- Internet Radio Growth Booming
- Satellite Radio On Track to Hit 2007 Bridge Targets
- HD Radio Growth Revised Down - Again
- New Category Gaining Momentum: Cell Phone Audio Listeners
As part of Bridge Ratings' on-going study of audience attrition
of traditional radio and subscriber and user growth of alternative
digital media, we now publish quarterly insight comparing projected use and growth. Included here is an update to our findings
published since March of 2005
I. Internet Radio
Internet radio continues to show the most significant growth of monthly users of those media we cover in this analysis. At the conclusion of 2006, we estimated that 24% of the U.S. population or 72 million Americans listened to on-line radio in the previous 30 days. In this newest update of the report 27% (80 million) have listened in the previous 30 days. Weekly listening has also climbed from last period's estimate of 19% to our latest projection of 20% of the sample listening to some form of Internet radio in the previous 7 days. Weekly Internet radio audience is estimated at 60 million
We are estimating that at the conclusion of 2007, monthly Internet radio listening will reach 33% of the U.S. population jumping to 40% by the end of 2008.
The percentage of Internet Radio listeners who consume simulcasts of terrestrial radio stations is also climbing. 25% of Internet Radio listeners listened to at least one terrestrial radio simulcast on the Internet in the 30 days prior to the survey amounting to 18 million listeners. Assuming technology status-quo we anticipate that by the beginning of 2008 this number will rise to 32% and by 2010 38% of Internet radio listeners will spend time with a terrestrial radio simulcast. This presumes that terrestrial radio will continue to offer at least its current volume of programming on-line and will not be reduced due to the prohibitive nature of the proposed royalty rates. Should the Copyright Royalty Board's recommendations go forward unaltered, these figures could be greatly affected to a lesser degree.
II. Satellite Radio
The story for Satellite radio is somewhat mixed. The good news is that after more than a year of tepid consumer interest to satellite radio among the general population Bridge Ratings' passion index for satellite radio has begun to improve in the last two quarters (Spring/Summer).
Improving interest in purchasing satellite radio has coincided with the accelerated public awareness generated by the possible merger of XM and Sirius first announced in February of 2007. Initial non-subscriber perceptions have been negative toward a merger, while those currently subscribed have a quite different view since Sirius CEO Mel Karmazin's comments and explanations before Congress have been made public.
However, the less-good news for the sector stems from escalating consumer attrition/churn rates and a severely reduced among of retail sales activity. More than 80% of satellite radio sales are now coming from new car purchases. Unfortunately, even this accelerated new car purchase activity cannot slow the high percentage of consumers who either do not convert their free trial subscriptions to paid or who do not renew their paid subscriptions. The latter percentage is now approaching 55% of consumers not renewing or converting.
In Q2 XM added 942,000 gross subscribers but reported 338,000 net subscribers for the quarter. 604,000 subscribers turned off the service that quarter resulting in a churn of 64%.
Churn - as calculated by Bridge Ratings - is the net subscription number after all cancellations are subtracted from the company's Gross Subscription Counts.
For example, in the second quarter of 2007 XM reported 338,000 net subscribers added in the quarter. The Gross Subscription Count for Q2 was 942,000. 604,000 XM subscribers canceled their subscriptions during the second quarter leaving a net subscriber count of the reported 338,000 - a 64% churn rate.
Similarly, Sirius reported 561,493 new net subscribers during the second quarter off a Gross Subscriber Count of just over one million - a 44% churn rate.
These numbers spotlight the significant on-going pressures placed on both companies for subscriber additions. 1.659 million new subscribers have been added this year. Total subscriber counts for both companies together now stand at 15.3 million.
Industry forecasts have satellite radio subscriptions reaching 19 million this year. This would require an additional 3.7 million net subscribers by December 31, 2007. This would require the rate of adding subscribers to double for the remaining months of 2007 in order to reach this goal.
Bridge Ratings' original January 1st projections were close to 17.5 million - a 2007 growth of 3.9 additional subscribers. After improving numbers in Q2, we are holding with our revised full year gain for satellite radio to be closer to 3.4 million.
