Battling for Earshare: CES 2014 Confirms Radio’s Competitive Challenge
by Bob Struble
HD Radio Technology™ an Indispensable Requirement in Hyper-Competitive, Connected Audio Market
As usual, my time at this year’s International Consumer Electronics Show a few weeks back got me thinking hard about what lies ahead for broadcast radio. I’m excited by it all and inspired to share a few thoughts.
Folks go to CES to see the future and plan for it, and there was much to see in Vegas that will impact the radio industry. I was happy to spend time at the Show with more broadcasters than I have in previous years. It’s essential for industry leaders to see firsthand the incredible breadth and power of new consumer information and entertainment technologies, and feel the rapid pace and disruptive potential of these innovations. Products shown at CES have and will continue to change the way radio is used by consumers and, by definition, how it does business going forward.
Coming out of this CES, I’ve identified five broad trends that are fundamentally changing the competitive landscape for radio broadcasters. For the most part, they are continuations or confirmations of developments we have been monitoring for years, which deepens my conviction on their transformational effect, and not surprisingly, on the importance of over-the-air digital broadcasts to keep up in the rapidly changing audio market.
Here’s what I saw and how I think it impacts radio:
The Rise of Car Infotainment Systems
Five years ago, not a single car maker exhibited at CES. This year, 9 of the top 11 automakers had booths. That’s really stunning, considering that the very next week after CES, the year’s biggest auto show in Detroit takes place. That’s because consumer electronics in cars – the infotainment system – has become a critical buying factor in new car sales, as important as acceleration, gas mileage and safety ratings. So automakers are at CES to show off how cool and advanced their dashboards have become, and to meet and do deals with all those new services clamoring to get into the vehicle (which as discussed, is why more broadcasters should be in Vegas).
Happily, every one of those nine exhibiting automakers were showing their excellent HD Radio offerings, which is telling. More broadly, we announced at CES that HD Radio technology is now offered by every car manufacturer, and was built into 1/3 of all new cars sold in America last year. Increasingly, HD Radio technology is broadcast radio to many automakers.
Cars are coming with big, bright color screens as part of these infotainment systems. Car designers want advanced HD Radio features like iTunes Tagging and Artist Experience - album cover art - to take advantage of those screens and provide listeners with the experience they expect. Analog radio basically presents a blank screen and has fallen behind competitively. Of course AM/FM has great content, but position on the screen is being decided by automotive product people who are demanding visually-enhanced experiences. In many ways the blank analog screen has lost its position on the dashboard to other more fully-featured services. HD Radio broadcasting is imperative in the race to keep up.
The Connected Car is Here
Staying with car trends, because they are so important to broadcasters, this CES confirmed that the connected car is here, now. This was a bit of a ‘Back to the Future’ CES for me. As far back as 2010 (http://bit.ly/1gCWxOb), I’ve been writing about cars coming with internet connectivity in the dashboard and a wide variety of web-based infotainment services. I have an advantage staring into the crystal ball about cars: we work closely with all of the automotive manufacturers and because they have a 3-4 year development cycle, we quite literally know what is coming. We have 2015-16 car radios in our labs now for testing.
All nine automakers highlighted their connected offerings. For the most part they are very compelling, with a broad offering of popular streaming, social media and other linked services. Audi and GM had big announcements about deals with wireless carriers to build 4G connectivity directly into the dash, upping the ante. Google announced deals with four automakers to integrate Android in the car, and Apple’s iOs in the car is moving forward with twelve automakers. All the big connected players are intensifying the ‘Battle for the Dashboard’. If you didn’t see it at CES, just head down to your local auto dealer and take a look.
You'll also see there what we highlighted at the Show, several cars with advanced HD Radio traffic services provided by Clear Channel and the Broadcast Traffic Consortium over their nationwide HD Radio networks. These free-to-the consumer services allow broadcasters to compete with connected offerings and make real money doing it. They're available on both higher end cars like Lexus, but also the affordable vehicles we had in our booth: Toyota Corolla, Honda Civic, Mazda 3, Mitsubishi Lancer and others.
For broadcasters the bottom line is all cars will soon have internet connectivity and everything that brings. Radio is jockeying with dozens of digital infotainment services in the car for listener time and attention. It requires the industry to upgrade its basic offering to remain competitive in the dashboard. CES again showed that HD Radio technology is a fundamental competitive requirement in cars.
A Great Broadcaster, an Annual Tradition.
