SunTimes on HD Radio (SIRIUS and XM are gnats!)

One of our local papers here in Chicago, the SunTimes, has an article about HD Radio where some of the traditional radio broadcasters dismiss XM and SIRIUS as gnats.

Darren Davis, regional vice president in the Chicago market for Clear Channel, the radio giant, said, “Suddenly, there are twice as many radio stations in the market with a wide range of formats. And they’re for free.”

The latter point was a jab at fast-growing subscription XM and Sirius satellite services, which the big boys and girls in traditional radio dismiss as a gnat. A gnat that has attracted about 12 million paying customers since launching in 2001.

HD radio was introduced as a technology in the 1990s. Here in Chicago, in 2006, we have about 15 HD radio stations. I predict that the traditional radio guys are going to have a hard time piecing together the two pieces that they need to create HD as a format: 1. content and 2. an audience.

The cost of creating an HD radio stream is significant, and only a handful of people have the hardware to listen to it (a typical HD radio for your car costs $300), making it difficult for the big radio companies like Clear Channel to justify the expenditure. But until they do justify the expenditure they are not going to have a compelling reason for people to go out and buy new radios so they can listen to HD. A classic chicken-and-egg problem that faces adoption of most new technologies.

SIRIUS and XM also had such a problem, they had to gamble that they could attract an audience after spending billions to launch the satellites. At the rate they are going it looks like they are going to succeed, as they predict they will hit cashflow breakeven within the next 12 months.

It remains to be seen whether the traditional radio companies have the guts to invest significantly in new technology and bet that they can then attract and audience. Even if they do muster the energy to make such a bold move, they are starting late and it is possible that they will never get enough listeners to make it pay off.

Why did SIRIUS Radioand XM have the guts to gamble big while Clear Channel etc. sat by complacently? Because they had nothing to lose. Had Clear Channel pushed HD Radio 10 years ago they just would have stolen their own audience.

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