK and guidance to companies seeking to form overseas companies. strategic alliances, joint ventures and/or licensing agreements in the UK or North Before becoming an ITP, Sarah was Managing America. His expertise in Digital Media also Director of Wired Sussex, a private agency lends support to a Homeland Security Task working with high technology and media Force directed by the British Embassy out of companies to help them grow and establish Washington DC. Scott’s previous experience Sussex as an internationally recognised includes roles as: President – Vedalabs Inc; centre of digital expertise. Sarah was also a Director of Business Development – Lucent founding director of TIGA, the trade Technologies; CEO – Virtually Atomic; association for computer games developers Managing Director – MediaSpec UK Ltd; and she helped to establish, and prior to Wired as a Sound Recording Engineer prior to Sussex was Head of Multimedia at Maxim running his own company. (now Knowledge Pool), a Brighton-based digital media production company. Gary Pluck Science & Technology, FCO British Embassy, Washington DC [email protected] www.britainusa.com/science

Gary has been a member of the Science & Technology Section in Washington for several years. Before arriving in Washington, he worked in the UK for the Ministry of Defence in the world of contracts.

43 THE FUTURE OF RADIO – A MISSION TO THE USA

Appendix B

HOST ORGANISATIONS

WASHINGTON DC

Arbitron Inc Thom Mocarsky, VP Communications Jay Gunther, Senior VP International Development www.arbitron.com

Consumer Electronics Association (CEA) Jeff Jophes www.ce.org

Federal Communications Commission (FCC) Tracey Weisler, Senior Advisor for Western Europe www.fcc.gov

Howard University School of Communications Dr Williams, Acting Vice Chair, Department of Radio, TV & Film www.howard.edu

iBiquity Digital Corporation Scott Stull, Executive Director, Broadcast Business Development Joseph F D’Angelo, VP Advanced Services Jeff Jury, COO www.ibiquity.com

National Association of Broadcasters (NAB) Mr Lynn Claudy, Senior VP Science & Technology John David, EVP Radio www.nab.org

National Public Radio (NPR) Mike Starling, VP Engineering www.npr.org

Recording Industry Association of America (RIAA) Bruce Block, Senior VP Technology Steve Mark, General Counsel Gary Greenstein, VP Licensing www.riaa.com

44 THE FUTURE OF RADIO – A MISSION TO THE USA

WorldSpace Satellite Radio Ted Kelly, VP International Marketing Zac Overking, Senior Engineer Noah Samara, Senior Engineer www.worldspace.com

XM Satellite Radio Inc Tony Masiello, CTO www.xmsatelliteradio.com

45 THE FUTURE OF RADIO – A MISSION TO THE USA

NEW YORK

AOL Music & Radio Evan Harrison, General Manager music.channel.aol.com

Bear Stearns & Co Inc Victor Miller, Senior Analyst for Media, TV & Radio www.bearstearns.com

Clear Channel Radio William Suffa, Senior VP Capital Management www.clearchannel.com

Infinity Broadcasting Corp E Glynn Walden, Senior VP Engineering www.infinitybroadcasting.com

Music Choice Ron Yurman, Senior Director of Business Development www.musicchoice.com

Nielsen SoundScan Rob Sisco, President, Nielsen Music www.soundscan.com

Radio Advertising Bureau (RAB) George Hyde, Executive VP www.rab.com

Sirius Satellite Radio Inc Jeremy Coleman, VP of Talk, Information & Entertainment Programming www.siriusradio.com

46 THE FUTURE OF RADIO – A MISSION TO THE USA

Appendix C

LIST OF TABLES AND FIGURES

Tables

1. 1 page 10 The media day in the USA 8.1 page 38 Digital radio content and data applications