Our long time friend and legendary broadcaster Dave Graveline’s ‘Into Tomorrow’ profile of HD Radio Technology from CES. Hopefully it gives you a sense of the strong recent HD Radio progress. Watch Video
Fewer Home and Portable AM/FM Products
A trend that keeps me up at night is the dwindling supply of home and portable AM/FM products. What I saw, or more accurately didn't see, in Vegas should concern all broadcasters. Outside of what is being built into cars, there are a whole lot less consumer electronics products with AM/FM tuners. Yesterday's clock radio is probably a dock, table radios and boom boxes have become bluetooth speakers, and my generation's transistor radio or headphone radio or Walkman is now a ...mobile phone. And again, you didn't have to go to CES to see this, head over to Best Buy and count the 'traditional radio' products. There's a lot fewer.
Nielsen Audio tells us that in home listening still accounts for 36% of 12+ AM/FM listening, less for kids, so there are still a ton of receivers out there - a billion including cars on the road by most counts. But it's hard not to look at these product trends as anything but forward indicators. Our industry must work collectively to turn it around - with lower cost and more fully-featured home and portable products, with HD Radio technology as an essential feature. Maybe an initiative to develop specific programming or promotions that could shore up home listening as well.
And of course, the decline of home AM/FM products emphasizes the importance of out-of-home listening and devices. That requires solidifying AM/FM's position in cars as discussed above, and bringing broadcast radio to phones, as NextRadio is working with Sprint to do.
More Internet Radio Players (Really)
Most all of the streamers had a major CES presence, perhaps led by Pandora and iHeart highlighting their progress in cars. The Show served as a launching pad for yet another entrant, Beats Audio, with a subscription-only curated offering and a prominent partner in ATT. Last year's entrants, Google Play and Apple's iTunes Radio, were also present at CES. And although neither has yet become the category killers some thought, the gang is really all here and talking a big game. Less talked about is that no one has yet made a nickel of profit streaming.
What does this all mean for broadcasters? As I have opined previously (http://bit.ly/1h6ByWq), streaming will be a potent competitor, even with unbridled competition and without an established business model except perhaps as a loss leader for other businesses. But broadcast radio retains tremendous distribution efficiencies. AM/FM broadcasters streaming established broadcast content probably makes sense for brand extension and to serve listeners, but economically it's hard to argue that this is not trading a 40% margin listener for a subzero one.
Above all, it emphasizes that radio cannot forget about its core broadcast product: it's proving to be a better business even in this hyper-targeted, hyper-competitive world. That means what it always has - great creative programming, meeting the needs of local communities, effective promotion and engagement, super serving advertisers. And for sure it means upgrading the product technically, with HD Radio technology and other means, to deliver a state of the art user experience. Listeners won't tolerate a 1972 look and feel in 2014.
The Internet of Things (IoT)
More broadly, the final important CES theme for broadcasters is what is being called ‘The Internet of Things’ (to the cool kids, it’s ‘IoT’). IoT means a lot of things and will take awhile to be fully realized, but stated simply, it projects a world where virtually all devices are connected to the internet and share data broadly. Big vision.
With connected sensors and actuators embedded in all sorts of physical objects - from roadways to pacemakers - churning out huge volumes of data for analysis, the world becomes more efficient and automated. Traffic is rerouted, people are told to go to the emergency room, the power grid is optimized, etc. People have joked for years about connected toasters, but that’s what IoT envisions, with the resulting data improving our lives. We learned just after CES that Google paid $3.2 billion (!) for Nest, a connected thermostat company. That’s a big bet on IoT.
What IoT means for broadcaster is this: in a very short period of time, every device that has an AM/FM tuner, will also have an internet connection. And that has profound competitive implications.
As is often the case, ubiquitous connected devices will bring both threats and opportunities to broadcast radio (http://bit.ly/1epBRXj). The threat is fairly obvious - listeners and advertisers will have additional choices on where to spend their infotainment time and ad dollars in places like car dashboards, where broadcast radio once had a monopoly position. But the opportunity exists to make AM/FM a more interactive medium.
And that’s where hybrid radio comes in - pairing the distinct distribution advantages of broadcast with the interactivity that IP brings. There is a lot of activity around this idea and I'll have more to say about it in a future piece. As they say, stay tuned.
So as always, CES was an eye opener. I'm proud of the continued rapid HD Radio progress we showcased, and believe it is great news for broadcasters. But the trends toward broad connectivity and a tremendously competitive audio market are also accelerating. Broadcasters must redouble their efforts to keep their hard fought place in the media mix.
Part of that effort must be an upgraded presence at CES, because increasingly CES is where the future of radio is being decided - by car and receiver product people. We have been honored to carry the broadcast flag at CES for may years, and we were excited to give the NextRadio folks a presence in our booth. But it's past time for broadcast radio reinforcements to tell AM/FM's story to this critical audience.
HD Radio technology is an essential part of that effort, and we are here to help. Call us, it’s all we do, all day, every day.