Stations pin their hopes on Hi-Def radio

JERSEY CITY, N.J. (AFX) – From his 16th floor office at WKTU-FM, program director Jeff Zuchowski has a breathtaking view across the Hudson River of Manhattan. Just the setting for programming the only country music station in New York, with favorites such as "Beer for My Horses" and "Life Ain’t Always Beautiful."

And if that seems like an odd combination, just think of what regular listeners might say, considering that KTU is known for playing dance music.

"You don’t see a lot of cowboy boots and country hats walking around Manhattan," allows Zuchowski, who goes by Jeff Z. But he insists that country has a "cult following" in the Big Apple.

Few people may be listening for now, but the "side" channel that makes KTU’s country music broadcast possible is just the kind of new offering that radio broadcasters are hoping will help revive their industry as they adopt next-generation digital broadcasting technology, or HD Radio.

Thanks to the compression of data that’s possible with digital technology, a station that uses HD Radio can send up to four different signals while still using the same frequency it already broadcasts on.

HD Radio also claims to have CD-quality sound on FM and FM-quality sound on AM stations, as well as better reception and the possibility of broadcasting data such as song titles and artists names, like satellite radio does. Think of the better picture quality and extra features you get from a movie on DVD instead of on videotape. Plus, it is possible to offer many other services such as news, sports and weather updates or even buying songs.

However, with only a tiny number of the units sold so far — executives say just tens of thousands are in use today — the listenership is far too tiny to be measured. Zuchowski acknowledges that HD Radio is an "infant stage."

But that hasn’t stopped many stations from starting up HD side channels, which the stations have promised to keep commercial-free for the next year in hopes of luring in listeners. In New York, WCBS-FM 101.1 — which caused an uproar when it switched from oldies to the eclectic "Jack" format — airs oldies on its side channel; WQHT-FM, an urban station, broadcasts classic hip-hop on its side channel.

The changes come as radio is facing brutal competition for listeners’ time from iPods, the Internet and satellite radio. Also, advertising revenues have been sluggish, and were flat in the year to date through June compared with the same period a year ago, according to the Radio Advertising Bureau.

Many see great potential for HD Radio, even if the benefits may be years off.

"At this stage of the game, it’s purely a building process," says Jerry Lee, the owner of WBEB-FM in Philadelphia. Lee, one of the last individual radio station owners in a major market, said HD radio is costing his station now, but he expects it to be profitable in five to seven years.

The upgrade to HD Radio is far cheaper than launching a new radio station, and involves adding equipment that allows digital signals to be piggybacked onto a station’s regular frequency. Lee said he spent about $200,000 to upgrade his station’s systems to broadcast in HD Radio, and added a side channel.

Bob Neil, the CEO of Cox Radio Inc., the fourth-largest radio broadcaster in the country, said he would eventually convert all of the company’s FM stations but would hold off on doing the AM stations since that technology "still has a couple of bugs in it."

Neil said he expected the digital upgrade to occur far faster than the radio industry’s last major technology change — the adoption of FM, which first hit the airwaves in 1953 but didn’t take a majority of radio listenership from AM until 1977. Digital radio has been in the works for several years, but is just starting to gain traction this year.

"Like everything else in the world, things move faster now," Neil said. "I think we’re looking at a five-year horizon before it a gets on the radar for consumers, and 10 years before it becomes any kind of major factor in listening."

Here’s the catch. Just like Harry Potter had to find the secret platform 9 3/4 for the train that took him to Hogwarts, you need a special radio receiver to hear the HD radio signals. And for now, the units are not that cheap.

Bob Struble, the CEO of iBiquity Digital Corp., the company that makes the technology for HD Radio, estimates that tens of thousands of receivers have been sold so far. But with prices falling rapidly and HD broadcasts rolling out in more markets, Struble expects nearly half a million units to be sold by the end of the year.

When they first came out two years ago, HD radio units cost more than $800 — clearly a price for early adopters of new technology. RadioShack Corp. and now sells a Boston Acoustics unit for $299 and is planning to introduce its own model for $199 in the fall.

"We feel we need to have less expensive offerings out there," RadioShack spokesman Charles Hodges says.

Online electronics store Crutchfield sells the Boston Acoustics unit, as well as car and boat HD radios and tuners starting at $199 which can upgrade compatible car stereos to receive HD signals.

Peter Ferrara, CEO of the HD Radio Alliance, an industry group charged with promoting the adoption of HD Radio, says stations in 28 markets began broadcasting HD side channels at the beginning of the year and 22 other markets have either launched since or will do so soon. Most are major media markets.

Ferrara’s group is also in charge of spending a pool of radio advertising time worth $200 million that member stations have chipped in for promoting the new technology, as well as the new receivers.

Now the trick is getting people to tune in. While radio companies remain very profitable, Wall Street is worried about their long-term prospects. Analysts hope the industry will do more than just adopt digital broadcasting as it comes to grips with rapidly evolving consumer listening habits.

"My long term answer is, of course it will become the standard," says David Bank, a financial analyst at RBC Capital Markets. "But will it change the industry in the short term? I don’t think so."

What’s more, radio needs to do more to make its programming more compelling, he said.

"I don’t see the technology itself is a solution. The technology needs to be married to better content," Bank says.

Then, the biggest question of all: Will it make money? Matt Feinberg, the senior vice president for radio at the media-buying agency Zenith Media, sees potential in having many more types of radio stations. That gives advertisers more choices to target exactly the audiences they want to reach, something advertisers like about cable TV.

But first, Feinberg says, let’s make sure people are listening.

"It has to have distribution and assimilation," he says. "At that point we start to look at it."