Innovative Broadcasters Make Immediate ROI withHD Radio™-on-Translator Plays
The chicken and egg syndrome has impacted every major broadcast rollout. The issue is straightforward: TV or radio broadcasters are reluctant to spend the money to create new content before there are a lot of receivers in the market capable of getting that new content. But device makers won’t invest to build new devices until there is content out to support them. Who goes first, the chicken or the egg?
I count five mass market over-the-air broadcast technologies which broke through chicken and egg: AM and FM radio, black and white and color TV, and digital TV. [One could add satellite radio or TV to the list, but let’s focus on ‘open’ systems used by hundreds of broadcasters.] All these transitions took over twenty years to go fully mainstream. Proponents employed various methods, including a government mandate and analog turn off date with digital TV, but they all got it done. At least one technology, AM stereo, never made it.
Four more are at various stages of fighting chicken and egg. I am biased, but HD Radio Technology appears to be breaking through (more on that in a minute). 3D TV looks to be moving backwards and may not make it in a major way, with ESPN most recently shutting down 3D broadcasts. Mobile DTV and Ultra HDTV are just now getting off the launching pad.
The one constant for all successful media transitions has been the passage of time, and that patient strategy is working for HD Radio Technology as well. Back in the mid-2000s, many forward looking broadcasters made a strategic decision to upgrade their stations to digital broadcasts. They were the initial chickens and the eggs have followed over time.
Take a look at the chart nearby that shows annual HD Radio receiver sales growth (it’s based on our September fiscal year). From 2010 to 2013, we see 50% annual growth, most of it driven by automotive uptake: almost 30% of new cars will ship with HD Radio receivers in 2013 and by next year, there won’t be an auto dealer in America that does not have HD Radio equipped vehicles on the lot. We forecast similar results for the next several years. It sure looks like that famous inflection point experienced by many successful technologies, where sales trundle along for several years and then break through and head straight north.
So unquestionably, with a lot of effort and patience, we are getting there. And, as we’ve discussed in the past, broadcasters are making money on their HD Radio investments in a variety of ways – advertising, sponsorships and leasing of HD2/HD3/HD4 channels, and most recently, by broadcasting real time traffic services to navigation systems over HD Radio signals. With receivers flooding the market, these opportunities increase dramatically over time.
The Sprint Deal is a Big Deal: We are tremendously enthusiastic about the deal bringing FM chips to Sprint mobile phones. As I’ve discussed in past columns, getting FM into phones is essential to radio’s long term competitiveness, and this deal is an important first step. The NextRadio app moves us toward the vision of a more compelling, fully featured, interactive broadcast radio experience, which takes advantage of IP connectivity in the phone. Congrats to Jeff Smulyan and Paul Brenner for their commitment in pulling the industry together and getting the deal closed.
But with around 15 million HD Radio receivers sold thus far, we still need some more eggs to become totally mass market and for broadcasters to fully monetize their HD Radio investments. And understandably, a response of ‘just wait a few more years’ is less than satisfying.
That’s why we are excited that some innovative broadcasters have come up with a creative way to beat chicken and egg. They are deploying the increasingly popular ‘HD Radio-on-Translator’ play, and making real money doing it. The practice first began a few years ago and is now widespread across the country.
The HD Radio-on-Translator playbook is fairly straightforward. An FM station upgrades to HD Radio broadcasting. They expand their content offering by programming a new HD2 (or HD3 or HD4) channel. Here’s the innovative part: they take the HD2 content and simulcast it on an analog translator, making the digital broadcast simultaneously available to all analog radio receivers already in the market. No more waiting around for more digital radios, because they can also rely on all the analog ones out there and sell ads immediately.
In effect, it's like getting another unique analog FM signal for a tiny fraction of the cost of a new station. Get that translator's antenna up high enough, and it's basically a new Class A for the cost of the HD Radio upgrade.
We’ve seen the dynamic in HD Radio station conversions. For the past two years, 2/3 of digital upgrades have involved an HD Radio-on-Translator initiative, often in small and mid-sized markets. By getting the new analog station with the HD2, the ROI on the HD Radio upgrade is compelling.
