Radio tests HD waters: Indianapolis on leading edge of 'revolutionary' technology

June 26, 2006

And more are coming.

Indianapolis is leading the charge toward high-definition radio, thanks to the strong presence of national players such as Emmis Communications Corp. and Clear Channel Communications, which operate a total of seven stations here.

But the technological revolution reaches far beyond our airwaves. Industry experts call HD the most radical change in the radio landscape in 50 years, despite the fact that few listeners have the special radio receiver necessary to tune in the new channels.

"We're in such an incredible time right now in our industry's history, I don't think a lot of us can see what's going on," said Marty Bender, local operations manager for San Antonio-based Clear Channel, which operates three Indianapolis stations.

That vision might be starting to clear, as mass retailers such as Radio Shack have agreed to carry HD sets within a year. Specialty stores such as Indianapolis-based Ovation Audio Video Specialists already carry them.

Experts think HD radios eventually may replace analog radios in homes and cars altogether. Because the digital signal can be compressed, as many as eight digital signals-or radio stations-can fit in the same bandwidth as a single analog signal. For now, listeners with an HD set can tune into an FM station's multi-casted channels by turning the dial a click or two to the right of the main station frequency.

Depending on whom you ask, the explosion of HD radio could be the industry's savior or Armageddon, plunging the stations into war over formats, listeners and advertisers.

"This could be the best thing for the industry-or it could kill it," said Scott Uecker, general manager at University of Indianapolis-owned WICR-FM 88.7, the first local station to broadcast in HD. Station officials plan to launch their second station this summer.

Undeniable benefits

The benefits of HD radio are undeniable: Digital technology allows AM stations to play FM-quality sound, and FM stations to sound like CDs. The compressed signal allows stations not only to broadcast more than one station, but also to stream data-meaning they can pump out information through a radio's digital display.

"This digital stream is a whole new territory for radio," Bender said. "It means radio can now supply things like ondemand local traffic and weather. It's revolutionary."

HD radio also allows audio and text files to be sent and saved on a radio receiver, to be played at a later time.

"The ability to broadcast digitally is opening doors we're just getting a chance to look behind," said Marty Draper, vice president of engineering for Indianapolisbased Emmis, which operates local stations WHLK-FM 97.1, WNOU-FM 93.1, WYXB-FM 105.7 and WIBC-AM 1070. "We think the industry is just starting to understand the possibilities."

Local HD pioneers

Indiana is certainly getting on board. Already, 24 stations-17 of them in Indianapolis-broadcast in HD and nine secondary stations are on the air. Nationwide, about 825 stations are broadcasting in HD, offering more than 250 multicasts.

Indianapolis' HD offerings outpace many larger markets such as Dallas and Detroit.

"Clear Channel has 1,200 stations nationwide, and we believe it's important for us to move a new technology as important as this into the mind-set of the public," Bender said.

But the industry giants aren't the only high-definition players.

Independent WKLU-FM 101.9 is the only central Indiana station broadcasting two new channels, and it is arguably the most aggressive marketer of new stations and the HD technology. Russ Oasis, who bought WKLU 18 months ago, said he has invested more than $350,000 in HD technology and launching the new stations.

"I'm not like the big media conglomerates," said Oasis, a Miami radio entrepreneur. "I'm not worried about what somebody on Wall Street thinks of my next quarterly financial results. We want to super-serve the listener. We've already proven that a quality product and quality programming attracts listeners. This is a way for us to triple our offerings."

Paying the bills

Still, many radio station executives are wringing their hands about developing a business model that makes HD radio profitable.

"That's the $64,000 question: What's this business model going to look like when all of this is said and done?" WICR's Uecker said. "That's a question that's making a lot of people nervous right now."

Clear Channel's Bender thinks it's too early to think about profiting from the new offerings.

"We're just trying to get people to sample the technology," Bender said. "When the masses start to move the technology, that's when there will be a commercial model."

The first step is getting HD receivers in the hands of listeners. With sets costing $200-$300, that's a problem.

"I think with Radio Shack coming on board, this upcoming year will be a big one," Uecker said. "When the cost comes down to $100, I think you'll see stores like Wal-Mart and Target jump in, and then it will really take off."

