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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 Source||Forecast Revenue ($million)|
|Sponsored "Now" station||152.02|
|Total HD Radio Revenue||805.19|
|Total Radio Revenue||22,269.22|
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
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