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Bridge Ratings Consumer Update

 

For release August 8, 2007

 

HD Radio vs. Internet Radio - Which is Radio's Future?

Here at Bridge Ratings, we are often asked about HD radio. Is there a future? And, if there is a future from a consumer's perspective, how well- in our opinion - will HD radio enhance terrestrial radio's future?

In a just-completed Bridge Ratings study of 3179 consumers ages 12+, our client's goal was to determined the current status/awareness of HD radio among average Americans and how it compares to Internet radio in use and interest.

This chart provided by BIA Financial Network expresses the most current status of the number of HD On-air radio stations in the U.S. 278 HD stations are on the air in the top ten radio markets - about 36%. This compares to 18% of the stations in markets 51-100 that have invested in HD technology for their stations.

 

This follow-up chart of the Adoption of HD radio at the Top 25 radio groups provides excellent insight into how far along the top radio groups in America are in adopting the technology. 95% of Greater Media's stations are licensed for air - only 70% are actually broadcasting.

As the radio industry continues to invest in this technology, Bridge Ratings and select clients examine the status of acceptance among consumers at six month intervals.

The following chart compares responses in January 2007 to those of the just-completed study in July. The number of average consumers aware of HD radio continues to climb with 75% of Americans telling us they have heard the term "HD radio". The increasing level of marketing for HD by retail chains and manufacturers is helping this cause. Interesting to note: fewer 55+ persons in our sample were aware of HD radio in July.

Yet, when asked if they can explain what HD radio is, the numbers are less encouraging. Of the entire sample, 13% were able to provide some explanation as to the HD radio concept by either mentioned "improved audio quality" or "added interactivity" such as "digital read-outs". This number is down from January's 15% and the drop in product awareness runs across all demographics.

And when asked "How interested are you in owning HD radio", 7% were "very interested" or "Somewhat Interested". That number is also down from our January study, with the most significant decline coming from the 12-24 age group. This eye-opening statistic should produce concern on the part of the radio industry which is literally banking on HD radio to cement its "digital future".

The audience most likely to adopt HD radio in the future as more stations go on-line and more programming is offered are losing interest in the technology.

Of those who were "Very or Somewhat Interested" in owning HD radio, 3% were "very interested". However, with these respondents, we followed up with the question "Would you buy an HD radio in the next two months?" only 1.0% responded "yes".

Asked if they ever visited a retail store to look at or try an HD radio receiver, 30 members of our sample of 3179 said they had. That is less than 1%.

This chart displays updated HD radio growth projections based on the responses from our study in January 2007 (red) and the July 2007 study (blue). Declining interest in HD radio has caused us to slightly reduce our estimates for HD radio listeners out to 2015.

Comparing HD radio's growth with that of Internet radio adds some perspective.

 

In the following media growth projections, Bridge Ratings estimates based on current trends that Internet radio will have 180 million listeners by 2020, 250 million will still be listening to terrestrial radio, but HD will have less than 10 million. Which will contribute more to radio's financial future?

The Bottom Line

In 2005 Kagan Research forecast that U.S. terrestrial radio broadcasters would be earning four percent, or $805.2 million, of their total revenue from HD radio, mainly due to multicasting abilities. They also thought that advertising-supported "now" channels, that would offer local information such as all-the-time weather, sports and traffic, would bring in a large chunk of revenue. HD radio has not been developed as a revenue stream and these predictions have not come to pass.

According to John Blackledge analyst with JP Morgan, Internet radio advertising is estimated at $500M this year (2007). Bridge Ratings estimates that by 2020 Internet radio is projected to generate revenues equal those terrestrial radio acheived in 2006.

Estimates in the above chart are based on a composite calculation of all ad revenue generated through Internet Radio. These include: $104M in streaming ad revenue with the remainder divided among audio ads, music videos ad revenues, buttons, banners and sponsorships.

Bridge Ratings' projections for mobile phone audio audience size by 2015 could reach 40 million. This compares with our estimates for terrestrial (274M), satellite radio (15M) and HD radio (5M).

Traditional radio companies are finding insufficient resources for the type of development of new media content and strategies needed to transition with its future audiences who today are between 10 and 24 years of age.

With Internet advertising set to surpass that of traditional radio by the beginning of 2008 and Internet radio advertising growing alongside, traditional radio companies should see the benefit of fully developing compelling Internet radio content and highly trained sales forces.

Their mission, should they decide to accept it, is to invest in and develop brand content for mobile media such as cell phones. It is clear from these Bridge Ratings' statistics that HD radio's ROI potential is much further off in the future than either Internet radio or cell phone content.

Sample: 3179 persons 12+, random telephone interviewing, Internet panel interviewing on a national footprint. Interviews were conducted between June 15 and July 29, 2007.