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Ibiquity Gets Specific With Fees

Lays Out New License Fee Schedule; Will Charge for Supplemental Channels

Lays Out New License Fee Schedule; Will Charge for Supplemental Channels

COLUMBIA, Md. If your radio station tells Ibiquity Digital Corp. that you will turn on HD Radio this year – and you say so in writing by the end of June – your station will pay an upfront fee of $5,000.

Wait another three years or so, and you’re looking at $25,000, or 500 percent more.

Ibiquity has laid out its licensing fee schedule for broadcasters and clarified what and how it will charge. Designed to encourage early adoption of the HD Radio system, the schedule includes an increase in the one-time licensing fee over several years.

The pricing model is the same for all stations, whether commercial or non-commercial, said Ibiquity Digital COO Jeff Jury, who said this was consistent with its previous incentive program.

“We think it’s the fairest way to do this,” he said.

Ibiquity now has spelled out – for the first time – exactly what it intends to charge stations for main channel audio, as well as for supplemental channel audio. It also has defined when it will begin charging for software upgrades. These points had not been spelled out in previous agreements.

Broadcasters that already agreed to accelerate their rollout have known about the fees and new terms, the technology developer said.

One broadcast source commented that, putting aside cost, the fee structure and terms seem clearer than they had been.

The technology developer is extending its current discount window on licensing fees for broadcasters until mid-year and intends to raise the price after that. A previous licensing break in 2003 had been extended through 2004, according to Ibiquity.

It has crafted a detailed conversion schedule, showing exactly how many stations it expects a group owner to convert by a specific date, in order for that group to receive a break on its license fees.

A base licensing fee of $5,000 per licensed station will be extended until June 30 for broadcasters that commit to transition their facilities to HD Radio this calendar year. Afterwards, the price increases (see chart).

Jury said the company has been working on the more detailed fee schedule since 2004, trying to figure out the best way to implement it. The new schedule is “based on market reality and clearer for everyone to understand.”

The broadcast groups that agreed in recent months to convert 80 percent of their stations within four years are covered by such agreements, he said.

The groups, which have committed to transitioning 2,500 stations so far, wanted some clarity from Ibiquity on costs and terms, he said. “It helps them decide when to go HD Radio, whether sooner or later.” As the number of stations going IBOC slowly increases, Ibiquity has more of an understanding of how stations are going to use HD Radio.

“This pricing model reflects that,” Jury said.

The license fee is a one-time payment that grants a station the right to use Ibiquity Digital’s HD Radio patents, software and trademarks for its main channel audio. Licenses must be in place before a station receives broadcast equipment that contains Ibiquity Digital’s intellectual property from manufacturers or resellers.

Theoretically, if the 2,500 stations already committed each paid $5,000 to Ibiquity, the company would gross $12.5 million from that group of stations. But some early adopters that transitioned in 2003 had the fees waived, while most others that signed since then went on under the 2004 incentive plan. Ibiquity could not quantify how many stations fell into each category. Commercial stations would have paid $5,000 and non-commercial stations $4,875 under the 2004 incentive.

The 2,500 stations comprise some agreeing to the accelerated deal, those going on under standard terms and those stations that have gone on through 2004, according to Jury.

One-time licensing fee

As of July 1 of this year, the one-time license fee per station goes up to $7,500 for those who commit to convert within 2006.

As of July 1, 2006, the fee rises to $10,000 for those who commit to convert within 2007; after July 1, 2007, the amount rises to $15,000 for those who commit to convert within 2008.

As of July 1, 2008, the company says, incentives disappear and the fee becomes $25,000.

The conversion schedule lays out how many stations a group should have converted by a specific date in order to receive a licensing incentive.

For example, a 12-station group must convert one station by Dec. 31 of this year, five by Dec. 31, 2006 and a total of nine by the end of 2007 to conform to the “Accelerated Commitment.” With this agreement, the licensing fee for main channel audio for each station would be $5,000.

“If all conversion commitments are met, the fees for any other group station that licenses HD Radio in the future will also be limited to $5,000,” according to Ibiquity.

Group owners that don’t meet the accelerated conversion times to which they previously agreed would see their licensing fees revert back to the base price, which goes up at scheduled times, said Jury.

According to the terms of the agreement, licenses must be pre-paid to Ibiquity before each station is converted. Groups must notify Ibiquity specifically which stations they plan to convert. Substitutions may be made, after a group notifies Ibiquity in writing.

Supplemental channel fees

New to the agreements are supplemental channel audio fees, which are to be paid annually. These fees are based on a revenue-sharing model.

Stations pay 3 percent of incremental net revenue derived from any supplemental audio services using HD Radio technology. The minimum fee is $1,000 per supplemental audio channel.

However, those groups that meet their conversion targets under the Accelerated Commitments would pay half this amount – $500 per channel.

Non-commercial stations, which are keenly interested in dividing their 96 kilobit-per-second digital FM channel into several streams, are exempt from this fee if they’re using the SAP for noncommercial audio programming or a service designed to provide information to the hearing or sight impaired, Jury said.

A couple of broadcast sources said privately that broadcasters may not have realized there would be fees for further use of the digital streams.

One source said the fee was not a “significant” amount, considering the operational costs for programming whatever would be on such a channel is likely to be higher. This source likened the amount as “less than paying a streaming fee.”

Exactly how stations will monetize a supplemental channel – whether as a second program stream or as a for-pay service, such as traffic/weather – still needs to be worked out, observers said.

Data fees

While fees from a portion of the revenue that stations derive from the data capabilities of HD Radio have been in the licensing agreements previously, now this portion of the agreement is more specific.

The fees for transmitting auxiliary data, like the supplemental audio channel charges, are also based on a revenue-sharing model. Stations pay 3 percent of incremental net revenue derived from auxiliary data made possible with HD Radio technology. These fees are to be made quarterly beginning in 2006.

Those digital stations that have data services now get a break; HD Radio auxiliary data may be used royalty-free through Dec. 31 of this year.

Non-commercial stations are exempt from the data fee as long as they air non-commercial material such as educational programming or radio reading services, according to Ibiquity as well as NPR Vice President of Engineering and Operations Mike Starling. That programming can include underwriting announcements. Not allowed, according to Starling, would be exclusive, premium pay services, according to the deal between the network and Ibiquity.

When the notion of revenue-based data fees first came to light a couple of years ago, much was made in news accounts of Ibiquity’s right to go into a station and look at the station’s books to determine if it was indeed, not making money on the data services in the event of a disagreement.

Now, that process has been refined with a dispute resolution procedure specified in the agreement.

Software upgrades

For the first time, Ibiquity has said exactly when it will begin charging for software upgrades. It will not charge additional license fees for software revisions, new releases intended to correct errors. Nor will Ibiquity charge for software upgrades, new versions that contain more features, through Dec. 31, 2006.

After this date, stations may license any upgrades that may be released periodically by paying an annual fee or the prevailing rate at the time of release.