With these new estimates based on the companies continuing to exist as separate entities through 2007, we estimate Sirius will maintain its 60% share of the 3.4 million and gain a little over 2 million new subscribers while XM should add 1.36 million. Assuming no other changes to consumer behavior, we now estimate Sirius with 8.10 million subscribers and XM with 8.96 million by year-end.
This chart compares satellite radio subscription growth projections originally published in 2004 with those issued with this report. 2005 was the last year that satellite radio's growth outlook was highly optimistic. All signs pointed to an extremely sharp sector growth pattern. 2006 brought the industry more difficult subscription acquisition, technical issues and mixed publicity all coupled with a sudden change in consumer interest first revealed by Bridge Ratings in April 2006.
At the time of the 2004 estimates shown here, XM was still considered the brand-to-beat. Howard Stern had not yet announced his move to Sirius and XM looked to be the sector leader despite rapid projections for Sirius. At the time, Bridge Ratings was projecting a total subscriber base of over 50 million by 2020 based on all the consumer data we were collecting at the time and the sector certainly was at the peak of its "hot" phase from both a consumer as well as a Wall Street perspective.
As of this report, Bridge Ratings is projecting a total subscriber base closer to 40 million by 2020.
However, with the 2006 slow-down in consumer interest and 2007's proposed merger, projected growth for the sector is somewhat ill-defined. What is clear as of this report is that subscriber growth projections for the sector for 2010 are down 23% or 7.25 million.
III. HD Radio
HD Radio growth is the most disappointing highlight of this study continuing a tepid growth story that has not gained traction since the initial marketing blitz conducted by the radio industry. Consumer awareness of HD radio continues to grow impressively but consumer interest in owning or listening to HD Radio continues to decline as a function of the general population. 75% of the sample now has heard of HD radio at some time in the past. Only 7% expressed that they are Very Interested in owning HD radio; down from 9% in January of 2007.
Why isn't HD radio catching on? The number one response...continues to be "Don't see a need" followed by "Not aware of its benefits".
Bridge Ratings' study "HD vs. Internet Radio: Which is Radio's Future?" adds additional perspective. For example, 13% of Americans sampled were able to explain what HD radio is. This compares to 15% in January.
Why isn't HD radio catching on? The number one response from those who have "little or no interest at this time" continues to be "Don't see a need" followed by "Not aware of its benefits".
Bridge Ratings is re-forecasting its HD Radio growth at this time. We expect less than 400,000 nationwide U.S. users of HD radio by year-end 2007 and only just under 1 million by the start of 2009. These estimates are considerably reduced from our earlier expectations when a larger consumer base expressed interest.
The fleeting nature of technology appeal by all consumers, but most notably the most active and advanced early adopters greatly affects a product's ability to capture consumer interest. In the cast of HD Radio, a solid case of product differentiation or product benefit has not been made by the broadcast community and therefore, those early adopters and innovators who potentially were interested in HD six months ago have, for the time being, moved on to something else.
Finally, marketing efforts for satellite radio and HD radio generate vastly different responses from consumers. Satellite radio's marketing and in-store display and sales efforts attract and build a compelling product differentiation story. On the other hand, the HD radio in-store presence is not perceived by the general consumer. The few that we interviewed for this study that actually sought out HD radio at stores like Best Buy and its competitors were met with uninformed sales people or stores that did not stock the radio's nor had an HD radio display.
IV. Terrestrial Radio
In 2004 Bridge Ratings released its initial projections for this report for several media including terrestrial radio. At the time, we noted terrestrial audience attrition - most significant among 12-21 year olds who were sacrificing time-spent-listening to terrestrial radio for new technologies such as their MP3 players and the Internet. Projecting forward using Bridge Ratings proprietary analysis tools developed by the University of California at Los Angeles, terrestrial radio had the potential to lose significant audience between 12 and 21 by 2020 with an additional, more conservative audience loss among radio listeners over 30 years of age.
