NEW YORK (Billboard) - Digital high-definition radio is hitting some key milestones in terms of pricing and features, but building enough momentum to spur broad consumer adoption remains a tall order.

Prices on some radio models have tumbled below $100. More automakers are offering HD radio as a factory or dealer-installed option. And the rollout of a feature enabling consumers to "tag" a song they like for purchase at Apple's iTunes store provides a level of interactivity that traditional analog radio can't match.

But four years after the first HD radio receivers hit the U.S. market and two years after RadioShack became the first retailer to start rolling them out nationwide, sales are still miniscule compared with the broader terrestrial radio market. In addition, consumer awareness continues to lag and such competitive options as satellite and Internet radio are complicating efforts to make the digital radio standard a mass-market phenomenon.

To date, nearly 1,750 AM/FM stations (out of a total of about 13,000 stations) covering 83% of the United States are broadcasting digitally, while about 800 offer original formats and content on HD side channels, according to iBiquity Digital, the developer and licensor of HD radio technology. U.S. HD radio sales totaled about 300,000 units in 2007, with about 1 million units expected to be sold this year, iBiquity says.

But that's still only a tiny fraction of estimated annual radio sales of about 70 million. And according to a consumer survey conducted in January by Arbitron and Edison Media Research, only 24% of respondents said they had "heard/read anything recently about HD radio," down slightly from 26% a year earlier.

About 60 HD receivers are now available in the States, including table-top units and car radios from such leading consumer and audiophile brands as Panasonic, Yamaha, Denon, Polk and Harman Kardon. Among the manufacturers breaking through the $100 price point is North Sioux City, S.D.-based Radiosophy, which specializes in HD radio receivers. The company's portable HD100 radio, which includes a clock radio and an input jack for an MP3 player, costs $49.95 after a $50 rebate.

iBiquity president/CEO Bob Struble remains optimistic that falling prices will finally jump-start the HD market.

"It's not a great mystery that a higher volume of radios will sell at a lower price," Struble says. "We've seen this movie before with consumer electronics. Think of the first DVD players for $2,000. We are following a similar path to make it happen as quickly as we can. The price point is fundamentally important."

But Edison VP Tom Webster counters that new technologies and lower prices won't be enough to drive mass consumer adoption of HD radio. Instead, he argues, the industry needs to invest more in quality content.

"Programming is a regional crapshoot of varying quality," Webster says. "The industry has to create value through the creation of strong, passionate brands that may be augmented by music, but stand for more than 'one great song after another' ... Building brands takes the time, resources and energy of radio's talented programmers and creative staff -- but many are already programming three to five broadcast stations, so often the HD2 channel gets relegated to the back burner."

Robert Unmacht, a media consultant and radio expert with iN3 Partners in Nashville, believes that broadcasters haven't been aggressive enough in their launch of HD radio. "The problem is that it is being rolled out as if it's a new radio invention, like FM," he says. "If there were no competition from new media, it would be fine for this to gradually phase in and replace analog radio. But with so much competition, we don't have that time to wait."

The auto market has the potential to be a key sales channel for HD radio, as it has been for satellite radio. Automakers ranging from Ford and Volvo to BMW and Mercedes-Benz offer or plan to offer HD radio receivers in their vehicles. But HD radio is facing constraints in making further inroads.

As satellite broadcasters XM and Sirius await FCC approval of their proposed merger, some members of Congress have voiced support for iBiquity's request that the FCC require all new satellite receivers to include HD radio capability. But General Motors and Toyota, the world's two largest automakers, have come out against the proposal, arguing in a joint filing to the FCC that "any mandate will inherently distort the normal incentives to (reduce costs) and further improve the HD product offering."

Of greater long-term concern is competition from Internet radio. Unmacht believes that automakers' interest in HD radio will fade in favor of the promise of wireless connectivity. He foresees a day when vehicles offer a roster of interactive services, including a global positioning system, car monitoring (a la LoJack), baby monitoring and thousands of channels of audio online, all for one price.

"There will come a time where broadband will be like electricity, where you don't even think of it as Internet," he says. "It will be used for any number of devices in houses and cars."

iBiquity's Struble downplays the competitive threat from Web radio. "If you take the 3 (million)-4 million listeners of radio drive time, that would shut down a broadband network," he says. "It simply doesn't have the capacity. And if at some point the consumer is charged for the access, that spectrum is no longer free. Radio has an economically efficient pipe to distribute to a broad audience" -- the airwaves.

In the near term, car-based Internet access is likely to remain available only at a premium, which will limit online radio's reach, according to Edison's Webster. And that, he says, offers a window of opportunity.

"If HD is free and just comes with my car, then its potential exceeds the near- and mid-term potential for online radio in vehicles," Webster says. "It's easy to fall into the trap of the 'futurist' and assume free, ubiquitous Internet access will be available to all. Someday maybe, but in the intervening years, radio does have a gap -- through an ever-closing window -- to establish new, great digital brands that consumers will be loyal to wherever they are and whatever they are doing."

Reuters/Billboard

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