Sub-$100 HD Radios Expected in 2 Years, Emmis Pres. Says

The lower price could be achieved by the HD Radio receivers switching to a mass produced integrated chipset from the custom-built ASIC at the heart of current models, said Cummings, whose company has had discussions with several CE companies including Sony and Panasonic. HD Radio has suffered from a paucity of hardware and retail distribution, with only about 15 dealers carrying the product. Boston Acoustics and Yamaha are among those fielding product. “It’s nothing right now,” Cummings said.

That could change in 2006 as the HD Digital Radio Alliance commits $200 million worth of air time and “cash” inventory to promoting the technology. The technology also is expected to receive a boost from the arrival of new “HD2” multicast channels, Cummings said. Emmis, which owns 25 radio stations, expects to have affiliates in N.Y.C. (3), L.A. and Chicago transmitting HD2 channels within 6 months, Cummings said. About 1/3 of Emmis stations provide HD broadcasts, but that’s expected to increase to 50% with the next several months and be company-wide in 2006, Cummings said.

The HD2 channels are expected to be home to alternative formats including comedy, headline news, blues, ballads and others. “It will be like FM radio in 1970 with a lot of content,” Emmis Chmn. Jeff Smulyan said. The expanded content will be used to attract CE manufacturers to the format and help convince them to market HD Radio product, Cummings said: “HD Radio is wonderful from a technology perspective, but it’s not technology that’s going to attract manufacturers and consumers. It’s content.”

In weighing options for HD Radio, Smulyan said a subscription-based service similar to XM and Sirius was considered. “We have a perfect vehicle to launch a subscription-based service, but we still don’t know if there is a business there,” Smulyan said.

Smulyan conceded that satellite radio has done a “brilliant job” of marketing itself, but noted it has attracted 5 million subscribers vs. the 800-900 million installed base of radio receivers in the U.S. Within 5 years, satellite radio is expected to increase to 30 million subscribers, he said. The emergence of digital audio players including Apple Computer’s iPod also is expected to cut into the radio business, Smulyan said. But broadcast radio survives, as it did with the advent of CB radio, 8-track tapes, cassettes and CDs, all predicted to replace it, he said.

Meanwhile, although members of the newly formed Alliance shied away at a N.Y. news briefing this week from positioning any new HD2 multicast programming as a direct competitor to satellite radio, XM released a statement expressing hope that the announcement signified broadcasters “have finally decided to compete on content rather than through legislative efforts to cripple satellite radio.” XM said it “has always known that robust satellite radio competition would benefit all consumers.” Sirius declined comment.

NAB Pres. David Rehr hailed the Alliance announcement as “historic,” and one that “sends an unmistakable signal that local radio’s best days are still ahead. Consumers will benefit from scores of additional program formats and improved signal clarity, coupled with community-based news, weather and traffic reports that remain hallmarks of free radio.” A Sanford Bernstein research report said the Alliance would pose “little threat” to Sirius or XM because it can’t match: (1) Commercial-free music. (2) Large number of channels in a variety of formats. (3) Exclusive programming such as Major League Baseball and Howard Stern. (4) Automotive OEM distribution. The Alliance said multicast programming would be commercial- free for the “short term,” and Sanford Bernstein said the strategy “is obviously not sustainable” for long.

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Emmis has pulled out of the competition to buy Disney’s ABC radio group, Cummings said. Emmis dropped out within the past 2 weeks due largely to differences with Disney over the value of its 60 radio stations, Cummings said. Disney earlier this fall was said to be disappointed that initial bids from Emmis, Entercom Communications and Citadel Bcstg. fell short of its $3 billion asking price. The Disney stations, which attract an older non-Hispanic crowd, would have been a “perfect match” for Emmis, whose stations skew toward a younger audience, Cummings said. Meanwhile, Emmis will complete the sale of the final 3 of its 16 TV stations within a year, Smulyan said. The remaining stations are KGMB (Ch. 9, WB), Honolulu, WVUE (Ch. 8 Fox), New Orleans, and WKCF (Ch. 18 WB), Clermont-Orlando, Fla. The Orlando station has attracted the most interest from potential buyers, Smulyan said. Emmis has held off marketing the New Orleans affiliate, recovering from Hurricane Katrina in Aug., Smulyan said. “It’s a very difficult situation there [New Orleans], but it’s coming back and we need to know what we have,” he said. Emmis is using the sale of its TV stations -- 9 of its 16 affiliates sold in 3 transactions for $681 million -- to cut debt and focus on its radio business. A separate $259 million sale of 4 stations to Blackstone Group and SJL Bcst. Group is expected receive FCC approval within 30 days, Smulyan said. Emmis also expects Major League Baseball to make a final decision on the sale of the Washington Nationals this month. Emmis is said to be one of 8 bidders for the Nationals. It has said it would put up $100 million to buy the team and form a new subsidiary to hold it. MLB, whose 29 owners bought the team 3 years ago, had planned to sell the team by early last summer. But Commissioner of Baseball Bud Selig said the league won’t select a new owner until the Nationals and Washington agree on lease terms for the $535 million stadium pledged along the Anacostia River. A lease is expected to be signed as soon as this week, allowing the City Council to vote on it Dec. 20, Smulyan said.

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U.K.-based MSO NTL expects to complete its $6 billion acquisition of Telewest by spring, but it may take up to 3 years to integrate the companies, NTL CFO Neil Smith said. Much of the reason will be the time needed to create a single billing system from the 5-6 the companies currently employ, Smith said. Telewest systems are generally based on Oracle 11i software, while NTL uses a combination of PeopleSoft (human resources) and Oracle 10 (finance, procurement). The cable operators also will combine call centers, reducing them to 7 from 16, NTL Chmn. James Mooney said. The combined company, with about 5 million subscribers, will focus on selling a “triple play” of services -- telephony, TV and broadband packages. The triple play package currently accounts for 38.9% of Telewest’s subscribers and in the “high teens to 20%” for NTL, Smith said. NTL has about 1.5 million triple play subscribers vs. 900,000 for Telewest. With its higher percentage of triple play customers, Telewest’s average revenue per user (ARPU) is $45.17, against $39.08 for NTL, company officials said. Piecing together the companies’ triple play packages will be a “massive piece of work,” Smith said. Telewest also has a higher penetration of digital customers (91%) than NTL (73%). NTL has a higher percentage of “lower tier” broadband customers (71%) than NTL (49%). NTL executives added little detail to Mon.’s announcement of the company’s $1.45 billion offer to buy Virgin Mobile. Richard Branson, who founded the parent Virgin Group and holds interests in many of its businesses, is expected to sell his 72% stake in Virgin Mobile to NTL and take a 14% stake in the new company, NTL said. NTL, which already markets broadband services under the Virgin brand, is negotiating with Virgin Enterprises to expand its use, Mooney said. Among the options being considered is offering a “quadruple play” that would package Virgin brand fixed line and wireless phone service with broadband and TV, Mooney said.