In 2006 Bridge Ratings' consumer analysis began to reflect a slow reversal of attrition by both groups. 12-21 year olds were less likely in these 2006 studies to abandon terrestrial radio than they were in the 2004 studies. This behavioral change hinged on two factors: 1) renewed interest in terrestrial radio through its Internet simulcast and 2) "iPod fatigue" among a significant number of 12-21 year olds who in 2004 consumed much less terrestrial radio because nearly 80% of their time-spent-listening to traditional AM/FM radio stations had transferred to MP3 player use. By 2006 our panel had greatly reduced their weekly use of their MP3 players returning to terrestrial radio listening patterns similar to those this group used in 2004.
12-21 year olds are rediscovering traditional radio through contemporary music formats.
A third reason is becoming evident with the results of this new study.
Some 12-21 year olds are rediscovering traditional radio through contemporary music formats such as Top 40 and Alternative Rock. What is attracting this young group back is the increasing dedication to new music by some of these stations and a change in the manner the music is being presented on these stations.
We are seeing contemporary music stations with a better appreciation of the fact that their most active listeners are very much into music discovery and use these radio stations to help filter out uninteresting new music.
We asked 908 persons ages 12-21 in this sample if they were listening to AM/FM radio More, the Same, or Less than they were a year ago. While we don't have a definitive trend here yet, the positive improvement in "Listening More" is encouraging. Still, over 40% of the sample is still "Listening Less".
The follow chart reflects the projected audience growth changes in terrestrial radio through 2020. The red trend represents the 2004 projections going forward; the blue trend-line represents growth expectations based on interviews completed for this 2007 study. Of significance, while there is still attrition in the later out-years, it is not nearly as severe as the 2004 behaviors suggested.
Among our podcasting panelists who have downloaded audio or video content to listen to at a later time, 65% indicated in this study that they had listened to or viewed a podcast in the 30 days prior to the survey. This is up slightly from the April study with the same panel.
Sample: 1300 persons 12+
Among the general population, the number of people who have heard of podcasting increased to 51% - up from 25% when we asked this question in 2004. Of those who said "yes" they had heard of podcasting, 20% responded that they were interested in downloading podcasts of audio or video content from the Internet. The number of people interested has more than doubled since 2004's study.
Sample: 5102 persons 12+
The growth in use and awareness of podcasting has been greatly enhanced by traditional radio - especially News/Talk and NPR radio where podcast content tends to be more timely. While adoption among 35+ is slower than 18-34 year olds, there is positive growth there.
Growth of the podcasting phenomenon is severely limited by the process, according to this sample of the general population. The number one reason for not 'downloading audio/video content from the Internet to be listened to at a later time" is non-interest (46%) followed closely by "too complicated" (39%). A simplified process for listening to podcasts would greatly enhance the technology's growth potential.
VI. Cell Phones
Despite popular wisdom, in-car media use still heavily favors traditional radio with 93% of the sample indicating they use it on a regular basis followed closely by Cell phones and CD players. See chart below for device trending over time.
In-car media use still heavily favors traditional radio with three-quarters of the sample indicating that it is their preferred device in that environment. The next-closest device, the cell-phone continues to see a rise in preference with nearly 25% of the sample stating such. MP3 players continue to gain as well.
The sample was asked about the use of their cell phones in addition to the placing of phone calls. 57% of the total sample indicated that text-messaging/Instant Messaging was the primary use. 24% use their cell phones for downloading information related to traffic, weather, news or sports with traffic reports being the most popular with 39%. A relatively new category is rising quickly among business and leisure travelers: Concierge services which provide travel information or assistance. 23% of our sample indicated that they had utilized this type of service at least once in the last six months.
This chart graphically represents responses from our sample comparing their Preferred Cell phone Services today compared to their intended use in the future (2010 projections in blue).
Traffic report information, AM/FM listening, TV viewing and Internet browsing are examples of services our cell phone sample said they intend to use less in the future. Music downloading, concierge services and audio streaming are likely to be used more.
What types of new cell phone services or capabilities do people have an interest in? A third of those polled are interested in a time-shifting capability associated with audio or video downloads or streaming. In fact, a "Tivo-like device" for radio ranked very high.
