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HD Radio Can't Solve Broadcaster Problems

Wal-Mart Stores recently announced that it will sell receivers that support HD Radio programming. HD radio is a technology that delivers digital audio quality, advanced data services, and more content choices to terrestrial radio listeners.

The car radio receiver will be JVC-branded and will be priced at $190, according to In-Stat. HD Radio programming is free once the consumer has purchased the receiver, which can be an attractive selling point to the price-sensitive Wal-Mart consumer.

The giant retailer's support of HD Radio is an important step in the radio industry's conversion to digital. More and more consumers are ignoring terrestrial analog radio in favor of digital satellite radio and portable MP3 players. However, the number of HD Radio receivers sold to date has been very low.

Consequently, broadcasters are hoping that HD Radio will revitalize terrestrial radio listenership. Wal-Mart's agreement to free up shelf space for HD Radio receivers will allow HD Radio supporters to expand the technology's reach and to further drive consumer awareness.

Another key driver behind the promotion of HD Radio is the HD Digital Radio Alliance. Major media companies, including Clear Channel and Infinity Broadcasting, formed this alliance in 2006 with the intent to accelerate consumer awareness and HD Radio technology adoption.

The group is allotting $250 million in 2007 in support of HD Radio, a portion of which will fund a series of 15 and 30-second radio spots advertising Wal-Mart's roll-out of HD Radio receivers in 2,000 of its 3,500 stores.

Regardless, I believe that the problems that broadcasters face with terrestrial radio can't be solved with HD Radio technology alone -- because the core challenges are related to poor content programing and excessive commercial advertising. Public radio is the sector's primary bright spot. That said, I question if there are enough public stations in most markets to justify the investment in a HD Radio receiver.

In-Stat's latest primary research on the Digital Radio market suggests that there has been a notable increase in U.S. consumer awareness of HD Radio in the past 12 months. However, actual ownership of receivers that support HD Radio programming amounted to less than 1 percent of respondents in their survey. Meaning, improved awareness has had little impact on consistently low interest.

In contrast, 20 percent of respondents own a receiver that supports satellite radio. So, despite the Alliance's $250 million campaign, and Wal-Mart's announcement to sell HD Radio receivers, In-Stat expects satellite radio receiver shipments to out-pace HD Radio receiver shipments over the next five years.

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