BROADCASTERS SKEPTICAL ABOUT DAB PROFITS
LAS VEGAS -- Broadcasters remain worried about “chicken- and-egg” problem with digital audio broadcasting (DAB), as well as return on investment, they said at NAB convention here. Reluctance emerged as equipment makers announced significant progress on both DAB transmitters and receivers using new in-band, on-channel (IBOC) technology. Officials of IBOC technology developer iBiquity said IBOC transmission equipment actually was on sale for first time at convention and receivers would be on market by CES show in Jan.
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“A whole lot of issues on the financial side have to be dealt with” on IBOC, said Bill Suffa of Clear Channel. He said huge radio company saw likelihood of spending thousands of dollars for IBOC equipment, with no audience increase for immediate future: “My real concern is that consumers will not see enough difference [between DAB and current radio] to invest in digital receivers. I'm not sure the time is right until we see consumer interest and a potential new revenue stream.”
Broadcasters also are reluctant to pay new license fee to iBiquity, in addition to equipment cost, particularly with little expected new revenue, they said. Licensing requirement appears to be “an impractical approach,” particularly for early adopter stations, said Charles Morgan of Susquehanna Radio, chmn. of National Radio Systems Committee. He said that in short term DAB “will do nothing for” broadcasters who offer it: “All it will do is cost you money.” However, Morgan said investing in DAB was “needed for the long-term survival” of broadcast radio.
Broadcasters should consider estimated $75,000 initial cost of IBOC to be insurance policy for long-term value of their radio stations, iBiquity CEO Robert Struble said. He said it also could create opportunity for new revenue streams, such as mobile data services. But most important, he said: “You have got to be digital to be competitive… It’s tough to fight new digital with old analog.”
DAB may never fully replace analog radio, just as FM didn’t replace AM, broadcasters said. However, Struble said FM stole 85% of AM’s audience “for one reason: Quality… We're not predicting the death of radio, but it will affect analog radio’s audience.” “In the end it [success of DAB] all comes down to consumer acceptance,” Suffa said. He expressed pessimism, citing price sensitivity of many consumers and fact that prime radio listening was done in autos, which were highly subject to road noise and even open windows. “The difference [between analog and digital] may not be as marked to the average consumer as we would like or expect it to be,” Suffa said. He said penetration of DTV was slower than expected, and other audio enhancements had failed.
Struble remains confident about consumer acceptance, citing fact that “sophisticated” CE manufacturers have done extensive consumer surveys that convinced them to invest heavily in DAB manufacturing. He said IBOC DAB would have key advantages over DTV, including adding only $100 to price of analog radio, rather than initial thousands of dollars differential between analog and DTV prices. Struble predicted DAB price differential would drop 50% per year. Station investments also are small fraction of millions of dollars per station for DTV, he said. IBiquity is predicting hundreds of thousands of sales in 2003 launch year, he said, millions in 2004, 5% DAB penetration in 2005.
To help solve chicken-and-egg problem, iBiquity is planning initial launch in only 6 large markets, hoping to create quick enough penetration to justify station investments, and enough stations to justify consumer investments, Struble said. He said company hoped to have 75- 100 stations on air in those markets
Struble defended station license fees, saying iBiquity had to recover $100 million investment in developing technology, but said there was “considerable flexibility” in licensing fees for stations doing early IBOC launches. Vast bulk of iBiquity income will come from license fees on consumer receivers, he said, but “we have got to get something from all parties.”
IBiquity plans to provide additional data on nighttime AM concerns about IBOC by summer, Struble said, and didn’t object to NRSC decision to delay nighttime AM approval: “It was clear to all of us that we just didn’t have enough information. It was a good decision not to bog down the entire process.” He said tests were “in the works” and result would be “probably the most comprehensive look at the AM band in history.”
Struble expressed confidence that nighttime AM issues could be addressed adequately and that technology would work. He also said nighttime reception would improve continually as technology matured: “This system now is the worst it will ever be.” He said FM wouldn’t even work in auto when it was introduced, and similar improvements were likely for DAB.
Key question hasn’t been whether AM IBOC would work at night, Suffa said: “The real cost is the interference to other broadcasters. The question is not whether you can put it on the air. The question is interference.”