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In-Stat Says Radio’s Conversion To Digital Is Clearly Underway

The conversion of radio from analog to digital is underway. Not only do consumers in the United States presently have the choice of two digital satellite radio providers, but there are also over 10 radio stations broadcasting digitally in three markets in the nation, with more turning on digital broadcasts every week.

Market forces are moving in the right direction for digital radio. In-Stat expects that 12 million digital radios, satellite and HD, will ship in 2008, three times more than 2004. About 150 terrestrial radio stations are on the air today in digital format with over 400 having licensed HD Radio technology from iBiquity.

Moreover, some of the largest radio station group owners have made their plans on digital radio known. Clear Channel plans to install digital broadcasting equipment in 95 percent of its top 100 markets before July 2007. Cox Radio and Entercom Communications plan to upgrade 80 percent of its stations by the end of 2008. Most consumers listen to between two and six radio stations regularly. If several of their regular stations offer digital broadcasting, consumers will be willing to buy new HD Radios.

In addition to more stations broadcasting digitally, 2005 will bring more HD Radios to retailers as more manufacturers begin production.

Boston Acoustics has announced the first tabletop HD Radio. However, HD Radio prices will be higher than the $200 that some consumers are willing to pay. By the end of the year, the first cars offering HD Radio as an option will be on the lots.

HD Radio is a few years behind satellite radio in consumer awareness and shipments. In a Web-based survey In-Stat conducted in August 2004, over 60 percent of respondents had never heard of HD Radio. On the other hand, 54 percent of respondents had not only heard of satellite radio, but also felt they had a good idea what it is.

As more broadcasters begin digital transmissions In-Stat expects promotional activity to raise consumer awareness of HD Radio. Contests offering digital radios as prizes, along with broadcast advertising will further that direction. Retailers will work with their local radio stations to plan activities that will draw consumers.

After consumer awareness of HD Radio increases, prices will be the largest barrier to mass adoption. Consumers are willing to spend an extra $100 when buying a new car, but they are stingy when it comes to upgrading radios in the home. We expect high-end home theater receivers and compact audio systems to be the first to integrate HD Radio reception.

When we asked respondents which features of digital radio appealed to them most, the top selections from over 50 percent of them were on-demand traffic, news and weather information and more programming choices. Viewing song title, artist and album data and better sound quality were important to 38 percent of respondents.

Offering these features is one of the reasons the satellite radio services have been so successful in adding subscribers. Satellite radio has offered more programming choices along with song title, artist, and album information from inception. Information services became available in 2004. The latest generation of satellite radios from Delphi and XM offer a personal stock and sports ticker, as well as the ability to pause and replay the last 30 minutes of the audio broadcast.

“Satellite radio has given the customers the perception of value with no commercials, quality sound, and expanded programming,” said Rick Montpetit, Audiovox’s OEM group VP. Consumers have picked up on satellite radio’s value with 1.3 million satellite radios shipped to retailers in the first nine months of 2004, according to the CEA. That does not include those that are dealer- or factory-installed in new cars. Over 150 2005 car models in the United States offer satellite radio as a factory- or dealer-installed option. At the end of 2004, there were 4 million satellite radio subscribers in the United States.

Satellite radio providers have worked with radio manufacturers to offer products in new radio categories. The Delphi MyFi is the first personal and portable XM satellite radio. The MyFi can also store up to five hours of XM programming. As the number of satellite radio subscribers expands, In-Stat expect satellite radio reception will be built into more radio systems like mini component stereos.