Whether by land or by satellite, digital radio will be a hit, according to projections by analysts and digital radio proponents.
The research shows a high level of consumer interest in satellite digital audio radio service (SDARS) and terrestrial in-band on-channel (IBOC) DARS, they said.
In both technologies, most of the unit volume during the first five years of service will come from the OEM and aftermarket car industries, with home sales running behind -- way behind in the case of satellite digital radio, the research shows. On the satellite side, aftermarket sales will initially outpace OEM sales, and on the terrestrial side, aftermarket sales will either outpace OEM sales or be roughly equivalent, according to various research reports.
Whatever venue accounts for the majority of sales, the research suggests, sales will be strong. CE Unterberg Towbin, for example, forecasts 10 million in-vehicle SDARS subscribers by the end of 2004. Other analysts cite higher potential, with Merrill Lynch forecasting about 12 million in-vehicle subscribers by that time.
By the end of 2008, both companies forecast vehicle subscribers of about 40 million. ING Baring Furman Selz projects about 32 million subscribers by the end of 2008.
These forecasts assume early-2001 availability of receivers. Total subscriptions will be higher because home subscriptions were not included, given the focus on the car market by SDARS providers Sirius Satellite Radio and XM Satellite Radio.
Satellite services, said Yankee Group VP Bruce Leichtman, "have the potential to be the fastest growing consumer electronics product of all time," in part because service will be "ubiquitous from day one," but also because "people get it immediately. They understand what 100 channels of radio means."
Among analysts, Yankee is one of the most optimistic. About 40 percent of polled drivers are very or somewhat interested in satellite service, and the number of these consumers willing to pay $9.95/month "approaches half," Leichtman said.
Based on this interest level, 20 percent of all vehicles could have SDARS radios in the first five years after both satellite providers are operational, he said. That translates into 40 million subscribers during that time, in contrast to other analysts' projections that the subscriber base will hit 40 million two years later in 2008.
For the survey, Yankee polled registered drivers whose cars are equipped with a cassette or CD player or who plan to buy one of those products in the next two years. The polled drivers represent 80 percent of the vehicles on the road, Leichtman said.
A phone survey of more than 6,000 consumers by Cincinnati-based Critical Mass Media concluded that 34 million people would be willing to pay $400 for an SDARS radio, plus a $10 monthly programming fee.
For terrestrial IBOC service, IBOC-technology developer USADR is conservatively forecasting sales of "hundreds of thousands" of receivers in the first year of service, said marketing director David Salemi. But a late-1999 Polk Verity survey of 2,043 randomly selected early adopters uncovered even higher potential. "Our business plan is more conservative for the financial community," he said.
Polk's survey, commissioned by USADR, found that two early adopter segments - audio enthusiasts and digital enthusiasts - would buy 3.3 million receivers during the first year of service if the average receiver were priced at $350. Cumulative sales would rise to 18 million unit sales by the end of the fifth year, assuming a constant average price of $350.
At a constant average $500, receiver sales would start at 2 million in year one and rise to more than a cumulative 16 million by the end of the fifth year. At $750, sales would start at almost 2 million in year one and hit a cumulative 14 million by the end of the fifth. At $1,500, sales would hit 800,000 in the first year and about 13 million in the fifth.
Audio and digital enthusiasts comprise 13 percent of the U.S. population, or about 35.4 million people, Polk Verity said. The research company defined audio enthusiasts as active music listeners motivated by high-quality music reproduction to purchase audio gear. Digital enthusiasts are motivated by technology and tend to buy digital products sooner than other consumer segments, Polk said.
Although Polk didn't survey the general population, it used the average take-up rates of other electronics products to estimate IBOC take-up rates by population segments other than audio and digital enthusiasts. By the end of year five, it projected cumulative sales of about 3 million units to these segments if the receivers were priced at $350, $500 or $750. Sales to these groups fell to less than 1 million during the same period if the receivers were priced at an average $1,500.
Despite its professed conservatism, USADR sees a potential for first-generation IBOC receivers priced as low as $350 for the home or car. USADR's goal is a single-chip solution priced at $50, translating into a retail-price premium of about $150, Salemi said. If the $50 goal for a chip is reached at the outset, he added, "volume will ramp up dramatically, and the retail price premium will drop to 10 percent to 20 percent over analog prices when volumes reach annual sales in the single-digit millions."
Radio stations will eagerly embrace the technology, giving consumers a strong reason to upgrade within the first year, Lucent Digital Radio president Suren Pai claimed. "Most major [radio station] groups in surveys [purchased by Lucent] say they will put up a third of their stations within a year. Of the top 10 groups, most of which focus on the top 25 markets, about 500-1,000 stations would be up in the first year."
Pai is reasonably certain the FCC will establish rules for terrestrial digital broadcasting by the end of 2000 and that it will adopt the IBOC approach for implementing terrestrial digital radio.
USADR said its goal is to have 500 stations operating in 2001 if its IBOC standard is selected.