By Relmor Demitrius
Sirius XM Radio (NASDAQ:SIRI) has many competitors. Some are valid, some are fiction. In this first installment of this article series discussing all Sirius XM competitors, I’d like to take a moment out of your day to try to find out which one of these HD radio falls into. Even on Sirius XM SEC filings they list HD radio as a competitor. So they are worth a look. HD Radio after all was helpful in getting the merger approved, ironically. Sirius XM simply used their own bullishness on the product against them to show how the struggling duopoly needed to be one company. But is there any fact in the argument? Let’s examine HD Radio closely to determine whether HD radio as a competitor for Sirius XM is a fact or a myth.
Here is what Sirius XM says on their own 10Q filing for Q2.
“our competitive position versus other forms of audio and video entertainment including terrestrial radio, HD radio,..”
HD (Hybrid Digital) Radio was introduced to the market in 2005. The concept is to broadcast a digital signal from terrestrial repeaters imbedded in the existing analog signal. The Radio station simultaneously creates a digital and analog audio broadcast where the digital signal is compressed and sent on to the repeater station. The repeater stations then rebroadcast this signal to your home and cars. The concept was to get a better signal around buildings and structures as well as add a clearer audio signal than normal terrestrial radio stations. You can purchase HD radios over the counter from retail outlets like Amazon.com. There is also some availability in the OEM car option as well, as some radios have HD capability built in. There have been reported problems with this system however.
There are many consumer complaints about the product itself, some that even the company themselves, iBiquity Digital Corporation, has admitted too. The first one is the antennae and reception. They admit that consumers are upset with their antennas, side channels drop out, and adding an external antenna has done little to help. Their solution on this issue was to simply to ask the FCC to allow them to broadcast EVERYTHING at a more powerful frequency. This however does not solve other issues, nor has it been approved that I am aware of. If passed would require huge spending to existing terrestrial radio stations to boost their power signals. But that doesn’t solve the interference issue.
Consumers are also noticing interference when interpreting between the digital and analog signals. Remember, its broadcasted together, in one stream. Makes sense then doesn’t it. Also the range on the HD signal is far weaker than the analog signal, frustrating consumers even more. There is of course a purchase required to hear these stations at all, as no existing standard radio is capable. So there is a cost also associated with the product. Also keep in mind these stations still send commercials. It is not commercial free.
Here is wording directly from WKSU in Ohio on these issues.
Can everyone in WKSU’s listening area hear the three HD.o channels?
“Unfortunately, no. In order to maximize the sound quality for both analog and digital listeners, the HD Radio signals are broadcast at a limited power level. The further away the HD Radio is from one of our towers, the more likely the HD Radio may drop out. Adjusting your antennae to its most-optimal position will also increase your ability to connect with a strong signal. Drop-outs primarily affect people listening to WKSU HD-2, HD-3, and HD-4; WKSU's primary signal will automatically switch to an analog signal in an area where the digital signal is unavailable.”
They themselves are telling you the signal is weak and unreliable. This was from September 2011. One of the issues is a lack of power. The digital signals are limited to just one one-hundredth of the analog power of a radio station. This would mean that in some cases, you need to be within a few miles of the source to pick up HD radio. Not good. For home and personal radio use, using smaller antennas, this problem is magnified.
That’s all fine and good but what about the popularity of the product. Google trends shows that hits from HD Radio topped out when it was introduced in 2005/6 and has been sharply down trending ever since. Today, Ford Sync gets more hits than HD Radio combined.
Google trends are cute and consumers will complain, but what about an icon in the audio entertainment industry. What did Pioneer have to say about HD Radio in 2008? This is in response to a standardized radio, the evolution of terrestrial radio evolving into an HD landscape. Basically if consumers don’t want it, they can be forced to integrate the technology. FCC is a fine partner for the NAB after all right?
“The iBiquity conditions would limit the breadth of radio product offerings to consumers, limit which radio component supplier’s products be designed into radio, have the effect of decreasing AM/FM tuning performance, unnecessarily increase costs to consumers uninterested in HD Radio, and interfere with the useful and healthy free-market mechanisms extant in radio electronics purchases.”
This next quote is from Gorman Media on their website, in regards to HD radio.
“38 percent of analog’s coverage area. If the digital power is increased to 10 percent, however, car radio coverage actually is better than analog, at 117 percent. For home and portable use, it increases to slightly more than 80 percent. However, increasing the power of digital broadcasts would cause substantial interference, decreasing analog coverage areas as much as 50 percent. Stations you once heard may just disappear on your current radio.”
Even pro HD radio comments have no facts to support their claims. They consider it a success but admit
they don’t even know how many use it. Interesting.
Ron Schott, chief engineer for WJBC(AM) in Bloomington, Ill., said the station has received no interference complaints — “to others, or ourselves” — since the station began broadcasting in AM HD in 2007.
“The HD experience for WJBC is hard to classify without a large base of (HD) receivers in the market,” Schott said
I consider (AM HD) a success. I think the improvement in sound quality is incredible,” said Brett Gilbert, director of engineering for the Clear Channel Tulsa cluster, which includes KTBZ(AM-HD) and KAKC(AM-HD).
“Unfortunately, I don’t know how many listeners we have that use HD radios.”
This station s@#$%ped HD radio altogether.
