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HD Contributes More Than Half of U.S. Radio Advertising Sales

Somewhere on the horizon, in-band, on-channel technology known as HD radio, which makes AM stations sound as clear as FM stations and FM as clear as compact discs, or almost, is expected to replace analog.

Nobody is projecting when the acronym for high definition will fall from use as an adjective to describe radio, like motor did from motorcar. But a recent report by Virginia-based BIA Financial Network estimated that on-air HD radio stations were responsible for 57.5 percent of all station revenues generated in nationwide markets in 2006.

“In many markets, the major radio stations have already made the commitment to this new technology and are well-suited once receivers are in the hands of consumers and are embraced through mass market penetration,” said Mark Fratrik, vice president of BIA Financial.

However, San Diego, which BIA Financial ranked No. 17, reflecting total estimated revenue of $203.6 million last year, was below the nationwide norm with a 43.7 percent share attributable to HD. San Diego’s results for 29 FM and 16 AM stations were up 0.5 percent, or basically flat compared to 2005.

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The county was 81st among 85 markets ranked according to how much revenue HD stations contributed to the aggregate.


Northeastern Exposure

BIA Financial said that the HD rollout is the most advanced in the Northeast region of the country.

Yet the concentration appears to be somewhat out of balance, considering that a market that includes Hartford, New Britain and Middletown, Conn., placed 50th overall revenue, was in the No. 4 spot with HD representing 93.9 percent of the total. New York, which has long been No. 1 in overall revenue, was 26th in terms of its HD share, while Los Angeles, which has a firm grip on second place overall, was 21st in the HD ranking.

Detroit was in first place on the HD ranking with 97.9 percent share of its revenue coming from HD, but No. 10 overall, while Philadelphia was second with HD representing 95.7 percent, but No. 7 overall.

Locally, there are 11 stations that broadcast 17 HD radio channels, according to the HD Digital Radio Alliance.

San Antonio-based Clear Channel Communications Inc., which operates more than 1,200 radio stations nationwide, is the leader locally with 11 HD1, or simply HD and HD2 channels. CBS Radio has two, as does KPBS, and Lincoln Financial Media and Entravision have one each.

The difference between HD1 and HD2 is that HD1 enables broadcasters to segment a single frequency to carry multiple, simultaneous broadcast streams and wireless data, and is typically used to simulcast regular programming. With HD2, broadcasters air content that is separate and unique from that aired on HD1.

For example, KGB-FM 101.5 is broadcast on an HD signal, but KGB-HD2, which can be found at 101.5-2 on an HD receiver, runs the station’s morning show repeatedly throughout the day.


Getting Its Groove On

Doug Myrland, general manager of nonprofit Public Broadcasting Station KPBS, said the station is a big believer in HD, and is experimenting with a third iteration of the format, HD3. KPBS-FM 89.5 is the same as its regular analog programming but is available on HD. KPBS-FM 89.5-2 is HD2, which is different programming, devoted primarily to classical music. Plans are that the station’s HD3, meaning a third rollout of individual programming, is likely to be a different style of music.

“HD3 will be the format Groove Salad, which for us is electronica. It’s lounge and chill music, kind of techno,” Myrland said, adding that it could be rolled out in a couple of months.

As to why San Diego generally lags behind other markets in the proliferation of HD, Myrland said two reasons stand out.

Many local AM stations have older transmitters and towers that can’t easily be adapted to HD , only Clear Channel-owned KOGO-AM 600 broadcasts in HD , and installing a new transmitter is a costly proposition. Two years ago, KPBS spent $500,000 to install two new transmitters, one in San Diego and one in Imperial Valley.

“We needed to buy them anyway and we knew HD radio was coming, so we went ahead and got them HD capable,” Myrland said.

Moreover, 11 local stations broadcast signals from transmitters in Baja California, Mexico, and there doesn’t appear to be a push to convert those to HD, he added.

Transmitters on the U.S. side of the border would be converted before those in Mexico, he speculated. But the impetus for conversion throughout the market hasn’t fully kicked in, he said.

“I think that in terms of advertising revenue, it will look a lot like Internet looked,” Myrland said of the HD trend. “It takes a long time for ad dollars to actually be significant.

“You need a critical mass of listeners and it will take awhile before it brings in a lot of extra revenue, just as now we’re beginning to see more ad dollars migrate to the Internet.”

BIA Financial projected that total revenue for the radio industry would be relatively flat in 2007 and would increase by 1 percent or 2 percent in 2008. Nonetheless, Fratrik expressed continued optimism about radio’s future because of “the transformation to digital and the creative solutions stations have discovered to preserve listeners.”


Driving Listeners To HD

As for the transformation to digital, Myrland said he thinks a lot depends on the automobile industry installing it as standard equipment on new makes and models, and it’s anyone’s guess when that would happen.

Recently, Ford Motor Co. became the first American automaker, if not the first in the world, to announce it will offer HD radio as a dealer-installed option on nearly all Ford, Lincoln and Mercury vehicles. Prices are expected to vary by dealership.

HD radios aren’t cheap. According to a spot check of local retail stores, a table-top model with a remote was selling at Radio Shack for $199, and a JVC receiver was available at Wal-Mart for $187. A local Ford dealer said that installing an HD receiver would run about $225, and a kit, which is a necessary component, would run an additional $125. By purchasing a “home kit” for another $125, the same HD receiver could be used in a house as well.

The problem for radio stations, Myrland pointed out, is getting a return on investment in equipment in a reasonable time frame.

“If a station had spent $100,000 to $200,000 to convert, and that would vary greatly from station to station, they’re not apt to get that back this year,” he said.

How long it would take to recoup the investment is an unknown.

Radio revenue for San Diego was flat last year and BIA forecasts growth for 2007 should remain flat or increase 1 percent for the entire industry.

“I think the economic driver for radio will continue to be regular radio, but that doesn’t mean we don’t have to invest and offer consumers more choices,” Myrland said.

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