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Could HD Radio Help Revive Microsoft’s Zune?

Despite the Market Obstacles, Believers Say Zune HD Opens New Category of Radio Listening

REDMOND, Wash. HD Radio will be a feature in the next iteration of Microsoft’s Zune portable digital media player. Will this help the digital radio technology reach more listeners?

IBOC proponents say yes and call HD Radio’s inclusion in Zune HD a milestone. Critics minimize the likely impact.

Wanting to quell rumors and let customers know its Zune HD really is pending, Microsoft Corp. confirmed the new model will be out this fall and said that among its features will be built-in FM HD Radio reception capability. Users will have access to multicast channels as well.

The “HD” in the product name apparently refers to both HD Radio and the unit’s HD video output.

Microsoft research has shown that current Zune owners use the analog radio feature an average of twice a week; the company hopes to capitalize on that by adding support for FM HD Radio.

Sources believe the product will be available in September and bring the Zune brand to “millions” of customers.

Zune HD is the first announced portable product for HD Radio, iBiquity Digital President/CEO Bob Struble confirmed to Radio World. RW has reported on the development of the KRI armband portable HD Radio receiver, which, when officially announced for retail, will be sold under another name.

Struble said getting onto the Zune platform opens a new category of listeners to radio. IBiquity is especially pleased that IBOC will be built into the device because its research shows people buy more devices than they do accessories.

The product includes high-definition video output capabilities, an organic LED touch screen and an Internet browser. Zune HD is Wi-Fi enabled, allowing for streaming to the device from the Zune music store.

The radio portion of the device also features analog FM RDS and digital FM HD Radio song tagging capability. Current Zunes include analog FM radio, unlike many other portable media devices of their class.

‘Multiple portables’ coming

Radio World has reported that the upcoming Zune release is the first of several expected announcements regarding HD Radio portables.

“We’ve consistently said we’ve been working with other companies. You will see multiple portable products” and multiple price points, Struble said. Expect more announcements, hopefully before the upcoming NAB Radio Show in Philadelphia, regarding accessories and radio-only products that are portable, he said.

IBiquity has been working with Microsoft for “at least” a year, coordinating the designing and testing of the new Zune. Though he couldn’t reveal specifics, Struble said this effort was broader than just giving Microsoft an HD Radio chip to work with.

An embedded antenna will help the Zune HD with reception, he said. Microsoft didn’t have a ready answer when Radio World asked whether the unit includes diversity antennas.

A bite of Apple

Microsoft said it’s targeting higher-end Apple iPods with the new device — and therein lies the biggest objection among those who are lukewarm to the HD Radio/Zune news.

Critics call the Zune a flop and say the new model may be Microsoft’s last chance to pump some energy into the Zune brand. Because of low sales, Zune recently landed on a list of the worst tech failures of the last decade by investor blog 24/7 Wall Street. That list received national attention through Time magazine. Some IBOC critics complained online that the combination of HD Radio and Zune thus brings together two market failures.

HD Radio — indeed, radio in general — has yet to make it into the standard feature set of Apple iPods and their sister portable products. Radio was omitted again when Apple recently introduced its iPhone 3G S (see sidebar).

Certainly Microsoft and the HD Digital Radio Alliance will need to promote the release heavily if it hopes to put a dent in Apple’s slice of market pie.

And Beyond Zune? IBiquity and Apple have discussed including HD Radio in iPods; however nothing has been announced on this issue. Meanwhile the radio industry in general has had no more luck with Apple.

Radio is not included in the iPhone 3G S. In May, before the Apple announcement of that new product, Anne Schelle, executive director of the Open Mobile Video Coalition, was asked at a BIA conference whether Apple planned to include FM radio — in any form — in its iPhones.

“They’d be interested, I think, in an accessory you plug in. I don’t they’re necessarily interested in incorporating a chip,” she said, citing battery power issues. She was referring to an FM analog chip.

As for digital: “Over time, we’ll see the FM HD chip — these things will get less expensive over time.”

Schelle was piggy-backing on remarks by Emmis President/CEO Jeff Smulyan at the conference earlier. Smulyan heads a coalition comprising NAB, RAB and several radio broadcast groups leading the effort to convince wireless phone manufacturers to include an FM analog chip in cell phones, and updated attendees on that effort.

Why push for analog FM first? FM analog chips cost about 40 cents while HD Radio chips are about $12 each, according to Smulyan.

“The wireless companies are already fighting the concept and we don’t want them to say it’s too expensive.”

He implied that the group would push for inclusion of HD Radio chips next. “We know HD is coming,” he said.

— Leslie Stimson

The iPod enjoys the biggest share of the portable digital music player market. According to NDP Group’s Retail Tracking Service, for the first nine months of 2008, Apple iPods made up about 71 percent of portable digital music player sales in the United States, while Microsoft had about 3 percent. Microsoft said those are the latest figures available.

The Wall Street Journal reported that the poor economy has affected sales; Zune sales dipped for the Christmas 2008 season vs. a year earlier by some 54 percent, from $185 million to $85 million, attributable in part to lack of upgrades or new models.

Though iPod sales in the fourth quarter were up a bit from a year earlier, Apple saw a 16 percent decline in iPod revenue because consumers now are buying lower-price units.

Consumer electronics and tech industry observers recognize the long haul Microsoft has in front of it.

For example, a CNET blogger opined that “Microsoft’s Zune HD, if as advertised, could supply some real competition for my iPod Touch.”

But he also noted the advantage Apple has in the huge number of applications that are readily available for its devices and the fact that the term iPod itself “has become synonymous with portable music devices.”

Still, he said, “I think that [the Zune HD] has the potential to be the iPod Touch’s most capable competitor.”

…and expect a big push

A Microsoft spokesman told Radio World the company will promote the HD Radio feature as well as the fact that Zune will occupy the first slot within the Xbox video game platform user interface.

The HD Digital Radio Alliance will incorporate the Zune HD into its marketing when the product is ready for retail. Alliance President Diane Warren said the marketing will really be triggered when the product is ready for consumers to purchase online and at big box retailers.

Moving into the portable environment “is a complete game-changer” for HD Radio, she says. The fact that Microsoft made an announcement early is like a salute from them, showing how that company feels about the product, according to Warren. She’d been talking with Microsoft for some two months about promoting the Zune HD before the May 26 announcement.

When asked if Microsoft would contribute funds to promote the product, she said plans were still coming together about what will be said on the radio, online and in stores. However, Microsoft is “very serious” about marketing the player so consumers will know what to expect, she said. “They do things in a big way.”

Microsoft had not announced price and storage capacity for the device by mid-June, though Zune Internet blogs speculated that 16 GB and 32 GB storage capacities would prevail.