Figures

1. 1 page 9 Hour-by-hour radio listening in the USA 3.1 page15 How HD Radio works 7. 1 page 29 WFAN is a match for Chevy Malibu! 8.1 page 34 UK listeners to digital radio through mobile, TV and internet radio 8.2 page 37 US wireless data bandwidth demand/supply projection to 2010 8.3 page 39 US wireless data revenue projection to 2010 8.4 page 39 US datacasting produces positive return on investment in HD Radio

47 THE FUTURE OF RADIO – A MISSION TO THE USA

Appendix D

GLOSSARY

AM amplitude modulation AQH Persons the average number of persons listening to a particular station for at least five minutes during a 15-minute period AQH Rating the AQH Persons estimate expressed as a percentage of the population being measured CEA Consumer Electronics Association (USA) DAB digital audio broadcasting DTI Department of Trade and Industry (UK) DTV digital television EBITDA earnings before interest, taxes, depreciation and amortisation ESDR European Satellite Digital Radio FCC Federal Communications Commission (USA) FM frequency modulation GPRS General Packet Radio Service GPS Global Positioning System GSM Global System for Mobile Communication HD high definition IBOC in band, on channel IP internet protocol ISP internet service provider ITP International Technology Promoter (DTI, UK) kbps kilobits per second LAN local area network MCPS Mechanical-Copyright Protection Society (UK) MP3 Motion Picture Experts Group (MPEG) audio layer 3 NAB National Association of Broadcasters (USA) NFL National Football League (USA) NPR National Public Radio (USA) NRPA New Radio and Performing Arts Inc (USA) OFCOM Office of Communications (UK) PAD programme associated data PDA personal digital assistant PRS Performing Right Society (UK) RAB Radio Advertising Bureau (USA/UK) RAJAR Radio Joint Audience Research Limited (UK) RIAA Radio Industry Association of America ROI return on investment SMS short message service UK United Kingdom UKTI UK Trade & Investment US(A) United States (of America) USP unique selling point/proposition WAP wireless application protocol WTB Wireless Telecommunications Bureau (USA)

48 The DTI’s Global Watch Service provides support dedicated to helping UK businesses improve their competitiveness by identifying and accessing innovative technologies and practices from overseas.

Global Watch Information Global Watch Missions – enabling teams of Global Watch Online – a unique internet- UK experts to investigate innovation and its enabled service delivering immediate and implementation at first hand. The technology innovative support to UK companies in the focused missions allow UK sectors and form of fast-breaking worldwide business and individual organisations to gain international technology information. The website provides insights to guide their own strategies for unique coverage of DTI, European and success. international research plus business Contact: [email protected] initiatives, collaborative programmes and funding sources. Global Watch Secondments – helping small Visit: www.globalwatchonline.com and medium sized companies to send employees abroad or receive key people from Global Watch magazine – the website's sister another country. Secondments are an publication, featuring innovation in action. effective way of acquiring the knowledge, Distributed free to over 16,000 UK skills, technology and connections essential organisations, this monthly magazine features to developing a business strategically. the latest technology developments and Contact: practices gleaned from Global Watch Service [email protected] activities around the world now being put into practice for profit by British businesses. Global Watch Technology Partnering – Contact: providing free, flexible and direct assistance [email protected] from international technology specialists to raise awareness of, and provide access to, UKWatch magazine – a quarterly magazine, technology and collaborative opportunities published jointly by science and technology overseas. Delivered to UK companies by a groups of the UK Government. Highlighting network of 16 International Technology UK innovation and promoting inward Promoters, with some 6,000 current investment opportunities into the UK, the contacts, providing support ranging from publication is available free of charge to UK information and referrals to more in-depth and overseas subscribers. assistance with licensing arrangements and Contact: [email protected] technology transfer. Contact: [email protected]

For further information on the Global Watch Service please visit www.globalwatchonline.com Printed in the UK on recycled paper with 75% de-inked post-consumer waste content First published in September 2004 by Pera Innovation Limited on behalf of the Department of Trade and Industry © Crown copyright 2004 URN 04/1431