There are dozens of success stories around the country, and it seems like I hear a new one every week from an enthusiastic broadcaster. Stations have been generating significant audience and advertising dollars in markets large and small. Here are a few of my favorites:
WYDS/Decatur, IL: Cromwell’s Bud Walters looked around Decatur and saw an underserved Urban market. They installed HD Radio equipment, put an Urban AC format on the HD2 and simulcast that on a 250 watt analog translator. The result? A 9.4 share in the Spring Arbitron.
KYGO/Denver, CO: Lincoln Financial is running the All Comedy Network on their HD2, filling a programming void and pulling a 2.4 share via simulcast on a strategically-placed analog translator.
WKCN/Columbus, GA: PMB Broadcasting has gone all in, simulcasting their HD2, HD3 and HD4 channels on different analog translators, literally covering the market with Country, Rock and Hispanic formats. Solid ratings and ad sales have followed.
KDXY/Jonesboro, AR: Saga’s station is another small market success story. The analog/HD1 channel is Country with a 14.2 share. The HD2 and HD3, both simulcast on separate translators, are Top 40 and Oldies respectively, nice compliments to the Country powerhouse. The HD2/Top 40 has a 2.3 share, HD3/Oldies a 1.7. What a killer combo buy.
WMJJ/Birmingham, AL: Another Urban AC HD2 filling a programming void, with Clear Channel leasing a translator from a local owner and pulling a 2.7 share, just beating their sister station, WERC-HD2, which pulls a 2.5 share with Gospel simulcast on a 100 watt analog translator.
And my personal favorite, WHFS, DC’s iconic alternative rock station, which has been back on the air for some time at 106.5 HD2 in Baltimore, is now also on an analog translator at 97.5; I do my listening on the HD2, they are multiplying their reach on the translator.
The list goes on and on. Real listenership is starting to build. As of last fall, Arbitron counted almost 3.6 million weekly listeners to over 500 different HD2, HD3 and HD4 channels. That’s a 60% increase in one year. A big chunk of that listening is taking place on analog translators.
You don’t have to own a translator to play. As many broadcasters have found out, there are plenty of large and small local and national operators who own multiple translators (think religious broadcasters) that have been willing to lease or sell them. Many stations make money this way, many more opportunities are available.
HD Radio-on-Translator also supports the creative programming element we have been seeing on HD2, HD3 and HD4 channels. These channels are blank canvasses that can let young talent develop and serve as a proving ground for new formats. Like early FM in the 60s and 70s, up and coming PDs can cut their chops with little risk of failure. New niche formats, like comedy which has gained an analog footing after launching on HD2s, can emerge. It may have a rough around the edges, but that’s great for the industry.
Most stations create their own HD2 programming, but for those concerned they don't have the time or staff, other options exist. I like what SummitMedia did recently in Birmingham. They partnered with a popular local internet-only operation to carry their programming full-time on their HD2/translator combination, getting a complete package they can put on the air with no additional ongoing effort.
So the HD Radio-on-Translator play is the best of both worlds: Stations get instant incremental revenue from selling an analog signal that couldn't carry separate content without an HD2 to feed it, and they stake out the digital high ground, establishing their digital broadcast presence in a market that adds HD Radio receivers at the rate of one every six seconds. The HD2 signal gets established in the market on the analog translator, and as more listeners get HD Radio receivers, listening will move from the analog simulcast to the digital HD2. Translators are like training wheels that allow a seamless transition from analog to digital while bringing listeners along for the ride.
Most radio folks (but by no means all) tell me they know that HD Radio broadcasting is the future, and that the migration from analog to digital is an inevitable part of our industry's evolution. But they struggle with how to justify the cost of the HD Radio upgrade while waiting for 25 or 30 million HD Radio receivers to hit the marketplace. In other words, they struggle with chicken and egg. Well, HD-on-Translator is a solid solution.
So thanks again to those crazy, creative broadcasters who figured out a way to beat the chicken and egg. You should explore getting in on it.