How will technology change what the average radio listener will tune into in the next five to 10 years?
First of all, you'll have radically upgraded audio quality. The FM will sound like CD, the AM will sound like FM. You'll see a whole new birth of niche music formats coming back on the AM band because of the higher quality. You'll have a host of new wireless data services. Initially, that's going to be pretty rudimentary stuff--song title, artist and CD cover on the screen.
But pretty soon you're going to get into the analogous services like PVR (personal video recorder), so that instead of waiting for your traffic report on the air, you hit a button called "traffic" that will give you an instant traffic report customized to your route. Or you hear a story or a song that you want to know more about and you press the "more info" button and get additional content that would serve that need. Where we are in terms of the apps--we say often, this is like PCs in 1981. Big, clunky boxes that ran DOS, and everybody thought it was the end of the world. Twenty years later, look where you are.
But why reinvent radio?
AM and FM radio is not going to remain the sole analog medium in a fully digital world. Everything else is already digital--or in a very well-defined path to digital. There are also economic, business and technical reasons...There are plenty of services that are designed to provide what radio has historically provided, which is mobile information and entertainment.
So why will radio become important in wireless data services?
All of those services are digital. The most prominent is satellite radio, at least for now. But if you think about any of the number of mobile-information and entertainment-providing services, be it Web-enabled phones or wireless Palms or RIM pagers or telematics in cars, radio needs to upgrade its plant (and equipment) if it's going to be a viable and competitive medium in the future.
The second reason is more offensive-oriented. You can, because of some really compelling economics, make a strong argument that radio will be a very prominent player in the new wireless data world.
Can you drill down a bit more into the economics?
Maybe on the device side it's a bit early, but let me point you to the transmission side. You have a couple of things you have to take into account: spectrum and infrastructure. Radio's got these characteristics. The spectrum is there, it doesn't need to be paid for, it's not auctioned off. You don't have huge debt associated with it. It's something that broadcasters have had for years and will continue to have, so there's zero cost, relatively, for spectrum compared to what people are paying for 3G licenses or wherever Wi-Fi is going to come from.
The second is infrastructure. Think about building out the number of base stations for 3G or the number of "hot spots" required for viable Wi-Fi, or whatever the method of delivery will be. The (radio) broadcasters on their side have the physical plant. With HD Radio, you're rolling (the hardware) into refrigerator-sized racks. You're plugging into existing infrastructure. It's the same tower (used by today's broadcasters). It's the same transmitter. It's the same antenna.
So, how much investment are you talking about to make the switch from analog AM/FM to digital radio?
You can convert this entire industry on the transmit side for something like $1 billion--every one of 13,000 stations--and you already have broad wireless data-delivery services in every market in the country. Compare that with 3G, just the spectrum costs alone. I don't know what the numbers are, but I wager they run...to the tens of billions. On the device side, it's harder to say.
Won't digital radio appeal mostly to the car-bound audience?
It's got a much broader appeal. Of the 70 million (radios sold every year), 17 million of those go into new cars and 6 million go into the auto aftermarket, so a little less than a third are car-bound. Then you've got high-end home (radios), mobile audio, clock radios, etc. There are a bunch of different segments out there.
Can you talk about the back channel? Most of the data-delivery capability for digital radio for now is one-way, so it's not obvious how you get to interactive services. (Editor's note: Back channels are the paths back to the transmitters that are required for two-way communications.)
That's right, it's a broadcast medium. But our view is that there will be a number of different back channels. I think the most obvious and easy that is already being done in other apps is the cell phone in the car. You can talk about most cars in the future--if not today--having integrated cell phones. Then you're going to have a "buy" button on your radio. And there will be some control software in the radio so that when the buy button is hit, it will send out an automatic call over a cell phone to either an automated phone center or (a standard) service center, and then that interactivity can take place.
How much new technology will that require?
That's quite trivial. It's being done today with telematics services. Both the applications and the business models will develop. It could be done with Bluetooth (a wireless standard) or Wi-Fi as well, but it's probably a bit early to speculate about where it will go.
Let's talk about business models. Traditional AM radio has on one level survived as a promotional vehicle for the record labels. Now digital radio is promising things like on-demand programming. Does that spell the death of traditional broadcast radio?
We do not believe at all that on-demand services will spell the death of traditional music radio. If anything, we believe it increases that value by providing additional services, flexibility (and) interactivity (in) choice.
By the way, I think the ad-supported model is the way the business will probably go. We believe people will still tune to their local AM and FM radio--to what they're used to tuning in to--and what they're going to get is a much more compelling experience, which will make the stations "stickier."
It must have seemed like the FCC approval of the new standard (HD Radio, also known as In-Band On-Channel, or IBOC, digital audio broadcasting) was a long time coming.
It was, but amazingly enough, in FCC time (it was) a very quick turnaround. The start to finish from when we filed our first petition for rulemaking was roughly four years, compared to television, which was about a dozen years, and satellite radio, which I think was 10. So we're feeling pretty good about that.
Even so, you're still a little bit behind digital radio rollout elsewhere, in Europe and Canada, for example.
Yes and no. If you're speaking about Eureka, (the digital radio standard that is being deployed in Europe and Canada), it's been out and about for six or seven years, and to describe it up to this point as an abysmal failure would probably be charitable. The only place we see any pulse at all is the U.K., and that's only been in the past 12 months...Is (IBOC) coming behind Eureka? A bit.
Is there a standards war looming globally over the competing digital-radio formats?
I don't think so. Our FM and AM systems are already ITU-recommended (International Telecommunication Union) standards, as is Eureka. In the U.S.,...you have one standard for the country, which makes sense. In the worldwide and international arena, multiple standards are allowed to propagate. So we could very easily envision systems sitting side by side.
In Europe, for example, Eureka is the preferred digital-radio solution. But they face the same sort of basic strategy (as the United States) with AM and FM spectrum. (Spectrum) will be in the hands of broadcasters for as long as people are listening to AM and FM--that will be for our lifetime, that's for sure. And any time there is AM and FM spectrum, IBOC is a solution that makes sense. So is that a standards war, or is that two different services sitting side by side?
What is the level of talks with the record industry over licensing for some of these new services?
Not high. There are certainly discussions going on, but there are not a lot of licensing issues that come up. This is still free, over-the-air radio. You have "fair use" doctrine that holds. And, frankly, the way the legislation is written, AM and FM radio is not part of any of the other issues going on with satellite or streaming.
Back to Vision Series