Hear 2.0

The Premature Death of HD Radio

By Mark Ramsey
Mercury Radio Research

[For a printable version of this article, click here]

You and I are not Kevin Costner and HD Radio is not the Field of Dreams. Because we build it does not mean the audience will necessarily come. The HD Radio path we are galloping down is a treacherous one. And the future of our industry hangs in the balance.

HD Radio has been much examined by the engineers and sellers and owners and programmers. But from what I can tell not a single consumer marketer has ever tried to make sense of it.

Until now.

Will HD Radio die a premature and ignominious death? I hope not. But the difference between the success of, say, digital photography and the failure of, say, AM stereo is the difference between understanding the way consumers think and ignoring it.

So far, we’re ignoring it.

Here are the reasons why HD Radio could die on the vine – unless you and I do something about it now.

Problem 1: How do you sell a Radio?

HD Radio requires that consumers buy new hardware. New radios. Not since the dawn of our industry have we needed to drive sales of hardware. But we are content providers. And we own the pipes. We deal with a distribution channel that’s already in every car, workplace, and home – it’s universal. We don’t know – and haven’t needed to know - how to sell radios. And if you think selling these radios is as simple as “getting behind the effort,” talking it up, and handing out free samples, please stop taking the brown acid now.

People will buy these radios for two reasons:

a Either the radios will piggyback on something they buy for other reasons (i.e., I buy a new car and HD Radio comes standard) or…
b They will want the content that is available exclusively on HD Radio (and nowhere else)

Problem 2: HD Radio is Selfish

HD Radio presumably solves an industry problem, namely how to keep up with technology, expand our offerings to advertisers, and compete more effectively with Satellite Radio.

But what audience problem does it solve uniquely?

Here is a slate of competing answers, all of them flawed:

a More choice? The vast majority of listeners already have enough choice – all our research and ratings experience tells us that. We assume that listeners subscribe to Satellite Radio because of the enormous choice. I think this assumption is wrong. The statistics indicate that Satellite listeners tune in only slightly more channels than Radio listeners tune in stations. Having access to 100 channels is not an attraction if I don’t use them.

But choice isn’t just about using more channels or stations, it’s about having more unique ones to choose from, you might argue. True enough. But would it surprise you if you discovered that the most popular Satellite Radio channels are clones of the most popular Radio stations? The hits are the hits.

Granted, if there’s an obscure type of music stream that exists only on Satellite, that’s a perfectly attractive reason to subscribe. But now you’re into the world of niche programming, and there are many more niches than multicasting will allow. And Radio will hardly be unique in servicing those niches. Remember, niches are, by definition, small.

Wired writer Chris Anderson tackled this topic in a seminal piece, The Long Tail. Chris used the example of the music download service Rhapsody: “Not only is every one of Rhapsody's top 100,000 tracks streamed at least once each month, the same is true for its top 200,000, top 300,000, and top 400,000. As fast as Rhapsody adds tracks to its library, those songs find an audience, even if it's just a few people a month, somewhere in the country. This,” Chris wrote, “is the Long Tail.”

Niches can be attractive – but maybe to “just a few people a month, somewhere in the country.” For a broadcast medium built on an advertiser-supported model, sliding down the long tail will drop us deep into shark-infested waters.

b More versions of your core format? This is the same as “more choice.” Besides, dozens of format skews are already available on Satellite Radio or via streaming broadband – soon to your cell phone, the ultimate “portable radio.” And by the time HD Radio is widely available these alternatives to Radio will likely be flourishing.

c “It’s Digital!” i.e., better audio quality? To the industry (and any consumer who does their homework) HD Radio is positioned as “Pure Digital. Clear Radio.” The pitch, in other words, is that this is technologically better radio. Where’s the evidence that audio quality is a meaningful benefit, that “bad audio” is one of Radio’s audience problems? Most people don’t have a problem with the audio quality of their radios. The vast majority of your audience is not comprised of audiophiles. In fact, your listeners are less likely to be discriminating musicologists and more likely to be tone deaf.

As Marketing guru Seth Godin wrote me on this topic: “Yikes, [audio quality as a benefit for HD Radio] is such a hard sell. I just spent thousands of dollars LOWERING the quality of my stereo at home by switching my CD’s to MP3s and buying a Sonos player. The iPod vastly outsells turntables because people don't want quality, they want control.”

And where’s the “control” with HD Radio? In the hands of broadcasters, that’s where, not listeners.

d No commercials? Commercials: Now there’s a listener problem. But HD Radio won’t help us there.

e Data channels for services such as traffic, news, and weather? Those services are already on the market and will be commonplace by the time HD Radio is widely available. Besides, how many traffic, news, and weather channels does one market need?

f But Radio is “Free”! Indeed it is. But time and again consumers prove they’re willing to pay for what they value. After all, water is free yet people buy the expensive bottled stuff every day – more than $8.3 billion in 2003 alone. And that’s in spite of evidence proving that what comes from a bottle is no better than what flows from the tap.

