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Just Like HD Radio: Can Radio Save The Video Stars?

Launching a product or service is usually a matter of big press and reseller events, splashy promotions, making sure potential customers know you’re there, and, most importantly, making sure the product and the service are there for the customers. And then, of course, there’s high definition broadcasting.

OK, after a couple of decades that have defined the extreme of what marketing execs call a “soft launch,” HDTV is finally a happening event. And now that the transition to digital broadcasting, including HD, looks secure (even if we don’t yet know for sure if there will be a changeover mandate of 2009 or some other date, or exactly who will pay for D/A reception converters, etc.), businesses premised upon broadcasters using spare digital-allocation spectrum are starting to look viable. Broadcasters have, sensibly, waited until they have some viewers and a somewhat predictable payback in order to take on other bandwidth-hungry businesses.

And so it has come to pass that the Fox TV Station Group has rescued United States Digital Television (USDTV), a multicasting business that started up in 2003 and was teetering on the edge of bankruptcy. In September, it got funding and a carriage commitment from Fox, as well as additional funding from existing partner/investors Hearst-Argyle Television, McGraw-Hill Broadcasting, LIN TV, Morgan-Murphy Stations and Telcom DTV. With $27.75 million in new investment, founder/chairman/CEO Steve Lindsley can move forward on his dream of offering 30 “cable-like” channels, plus over-the-air HD networks, for $20 a month (including HD receiver box) over terrestrial broadcast. This now looks like the leading TV multicasting business opportunity for local stations, though there are others, including one for PBS stations expected to be announced by the time this sees print.

Also in September, Kagan Research came out with a study promising, “50 ways for TV stations to profit from their digital spectrum: providing datacasting, multicasting and multichannel services.” Derek Baine, the analyst responsible for the report (HDTV Spectrum Monetization 2005: The Economics of Datacasting and Multicasting), says, of all these opportunities, “The one we’re least bullish on is the USDTV type of multichannel model. With the telcos coming out with really robust offerings, with cable and satellite getting really aggressive, that’s just a really hard area to compete in.”

He prefers datacasting. So, perhaps, does Disney CEO Robert Iger, who has agreed to supply $1.99 downloads of hot ABC shows over the Internet to Apple Computer’s iTunes users. Except that Internet delivery is not over-the-air delivery, and ABC affiliates are feeling a bit left out. According to USA Today, Deb McDermott, Young Broadcasting president and former head of the ABC Affiliates Board, says affils weren’t told in advance that Disney would offer its most popular shows online. “We want to be sure it doesn’t affect over-the-air viewing,” she says.

So what’s the right strategy for non-HD spectrum utilization? TV broadcasters might look to radio for some clues.

Perhaps Counterintuitive

This may seem counterintuitive. So successful is HDTV now that “HD Radio” hopes to spin off some of its name recognition. HDTV seems far closer to actually making money for somebody (besides lawyers) than is HD Radio. Still, among the marketing lessons to be learned from our radio siblings might be:

-Call it HD, no matter how much D you have.
-The competition are those megachannel guys, so use your bandwidth to offer as many compressed new digital channels as possible.
-Keep repeating: “The competition is not Internet downloads. Those guys are simply thieves who are destroying our business, but eventually Microsoft and the movie studios and record labels will solve the problem with better security.”

Can’t imagine what this all has to do with the TV business? Let’s chat.

Call it HD

The Ibiquity digital radio system makes improved use of AM’s limited analog range, but only approximates the quality of a strongly received FM signal on one of the digital system’s main channels. Lower-bitrate secondary channels offer considerably lower audio quality than a good analog FM station today. But why not call all the audio “CD quality,” and brand it HD, and simply dare anyone to notice? After all, the megachannel satellite competition offers tinny sound that most consumers seem to think is better than terrestrial analog (probably because they have to pay for it, so it better be better). And thus the marketing campaign for “HD Radio.”

The lesson for TV: If you’re going to offer channels at varying levels of compression and image/sound quality, just cynically call it all HD and capture more eyeballs and advertisers. For a while.

Those Megachannel Guys

Maybe you’ve heard of the roughly 25 commercial radio stations in the U.S. that have now begun multicasting (out of roughly 500 that have gone digital so far). Or just maybe you’ve paid more attention to the million-plus subs added to XM Satellite and Sirius totals in the second quarter of 2005 alone, bringing their combined listeners to about 7.5 million homes. This is considerably lower than the cable and satellite subscriber penetration that TV broadcasters have to deal with, so maybe terrestrial radio has more of a fighting chance to hold onto listeners. On the other hand, radio’s problem is more profound than TV’s, since most cable/satellite TV viewing is of broadcast channels, whereas XM and Sirius have mostly cloned formats and hired away talent, and do not rebroadcast very much.

So, big opportunity, big risk. Radio responds by offering—in the most generous interpretation, combining all stations per market in multicasting—an order of magnitude less choice than XM and Sirius and insignificantly different audio quality. And lots more commercials.

The lesson for TV: USDTV is competing with cable/satellite on lower choice totals for a lower price, too. But it has the same programming as the best of cable, the same number of spots, and some HD. Sound like a closer call than radio’s? It’s still competing on price and lower choice in an environment that features new low-cost competition from the telephone companies and Internet downloads. This does not sound like a slam dunk.

The Thieves

Then there’s the download alternative. Apple’s making some good money there, and so are the record labels now, despite all their studies showing how much the ‘net costs them. And surely it does cost them dearly, but there’s not much they can do about it other than join the thieves and sell downloads.

How much do they make? Apple isn’t their only source of revenue, but it seems to have about 70% of the portable device market now. In September, the company disclosed that it now has over 10 million iTunes Music Store accounts, each of which has bought over 60 songs. The labels get about 79 cents per song, implying a total of about $475 million. And Apple sells over six million more iPods per quarter.

Radio also does pretty well by downloads. They don’t lose their programs to it, because, for the most part, they freeload off the record labels. Oh, all right, they pay license fees for the music, but they lose nothing tangible when somebody file-shares a Warner Bros.- or Sony-BMG-owned song. Radio is also cultivating rapidly growing podcast audiences, who hear all the ads (or pay public radio membership fees) but do so on their own listing schedules.

The lesson for TV: Multichannel business models have been around for a long time, and they are easier for both radio and TV broadcasters to think about than all this weird new download stuff. More channels have always meant more revenue. It’s a good thing for broadcasters that they are in a business in which technology is not changing.

Neal Weinstock is editor-in-chief of Weinstock Media Analysis and can be reached through