Car wars

There's also a race to get HD receivers in cars. With satellite radio companies XM and Sirius already making a strong push with American and some foreign carmakers, this is a critical frontier for those pushing HD radio. BMW has agreed to install HD radios, but only in its highest-end cars.

"BMW will only put HD radios in about 45,000 cars a year," said Robert Unmacht, principal of iN3 Partners Inc., a Nashville, Tenn.-based media and investment banking consultancy. "That's not good enough."

With media companies forking out $150,000 to $200,000 per station to go HD, Emmis' Draper said many investors are looking for a return. There are other expenses beyond the broadcast hardware. Stations must pay Maryland-based Ibiquity Digital Corp., which licensed the technology, a licensing fee-usually $20,000 to $30,000, and often a cut of advertising revenue from multi-casted channels.

Many of the secondary channels are now automated, with little personnel costs. But to attract substantial advertising, industry experts said some on-air talent will be needed.

"Right now, we're upside down in this investment," Draper said. "We do think there will be a way to monetize this, but it's going to take some time."

There may not be an easy solution. Television broadcasters have struggled with finding a business model for their high-definition product for more than a decade.

Radio broadcasters can't even agree what form advertising will take on the multi-casted stations. While some think advertisers will sponsor hour-long blocks and entire programs-somewhat like public radio-others think it will be more like traditional commercial radio. Still others think a whole new ad model must be invented to combine broadcasters' primary and multi-casted stations.

Allied forces

Last year, many of the industry's biggest players-including Emmis and Clear Channel-formed the HD Alliance. The alliance agreed on the formats sta- tions could put on their side channels, so primary stations wouldn't be cannibalized. And Alliance members even held something akin to a draft to determine which stations had the rights to which multi-cast formulas. Alliance members also agreed not to air advertising on multi-cast channels through 2007.

But many midsize and small players either were not invited or refused to join the alliance. WKLU, for instance, has a business model that includes selling advertising on its side stations this year. Station officials also did not follow alliance guidelines when choosing their new formats.

"We serve the listeners, not other media company executives," Oasis said. "We chose our formats based on market research and listener demand."

For now, most stations are airing music that is close in format to the main broadcast. Clear Channel's classic rock station WFBQ-FM 94.7, for instance, is airing deep album cuts and live rock 'n' roll on its new Q2 station. WKLU, which also broadcasts classic rock, is airing an oldies station and dance music on its two extra stations.

Battle brewing

But as pressure mounts to make HD radio profitable, a battle unlike anything radio has ever seen could ensue.

"This could turn ugly," said Tom Taylor, editor of trade publication Inside Radio. "If stations try to go after one another directly, it could be really bad. I think the industry is trying to prevent that. But in a market like Indianapolis where 20 to 30 stations will be added to the airwaves, who really knows what will happen? Think of markets like L.A. or New York, where 100 stations could be added. It could get bloody."

Many think the proliferation of new stations will plunge audience share of the market's top stations. In Indianapolis, WFBQ and Cumulus Media Inc.-owned WFMS-FM 95.5 lead the way with more than 11 percent of the radio listening audience.

"What happens when this market's No. 1 station has a 2 share?" WICR's Uecker asked. "How do you sell advertising then?"

WKLU's Oasis said the key is not simply to divide the audience, but to bring in new listeners, drawing them back from satellite radio, iPods and the Internet. Under Oasis direction, WKLU has already climbed from market bottom feeder to a top-five station.

"When people think digital, they think of satellite radio," Oasis said. "This isn't satellite radio. It's free and local and it's another way for us to connect with the local audience."

Media buyers are cautiously awaiting the rollout of local HD radio. One problem is that New York-based Arbitron Co., the leading radio audience measurement company, has no way to determine how many listeners are tuning into secondary channels-data that is used to set ad rates.

While Bill White, partner of locally based advertising agency MillerWhite, isn't sure the new HD landscape will be good for current stations, he feels it will be good for listeners-and advertisers who understand how to navigate the landscape and spend their money.

"The audience will be more fragmented," White said. "Businesses will need to continue the trend of targeting their consumers more directly."

Instead of targeting audiences with an age range of 25 years, Oasis said the new HD world will allow advertisers to target five-year age segments.

"This is the future," Oasis said, "and we have a business plan to address that."
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