Besides, just try telling folks HD Radio is free in the same breath you tell them a new radio costs $200 dollars.

As Godin says, what’s the right price for an anvil? Well, if you don’t need an anvil then zero is too much.

So again, we may perceive that HD Radio solves our industry’s problem? But what listener problem does it solve?

Problem 3: What’s the Simple, Clear Benefit?

People buy what benefits them – in fact, in a real sense people buy the benefit, not the product. They buy products that satisfy wants better than other products do and they buy stuff which satisfies those wants uniquely. If I as a consumer don’t have a problem with Radio I don’t need HD Radio.

This, in fact, is why there aren’t already millions more subscribers to Sirius or XM: Most people don’t have a radio problem. And no problem requires no solution. And no solution means no HD Radio. As Godin writes in his new book All Marketers are Liars, “If you’re walking around believing you don’t have a radio problem, then the greatest radio solution in the world isn’t going to show up on your radar. It’s invisible.”

So what listener problem does HD Radio solve? And what is the single sentence which sums up the way in which HD Radio solves that problem in simple, clear, compelling terms?

Problem 4: Who is the Target Audience?

Who are the best first customers for HD Radio? They are the tech-heads, the innovators, the gadget freaks, the trendsetters.

They are, in other words, the very same folks who took the dive with Satellite Radio and are now under contract with Sirius or XM. They are the same folks who pay Launch.com or MSN to stream their “radio” online. Either way, they will be disinclined to cancel just so they can buy yet another radio – unless our content is utterly unique.

Problem 5: Fighting Satellite Radio on their terms is a losing proposition

There’s a logic that says because Satellite is nipping at Radio’s heels we must take action to be more like Satellite Radio. This logic ignores the fact that becoming “more like” Satellite means becoming redundant to Satellite Radio. And being redundant to Satellite Radio means being an also-ran with no significant positioning advantage and doing it much, much later than Satellite. Yahoo isn’t good at being eBay, Buy.com isn’t good at being Amazon, and Radio won’t be good at being Satellite.

Problem 6: The Product is Different in Every Market

Satellite Radio is a coherent brand, the same nationwide. HD Radio will be different in every market, depending on the programming decisions made in that market.

That means that Satellite Radio is selling one product but HD Radio is selling as many products as we have markets.

How do you sell a technology that is different everywhere you sell it? Answer: You can’t. You can only sell the content on it. That adds a sizable quantity of confusion to the mix, and the more confusing the product the less consumers will pay attention to it. And the less attention they pay to it, the less apt they are to adopt it.

Problem 7: The Technology “Cart” is before the Content “Horse”

We should know what we’re going to multicast on this technology before we set out to market it. Consumers aren’t buying radios, after all, they’re buying what we put on them. When was the last time you bought a ticket to a show without knowing who was playing?

Why are we as an industry inviting our audience to a “blind date” with our future?

It is the content in the technology – what we put on the radios - not the presumed “gee-whiz” factor, which can make HD Radio a hit. And make no mistake: That content must be special and magnetic and unique. Splintered versions of our existing formats will not be sufficient.

HD Radio will demand star talent and will, I predict, be driven by non-music content – talk and entertainment - if it is to be driven at all.

Problem 8: Radio doesn’t live in a Vacuum

HD Radio is already competitively outfoxed, before it even gets out of the gate

The phenomenon of Podcasting will allow listeners to get both music and non-music content while bypassing Radio of any kind. I know it’s a licensing nightmare right now and the technology required to Podcast is not yet mainstream, but both of these issues will be resolved within a matter of months, well ahead of HD Radio’s rollout.

Meanwhile, my sister doesn’t listen to Radio. Her office, her co-workers, and the hundreds of listening quarter-hours they represent every week belong to streaming audio, which will only grow as high-speed connections become ever more ubiquitous.

And that only scratches the surface. High-speed Internet connections to cell phones are on the horizon – and (unlike radios) cell phones are commonly upgraded every two years.

Within the next twenty-four months WiFi will be widely available and FREE to all in cities like Austin, Portland, Philadelphia, New York City, San Francisco and others. And that’s not all. Reuters reports that “Slightly more than 100 US cities…are setting up wireless networks now…[and] close to 1,000 local governments worldwide have plans in the works.”

Free wireless audio access?

There’s another name for that:

“Radio.”

A Call to Action

If HD Radio fails it will be for one reason: We ignored good marketing sense and allowed it to fail. But if it succeeds we’re still not out of the woods.

Radio’s long term relevance is not linked inextricably to the fate of HD Radio. Our industry must understand that we have a seat at the table of wireless audio – the biggest seat with the broadest distribution. And we can use our influence and muscle and talent and resources to develop and own that big seat until the end of time. But it will take vision and commitment and an awakening to the realities of what business we’re really in and what opportunities and threats are on the horizon.

While reports of Radio’s death have been greatly exaggerated, I’m not interested in an extended bout of the flu, are you?

[For a printable version of this article, click here]

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