WKAR(AM) in East Lansing, Mich began HD Radio in 2005 but stopped in 2009, according to Harold Beer, chief engineer for WKAR.
“After years of encouraging listeners to get better quality wideband AM radios, we ended up degrading their listening experience with a 5 kHz bandwidth, –35 dB SNR analog signal once we turned on the IBOC digital,” Beer said.
“We also collected a number of negative comments due to the digital carrier, including complaints about the buzz that was always present, especially if a listener had an analog tuned radio that was slightly off-channel.” WKAR is a daytime directional AM operating on 870 kHz with 10 kW.
Sounds like they may have challenges but I keep reading about these deals they are getting with OEM car manufacturers to include their radios standard. That’s fair. Let’s do some digging around and see what’s available. Proof is in the pudding right?
The number 1 car sold in American is the Ford F-150. Next is the Silverado. We know Ford, GM, and Chrysler, as well as Toyota dominate the car market. HD radio claims to have expanded working agreement with these 7 automakers; Ford, Hyundai, BMW, Lincoln, Volvo, Scion, and Kia. So I would assume going to these car websites and calling these dealers would provide me with a wealth of information about the product and easy and quick information about the radios availability. First let’s discuss the F-150 and Ford.
A quick glance notices that it is never a factory installed option. There is a system with a CD player on the FX 2 model called the “plus package” that comes with a Sony Radio system that has HD capabilities included in the AM/FM Sirius package already. It’s one radio system that allows all these functionalities. No separate option to install a straight HD Radio. Most packages and options are not standard equipment on Ford even on the high end. Nowhere on a Ford website can I see HD radio being advertised. Sirius yes. Let’s see what the dealers themselves have to say about HD Radio.
Jeff Vien, sales manager at Sanderson Ford in Arizona was very helpful. He stated there is “no individual option to add an HD Radio to any Ford right now.” No factory installed option on HD Radio as well for Ford. Only way to get HD radio is through the plus packages on the F150, America’s bestselling car. I asked, do people ask for HD radio?
“Not very often”. Doesn’t sound like an “extended partnership” agreement to me. It took this manager many minutes to even know if and where HD radio was available were in Fords. It was not even close to first hand knowledge for this sales manager. But that’s just Ford. Let’s check the number 1 car seller in America, GM.
I called Bob Hug, a GM sales manager and asked him if there were any ways to get HD radio in their cars and trucks. Simple answer here is no. None. I asked him, what would you tell a guy who asked for HD Radio?
Bob: “I don’t know, no one has ever asked”. Too funny. Let’s see what Toyota has to say.
According to Bell Road Toyota in Phoenix, they do not supply any vehicles with HD Radio. It’s not even an option to add. I wonder if this makes Toyota lose customers. So I asked Doreen Fischer, sales manager, does not having HD Radio cost you customers?
Doreen: “I have never lost a customer due to not having an HD Radio”.
Next is Chrysler. Nothing. Same story. In fact, Mary from Chrysler Earnhardt had never even heard of HD Radio before. Interesting. A supposedly hot item that is competition I keep hearing about for satellite radio, and this sales manager of an auto dealer had never even heard of it.
Getting a bit disappointed I was sure to find support for HD radio in a known dealer with HD Radio. After all, HD Radio themselves list Scion as a partner. So I called Bell Scion and talked to a very nice gentleman in parts named Dusty Edmund, who also used to work in sales. No Scion comes standard with HD Radio. But the best part were his comments.
Dusty: “I have never been trained in selling or distributing HD Radio as a product. And I used to sell cars at many dealers, not just Scion or Toyota."
Relmor: Do you think HD Radio is dying?
Dusty: “ I thought it was dead.”
What I found out was that if there is no motivation to make money selling HD Radio, no incentive to the dealer for selling an HD radio, and consumers of automobiles don’t seem to even want it. I found this comment by an analyst regarding this subject to be spot on in what I found.
“HD radio is pretty much going to be nonexistent, because they can’t figure out how to get the auto guys to include that as an option, and the auto guys that do include HD don’t let the consumers know about it, ". Ms. Ryvicker of Wachovia Capital Markets.
I must say I agree with that comment 100%. With revenue sharing programs between Sirius XM and all major automakers, there is incentive other than making a consumer happy. There is money in it for them as well. This is what services like HD Radio and Pandora can never offer an automaker. Sure you can use your hand off voice command to activate your music files and Pandora, but you can do that with your traffic, weather, and Sirius XM radio channels with Ford Synch and Dodges’ Uconnect as well.
Conclusion: HD Radio is a fading product that will soon be nonexistent or so unnoticeable from regular radio that it will have no long term effect on Sirius XM Radio. In 6 years of HD Radio I’d say there has been no significant damage done. Do I have any facts to support this? Yes. Subscriber totals from 2006 compared to subscriber totals from 2011. Since HD Radio was introduced, has there been a linkable decline in subscriber growth? You be the judge. In 2005 Sirius and XM had a combined 9 million subscribers approximately. Today they have over 21 million subscribers. In the company’s first 5 years of operations they reached 9 million subs. In 2011 they had 21 million. So the last 5 years with HD Radio as a service, Sirius XM has seen their subscriber growth increase. No effect. Myth is shattered.
Next up: Sirius XM vs. Internet Radio
Disclosure: Long SIRI
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