Conclusion: Cell phones are emerging as a legitimate entertainment device and due to its pervasiveness in American society pose the greatest threat to terrestrial radio and MP3 devices. As more and more specialized services become available, prices reduce and equipment ease-of-use improves, we see growth in this area exploding.
Following compares user growth for terrestrial radio plus its digital competitors.
How to read: Bridge Ratings estimates that by the start of 2008, HD radio sales will reach .50 million.
"Wireless Internet" in these projections is defined as “out-of-home” Internet users who surf from cell phones, personal digital assistants (PDA’s) or other portable devices.
“Mobile Phone Streaming” is defined as the number of people projected to use their mobile phones for streaming.
Estimates represent numbers on 1/01 of year
Estimates for Internet radio represent monthly users.
Because our predictive polling cannot foresee changes in technological and sociological change,, the figures shown do not take these into consideration. Traditional analog radio, even with advances such as HD technology, may sustain popular use - especially among older listeners. The maintaining of mass usage numbers, of course, relies on quality of the programming.
Our compiled data indicates that at this point in time, projected subscribers to satellite radio should reach 23 million by 2010 (6.7% of Americans) and 35 million by 2020. These new projections based on full year 2006 analysis and interest in the medium sustaining at current levels are reduced from our previous (January 2006) estimates of 50 million satellite radio subscribers. These estimates also do not take into consideration the prospect of a merger of XM and Sirius.
Projections for HD Radio's growth is disappointing as our just-released study on HD vs. Internet Radio suggests at this point in time a slower growth curve for the new technology unless the industry can overcome significant consumer resistance due to issues related to the benefits of HD radio.
We have lowered our previous estimate of HD units sold through the end of 2007 to approximately 400,000 and only 2.4 million by 2010 unless marketing, pricing and distribution efforts improve.
Still, the combined effect of HD radio's roll-up and increasing growth of Internet radio together with a general market malaise are slowing original growth projections for satellite radio. Investment in and development of full-market WiMax systems during 2006 will continue during 2007 further accelerating out-of-home use of internet radio. The negative potential of the new copyright royalty fees on the growth of Internet radio is difficult to project at this time.
Automotive companies are seeing demand for Internet-capable in-car systems and are moving forward with plans to install internet-capable boxes in 2007 and 2008 models sold this year. Though initial exposure to this technology will be focused on new cars coming out of Detroit and Japan, plans are unfolding rapidly for after-market installations. This out-of-home and office use coupled with already significant use numbers at home and office are exerting upward pressure on growth for Internet radio listening. For the purposes of this study "Internet radio" includes streaming internet-only audio sources as well as terrestrial radio simulcast.
According to this updated data, the entire spectrum
of digital audio alternatives, and especially Internet radio and
and its wireless distribution continue to represent the biggest
challenge to traditional radio. Confirming an earlier trend, a rising component of trouble is cell phone activity among all age groups up to 65 years of age. New cell phone capabilities which will turn the mobile phone into a more dynamic part of daily life will potentially surpass Internet radio as the most significant challenger to traditional radio's time-spent-listening. Based on what we know now, we do not see HD radio as a significant contributor to boosting listening to terrestrial radio.
Sample size: 4541 persons 12+ Survey dates: 05/22/2007 - 07/20/2007
Methodology: Random digit phone dialing, mall intercepts, national footprint
Population estimates courtesy of the U.S. Census
Disclaimer: Bridge Ratings makes no warranties, either expressed or implied, concerning: data gathered or obtained by Bridge Ratings from any
source; the present or future methodology employed in producing Bridge Ratings statistics; or Bridge Ratings' data, estimates, or
calculations contained herein. Bridge Ratings' data and estimates represent only the opinion of Bridge Ratings and reliance thereon
and use thereof shall be at the user’s own risk.
Forward-looking statements give our expectations or forecasts of future events based on current consumer tastes, expectations and behavior. Sometimes these statements will use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "outlook," "forecast," and other similar words. These statements are not absolute guarantees of future consumer behavior and are subject to risks, behavior variances, uncertainties and other important factors that could cause these estimates to be materially different from those we project at any given time.