Sample and Hold
May 1, 2006 12:00 PM
As the HD Radio roll-out progresses, many broadcasters and consumers question the business model that makes converting to HD Radio a worthwhile investment. The common argument is that just because it's digital doesn't mean that a station will be able to charge more for advertising.
While this basic idea is true, there are other elements to HD Radio that could bring additional revenue to a station. In January, Kagan Research announced its projections for HD Radio station revenue in the year 2008. These figures are based on four additional services that stations could offer.
- Multicasting. The added HD2, HD3 and other program streams can generate revenue in the same way that existing analog streams have through traditional advertising sales.
- Advertising-supported "now" channels. These would also be placed on multicast streams but would use niche and highly formatted local information such as all-the-time weather reports, all sports, all traffic or all local news.
- Datacasting. Revenue is expected to come mostly from leasing the space to a third party.
- Fee-based radio. This follows a model like that for satellite radio and other subscription services.
2008 Revenue SourceForecast Revenue ($million) Multicasting610.80 Subscription-based model0.02 Sponsored "Now" station152.02 Datacasting42.35 Total HD Radio Revenue805.19 Total Radio Revenue22,269.22
One hypothetical model for a station to allocate its 150kb/s spectrum for the multiple services is as follows: 55kb/s for an HD1 channel, 55kb/s for an HD2 channel, 12kb/s for a �now� channel, 8kb/s for datacasting and 2kb/s for a subscription-based local traffic report channel. This allows an additional 18kb/s for another use or to be reallocated into the example list.
By 2008, Kagan Research forecasts that terrestrial radio broadcasters will earn $805.2 million (4 percent) of their total revenue from HD Radio. The table shows the projected revenues from these services.
Source: Kagan Broadcast Investor: Deals and Finance, January 2006