Sample and Hold

May 1, 2006 12:00 PM

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)
Multicasting	610.80
Subscription-based model	0.02
Sponsored "Now" station	152.02
Datacasting	42.35
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.

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Source: Kagan Broadcast Investor: Deals and Finance, January 2006

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