As radio groups plan their capital expenditures for the next year, those planning to invest more heavily in HD Radio are mapping out expense strategies – for 2005 and beyond.
Industry observers believe early-adopter commercial group owners will spend approximately $115 million total over the next few years on IBOC gear.
Although engineering executives of major groups contacted for this story declined to share exact budget information, they were willing to discuss the thought processes guiding financial planning for their digital conversions: how they are choosing markets to be transitioned first, and their equipment needs.
A number of broadcasters have already invested in IBOC. Greater Media was the first group to announce it intended to convert all 19 of its stations and the conversion was funded in 2003. Ten are on-air with three more yet to go this year and the rest in early 2005, according to Milford Smith, vice president of engineering. But of three major companies that recently announced they will transition the majority of their stations to HD Radio – Clear Channel, Entercom and Cox – common themes emerged.
Groups plan to focus on the top markets, convert more FMs than AMs at the start, and spend the majority of their conversions funds on the RF side: new transmitters, exciters and STLs.
Studio upgrades to digital equipment, in many cases, have already been performer in preparation for final IBOC conversion, executives for the companies said.
Ibiquity Chief Operating Officer Jeff Jury also hears these themes from the groups and others that plan to convert but have not made their plans public. He said the average conversion cost for an FM station is around $100,000.
It’s a strategy
“Each of these companies have ‘cap ex’ strategies,” he said. “I think they’re making a strategic decision that now is the time to take advantage of HD Radio and also now is the time to take advantage of the transition to start thinking of it going forward.”
Clear Channel, for example, is trying to transition facilities quickly.
In order to accomplish this, Jeff Littlejohn, vice president of engineering for Clear Channel Radio, said the company is beginning with the easy stations, “but we are also starting to work now on the stations that will be more difficult so that their conversion is not delayed more than necessary.”
Through its many acquisitions after passage of the Telecom Act, the company inherited plants with various brands and models of equipment, depending on the preferences of the previous owner. Over the past three to four years, as the company has bought both transmitters and related systems, it has done so with the idea that the stations would eventually convert to digital, Littlejohn said.
“That fact is making some of our conversions easier to implement,” he said.
The company is finding it needs to replace 40 to 50 percent of its STLs to be able to “get full advantage of HD Radio.”
He declined to provide detail about the company’s data plans; he said Clear Channel is investigating the use of surround sound with HD Radio but has made no decisions.
Clear Channel is estimating conversion costs at $50,000 to $110,000 per station. The average cost has been around $100,000. Using this figure, the company would spend more than approximately $100 million.
The company announced earlier it would convert 1,000 of its 1,200 stations to HD Radio. It hopes to convert at a pace of 100 stations per year initially, then at a faster pace as it gains experience; and has also said it hopes to convert a majority of the 1,000 stations in three years.
Entercom Communications also is trying convert stations before making decisions about IBOC’s data capabilities; it plans to transition 80 percent of its 104 stations over the next four years.
“We’re thinking of data applications down the road,” said Jack Donlevie, executive vice president and general counsel. “Now, we’re strictly repeating our over the air signal. Almost all of the money is going to the transmission chain,” he said.
In time, he said, the company may find it needs to replace STLs for IBOC because many of Entercom’s STLs carry feeds for multiple stations.
Entercom is estimating conversion costs at $100,000 to $150,000 per station and plans to upgrade FMs first. The costs can vary quite a bit depending on transmitter or antenna needs.
Donlevie also said studio projects the company might undertake in the next year are not related to HD Radio.
The expenditure of about $10 million is spread out over four years.
Asked whether the expense would prevent the company from doing something else with its money, he said no. “It’s not significant. It’s not chump change, but it’s not going to cause us not to do other things,” Donlevie said.
Spread out the costs
Cox plans to convert 80 percent of its 78 stations within four years. Using Ibiquity’s per-station average of $100,000, that works out to roughly $6.2 million.
Cox plans to convert 100 percent of its stations eventually, he said.
But Sterling Davis, Cox Broadcasting’s vice president of engineering, who oversees conversion spending for TV and radio, said there really is no round conversion figure for FM stations because numerous variables affect the cost, such as the location of the tower and transmitter and the amount of power needed. Stations for which the company has purchased a transmitter in the past three years, he said, have built-in IBOC capability; and antenna costs vary considerably.
“We’re partners on antennas in several markets, so we need to do it with other tenants on the combiner system.”
In general, “We’re focusing on stations that make the most money to convert first in the pecking order.” As an example, he said, in the case of a station that generates $100,000 a year, it doesn’t make sense to spend half a million dollars on an IBOC upgrade right away.
Cox has mapped out its conversions through 2007. It has completed stations in Atlanta and Miami. It was finishing up in Houston, Birmingham, Ala., and Orlando, Fla. in September.
He also said the company was not sacrificing other projects in order to convert its radio stations to digital.
“The answer, generally, is no. We’re not not doing something because of conversions. We may not build a new building (somewhere) … but I don’t want to send the message to the community that we’re upgrading regardless of cost.”
The company will replace some STLs. Some stations are running their studio-to-transmitter signals on T1s instead. It has replaced some STLs with an eye towards future IBOC conversions.
That goes for transmitters too, he said. Cox has taken into account future digital conversions when it made transmitter purchases for the past three years.